**NDRC seeks opinions on the strictest regulation plan ever for coal-fired power plants operated by private entities

The energy authorities’ large-scale cleanup and rectification of self-owned power plants were initiated following the issuance in November 2015 of the \"Guiding Opinions on Strengthening and Regulating the Supervision and Management of Coal-fired Self-owned Power Plants\". However, the document only provides principle-based guidelines regarding the requirements for coal-fired captive power plants to make up for **mandatory funds and policy-based cross-subsidies. In 2017, multiple departments conducted special inspections of coal-fired power plants operated by private entities in six provinces (regions) including Xinjiang and Shandong; the draft for comments was formulated based on the issues identified during the preliminary investigations. Compared with existing policies, the draft for comments proposes strict cleanup and rectification measures for both existing and newly added coal-fired captive power plants, and sets a clear timeline for these plants to pay back the required funds, surcharges, and system reserve fees.

A captive power plant, in simple terms, is a power generation facility that a company builds to meet its own needs for electricity and gas for production purposes; it generally does not supply power to the **power grid. The emergence of self-provided power plants has a complex historical and institutional background. In the 1980s, various industries faced severe power shortages. Following the shift in power industry policy from a system where only one entity could generate electricity to one that encourages multiple entities and various channels for power production, energy-intensive enterprises across the country began to establish their own power plants. In an era of insufficient power supply and high electricity prices, on-site power plants reduce a company’s electricity costs, while also meeting the electricity and heating needs of surrounding businesses and residents. However, as the long-term power shortages gradually disappeared, in China’s electricity market, self-owned power plants have often been criticized for \"failing to fulfill their social responsibilities fairly,\" having \"disorganized management,\" and \"exacerbating environmental pollution,\" thus finding themselves on the border between legality and illegality.

The draft proposal states that, unless there are special policy provisions to the contrary, in principle no new (expanded) coal-fired power plants should be built; instead, such projects should be included in the power generation development plan formulated based on total volume controls. Following the issuance of Document No. 9 issued by the Central Government, all new coal-fired power plants built without approval or not included in the plans must be halted in their construction and operation. In addition to preventing the construction of coal-fired captive power plants at the source, the draft regulations stipulate that coal-fired captive power plants that have not obtained the necessary electricity business license (for power generation) are not allowed to sell the electricity they generate on the grid, and grid companies shall not purchase such electricity. At the same time, it is strictly prohibited to use coal-fired captive power plants to build incremental distribution networks, local networks, microgrids, or dedicated power supply lines.

Addressing the two main factors behind the low power generation costs of self-owned power plants – the lack of commitment to social responsibilities and limited investment in environmental protection – the draft proposals all call for corrective actions to be taken within a specified time frame. From the perspective of industry distribution, self-owned power plants are mainly found in energy-intensive industries such as steel, electrolytic aluminum, petrochemicals, and cement. Taking Weiqiao in Shandong as an example, by utilizing its own power plants and built-in power grid, it has broken the monopoly held by power grid companies, enabling Weiqiao to achieve an average electricity price that is more than 30% lower than that of the **power grid. A previous tracking rating report on Shandong Weiqiao Entrepreneurship Group Co., Ltd. and its related debt issued by Dagong Global Credit Rating Co., Ltd. revealed that from January to March 2016, Weiqiao Group’s cost of self-generated electricity was as low as 0.17 yuan per kilowatt-hour; in the years 2013 to 2015, this figure was 0.29 yuan, 0.21 yuan, and 0.18 yuan per kilowatt-hour respectively.

The draft proposal requires that the **taxes and surcharges, as well as the system reserve fees, that private power plants have owed since 2016 must be paid in full by the end of 2018； The **sexual funds and surcharges, as well as system reserve fees, that were overdue prior to 2016, must be paid in full within 3 years from the date of issuance of this document ； For those areas with particularly large amounts and genuine difficulties, a certain grace period will be granted, to be determined by the collection authorities. In addition, the level of policy-based cross-subsidies is determined at the provincial level; enterprises with coal-fired power plants of their own must bear these policy-based cross-subsidies just like other industrial and commercial electricity users. The draft guidelines require that coal-fired power plants operated for own use must comply with ** as well as the local regulations regarding the latest emission standards for air pollutants and total emission limits for public coal-fired power plants; those whose pollutant emissions do not meet environmental protection requirements should reduce production or cease operations for renovation ； Its operation must meet the energy efficiency standards specified in the relevant industry policies ； Install environmental protection facilities such as desulfurization, denitration, and dust removal, as well as automatic monitoring equipment for pollutants, and connect to local environmental protection, regulatory, and power grid authorities. The consultation also stipulates that coal-fired captive power plants must assume responsibility for ensuring grid stability during peak periods and for integrating clean energy sources.