Why the United States Is Rarely Troubled by Power Shortages

A sudden “off-season power shortage” is sweeping across China’s central and western provinces and cities.

Coal power generation supplies up to 80 percent of China’s electricity generation. Therefore, the power shortage issues are due to a disconnect between coal supply and the coal market. Coal prices long ago entered the era of the market economy; electricity prices are still strictly controlled by a government in the planned economy era. This disconnect in marketization is perhaps one of the causes of frequent electricity shortages in recent years. However, the power companies’ monopoly of power supplies also may have been a breeding ground for shortage issues.

As the world’s largest electricity consumer, the United States rarely has sustained electricity shortages in large areas. While the United States has been in the service economy era for a long time, China is still in the process of heavy chemical engineering. Half of the U.S. still relies on coal power, and with electricity consumption six times higher per capita than in China, the price of electricity is still relatively low. This shows that the management of the U.S. power market is clearly exceptional.

In the U.S. electricity market, the most prominent feature is the diversification of the market in power generation, distribution, transmission and the sale of electricity. These various aspects provide full and effective competition. Since 1996, the Federal Energy Regulatory Commission have put forth regulations to comprehensively push forward processes in the U.S. power market, such as requiring it to be fair and open, and for wholesale electricity markets in the U.S. to establish and achieve competitive power generation and distribution. Currently, the United States alone has more than 500 power companies. When compared to the few energy companies in China, such as the State Grid Corporation of China, China Southern Power Grid and other small district energy companies that have monopolies, it is really a night and day difference. Fully transparent market competition greatly reduces the cost of doing business and the end price, leaving industry profits nowhere to hide.

Market reform should take place in China. First, the government should clearly define the commercial value of electricity. If the government believes that electricity is not really a market commodity, they ought to be actively involved in coal and electricity price negotiations. If the government believes that electricity is a viable commodity, and coal prices continue to rise, then the government should show flexibility and allow a corresponding price increase by the power industry. Of course, by considering peoples’ livelihood, the government can determine the price for a specific user’s electricity, such as residents, for whom electricity is not a market commodity. Other users, for whom electricity is completely a viable market commodity, such as high energy-consuming industrial enterprises, can have restrictions on their electricity pricing lifted.

Second, the power grid enterprises should carry out market reforms. Concerning the state-owned power monopolies, despite repeated claims by power companies that corporate profits do not exist — to the point that they complain of bearing financial losses in silence — the public knows better. Especially since it was recently revealed that a number of local enterprises used public funds given to the State Grid Corporation of China to build private villas, it is hard to believe that power grid enterprises are “nonprofits.” Rather than trust power companies and their internal, self-imposed restraint mechanisms, more private enterprises and joint ventures should be allowed to enter this field together with state-owned power grid companies; fair competition could arise, and we would be able to examine the cost and see if profits of other companies increase.