Electricity prices expected to rise as cost of coal increases

CHINA - China is likely to raise electricity prices soon to reflect increases in the cost of coal, the country's main source of energy for electricity production, according to industry insiders.

Some sources claim the National Development and Reform Commission (NDRC) will increase electricity prices by an average of 2.52 fen (0.31 of a US cent) per kilowatt-hour (kwh).

Electricity prices in China currently average about half a yuan per unit.

Sources said the price of electricity used for agricultural production and chemical fertilizer production will remain unchanged.

The NDRC will call for hearings before any price adjustment of electricity used in homes.

Detailed measures will be unveiled soon, said an official at the NDRC's power price and communications department, who made no further comment.

An official with a top Chinese power producer said it had not yet received information from the NDRC.

"The timing of the price increase is for now not known," said the official, who declined to be named.

"We are taking the rise into consideration," she said. "Apart from the rise in coal prices, we will also take the increasing cost of transportation and waste treatment into account."

Because of the increasing cost of buying coal, the government in 2004 decided to approve the mechanism linking coal and power prices.

This allowed electricity prices to move in line with coal price increases.

The mechanism stipulated that if the price of coal rose by more than 5 per cent in any six-month period, electricity prices could be adjusted.

Under the mechanism, 70 per cent of coal price increases are transferred to end-users.

Power generation firms bear the remaining 30 per cent of the fuel cost increases.

"Loss-making power plants are set to benefit from electricity tariff hikes," said Wang Yongping, secretary-general of the China Electricity Council.

"What is more important is to cool down industries which use a lot of electricity," said Wang.

"This year China will see less shortages in power supply."

Wang said the shortage of power will total about 8 million kilowatts at peak hours this summer in East and North China.

Newly-installed capacity totalling 30 million kilowatts will be released during the first half of this year and an additional 45 million kilowatts will be generated in the second half of this year.

This will enable most of the country to meet demand at peak hours this summer, said Wang.

Total electricity consumption for the first quarter of this year stood at 642.987 billion kwh, up 11.8 per cent year on year.

The figure included 459.5 billion kwh used by industry, said Wang.

"China has a long way to go to curb the expansion of energy- intensive sectors," he added.