By Guo Jiaofeng, Gao Shiji, Hong Tao, Wu Xu & Cai Shenghua

Research Report Vol.18 No.1, 2016

Energy system revolution is an important part of energy production and consumption revolution. It is the guarantee for the revolution in energy consumption, energy supply, energy technology and all-round international cooperation. It also boosts and accelerates the revolution in energy production and consumption. At the sixth conference of the Leading Group on Financial and Economic Affairs on June 13, 2014, General Secretary Xi Jinping proposed five requirements on promoting the revolution in energy production and consumption, one of which was to advance energy system revolution for faster energy development, stressing the importance of unswervingly promoting the reform, emphasizing the commodity nature of energy, building a market with effective competition and a mechanism where energy price is determined by the market, transforming government regulation on energy, and improving energy laws and regulations. All these ideas have highlighted the goals and basic principles of energy system revolution. Therefore, based on the strategic plans proposed by the Central Committee of the Communist Party of China and General Secretary Xi Jinping, it is vital to further understand the details, guidelines, basic principles, strategic goals, and major tasks of energy system revolution by 2030 in China, and accelerate the revolution in energy system.

I. Connotations of Energy System Revolution

In light of current development trend of the energy industry and the requirement of comprehensively deepening reform in China, there is a need to further reform the energy system to meet the demand of revolution in energy production and consumption, and the demand of developing socialist market economy. Based on the competition landscape, operating mechanism, management and regulation system, and basic systems of the energy market, China should take multiple measures to initiate energy system revolution and create a modern market system. Such reform, allowing the market to play a decisive role in resource allocation and the government to play a better role, will create a brand-new system coping with global competition and adapting to the new technology revolution, though in a progressive and continuous manner. Thus it is proper to call it energy system revolution.

Energy system revolution is logically related to the revolution in energy consumption, energy supply and international cooperation. As the in-depth driving force for energy revolution, energy consumption revolution, aiming at curbing unreasonable consumer demand, concentrates on energy conservation, higher efficiency of energy development and utilization, strict control of excessively growing energy consumption, and adjustment of energy consumption structure. As the effective ways of realizing energy revolution, energy supply revolution and international cooperation, with the goal of building a multi-supply system, focus on controlling the initiative of energy security, ensuring domestic supply as the main channel, accelerating the development of clean and low-carbon energy, and promoting green energy development. Moreover, as the backbone of energy revolution, energy technology revolution, with the goal of upgrading industry, lays stress on technology innovation, industrial innovation and business model innovation, comprehensively advancing energy technology innovation, and promoting the upgrading and competitiveness of energy industry. Furthermore, as the system basis of energy revolution, energy system revolution, aiming at fast growth of the energy industry, pays attention to clarifying respective roles of the government and of the market, and the mechanism of market operation and management, in order to upgrade China’s energy system.

The key to energy system revolution lies in creating an appropriate relationship between government and market, clarifying respective roles of the government and of the market in the energy sector, minimizing arbitrary government intervention in the market, and strengthening government regulation in accordance with law. As the market plays a decisive role in resource allocation, the government should play a better role, providing strong institutional guarantee for transforming energy structure and building a modern energy system which is clean, low-carbon, safe and efficient.

Energy system revolution should base on promoting enterprise independent operation, fair competition, free choices by consumers, independent consumption, free flow and equal exchange of goods and production factors, in order to create an energy market with efficient competition, and a modern energy market system through revolutionary innovation. First, consumers should select energy products by themselves as opposed to choosing in a passive way. It is important to increase options for consumers, so they can freely choose efficient, clean and low-cost energy products, in order to create a good production and living environment. Second, the energy sector should be restructured, from “dot reform” to “chain reform”. The reform should be carried out in all areas along the entire industry chain, from oil and gas industry chain, power industry chain, primary energy to processing and to final consumption. Besides, efforts should be made to effectively separate dispatching center, trading center, transport and distribution, i.e. production, transmission, distribution and sales, and rebuild a market with various players competing with each other. Third, it is vital to change from controlling resources by one party to sharing resources among all players. Resource allocation is determined no longer by administrative means, but economic ones like bidding, auction, competitive negotiation, so that resources are obtained through market competition and we can establish a market trading system with diverse players, fair access and effective competition. Fourth, it is important to have energy price set by market rather than by government, and rebuild an energy price formation mechanism covering all costs, including external costs, and reflecting market supply and demand. Fifth, it is crucial to separate administration from regulation, rebuild an energy management system, create an energy management and regulation system which is highly efficient, transparent, fair, just, and strong, with clear roles and responsibilities for both market and government, so as to improve modern governance of the energy sector. Sixth, importance should be attached to formulating and improving basic laws, separate laws and supporting rules, establishing a scientific and effective law system including legislation, judicial procedures, law enforcement and law-based administration, and ensuring a major role of the legal system in managing the energy sector.

II. Necessity and Urgency of Pushing Forward Energy System Revolution

Since the reform and opening-up, China has implemented a range of reforms in the major participants of energy development and utilization, market access, price, investment and financing, foreign trade, and management system. In terms of the coal industry, such moves as allowing the market to set the coal price, separating roles of the government and of enterprises, establishing the status of enterprises as the major players in the market, have greatly increased market vitality and brought about the golden decade (2002-2012) for the coal industry. As for the oil and gas industry, reforms like, reorganizing China’s three major oil and gas companies in 1998, gradually opening market access and price reform, have improved the system of the industry, ensuring China among the world’s top ten oil producers for many years. For the power industry, reforms, such as the establishment of two grid companies, five power generation group corporations and State Electricity Regulatory Commission in 2002, have eliminated system barriers of exclusive control of power, preliminarily improved the system of mandatory plans, separated the roles of the government and of enterprises as well as roles of power generation plants and of grids, creating a power market with multiple competing players. All these reforms have effectively strengthened productivity and promoted the growth of the energy industry. ...

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