China Considers Power Price Increase by End of 2009

9 August 2009 (Last Updated August 9th, 2009 18:30)

China is contemplating a hike in on-grid and retail power rates under a pricing scheme that has not been in use since 2004, a report in the China Times says. The proposal includes larger hikes in retail charges against that of on-grid prices. The plan will benefit grid opera

China is contemplating a hike in on-grid and retail power rates under a pricing scheme that has not been in use since 2004, a report in the China Times says.

The proposal includes larger hikes in retail charges against that of on-grid prices.

The plan will benefit grid operators and power companies that are suffering from escalating losses and decreasing profits as they could not charge consumers higher input rates.

Supply negotiations between coal miners and power companies will also be affected by the move.

According to the 2004 pricing formula, if costs of coal shift 5% every six months the administration will modify power rates.

Since 2005, however, the rules have not been followed properly.

The government was concerned too many hikes in too short a time frame in line with coal price hikes might hamper growth of the economy.

In spite of two increases in power rates, several coal-fired stations could not cope with coal cost hikes in 2008 and heavy losses were incurred and five key Chinese power production companies became involved in disputes with coal miners during annual supply negotiations.

Miners have requested a hike as they have paid higher tax charges and coal rates under long-term supply agreements coming in at less-than-market rates, while the power companies are adamant about having stable coal rates because of power price caps.

The dispute has been partly solved due to the drop in coal rates and adoption of flexible measures such as advance payments and trading through middlemen.

According to the newspaper report, the coal-power pricing proposal will become effective in the second half of the year, and investigations will continue due to the complications in the pricing environment in 2009.