China considering hiking industrial power prices to ease supply crunch

BEIJING (BLOOMBERG) – The Chinese government is considering raising power prices for industrial consumers to help ease a growing supply crunch.

The rate hikes for factories could come in the form of higher flat fees, or in rates that are linked to the price of coal, according to people familiar with the details of the plan.

The government has also discussed raising rates for residential users if the industrial increases are not enough to solve the crisis, said the people. The plans may still be changed and are subject to final approval, they said.

The discussions are coming as the world’s second-biggest economy faces power shortages that are threatening to slow growth and further strain global supply chains. Record-high coal prices mean many power generators are losing money at current electricity rates, keeping some from boosting generation to meet demand.

In its first high-profile public response to the power crunch that has spread to at least 20 regions in China, the National Development and Reform Commission (NDRC) on Wednesday (Sept 29) said it will let power prices reasonably reflect changes in demand, supply and costs.

However, most power in China is sold at regulated rates, which provinces are allowed to raise by as much as 10 per cent, and it’s unclear if the NDRC is referring to the current limit or confirming rates will be allowed to go higher. Several provinces have already added the maximum 10 per cent, so an additional hike would have to be more than that to have an effect.

The state economic planning agency also said the country will increase coal imports “moderately” and urged power plants to boost stockpiles before winter. It will also push major coal-consuming industries to save and control fuel use, and vowed to avoid abrupt power cuts for corporate users in north-east provinces.

Higher power prices could give generators reason to produce more electricity, while also incentivising users to try to reduce consumption to lower their bills.

To be sure, underpinning China’s power crisis is a shortage of coal, and generators burning more of it will only exacerbate the issue and add to greenhouse gas emissions. Higher power bills for factories could also add to inflationary fears in the country.

Hunan’s Provincial Development and Reform Commission is planning to unveil a trial programme in October that would link industrial power prices to the coal market, China Business News reported.

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