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 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, he said.

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 to retailers.

(China Daily 07/01/2006 page2)

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