Follow market rules to achieve rebalancing of electricity supply and demand

my country is a country with relatively abundant coal resources. In 2018, coal production reached 3.68 billion tons, ranking first in the world. Coal imports reached 280 million tons, also ranking first in the world. In 2018, coal consumption was 3.93 billion tons, accounting for 59% of primary energy consumption. Although China is still the world's largest coal consumer, the proportion has fallen below 60% for the first time. By 2020, the National Energy Development Plan requires this proportion to drop to 58%. In 2018, the power coal conversion rate reached 52.9%, while the world's average power coal conversion rate reached 78%, and the United States and Europe can reach 80% and 90% respectively.

The total installed capacity of coal-fired power in my country is about 1 billion kilowatts, ranking first in the world, accounting for about 53% of the total installed capacity of electricity. Fuel costs account for about 60% of the cost of power generation. Due to the high coal prices in the past two years, the proportion of fuel costs in total costs has increased to about 70%. The two major industries of coal and electricity are highly correlated. The survival of thermal power companies depends mainly on coal prices. The overall operating conditions of the power generation industry mainly depend on the situation of coal-fired power. The two major industries of coal and electricity should be interdependent, coordinated and mutually beneficial, but the actual situation is not the case. Coal-fired power "confronts" and coal-fired power contradictions appear periodically.

Analyzing the operating performance of the five major power generation groups, it reached a peak in 2015, was "halved" in 2016, "bottomed out" in 2017, and improved in 2018, but it is still not out of trouble. After experiencing the first difficult period from 2008 to 2011, the coal power industry has been in the second difficult period from 2016 to now. The current predicament of coal power companies is the result of the combined effects of multiple factors.

The first factor is the clean energy transformation and the "de-coalization" wave. The second factor is climate change and the environmental protection "storm". The third is the marketization of the coal industry, which reflects the supply and demand relationship. The price fluctuations have led to the continuous outbreak of coal-electricity contradictions. The fourth is the supply-side structural reform, which started with coal and steel in 2015 and later extended to coal-fired power, agriculture, etc. Now it seems that coal capacity reduction has saved the coal industry and brought a greater impact on the thermal power industry. The fifth is to reduce energy costs. Since 2015, the government and the market have taken a two-pronged approach, and electricity prices have entered a continuous decline channel. The sixth is the two power system revolutions in 2002 and 2005, which led to a massive expansion of coal-fired power and a sharp increase in market-based trading electricity.

The 19th National Congress report proposed to "build a clean, low-carbon, safe and efficient energy system". The total energy consumption has a "ceiling" and cannot exceed 5 billion tons of standard coal. The proportion of coal should be reduced to below 58% by 2020. Coal-fired power generation capacity should be strictly controlled to 1.1 billion kilowatts by 2020, and the proportion should be reduced to 55%. By the end of the "12th Five-Year Plan", my country's coal-fired power generation capacity had reached 900 million kilowatts in 2015. If it is not controlled, it will reach 1.25 billion kilowatts by the end of the "13th Five-Year Plan", that is, by 2020. In fact, from 900 million in 2015 to 1.1 billion in 2020, it is still difficult to control the growth of only 200 million kilowatts in 5 years, because coal-fired power is a rolling development, and during the "12th Five-Year Plan", the scale of coal-fired power under construction, approved, and included in the plan exceeded 350 million kilowatts. At that time, the benefits of coal-fired power were good, and some companies still had the impulse to invest. At the same time, the policy environment for the development of coal-fired power is becoming increasingly tight. Since 2015, coal-fired power warning has been implemented, and new coal-fired power has been strictly prohibited. Existing coal-fired power plants are required to undergo ultra-low emission, energy-saving, and flexibility transformation, and clear requirements are made for coal consumption and carbon emission intensity. Carbon emission trading has been initiated, and strict environmental protection inspections have been carried out.

The impact of the two power reforms on coal-fired power cannot be ignored. The reform of "separating power plants from the grid and bidding for access to the grid" was carried out in 2002. As new investment entities were cultivated, the five major power generation groups, like the "Five Tigers Going Down the Mountain", seized the market and installed a large number of coal-fired machines. By 2018, the average share of coal-fired power reached 85.34%. From 2003 to 2008, the scale expansion of coal-fired power in these six years was obvious to all, which basically solved China's power shortage problem, but it also brought about coal-fired power contradictions, coal-fired power expansion, huge losses in coal-fired power, and high asset-liability ratio. Since 2009, it has had to embark on the road of transformation and development. If the previous round of power system reform brought about the great development of coal-fired power, the core of this round of reform is market-based transactions. From the orderly release of power generation and consumption plans in 2017, the release of users in four major industries in 2018, and the full release of power generation and consumption plans for commercial users in 2019, it means that the era of comprehensive bidding in the power generation industry is about to come. In 2016, the national market-based electricity trading accounted for only 19%, 26% in 2017, 30.2% in 2018, and may exceed 40% in 2019, and it is estimated to reach 60% to 80% by 2020. Coal-fired power was the first to be affected by market-based trading, and the trading price dropped sharply, with different regions. Qinghai, Yunnan, Guangdong and other places saw a significant drop in the benchmark electricity price, with the former two reaching 0.1 yuan per kilowatt-hour. By 2018, the price reduction tended to be rational.

Supply-side structural reform and strict control of new coal-fired power capacity are beneficial to the long-term development of coal-fired power, while the elimination of excess coal capacity has had a significant negative impact on the coal-fired power industry. According to the 2018 coal industry report, the task of coal capacity reduction has been basically completed, which has led to a sharp rebound in coal prices and "factory-type" fluctuations. In 2016, the national coal output was 3.36 billion tons, a year-on-year decrease of 9.4%, but coal demand increased by 0.5% year-on-year, resulting in a shortage of supply. In 2017, the coal industry's profits increased by nearly 300%, while coal-fired power suffered large-scale losses. By 2019, the supply and demand situation has slightly turned to balance, prices have fallen, and the market price of power coal has basically remained at around 585 yuan/ton.

In recent years, reducing energy costs has become one of the important topics of the Central Economic Work Conference, the Central Political Bureau Meeting, the State Council Executive Meeting and the Two Sessions. In order to support the development of the real economy, prices are reduced through market-based transactions and by lowering benchmark electricity prices. Since 2013, the country has adjusted the benchmark on-grid electricity price for coal five times, four of which were lowered and only one was raised. The power generation industry has made certain contributions to improving the competitiveness of industrial and commercial enterprises.

Faced with the systemic risks of the coal-fired power industry, the author believes that only comprehensive measures can enable it to develop while surviving.

First, we need to understand the situation and find the right position. Coal-fired power can no longer be "unique" as it was in the past, but should gradually shift from "main power source, basic status, and supporting role" to "equal emphasis on base load power source and regulating power source" to fully absorb clean energy peak load regulation and ensure the safety of power supply. This does not mean that all 1.01 billion kilowatts of coal-fired power will be used for peak load regulation. Some of it will continue to be the main power generation, and some will be used for peak load regulation. According to the national plan, the proportion of clean energy supply will exceed 50% in 2030. Distributed energy and multi-energy complementarity are also becoming important new energy supply methods. Clean energy transformation is an international trend. Even in the United States, even though there are still relevant policies that attach importance to the development and utilization of coal, in March 2019, the United States announced that the United States has entered a "new energy era", emphasizing innovation and the use of fossil energy, with a focus on oil and gas, while also "reducing coal" and vigorously developing renewable energy. According to relevant statistics, the proportion of coal consumption in the United States has dropped from 24.6% in 2000 to 14.3% in 2017. As the proportion of clean energy continues to increase, the next step for coal-fired power is to improve the grid’s regulation capabilities through flexibility transformation and auxiliary services.

Second, we should take the initiative to reduce the amount of coal-fired power. Since 2007, coal-fired power has actively “upgraded large and reduced small” by 100 million kilowatts. During the 13th Five-Year Plan, 20 million kilowatts of outdated production capacity was eliminated and 150 million kilowatts of construction were suspended, totaling 270 million kilowatts. However, coal-fired power still has problems such as huge stock, excessive proportion, idle equipment, and operating difficulties. To this end, the following measures should be taken: