The year 2020 marked the concluding year for securing a moderate prosperity in all respects and for achieving a decisive victory in the battle against poverty. It was also a pivotal year in which Premier Li Keqiang, presiding over Executive Meetings of the State Council, emphasized the need to make “six guarantees” and “six stabilities” the focal points of work, thereby stabilizing the economic foundation. At the same time, it ushered in the start of the 14th Five-Year Plan period. The 14th Five-Year Plan period represents the first five-year plan phase in China’s new journey toward building a modern socialist country in all respects—a “two fifteen-year” endeavor—and is a critical period for advancing the development of the power sector. As a vital pillar supporting economic development, electricity plays an important role in ensuring energy security, reducing energy costs, and maintaining employment stability. Therefore, the scientific formulation of the 14th Five-Year Plan for the power sector is of great significance for promoting the transformation and upgrading of the energy sector, achieving high-quality development of the power industry, and ensuring the sustained and healthy development of the economy and society. Drawing on an analysis of the overall situation of power-sector development, multi-dimensional approaches to power-sector development, and key areas for modernizing energy governance, this paper examines the priority directions and corresponding measures for the 14th Five-Year Plan for the power sector, with the aim of providing valuable reference for research on the 14th Five-Year Plan.
(Source: WeChat official account “China Electric Power Enterprise Management,” ID: zgdlqygl; Authors: Wang Cheng, Yang Biao, and Wang Xiaochen)
Overall Situation Analysis
Against the backdrop of prolonged trade tensions and heightened policy uncertainty, the global growth outlook has weakened markedly. Over the past year, not only has global economic growth broadly decelerated, but international trade flows and global manufacturing activity have also been mired in similar challenges. In 2020, China’s economy was hit by the COVID-19 pandemic, leading to a slowdown in growth; however, the introduction of large-scale tax and fee reductions and measures to optimize the business environment has provided a strong boost to the post-pandemic economic recovery.
Building on the “12th Five-Year Plan’s” call to “accelerate the transformation of energy production and utilization patterns, strengthen the energy-conservation-first strategy, and comprehensively enhance the efficiency of energy development, conversion, and utilization,” and further incorporating the Party’s series of theoretical achievements since the 18th National Congress of the Communist Party of China as well as General Secretary Xi Jinping’s strategic vision of “four revolutions and one cooperation” on energy development articulated during the 13th Five-Year Plan period—while setting even higher standards for green energy development—the “14th Five-Year Plan” for the power sector takes a holistic approach that balances energy and power growth with economic growth, accounts for the impact of Sino-U.S. trade tensions on China’s electricity demand, considers international energy security, and factors in the effects of the COVID-19 pandemic on electricity consumption. Guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the plan further enriches and refines the connotations of safe development, coordinated development, and green development; advances capacity reduction in a scientific and prudent manner; places greater emphasis on the holistic development of the energy system; underscores the need to allow the market to play a decisive role in resource allocation while enhancing the government’s role; prioritizes the digital and intelligent transformation of the energy and power sectors; and stresses the importance of ensuring the scientific basis of major policy formulation.
Multidimensional Development of Electricity
Electricity Supply and Demand Analysis
The cascading effects of external factors—such as Sino-U.S. trade tensions, the COVID-19 pandemic, and sluggish global economic growth—have led to a short-term decline in domestic electricity supply and demand, while the long-term trend is expected to be one of gradual upward spiraling.
Impacts related to China–U.S. trade tensions. Given the protracted nature of these economic and trade frictions, negotiations between the two sides will likely continue indefinitely, leaving significant uncertainty as to when and within what scope tariffs will be adjusted in the future. This poses substantial challenges for quantifying the impact of the China–U.S. trade tensions and for accurately forecasting trends in electricity demand.
The impact of the global economy on electricity supply and demand. Historical experience shows that fluctuations in the growth rate of electricity consumption tend to be more pronounced than those in economic growth; therefore, it can be inferred that, over the next few years, Sino-U.S. trade tensions will exert a greater influence on the growth of electricity consumption than on overall economic growth.
The Impact of the COVID-19 Pandemic on Electricity Consumption by Industrial Enterprises. The COVID-19 pandemic has exerted a certain degree of pressure on China’s energy sector; however, overall, the energy industry has demonstrated strong momentum in resuming and expanding production. To date, the domestic epidemic has been brought under basic control, and all aspects of economic and social development have resumed in an orderly manner. The energy and power sectors are also performing well: since late March, both national daily power generation and grid dispatch–controlled power intake and delivery have surpassed year-on-year levels, and in April national power generation turned positive, with electricity demand gradually recovering. It is expected that the pandemic’s impact on China’s power production, supply, and sales system will gradually diminish going forward. At the same time, as the “Two New, One Major” initiative gains traction, the structure of the power industry will be further optimized, and new models and business forms will progressively assume a leading role.
Key considerations: Based on trends in total electricity consumption, the impact of the pandemic on industrial value chains, the correlation coefficient between electricity consumption and economic growth, as well as the United Nations’ 2020 World Economic Outlook and China’s economic development prospects for 2020–2025, it is projected that electricity demand during the 14th Five-Year Plan period will reach 9.5 trillion kilowatt-hours, representing an increase of approximately 2 trillion kilowatt-hours compared with the 13th Five-Year Plan period. However, the growth rate of electricity demand is expected to moderate somewhat from 2020 to 2022. Meanwhile, the peak-to-valley difference in electricity load continues to widen; constrained by limited supplies of oil, natural gas, and other related resources, coupled with the expanding scope of winter heating, winter peak electricity demand has risen more rapidly, further accentuating the dual-peak pattern in daily load profiles during both summer and winter.
Affected by the pandemic, the share of electricity consumption in the secondary sector has declined steadily, while the shares of the tertiary sector and residential consumption are expected to rise year by year as the domestic epidemic situation stabilizes. Consequently, the growth rate of peak load in the State Grid’s operating area will outpace the growth rate of total electricity consumption. It is projected that by 2025, total installed power capacity will reach 2.76 billion kilowatts, including 487 million kilowatts of hydropower, 89 million kilowatts of nuclear power, 350 million kilowatts of wind power, 340 million kilowatts of solar power, 179 million kilowatts of gas-fired power, and 1.25 billion kilowatts of coal-fired power, with non-fossil energy accounting for 48% of total installed capacity.
Taking into account, in a comprehensive manner, the impact of environmental protection and carbon-emission-reduction constraints on coal-fired power development, the large-scale expansion of new energy sources, and the relatively long construction cycles for hydropower and nuclear power projects, the eastern and central regions of China will face substantial pressure on power balance during the 14th Five-Year Plan period. Even if only the power generation capacity scheduled to come online and the inter-regional transmission channels explicitly identified for the 14th Five-Year Plan are considered, by 2025 the State Grid Corporation’s service area in the eastern and central regions will experience a clear shortfall in peak-period power supply capacity, with power deficits of 24 million kW in North China, 34 million kW in East China, and 28 million kW in Central China, respectively. Therefore, a multi-pronged approach is required—such as increasing the deployment of high-availability generating units, implementing inter-regional power reallocation, and strengthening demand-side response—to ensure adequate power supply.
Analysis of Digital Transformation in the Power Industry
Digital transformation in the power industry enhances internal efficiency and strengthens enterprises’ competitive vitality in the external market; it is also a key component in the development of the energy internet. The new wave of the information revolution is driving the transition from an industrial economy to a digital economy, serving as a fresh engine for the next round of global economic growth. Across all sectors, digital and intelligent transformation is underway, and the deep integration of the energy revolution with the digital revolution has become the overarching trend. Advancing the digital and smart transformation of the energy sector and innovatively developing the energy internet offer new pathways for balancing multifaceted objectives and unlocking greater benefits from green development. The 14th Five-Year Plan period represents a critical window for establishing the nation’s primary industrial internet platform. Whether or not an enterprise or industry possesses such a platform will determine its ability to evolve into the next-generation organizational form. In the energy sector, it is imperative to forge an industrial internet path that reflects its own unique enabling dynamics. The rapid advancement of digital technologies has made large-scale inter-firm collaboration possible. The energy internet will give rise to a new industry, fostering novel ecological relationships and governance systems. This shift transforms previously imbalanced and inadequate relationships among multiple stakeholders into coordinated, integrated partnerships based on co-construction, shared benefits, and mutual prosperity, thereby generating synergistic value creation and sharing across the energy value chain. It will also more effectively promote the optimization of the business environment and the modernization of governance in areas such as investment, markets, and regulatory frameworks, ultimately spurring industrial upgrading and advancing the energy revolution through a new platform-based digital energy economy. On the other hand, the industrial internet has emerged as a pivotal domain shaping the global competitive landscape.
Key priorities include: first, leveraging the vast trove of industry-specific data accumulated by energy and power companies to enhance operational efficiency; using data mining to refine and streamline operational decision-making, with value unlocked through analytical insights derived from data collected via sensing networks; and shifting the focus from product quality optimization to elevating the customer experience. As global energy regulation continues to tighten, relying solely on energy supply will no longer be sufficient to drive profit growth. At the same time, today’s customers are increasingly concerned not only with the products themselves but also with the overall consumption experience. In response, more and more energy and power firms are harnessing data to improve customer experience; digital transformation in the energy sector is spurring innovation in business models, with data serving as the primary engine for new models and emerging business formats in the digital era, prompting energy and power companies to continually explore novel business approaches. Grounded in their traditional operations, these companies are capitalizing on their industry expertise and data assets to expand into and cultivate new business domains.
Energy Security Analysis
Under the national energy strategy of “four revolutions and one cooperation” and the central government’s guiding principles of “six stabilizations and six guarantees,” traditional power grid security must evolve toward greater intelligence, safety, efficiency, and environmental sustainability. Energy security is a comprehensive, strategic issue that bears on the country’s economic and social development; it is vital to national prosperity and development, improvements in people’s livelihoods, and long-term social stability and peace. To safeguard national energy security, proactively address the new landscape of energy development, and support economic and social progress, we must advance a revolution in both energy production and consumption. Power grid security is integral to national energy security; unlike oil and natural gas, which are highly dependent on foreign imports, the power grid enjoys a relatively high degree of self-sufficiency. However, at present, China’s main grid infrastructure—including ultra-high-voltage AC and DC networks—remains in a transitional phase, with an incomplete grid structure. With the commissioning of key projects such as the Chongqing–Hubei back-to-back HVDC link and the ultra-high-voltage AC ring networks in North and Central China, the main grid structure will undergo significant changes, giving rise to new characteristics in system security and stability.
Key priorities include: initiating the development of the next-generation power system by addressing the “generation–grid–load” chain, leveraging more flexible and user-friendly power sources, a smarter and more resilient grid, and more interactive and diversified end-users; employing cutting-edge technologies to advance the construction of the next-generation power system and achieve green, safe, intelligent, and efficient operations; establishing a rationally structured ultra-high-voltage backbone grid that relies on coordinated development among AC and DC systems, sending- and receiving-end grids, and all voltage levels; fully harnessing advanced control theories and wide-area information, and relying on the fiber-optic, grid-based, information-driven, and intelligent transformation of secondary systems to build automated power dispatch, security control, and relay protection systems that enable “online analysis, safety early warning, and automatic control,” thereby comprehensively enhancing the next-generation power system’s integrated control capabilities and its level of safe and stable operation; and leveraging the convergence of energy and Internet technologies, particularly the integration of artificial intelligence, big data, cloud computing, IoT, and mobile technologies with power physical systems.
Analysis of New Energy Development
Large-scale grid integration of new energy sources is underway; however, key research priorities for the 14th Five-Year Plan period include how to align guaranteed purchase arrangements with market-based trading, how to enable new energy to participate in pilot spot markets, and how to design appropriate quotas for thermal power participation in market transactions to promote the consumption of new energy. China’s new energy sector has grown rapidly, with expanding deployment scales and continuously declining costs, leading to a marked easing of curtailment pressures and an increasingly prominent role in clean energy substitution. At the same time, a range of challenges remain that must be addressed during the 14th Five-Year Plan period: First, new energy generation exhibits seasonal and diurnal variability as well as inherent randomness over time, while spatially it is characterized by a mismatch between energy resource endowments and load centers, necessitating complementary resource utilization across regions. Yet current integrated planning and coordination between grid infrastructure and generation resources still fall short of meeting these requirements. Second, China’s electricity market is still in its early stages of development, with spot market pilots currently underway. The ancillary services market for peak-shaving remains underdeveloped, resulting in insufficient utilization of thermal power units’ peak-shaving capacity. Moreover, the existing electricity market design is ill-equipped to accommodate the diverse interests and objectives of multiple market participants. Third, appropriately managing wind and solar curtailment can enhance the overall economic efficiency of power system operations; indeed, countries with large-scale new energy development all experience varying degrees of voluntary or involuntary curtailment, underscoring the need to establish scientifically grounded targets for acceptable curtailment rates.
Key priorities for the 14th Five-Year Plan period include: refining the competitive allocation mechanism for renewable energy to support its development; further strengthening the management of new-energy projects and establishing a management framework for subsidy-free new-energy projects; building and improving the market-based mechanism for ancillary services in the power sector; and striking an appropriate balance between guaranteed-price transactions and market-based pricing for new energy. Based on reasonable rates of wind and solar curtailment, standardizing and adjusting the principles for compiling statistics on curtailed power. Actively guiding the efficient and orderly development of new energy, perfecting the integrated energy production–supply–sales system, and enhancing energy reserve capacity. Constructing a safer and cleaner energy supply system by bolstering technological and policy support, further optimizing generation scheduling for thermal power units to complement new-energy generation, and ensuring a secure and stable electricity supply.
Key Focus Areas for Modernizing Energy Governance
Building on the analysis presented earlier, in order to accomplish the task of modernizing the energy governance system and governance capacity for the 14th Five-Year Plan period in the power sector and to lay a long-term foundation for a new energy security strategy, the following considerations are also necessary:
First, we will deepen the reform of the power sector by incorporating the power planning of pilot enterprises in the incremental distribution reform into the overall provincial and lower-level power development plans, further streamline administration and delegate power, and, under the coordinated implementation plan of government regulatory agencies, ensure that market entities such as independent power retailers can normally participate in market transactions and operations.
Second, in response to the Government Work Report’s call to expand effective investment and accelerate the development of “two new, one major” projects, we will maintain a robust investment intensity, optimize the investment mix, advance the “two lines and two transformations” strategy, promote the construction of integrated large-scale clean-energy bases, speed up the pace of green development, and facilitate the transformation and upgrading of enterprises.
Third, we must strike a balance between safety and economic efficiency, adhering to the principle of “safety first.” Savings achieved at the expense of safety are futile; therefore, while ensuring absolute reliability, we should strive to minimize capital expenditures as much as possible. At the same time, we should carefully consider economic investment, optimize existing assets, enhance new additions, and avoid wasteful spending on equipment and grid infrastructure. Furthermore, we must remain mindful of the dual-edged nature of technology: pilot projects and demonstration initiatives should take precedence, and widespread deployment should be undertaken only after thorough evaluation and validation.
Fourth, we must vigorously advance scientific and technological innovation by forging alliances and establishing diverse innovation ecosystems in the energy and power sectors—such as industry consortia and research institutions—in collaboration with central state-owned enterprises, upstream and downstream firms both domestically and internationally, universities, and research institutes. We will support flexible project organization and management approaches, continuously strengthen our capacity to secure critical links, key areas, and essential products, promote the domestic substitution of core technologies, enhance the resilience of China’s industrial and supply chains through independent innovation, and foster technological advancement and disciplinary progress across the sector.
This article was published in the May 2020 issue of China Electric Power Enterprise Management, and the author is employed by State Grid Energy Research Institute Co., Ltd.