Commission to Incease Electricity Prices to Cope with Power Generation Costs
China’s National Development and Reform Commission is planning to increase on-grid electricity prices by at least .02 RMB per kilowatt an hour to aid local power generators. The provinces that will be hit by the increase are Jiangxu, Guizhou and Hunan. The provinces of Henan and Hubei will also be hit with an on-grid price increase of .005 RMB per kilowatt hour.
In the month of April the commission decided to raise grid prices in 16 provinces and regions by an average of .012RMB per kilowatt hour. Although the retail electricity prices will be left untouched in hopes of avoiding any extra inflation fluctuations. The inflation rate was high in March hitting a 32 month high of 5.4 percent and increased slightly to 5.3 percent in April.
Due to lack of coal and high coal costs, the power generating plants in Central and Southern provinces are not running at their full capacity. Industry insiders believe that the increase on the on grid prices might help ease operational pressures. The increase will also encourage power plants to increase the power outputs and supply the provinces with enough power.
The energy market is half liberalized since the power companies need to buy coal at market prices, but they are required to sell electricity to utilities at fixed prices that no longer cover the cost of coal. Every summer, China has endured power shortages in most of their industrialized provinces. This year the power shortage came earlier than expected, plus the country has been experiencing heavier power demand since the beginning of the year.
During the months of February to April, which is traditionally off season for power usage, there was a large shortfall in electricity supply that was felt in some provinces in Eastern and Central China. In April, the electricity shortfall worsened in the provinces of Zhejiang, Hunan, Jiangxi and Chongqing. The deputy director for the State Electricity Regulatory Commission said that China may face a much worse electricity shortage not experienced since 2004, and experts are estimating that the shortfall will be around 30 million kilowatts in the summer.
On the other hand, the country’s utilization of it thermal power generators remains unchanged compared to last year. This shows that the power shortage is not due to the insufficient installation of power plants. Instead the prices are disrupting the initiative of the power generating companies that have to bear the higher coal costs. The thermal business in China had a combined deficit of 10.57 billion, a deficit increase of 322 percent compared with the same period last year. This only shows that the rising coal prices are causing the problem.
Thermal power accounts for 75 percent of the country’s total installed power and 82 percent are in need of electricity. This imbalance of the power supply from demand is causing the power outages, in addition to the inconsistency in the coal and electricity is also triggering the power shortfall in provinces.