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
"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 per cent 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
per cent 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,
Under the mechanism, if the price of coal rose by more than 5 per cent in a
six-month period, electricity prices could be adjusted.
With the mechanism, 70 per cent of coal price increases are transferred to
end-users. Power generation firms bear the remaining 30 per cent.
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 per cent 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
(China Daily 07/01/2006 page2)
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