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　　Introduction: China’s potential economic growth rate is declining, and the economy is expected to trend steadily in the medium to short term. Given ample supplies of thermal coal and relatively low utilization hours for power-generation equipment, and barring adverse weather conditions, power generation growth in 2015 is likely to range between 4.5% and 5.5%, resulting in an overall balance between electricity supply and demand, though some localized areas may still experience tight supply-demand conditions.

　　  Current Status of China’s Electricity Market

　　  (1) Overview of Power Generation

　　  1. The growth in power generation has slowed markedly. In recent years, China’s power generation has maintained a high growth rate: from 2007 to 2011, it increased from 3,255.9 billion kilowatt-hours to 4,721.7 billion kilowatt-hours, a rise of about 45%, with an average annual growth rate of 11.1%. However, in 2012 the growth rate plummeted to 4.7%, and further declined to 3.2% in 2014. Although there was a rebound in 2013, with a growth rate of 7.5%, the overall trend has clearly shown a marked slowdown. In 2014, national power generation totaled 5,463.8 billion kilowatt-hours, with hydropower up 18% year on year, nuclear power up 18.89% year on year, and thermal power down 0.4% year on year—this decline in thermal power output was attributable to lower electricity consumption due to milder temperatures; if temperature effects are excluded, thermal power generation should be on an upward trajectory in 2015. Despite the recent deceleration in China’s power-generation growth, according to projections by major international energy agencies such as the EIA, IEA, and IEEJ, the global average growth rate of power generation is expected to be 2.2%–2.3% through 2035, meaning that China’s growth rate will still significantly exceed this benchmark.

　　  2. The rapid expansion of power-generation capacity has led to significant overinvestment. In 2012, China added the largest amount of new installed capacity—84.23 million kilowatts—representing a year-on-year increase of 7.93%; in 2013, the year-on-year growth reached 9.25%, and in 2014 it was 8.7%. In 2012, the average utilization hours of power-generation equipment at plants with a capacity of 6,000 kilowatts or more nationwide were 4,572 hours, down 158 hours from 2011; in 2013, the figure was 4,511 hours, a year-on-year decrease of 61 hours; and in 2014 it fell to 4,286 hours, a year-on-year drop of 225 hours. The sustained, substantial growth in installed capacity over three consecutive years, coupled with the steady decline in average utilization hours, indicates that the pace of investment in power-generation equipment has far outstripped the effective utilization rate of such equipment.

　　  (II) Overview of the Electricity Market

　　  1. The irrational structure of industrial electricity consumption has not undergone any fundamental change. For three consecutive years, the secondary sector in China has accounted for roughly 74% of total electricity consumption, with heavy industry alone accounting for about 60% of that share. Meanwhile, after registering annual growth rates exceeding 10% in 2012, electricity consumption in the tertiary sector and by residential users declined in 2013 and experienced a sharp drop in 2014, indicating that the long-standing problem of an overly high share of heavy industry in the overall industrial electricity mix remains unresolved. In 2014, due to average national temperatures in August being 0.2°C lower than the long-term norm and 1.5°C lower than the same period the previous year, both corporate and household electricity consumption fell markedly. Total national electricity consumption reached 5,523.3 billion kilowatt-hours, up 3.8% year on year; of this, primary-sector consumption stood at 99.4 billion kWh, down 0.2%; secondary-sector consumption totaled 4,065 billion kWh, up 3.7%; tertiary-sector consumption reached 666 billion kWh, up 6.4%; residential consumption in urban and rural areas amounted to 692.8 billion kWh, up 2.2%; and heavy-industry consumption was 3,327.2 billion kWh, up 3.6%.

　　  In the high-energy-consuming sectors, electricity consumption in the nonferrous metals and chemical industries has maintained a sustained high growth trend, while the share of electricity consumption in the ferrous metals sector has shown no clear pattern of increase or decrease. In the building materials sector, after a slight decline in 2012, electricity consumption has risen for two consecutive years, overall indicating that energy-saving efforts in these high-energy-consuming sectors have been ineffective. From January to November 2014, the four major high-energy-consuming industries—ferrous metals, nonferrous metals, chemicals, and building materials—recorded electricity consumption of 402.2 billion, 288.4 billion, 285.6 billion, and 235.9 billion kilowatt-hours, respectively, with year-on-year growth rates of −0.9%, 4.5%, 3.4%, and 5.1%, respectively.

　　  2. Overall balance between electricity supply and demand, with localized shortages. The fastest growth in total electricity consumption is concentrated in the northwest region. From January to November 2014, the provinces whose year-on-year growth in national electricity consumption exceeded the national average of 3.7% were, in descending order: Xinjiang (13.4%), Inner Mongolia (10.7%), Fujian (9.3%), Hainan (8.9%), Guangdong (8.7%), Jiangxi (7.3%), Qinghai (7.0%), Chongqing (6.7%), Guangxi (5.7%), Shaanxi (5.6%), Yunnan (5.3%), Ningxia (4.8%), and Guizhou (4.2%). Xinjiang, Qinghai, Yunnan, Hainan, Shaanxi, and Inner Mongolia have maintained high growth for three consecutive years, while Tibet, Anhui, Gansu, and Jiangsu, after two years of strong growth, experienced a significant slowdown in 2014. Meanwhile, Fujian, Chongqing, Ningxia, and Jiangxi have seen accelerating growth over the past two years.

　　  Regional growth in total electricity consumption generally aligns with trends in peak electricity load. From January to November 2014, the Northwest region recorded the fastest increase in peak electricity load, at 5.7%, followed by the North China region, with a growth rate of 3.0%. In contrast, the East China, Central China, and Northeast regions experienced relatively slower growth in peak electricity load, increasing by 1.9%, 0.9%, and 1.4% year on year, respectively.

　　  While overall national power supply remains broadly balanced, some localized areas are experiencing power shortages. However, these regions are not typically characterized by rapid growth in electricity consumption; rather, their deficits are primarily attributable to regional constraints in power resources and abnormally high temperatures, compounded by a lack of external power support. From January to November 2014, driven in part by fewer-than-average summer heat waves, the nationwide power shortfall was smaller than the previous year, with a cumulative peak deficit of 5.4 million kilowatts. Specifically, Tianjin recorded a shortfall of 360,000 kW, the southern Hebei grid 2.39 million kW, northern Hebei 870,000 kW, Shandong 3.6 million kW, Jiangsu 1.12 million kW, Anhui 200,000 kW, Fujian 130,000 kW, Henan 900,000 kW, Shaanxi 1.16 million kW, and Tibet 85,000 kW.

　　  (3) Low Level of International Cooperation

　　  At present, cross-border grid interconnection has become a major development trend, with many countries having established cooperative arrangements for grid interconnection in order to make full use of global energy resources, particularly clean energy. However, China has made extremely slow progress in the field of international power cooperation. From January to November 2014, the total volume of electricity imported and exported nationwide amounted to 23.03 billion kilowatt-hours, accounting for only 0.4% of the country’s total electricity consumption of 5,011.6 billion kilowatt-hours during the same period—a year-on-year decrease of 7.2%. Specifically, electricity imports totaled 5.56 billion kilowatt-hours, down 13.6% year on year, while electricity exports reached 17.47 billion kilowatt-hours, a decline of 5.0% compared with the previous year. The top three regions and countries in terms of cumulative export volume were Hong Kong (60%), Macao (22%), and Vietnam (11%). Notably, Hong Kong and Macao together accounted for 82% of China’s total electricity exports; thus, in practice, power cooperation between the Chinese mainland and other countries is even more limited.

　　  (4) The structure of power investment is becoming more rational.

　　  According to IEA projections, from 2012 to 2035, power-sector investment in China will account for 67% of total energy-sector investment, making it the primary focus of future energy investment. In 2014, nationwide power-sector investment totaled RMB 776.4 billion, up 0.5% year on year; of this, power-generation investment reached RMB 364.6 billion (including RMB 96 billion for hydropower, RMB 95.2 billion for thermal power, RMB 56.9 billion for nuclear power, and RMB 99.3 billion for wind power), while grid investment amounted to RMB 411.8 billion, down 5.8% year on year. Notably, grid investment increased by 6.8% year on year. Overall, power-sector investment has shown a steady but modest upward trend; however, power-generation investment has been gradually declining, whereas grid investment has been on the rise.

　　  In 2014, thermal power accounted for 45.7% of new power-generation capacity, while hydropower accounted for 21%. For three consecutive years, the share of new thermal-power capacity has been markedly lower than the current roughly 80% share of thermal power in total generation, whereas the share of new capacity from other clean-energy sources has exceeded their share in total generation, reflecting China’s trend toward strengthening its clean-energy generation capacity.

　　  Characteristics of transformation.

　　  The overall trend in power-generation development remains broadly stable. From January to August 2014, cumulative new-energy power generation increased by 12.5% year on year, while thermal power generation declined by 1.9% and hydropower generation by 0.8%, with nuclear power generation rising by 0.4%. These figures indicate that new-energy power generation is expanding at a relatively robust pace, whereas thermal power generation is experiencing a modest decline. With the exception of the substantial drop in nuclear power resulting from the shutdown of Japanese nuclear reactors, hydropower and nuclear power have generally exhibited small, fluctuating changes, reflecting the broadly stable trend in power-generation development.

　　  Electricity consumption, by contrast, has been volatile. First, in 2014 the year-on-year growth rates of electricity generation in OECD countries that saw increases were generally lower than the year-on-year declines in those that experienced decreases—a pattern that became even more pronounced that year and is consistent with the recent sustained decline in electricity generation across the OECD, largely attributable to the severe hit to energy demand in OECD economies during the global financial crisis of 2008. According to IEA projections, by 2035 the average annual growth rate of energy consumption in OECD countries will be only 0.6%, compared with 2.3% in non-OECD countries; however, based on electricity data, this forecast appears overly optimistic. Second, among the top ten countries in terms of cumulative year-on-year growth in electricity generation over more than two consecutive years, only Chile has exhibited steady growth, while the other countries show no discernible pattern in their growth rates. Conversely, among the countries with cumulative year-on-year declines over more than two consecutive years, Hungary stands out for its consistently substantial reductions, whereas the declines in other countries lack a clear pattern, with several experiencing periods of sharp increases followed by significant drops—features that underscore the volatility of electricity consumption in OECD economies.

　　  2. Key U.S. Electricity Indicators. U.S. electricity generation is dominated by coal-fired, natural gas–fired, and nuclear power, with no clear upward or downward trend; the share of these three major sources has remained stable, while hydropower has declined slightly year by year and renewable energy has increased steadily. From January to September 2014, total net electricity generation in the United States reached 3,117.501 billion kilowatt-hours, up 1.30% year on year. Specifically, coal-fired generation totaled 1,231.8 billion kWh, accounting for 39.5% and increasing by 2.6% year on year; natural gas–fired generation amounted to 844.7 billion kWh, representing 27.1% and declining by 0.7% year on year; nuclear generation reached 596.2 billion kWh, or 19.1%, up 1.1% year on year; hydropower generated 200.6 billion kWh, or 6.4%, down 5.7% year on year; and renewable energy generated 206.1 billion kWh, or 6.6%, an increase of 9.8% year on year.

　　  U.S. electricity sales were lower than electricity generation, with no significant increases or decreases observed across different sectors. From January to September 2014, total electricity sales nationwide reached 2,846.295 billion kilowatt-hours, up 1.4% year on year. Specifically, residential sales increased by 2% year on year, commercial sales by 1.6%, industrial sales by 0.3%, and transportation sales by 3.7%.

　　  3. Key Electricity Indicators in Japan. In recent years, Japan’s electricity generation has shown a slight downward trend, with an average annual growth rate of −0.3% from 2007 to 2011. Thermal power remains the dominant source of electricity, and its share has increased, particularly in the wake of the Fukushima nuclear accident. From January to August 2014, the combined electricity output of Japan’s ten major power companies totaled 607.021 billion kilowatt-hours, of which thermal power accounted for 447.078 billion kWh, or 73.6%, hydropower for 42.396 billion kWh, new-energy generation for 1.686 billion kWh, and purchased electricity for 119.664 billion kWh, with a small amount also allocated to pumped-storage operations. Given the relatively small share of new-energy generation, Japan has yet to demonstrate the clear advantages that international trends in new-energy development would suggest; moreover, it engages in very limited cross-border cooperation on electricity supply, with net imports and exports of electricity totaling zero from January to April 2014. Following the increase in the consumption tax, Japan’s economic growth contracted more sharply than expected in the second quarter of 2014, as high levels of public debt and a persistently low potential growth rate have weighed on the expansion of electricity consumption.

　　  4. Key Power Sector Indicators in India. India has long maintained robust growth in power generation. From January to October 2014, cumulative power generation reached 867.161 billion kilowatt-hours, up 9.95% year on year. Of this total, thermal power accounted for 717.657 billion kilowatt-hours, or 82.8%; hydropower contributed 116.099 billion kilowatt-hours, or 13.4%; nuclear power generated 28.738 billion kilowatt-hours, or 3.3%; and Bhutan’s imports amounted to 4.667 billion kilowatt-hours, representing 0.5%.

　　  Thermal power, hydropower, and nuclear power are India’s primary sources of electricity generation. Although electricity output has continued to grow at a robust pace, the share of each source has changed only slightly, reflecting a stable primary-generation mix. However, India’s reliance on imported electricity is extremely low, while electricity consumption is expanding rapidly; currently, one-quarter of the population still lacks access to reliable power. Given that India’s power growth is largely driven by coal—and that the quality of domestic coal is subpar—India will face substantial pressure to reduce emissions in the future. Strengthening energy cooperation with other countries and accelerating the development of clean energy while promoting the cleaner use of coal are therefore critical to addressing India’s current energy challenges.

　　  2015 Major Electricity Indicators Forecast

　　  China’s potential economic growth rate is declining, and in the medium to short term the economy is expected to follow a stable development trend. Taking into account factors such as ample coal supplies for power generation and relatively low utilization hours of generating equipment, barring adverse weather conditions, the growth rate of electricity output in 2015 is projected to range between 4.5% and 5.5%, resulting in an overall balance between electricity supply and demand, though localized shortages may still occur in certain regions. On the investment front, according to the national plan, by 2020 the “four vertical and seven horizontal” ultra-high-voltage AC backbone grid and 19 UHV DC transmission projects are slated for completion, which will keep grid investment on an upward trajectory over the medium to long term. Meanwhile, given the occurrence of water and wind curtailment in some areas in 2014, efforts to enhance the utilization of clean energy will lead to increased capital expenditure on clean-energy power-generation facilities. In terms of international cooperation, as cross-border grid collaboration becomes increasingly common, the internationalization of power grids is emerging as a key future trend. Relevant domestic authorities have recognized this dynamic and have set a goal of achieving comprehensive breakthroughs in international business areas such as “three utilities and one capital” by 2015; accordingly, the level of international cooperation is expected to rise substantially in 2015 and beyond. At the global level, both electricity generation and electricity consumption are forecast to grow at faster rates in 2015 than in 2014.