China on Friday raised retail prices of electricity by an
average of 0.025 yuan (0.31 of a US cent) per kilowatt-hour (kwh)
for the first time since May 2005.
"The price hikes are intended to resolve the contradiction
caused by rising coal prices, promote the development of renewable
energy, install desulphurization facilities at coal-fired power
plants and to fund more power grid projects," the National
Development and Reform Commission (NDRC), the nation's top economic
planning body, said in a statement on its website.
The nation's biggest power generator, Huaneng Power
International Inc, said in a statement it increased the average
on-grid tariffs of its coal-fired power plants by 0.009 yuan (0.11
of a US cent) per kwh.
The price increases varied widely from province to province. In
east China's Shandong Province, Huaneng Power raised
tariffs by 7.3 percent to 381.4 yuan (US$47.03) per megawatt-hour
(MWh).
While in south China's Guangdong Province, the company raised prices
by 6.2 percent to 497.71 yuan (US$61.37) per MWh, said the company
statement.
"The main purpose of adjusting the on-grid tariffs is to resolve
the conflict arising from the increase of the coal price and the
desulphurization renovation of power plants," said the company
statement.
The move aims to further address the situation caused by rising
coal prices, according to some experts.
"Now the nation's coal prices have been linked more to the
market, compared with electricity prices," said Wu Chenghou,
executive director of China Coal Sales and Transportation
Association.
China's coal prices have become market-based, while electricity
prices are still controlled by the central government, he said.
The different pricing mechanisms have led to disputes between
coal suppliers and power firms, said Wu.
Because of the increasing cost of coal, the country's main
source of energy for electricity production, the government in 2004
approved the mechanism linking coal and power prices.
This allowed electricity prices to shift in line with coal price
increases, he said.
Under the mechanism, if the price of coal rose by more than 5
percent in a six-month period, electricity prices could be
adjusted.
With the mechanism, 70 percent of coal price increases are
transferred to end-users. Power generation firms bear the remaining
30 percent.
However, electricity prices have not yet been fully linked to
the market. The government will do more work on the electricity
pricing system in order to link it more closely to movements in raw
materials, said an official with the NDRC who declined to be
named.
China is trying to adjust its power mix, hoping that clean power
will make up at least 35 percent of the entire supply in 2010,
experts said.
Under the Renewable Energy Law, which took effect this year, the
Chinese Government announced rules for setting prices on
electricity generated from wind, solar and biomass in January.
Power generators that use renewable fuels are allowed to charge
higher rates to power grid operators than coal-fired plants, with
the additional cost split among grid operators and partly passed on
to retailers.
(China Daily July 1, 2006)