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    After the 2019 Two Sessions, the government work report has set the tone for deepening reforms across all industries 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 for 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 pivot 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postpone construction of over 50 million kilowatts of coal power in 2017, including eliminating 5 million kilowatts of outdated units, halting construction of 38 million kilowatts of non-compliant projects, and postponing construction of over 7 million kilowatts.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' electric power and new energy team, expects 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 of cost reduction is to lower corporate energy costs, including electricity fees. The National Development and Reform Commission revealed that last year, through mechanisms such as the coal-power price linkage, 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 one trillion yuan in tax and fee reductions, "lowering electricity fees" remains a major demand for governments at all levels.

    Some experts have pointed out that if the construction of the electricity market is not improved promptly, the power reform is highly likely to deviate into a reform aimed solely at price reduction.

    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 major 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 National People's Congress (NPC) deputy and head of the National Energy Administration, stated that wind and solar power previously developed in a base-oriented manner, but in the future, more will be distributed in the central and eastern load centers, accelerating development through distributed methods so that completed wind and solar projects do not become "sunbathing" projects on the day they are built. For large renewable energy bases already built or under construction in the "Three North" regions (northeast, north, and northwest China), the construction of transmission channels still needs to be strengthened.

    Regarding nuclear power development, Sun Qin, an NPC deputy and member of the NPC Environmental and Resources Protection Committee, suggested that the construction of new projects should be continuously promoted to avoid drastic fluctuations in nuclear power development. To fulfill the commitment to haze 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 demands of local energy transformation bring a rare window of opportunity for innovative and leveraged development of 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" to accelerate 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 delivery scale 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, an NPC deputy and mayor of Suzhou, said that Suzhou hopes to drive comprehensive urban development through a series of changes in the energy sector, setting an example for the province and the whole country...

    The high importance attached by local governments 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 its endogenous driving force.

    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 issue the central government is most concerned about in promoting supply-side structural reform and resolving and eliminating overcapacity. This year, capacity reduction has expanded to the coal power sector. Combined with employees not yet resettled from last year, nearly one million people may need to be resettled in total.

    Xiao Yaqing, director of the State-owned Assets Supervision and Administration Commission (SASAC), introduced that central enterprises should give priority to employee resettlement when dealing with "zombie enterprises," managing difficult enterprises, and streamlining corporate structures by reducing legal entities 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 growth drivers. 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 also need to fulfill their social responsibilities.

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

    Ning Jizhe, deputy director of the National Development and Reform Commission, pointed out that this year, the coal power sector should adopt various methods such as elimination, restructuring, and transformation to reduce overcapacity. Zhang Xiwu, deputy director of SASAC, also stated that restructuring and integration in the coal power industry, heavy equipment manufacturing, and steel industries 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 significant changes. Shenwan Hongyuan Securities analysis suggests that the electric power industry has the largest number of central state-owned enterprises, with significant room for improving industry concentration. It predicts three possible forms of coal power restructuring: "mergers and reorganizations among central enterprises," "marriages between coal and power enterprises," and "central enterprises merging local state-owned enterprises."

    3. More social capital will flow into the electric power industry to share the reform dividends.

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

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

    Currently, the State Grid Corporation is using pumped-storage power stations, distributed generation, electric vehicle charging and swapping facilities, and incremental power distribution investment pilot projects 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 bring in strategic investors.

    Xiao Yaqing, director of SASAC, stated that the breakthroughs for mixed-ownership reform in 2017 should be further expanded.