After a rare heat wave struck many parts of China in the summer of this year and caused severe energy shortages in Shanghai, Zhejiang Province and other places, the Chinese government began to reevaluate the power supply and demand situation and altered its previous rather optimistic attitude.

The State Electricity Regulatory Commission said recently that power supply and demand last year was balanced generally while this year the demand exceeded the supply and some areas faced severe power shortages.

According to an investigation, 18 provinces, autonomous regions and municipalities including Shanxi, Jiangsu and Shanghai last summer faced severe power shortages, which affected local economic and social development as well as people's daily lives.

On those scorching days, some blackouts occurred as local residents switched on their fans and air conditioners. To ensure adequate power supply to local residents, regional governments had mostly adopted policies of limiting power consumption by businesses.

Besides people just wanting to cool off, economic officials attributed the electricity shortage to the higher production by enterprises after the severe acute respiratory syndrome (SARS) outbreak.

Because a drought has continued to affect the Yellow River, power supply is strained in Qinghai and Gansu provinces and the Ningxia Hui Autonomous Region in its valleys. These regions all rely heavily on hydroelectric power.

The commission attributed the shortages mainly to the slow investment in power supply, which could be rooted to the false prediction of energy demand increase in China.

The continued growth of the national economy has led to rocketing of electricity demand. Since 1991, the industrial output in Zhejiang Province has been growing at an annual rate of over 10 percent, causing its power demand to grow at a yearly rate of 12.5 percent, according to the commission.

With the improvement of people's living standards, the power consumption for air conditioning surged. In some places, the power demand for cooling accounted for almost 40 percent of the grid burden.

The persistent drought in some areas, problems in electricity distribution and development of energy-consuming industries intensified the power shortages in China, experts said.

Experts have considered that investment reform is a key to tackling the power shortages. Complicated examination and approval procedures have delayed investment, which would otherwise contribute to more constructions of power facilities.

China's policy-makers are pondering responsive market strategies, hoping to accelerate electricity facility construction and balance power supply and demand by "breaking monopoly and introducing competition."

Following the splitting up of the State Power Corporation at the end of last year, China is planning to create six regional competitive power markets in three years in a determined move to break up the traditional province-based electricity monopolies.

China is also carrying out reform of the electricity price by loosening state control.

The recently-signed contracts on selling and distributing electricity from the Three Gorges Power Project have attracted attention of many people. This is because they help mitigate power shortages and mark a key transition in electricity price determination from being state-designated to market-regulated.

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