Bloomberg News

China Lifts Electricity Price, Caps Coal Cost Amid Power Squeeze

December 01, 2011

(Update with hydropower tariff in fifth parargraph.)

Dec. 1 (Bloomberg) -- China, the world’s biggest energy user, increased electricity prices for the first time in six months and said it will cap the cost of power-station coal in an attempt to reduce outages in coming months.

Wholesale rates charged by coal-fired power plants to distributors, or the on-grid tariff, rose by 0.026 yuan (0.41 cent) a kilowatt-hour, and retail power prices increased by an average 0.03 yuan a kilowatt-hour, effective today, according to a statement on the National Development and Reform Commission website yesterday. Price gains for contract thermal coal next year will be limited to less than 5 percent, it said.

The increases may reduce pressure on profit margins at power plants, encouraging them to boost generation. The nation faces a shortage of as much as 40 gigawatts in the winter and spring, the China Electricity Council said Oct. 27. Electricity prices had been frozen since June as the government focused on fighting inflation, even as the benchmark domestic coal rose to a three-year high last month.

“The measures are aimed at easing cost pressure on utilities and making them generate more electricity,” Dave Dai, regional head of clean energy and utilities research at Daiwa Capital Markets Hong Kong Ltd., said by telephone. “But it will only work in the short term without a long-term solution.”

The government also increased on-grid tariffs paid to some hydropower and gas-fired power plants, NDRC said in statements on its website today.

The nation will start so-called progressive power pricing for residential users after local governments complete consultations, NDRC said yesterday. Retail power tariffs for 80 percent of households will remain unchanged under the pricing mechanism, which aims to charge larger electricity users at higher rates, the NDRC said.

Spot Coal Capped

Spot coal prices will also be limited. Thermal coal with an energy value of 5,500 kilocalories per kilogram at northern Chinese ports will be capped at 800 yuan a metric ton starting Jan. 1, the statement said.

Benchmark prices at Qinhuangdao, the nation’s largest coal port, rose to as much as 860 yuan a ton on Oct. 23, the highest level since 2008, as utilities built up stocks to meet winter demand, according to the China Coal Transport and Distribution Association. The price was at 840 yuan to 850 yuan on Nov. 27.

Chinese inflation slowed the most in almost three years in October, giving the government more room to lift electricity tariffs. Consumer prices rose 5.5 percent, the lowest rate in five months, compared with 6.1 percent in September, official figures show.

The government last raised retail power prices on June 1, together with on-grid tariffs for 15 provinces. It allowed some on-grid adjustments to be backdated to April this year and January 2010.

Record Coal Imports

China is the world’s biggest producer and consumer of coal. It bought record amounts of the fuel overseas in September as importers sought cheaper regional supplies. Purchases rose 25 percent from a year earlier to 19.1 million tons, the NDRC said Oct. 20.

“The coal price cap will slow down the nation’s imports of the fuel as the purchase is most sensitive to prices,” David Fang, a director at China Coal Transport and Distribution Commission, said by telephone from Beijing today.

The nation’s power-generating capacity was 960 gigawatts last year, with coal and oil-fired power plants accounting for 73 percent and hydropower dams 22 percent, the National Energy Administration said in January.

The NDRC also said yesterday that it will double surcharges on power users to 0.008 yuan a kilowatt hour to subsidize renewable-energy projects.

--Winnie Zhu. Editors: Paul Gordon, Mike Anderson.

To contact Bloomberg News staff for this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net


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