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    After the 2019 Two Sessions, the government work report has set the tone for deepening reforms across all sectors this year. The Premier said, "No matter what obstacles we encounter, we have sufficient resilience to push forward reforms."

    Against the backdrop of supply-side structural reform, what expectations are placed on the transformation and upgrading of the electric power industry? What deep adjustments will it face this year?

    Multiple demands overlap, bringing both opportunities and challenges to the transformation and upgrading of the electric power industry

    1. The task of "cutting overcapacity, reducing inventory, deleveraging, lowering costs, and strengthening weak links" is arduous. The electric power industry is both an object of capacity reduction and an important fulcrum for reducing corporate costs and supporting reforms.

    This year, the scope of capacity reduction has expanded from the steel and coal sectors to the coal power sector.

    The National Energy Administration plans to eliminate, halt construction, or postpone construction of over 50 million kilowatts of coal power in 2017, including eliminating 5 million kilowatts of outdated units, halting construction of 38 million kilowatts of non-compliant projects, and postponing construction of over 7 million kilowatts.

    Wang Xiuqiang, a researcher at Huachuang Securities, predicts that with strong administrative intervention, the rapid expansion of coal power will be alleviated, and operating hours will shift to large-capacity, high-efficiency units.

    A key task in reducing costs is to lower corporate energy costs, including electricity fees. The National Development and Reform Commission revealed that last year, through implementing the coal-power price linkage mechanism, transmission and distribution price reform, encouraging market-based electricity trading, and improving the implementation of basic electricity price, the cumulative reduction in corporate electricity expenses exceeded 100 billion yuan. With this year's target of reducing taxes and fees by one trillion yuan, "lowering electricity fees" remains a major demand for governments at all levels.

    Some experts have stated that if the construction of the electricity market is not improved promptly, the electricity reform is highly likely to deviate into a reform with price reduction as its sole purpose.

    2. With rising calls for improving the ecological environment, the electric power industry has become an important lever for strengthening comprehensive environmental governance, and the development of renewable energy will usher in significant policy benefits.

    The government work report for the first time proposed "winning the battle for blue skies," with the primary target being the electric power industry. Specific measures include comprehensively implementing comprehensive treatment of scattered coal, strengthening ultra-low emissions and energy-saving retrofits in coal-fired power plants, effectively alleviating the "three curtailments" (wind, solar, and hydro), and developing nuclear power safely and efficiently.

    Regarding the consumption of clean energy, Nur Bekri, a deputy to the National People's Congress and head of the National Energy Administration, stated that wind and solar power previously developed on a large-scale basis, but in the future, more will be distributed in the central and eastern load centers, accelerating development through distributed methods to ensure that completed wind and solar projects do not become "sunbathing" projects on the day they are built. For large-scale renewable energy bases already built or under construction in the "Three North" regions, efforts to build transmission channels still need to be intensified.

    Regarding nuclear power development, Sun Qin, a deputy to the National People's Congress and a member of the Environmental and Resources Committee, suggested that the construction of new projects should be continuously promoted to avoid drastic fluctuations in nuclear power development; to fulfill the promise of smog control and achieve the target for non-fossil energy share, nuclear power is not an option but an inevitable requirement for China's energy development...

    From the clean production of energy to the green and low-carbon consumption of energy, there is no doubt that the optimization and adjustment of the energy structure will be accelerated by the improvement of air quality.

    3. The urgent demand for local energy transformation brings a rare window of opportunity for innovative and leveraged development in the electric power industry.

    Hebei is striving to build a demonstration province for energy transformation. During the Two Sessions, Hebei Province and the State Grid Corporation signed the "13th Five-Year Plan Grid Development Cooperation Framework Agreement" on accelerating the transformation and upgrading of Hebei's energy structure.

    Qinghai has initiated the construction of a national green energy demonstration province. On March 13, senior officials from the governments of Qinghai and Hubei signed the "Energy Strategic Cooperation Agreement." During the "13th Five-Year Plan" period, Qinghai will deliver clean energy electricity to Hubei annually, with the annual scale of power delivery increasing year by year.

    Suzhou in Jiangsu is joining hands with the State Grid Corporation to build a model city for international energy transformation. Qu Futian, a deputy to the National People's Congress and mayor of Suzhou, said that Suzhou hopes to drive the city's comprehensive development through a series of changes in the energy sector, setting an example for the province and the whole country...

    The high importance local governments attach to supply-side structural reform in the energy sector is bound to create a favorable external environment for the transformation and upgrading of the electric power industry.

    Multiple reforms intertwine, and the deep adjustment of the electric power industry enhances internal driving forces.

    1. The issue of employee resettlement after capacity reduction has become a focus of attention for all parties.

    Premier Li Keqiang stated that properly resettling employees is the most concerned issue for the central government in promoting supply-side structural reform and resolving and eliminating excess capacity. This year, capacity reduction has expanded to the coal power sector, and together with some employees not yet resettled last year, nearly one million people may need to be resettled.

    Xiao Yaqing, director of the State-owned Assets Supervision and Administration Commission, introduced that central enterprises should prioritize employee resettlement when dealing with "zombie enterprises," managing difficult enterprises, and streamlining to reduce legal and management levels.

    The Premier said that the central government's approach is to create new jobs because we are promoting the development of new drivers of growth. At the same time, the central government will continue to utilize the 100 billion yuan special fund and require local governments to provide supporting measures. Of course, enterprises should also fulfill their social responsibilities.

    2. Central state-owned enterprises in the coal power industry will see restructuring as a way to reduce capacity.

    Ning Jizhe, deputy director of the National Development and Reform Commission, pointed out that the coal power industry should reduce capacity this year through various methods such as elimination, restructuring, and transformation. Zhang Xiwu, deputy director of the State-owned Assets Supervision and Administration Commission, also stated that restructuring and integration in the coal power industry, heavy manufacturing equipment industry, and steel industry should be accelerated to solve the problem of overcapacity.

    These statements imply that mergers and reorganizations will become an important means of supply-side reform in the coal power sector, and the industry is expected to undergo major changes. Shenwan Hongyuan Securities analysis suggests that the electric power industry has the largest number of central state-owned enterprises, with significant room for industry concentration improvement. It predicts three possible modes for coal power restructuring: "mergers and reorganizations among central enterprises," "marriages between coal and power enterprises," and "central enterprises merging local state-owned enterprises."

    3. Social capital will flow more into the electric power industry to share the dividends of reform.

    The mixed-ownership reform of the electric power industry is intertwined with the electricity system reform, and the policy of "opening up competitive businesses" has attracted high attention from private enterprises.

    Sun Ming, a deputy to the National People's Congress and chairman of the Chengdu Federation of Industry and Commerce, suggested that relevant government departments should guide private enterprises to seize the opportunities brought by mixed-ownership reform and market clearing, and actively participate in pilot mixed-ownership reforms in areas such as new distribution networks, in line with the national and provincial tasks of cutting overcapacity, reducing inventory, and strengthening weak links.

    Currently, the State Grid Corporation is using pumped-storage power stations, distributed power sources, electric vehicle charging and swapping facilities, and pilot projects for incremental distribution investment as breakthroughs for mixed-ownership reform, actively supporting the introduction of social capital for investment and construction. In addition, it is leveraging the capital operations and equity investments of its listed subsidiaries to introduce social capital and promote financial units to introduce strategic investors.

    Xiao Yaqing, director of the State-owned Assets Supervision and Administration Commission, stated that the breakthrough in mixed-ownership reform should be further expanded in 2017.