In China, the principal law governing the power industry is the Electric Power Law – along with the supporting administrative regulations and departmental rules, which include:

• the Regulation on Electric Power Supervision;
• the Regulations on Supply and Use of Electric Power;
• the Provisions on the Administration of Electric Power Business Licences; and
• the Measures for the Supervision of the Electric Power Market.

The power industry includes the generation, transmission, distribution and supply of electricity. The power generation market is now open to various investors, including state-owned, private, and foreign investors. State-owned companies are still the main participants the market. The transmission and distribution of China’s electricity is managed by state-owned power grid companies (see 1.2 Principal State-Owned or Investor-Owned Entities).

There are various investors in China’s power generation industry – although the main players are state-owned companies. The most powerful companies in the generation market are known as the Big Five and Small Four. In 2018, China Shenhua Group Guohua Power Branch (“China Shenhua”) merged with China Energy, thereby marking a change in one of the major players in the market. The new Big Five are:

• China Huaneng Group (“Huaneng”);
• China Datang Corporation (“Datang”);
• China Huadian Corporation (“Huadian”);
• China Energy Investment Corporation (known as “China Energy” or “CHN Energy” following the merger of China Energy and China Shenhua); and
• State Power Investment Corporation (SPIC).

The new Small Four are:

• SDIC Power Holdings Co Ltd (“SDIC Power”);
• China Three Gorges Corporation (CTG);
• China Resources Power Holdings (“CR Power”); and
• China General Nuclear Power Group (CGN).

As regards the transmission and distribution of electricity, different areas of the grid are operated separately by three companies – namely, the State Grid Corporation of China (SGCC) (known as the “State Grid”), China Southern Power Grid Company Limited (CSG) and Inner Mongolia Power Group Co Ltd (IMPC). Power grid companies used to sell electricity to end-user consumers; however, the situation gradually changed following the second round of power market reforms. Currently, private-owned companies and state-owned power grid companies compete together in the end-user consumers market.

The Foreign Investment Law of the People’s Republic of China (the “Foreign Investment Law”) adopted a “pre-establishment national treatment” plus “negative list” management system in respect of foreign investment. Foreign investment in sectors that are not specified in the negative list for market access does not require approval. In terms of the power industry, the latest negative list only requires companies that construct and operate nuclear power units to have a Chinese party as the controlling shareholder.

Foreign investors or foreign-invested companies must report necessary information to the competent commerce authorities through a registration system or open enterprise information system.

If a foreign investor meets the threshold for a concentration of business operators when purchasing shares or equity in a Chinese company, a declaration must be made to the anti-monopoly authority.

The Foreign Investment Law protects foreign investment from confiscation, as does the Civil Code of the People’s Republic of China. Expropriation or requisition by the government is only permitted if in the public interest and, following due process in accordance with the relevant laws, fair and reasonable compensation must be made.

The sale of power industry assets must comply with the Company Law of the People’s Republic of China (the “Company Law”) and its supporting regulations, given that this is the main law governing business restructuring or M&A in China. If these assets are purchased by a foreign investor, the sale must also comply with the Foreign Investment Law.

If the assets in question are state-owned, the sale of these assets must comply with the Law of the People’s Republic of China on State-Owned Assets in Enterprises 2008 and the Measures for the Supervision and Administration of the Trading of State-Owned Assets of Enterprises 2016. The sale needs to be open for public bidding and/or must be approved by the competent authority.

The main planning authorities for power industry construction and operation in China are the National Development and Reform Committee (NDRC) and National Energy Administration (NEA).

As the director and supervisor of the NEA, the NDRC is responsible for:

• the review and/or approval of development strategy and planning;
• assessing and advising on significant industrial policy and co-ordinating with national policy; and
• overall regulation of project investment.

Under the authority of the NDRC, the NEA undertakes specific work in relation to the power industry, including:

• drafting the relevant regulations and provisions;
• implementing the development strategy and co-ordinating the relevant work;
• regulating the nuclear power industry;
• supervising operation of the market; and
• formulating industry standards.

In 2022, there were no significant changes in the law or regulation with regard to the power industry in China.

In January 2022, the NDRC and the NEA released the Guiding Opinions on Accelerating the Construction of a National Unified Electricity Market (No 118), which requires the creation of a multilayer market infrastructure at a national level. This national market system – set to be initially established by 2025 and completed by 2030 – aims to co-ordinate existing markets before enabling their integration in the future.

Owing to the continuous investment in and deployment of advanced technologies during the past few decades, companies in China have built the most reliable and resilient grid system in the world. This further enables the integration of variable renewable energy and guarantees mega-projects such as the transmission of electricity from the west to the east of China.

China’s wholesale power market is dominated by bilateral medium- and long-term (MLT) contracts, which represent nearly 80% of total traded volume. In 2022, MLT transactions became significantly more active both in terms of trade frequency and volume, owing to the NDRC’s removal of restrictions on on-grid tariffs for coal-fired power plants and cancellation of the pricing limitations for industrial and commercial end users.

Spot markets had been in the early stages but expanded hugely in 2022. The first batch of provinces to conduct pilot programmes have already continued to use spot market trading in the long term. Other trading centres in different regions have commenced the trial operation of electricity spot markets as well. Currently, spot markets account for less than 10% of traded volume.

As investment in power generation has continued to increase throughout the past few decades, there has never been such a need for a capacity market in China. In response to a changing power system, the NEA released the Measures for the Administration of Electric Ancillary Services in 2021, thereby setting out the rules for a competitive capacity market.

In 2022, China imported 7.14 billion kWh and exported 2.8 billion kWh of electricity. China imports electricity from neighbouring countries (eg, Laos) and exports it to neighbouring countries such as Mongolia, Vietnam and Laos as well.

In 2022, China generated around 8,849 TWh of electricity – an increase of 3.7% from 2021 – of which there were:

• approximately 5,889 TWh of thermal power (a 1.4% increase from 2021);
• 1,352 TWh of hydropower (a 1% increase from 2021);
• approximately 418 TWh of nuclear power (a 2.5% increase from 2021);
• 763 TWh of wind power (a 16.2% increase from 2021); and
• 427 TWh of solar power (a 31.2% increase from 2021).

The principal law governing market concentration limits is the Anti-monopoly Law of the People’s Republic of China (the “Anti-monopoly Law”) and its supporting rules. Whether the concentration of business operators requires a declaration depends on:

• the participants’ revenues in China and around the globe;
• shareholding structures and corporate governance; and
• market shares in the defined relevant markets, which are subject to review on a case-by-case basis.

The State Anti-monopoly Bureau, under the State Administration for Market Regulation (SAMR), is the anti-monopoly enforcement authority for business concentration.

The principal law that prohibits anti-competitive behaviour is the Anti-monopoly Law. The State Anti-monopoly Bureau is the authority that is responsible for market regulation and enforcement in respect of anti-competitive behaviour. The actions for investigation into suspected anti-competitive behaviours include on-site inspection, inquiries into the business operators, requesting and reviewing copies of relevant documents, sealing or detaining evidence, and inquiries into bank accounts.

China is a party to the United Nations Framework Convention on Climate Change (UNFCCC), the Kyoto Protocol and the Paris Agreement. Throughout the years, China has promulgated laws covering energy utilisation, environmental protection and other matters – for example, the Law on the Coal Industry, the Electric Power Law, the Law on Energy Conservation and the Renewable Energy Law aim to strengthen climate change governance by regulating energy utilisation. Meanwhile, the Environmental Protection Law, the Agricultural Law, the Grassland Law, the Forestry Law of the People’s Republic of China, the Law on the Prevention and Control of Desertification, the Water Law, the Marine Environment Protection Law, the Law of on the Prevention and Control of Atmospheric Pollution and other laws aim to cope with climate change by regulating the use of natural resources and strengthening environmental protection.

Apart from the above-mentioned laws, China currently operates a so-called “1+N” policy framework for peaking carbon dioxide emissions before 2030 and achieving carbon neutrality before 2060. “1” refers to the long-term approach to solve climate change, which is documented in the Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full and Faithful Implementation of the New Development Philosophy (the “Working Guidance”) and the Action Plan for Carbon Dioxide Peaking Before 2030 released by the State Council two days after the Working Guidance. “N” refers to solutions for achieving peak carbon emissions by 2030 in different industries and fields. The Working Guidance sets three milestones for carbon peak and carbon neutrality in 2025, 2030 and 2060. The Action Plan provides framework, targets, and measures to first reach peak carbon emission levels by 2030.

The energy sector (including the power industry) is the key area in which China must reduce greenhouse gas (GHG) emissions. A number of policies and five-year plans set out a clear pathway for the power industry to reach 2030 and 2060 targets. New investment in coal-fired generation facilities is strictly limited and the modifications to the existing infrastructure are aimed at lower CO₂ emissions and becoming more efficiency-effective. Renewable energy mixes combining wind, solar, and concentrated solar power (CSP) are encouraged and energy storage (either as an ancillary service to the plant or as a standalone facility) has been gaining its own momentum.

In 2021, the Administrative Measures for the Trading of Carbon Emission Permits (for Trial Implementation) came to effect. A national Emissions Trading System (ETS) market was launched accordingly and current regional ETS markets should be gradually merged into the national one in the following years. A carbon emission allowance (CEA) is allocated to companies in the power industry annually. At the end of each year, the CEA must be settled by the companies and the CEA can be traded in the ETS market. The price of the CEA is generally determined by supply and demand.

Back in 2007, the Chinese government decided to gradually shut down coal-fired power plants with a small capacity in order to reduce GHG emissions. As part of supply-side reform plans as well as climate change policies, the NEA then announced an annual programme for the early retirement of coal-fired facilities that do not meet environmental standards or are less efficient. Targets were assigned to local governments and rules on compensation rules were decided at a provincial level. Generally, up to five years’ worth of revenue from generation is provided as compensation to entities that own coal-fired facilties.

According to the Renewable Energy Law, the power grid company is obliged to purchase the whole amount of energy generated by the renewable plant on the condition that the facility is lawfully built and technical standards are met for the grid connection. In the Administrative Measures for the Development and Construction of Solar Photovoltaic Stations, the NEA further provides detailed requirements on connection requirements and procedures for the grid companies.

Subsidies for the renewable energy plants had been provided and adjusted every year or six months to reflect the industry’s declining costs and. in 2021, renewable energy in China entered an era without feed-in tariffs.

The 14th Five-Year Plan (2021–25) for the Renewable Energy Industry set a target of 3,300 TWh of annual renewable energy generation to be achieved by 2025 (up from 2.21 TWh in 2020) and aims for renewables to account for 33% of energy consumption (an increase from 28.8% in 2020).

The principal law governing the construction and operation of generation facilities is the Electric Power Law, with its supporting regulations and departmental rules. All fixed asset investments in China must comply with the Administrative Regulations on Approval and Filing of Enterprise Investment Projects, as well as with the applicable power industry laws.

Investors need to obtain approval or registration from the NDRC or local development and reform committees for fixed asset investments before the construction of generation facilities. An environmental impact assessment (EIA) report on the project compiled by competent companies must also be approved by or filed with (as the case may be) local environmental protection authorities beforehand. The Law on Administrative Licensing requires that public input and participation is obtained by:

• publishing the EIA report; or
• conducting a public hearing.

As regards land plots for the facilities, site plan approval and preliminary opinions on the land use right should be secured if the plant is not in the planned area. Permits for the project and for land use are also required in terms of urban planning.

Following a trial operation period and before the commercial operation of the facility, an electric power business licence must be obtained from the local branch of the NEA. Certain units with small capacity are exempted from approval.

The approval or registration of generation facilities normally require the project company to begin construction within two years of receiving approval. Should the company fail to do so, an application for renewal must  be submitted before the two-year period expires.

In addition, if there are any significant changes in terms of site, scale or capacity, the project company must apply for approval with the local development and reform committee. In the case of registered projects, the authority can be notified of changes to project information via an online platform.

An electric power business licence permits the operation of power generation facilities for a period of 20 years. The project company must apply for amendments to the licence in the event that:

• a new unit is put into operation;
• units are purchased or sold; or
• any changes to the information registered in the licence occur.

Investors must obtain preliminary approval and planning permission for proposed sites for the plant before they apply for approval for investment and before the construction of generation facilities. After that, investors can submit an application for land use rights to local land authorities. Following this approval, the local government should carry out a land requisition process if it is a rural area and/or take back the land use right for non-rural areas in accordance with the approval. A compensation fee and resettlement subsidy – as well as compensation for peasants’ housing, young crops and other ground attachments on the land – must be paid for the requisitioning. The amount of compensation is determined at a provincial level.

For solar photovoltaic projects that are co-developed alongside agriculture/forestry or built on the surface of uncultivated land, pieces of land may be leased for solar panels – thereby avoiding the need to obtain approval for land use rights.

According to the regulations concerning the approval, amendment or deregistration of electric power business licences, the licensee can apply to the authority for extension or decommissioning when the power generation facilities reach the end of their designated life.

The principal law governing the ownership, construction and operation of transmission lines and associated facilities is the Electric Power Law, along with its supporting regulations and departmental rules. As previously mentioned in 4.1 The Construction and Operation of Generation Facilities, fixed asset investments in China must comply with the Administrative Regulations on Approval and Filing of Enterprise Investment Projects, as well as with the applicable power industry laws.

Laws and regulations in terms of construction, urban and rural planning, health and safety, environmental protection, natural resources, and fire prevention are applied during the construction of the transmission lines in the same way as they are applied to the construction of any project in China.

Grid companies must go through the same process to obtain all the approvals necessary for the construction and operation of a transmission line and associated facilities as is described in 4.2 Obtaining Approvals for the Construction and Operation of Generation Facilities.

The approval of a transmission line normally requires the project company to begin construction within two years following approval. Should the company fail to do so, an application of renewal must be submitted before the two-year period expires.

In addition, if there are any significant changes in terms of the site or length of the line, the project company should apply for approval with the NDRC or the local development and reform committee.

An electric power business licence permits the operation of transmission lines for a period of 20 years. The project company must apply for amendments to the licence in the event of:

• a new or modified transmission line being put into operation;
• termination of operation of transmission equipment in the main network; or
• any changes to the information registered in the licence.

Investors must obtain preliminary approval and planning permission for proposed sites for power towers before they apply for approval for investment and building transmissions lines. After that, investors can submit an application for land use rights to local land authorities. Following this approval, the local government should carry out a land requisition process if it is a rural area and/or take back the land use right for non-rural areas in accordance with the approval. A compensation fee and resettlement subsidy – as well as compensation for peasants’ housing, young crops and other ground attachments on the land – must be paid for the requisitioning. The amount of compensation is determined at a provincial level.

Transmission and distribution entities in China are natural monopolists and their monopoly rights are guaranteed by Anti-monopoly Law, given that transmission and distribution services are hugely important in terms of national security as well as national economic security. In light of this, the authorities supervise and control the price of transmission and distribution services in order to protect customers’ interests.

The State Grid, CSG and IMPC each provide transmission and distribution services and build transmission lines in their respective regions across China. The territories covered CSG and IMPC are self-explanatory, whereas the State Grid operates throughout 26 provinces, autonomous regions and municipalities.

The transmission charges are determined by the PRC government and are subject to review every three years. Transmission and distribution charges for regional girds (cross-province) and provincial grids are determined by the NDRC. In general, the pricing system is based on the permitted revenue of the grid company and therefore comprises permitted costs and profits calculated by pre-set return rate and tax. Transmission charges are collected through capacity charges and energy charges.

According to the Measures for the Supervision of Fair and Open Access to Power Grids issued by the NEA, grid enterprises must provide grid access services and grid interconnection services in the principle of fairness and non-discrimination.

Grid companies should establish a protocol for open-access services and file the protocol with the NEA, as well as report their open-access implementation to the NEA on a quarterly basis.

Please refer to 5.1 Regulation of the Construction and Operation of Transmission Lines and Associated Facilities.

Electricity distribution facilities are often constructed and operated together with transmission lines. There is no separate licence for the operation of distribution facilities. It is either included in the licence to operate transmission lines or the licence to supply electricity through distribution facilities.

Please refer to 6.2 Obtaining Approvals for the Construction and Operation of Electricity Distribution Facilities.

Electricity distribution facilities are smaller, lower-voltage power lines, which – together with transmission lines – make up the power grid. As to whether operators of electricity distribution facilities have eminent domain, condemnation or expropriation rights in order to obtain surface access and use, please refer to 5.4 Eminent Domain, Condemnation and Expropriation Rights.

Please refer to 5.5 Monopoly Rights to Provide Transmission Services.

Distribution charges for newly invested facilities are determined by the provincial governments. The pricing system generally includes price ceilings, bid prices, and the permitted revenue system that also applies to transmission lines.