China raises price of electricity for non-residential use

Updated: 2009-11-20 10:27

China's National Development and Reform Commission (NDRC), the top economic planning agency, Thursday announced a rise in the price of electricity for non-residential use by 2.8 fen ($0.4 cents) per kWh on average nationwide, as of Friday.

Residential electricity prices would not be raised this time. However, they would be charged on a progressive basis in the future, which meant prices would increase with consumption, said Cao Changqing, director of the NDRC's department of pricing.

The price increase would promote energy conservation awareness and the building of a resource efficient and environment-friendly society, added Cao.

China increased the price of coal-fired electricity, which power grid operators buy from power plants, by 2 fen on average last August, in a bid to ease cost pressures for power plants from rising coal prices.

However, the retail prices of electricity had not been raised since then, which resulted in losses for grid operators, he said.

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State Grid Corporation of China and China Southern Power Grid, the country's two leading power grid operators, lost a total amount of 16.1 billion yuan over the first eight months, the NDRC said in a statement on its website.

"If the electricity price could be raised by 1 to 1.5 fen per kWh, the State Grid Corporation of China could make up the losses incurred in the first half of this year within six months and have optimistic prospects for profitability," said Xie Dacheng, an industry analyst with Guangdong-based Guosen Securities.

Official figures showed that China's power consumption in October rose 15.87 percent year-on-year to 313.42 billion kWh, up for the fifth consecutive month since June.

The progressive pricing mechanism for residential users would be carried out in line with actual situations in different areas and after discussions and research, Cao said.

Residential electricity accounted for 12.8 percent of the country's combined power consumption in the first half, according to the China Electricity Council.

China's non-residential electricity prices differ according to the area and sectors, but are higher than the price of power for residential use.

For instance, electricity for residential use in Beijing was 49 fen per kWh, while that for agricultural use was around 52 fen per kWh, for secondary industry use 76 fen per kWh and for commercial use 79 per kWh, according to Beijing Electric Power Corporation.

Cao said the power price rise would not push up China's consumer price index (CPI), a main gauge of inflation.

China's CPI dipped 0.5 percent year-on-year in October, while the producer price index (PPI), a major measure of inflation at the wholesale level, dropped 5.8 percent in October from a year earlier, according to the National Bureau of Statistics.

The electricity bill only accounted for a small share of household spending. Even after the future rise in residential electricity prices, it would not add pressure to a CPI hike, said Li Mingliang, an analyst with Shanghai-based Haitong Securities.

The residential power price was 50 fen per kWh on average nationwide last year, lower than the non-residential power price, said the commission, without giving the average non-residential power price across the country.

"As the electricity consumed by secondary industry, including mining, manufacturing, building and construction sectors, accounted for more than 70 percent of the country's total, non-residential power price rises will exert more influence on the PPI than CPI," Li said. (1 yuan = 100 fen)