BEIJING: China said on Tuesday it will allow coal-fired power plants to charge some customers market-driven prices for electricity, as a worsening energy crisis persuaded authorities to rush through their boldest reform of the power sector in decades.
Responding to shortfalls in power generation brought on by shortages and record high prices for coal, the government has taken a range of steps to boost coal production and manage electricity demand at industrial plants.
To help power companies pass on the high costs of coal, the National Development and Reform Commission said that all electricity generated by coal-fired plants would be priced via market trading “in an orderly manner” from Oct. 15.
It also instructed commercial and industrial users to buy direct from the market or via agents over the grid “as soon as possible.”
A worsening power crunch has forced production curbs across industries such as cement, steel and aluminum, dampening the outlook for China’s economy.
Utilities have struggled to keep up with post-pandemic demand for electricity, and power plants generated less as rising price of coal rendered operations uneconomic.
Pushing all industrial and commercial users to the power exchanges and allowing prices to be set by the market is expected to encourage loss-making generators to increase output.
Addressing a press briefing, NDRC official Peng Shaozong said the reform was “designed to reflect power demand and consumption, and to some extent to ease operation difficulties of power firms and encourage plants to increase power supply.”
The most-active China thermal coal futures contract soared 11 percent to a record high 1,507.8 yuan ($233.55) a ton on Tuesday.
“The relaxation of thermal power pricing is a positive for growth by reducing power outages,” Frederic Neumann, co-head of Asian Economic Research at HSBC told Reuters.
“However, this comes with a further rise in price pressures, as power companies can now pass on higher input costs to their commercial and industrial customers.”