China will fully liberalize pricing for coal-based electricity as part of a drive to deepen market-oriented pricing reform in the sector, the top economic planner said on October 12 on its website.
In principle, 100% coal-fird power output will be sold through market trading, up from 70% now, based on a pricing mechanism of "benchmark part + floating part" introduced from the beginning of 2020.
The floating part of market-based electricity transaction prices is adjusted to a range of 20% fluctuation in either direction, compared with the current ceiling of 10% and the floor of 15% from the benchmark price. But trading prices of power supplied to energy-intensive companies are allowed to increase beyond the 20% ceiling. Spot trading prices can go up or down beyond the 20% limits.
All commercial and industrial users have to buy directly from the market or via agents. Currently, about 44% of users are doing this way, suggesting the majority of users are still paying their bills at a fixed price to grid operators. The current pricing mechanism called "Commercial and Industrial Catalog Sales Tariff" will be revoked, effective from October 15. The NDRC said relevant authorities need to speed up the switch by letting more users participate in market transactions, especially those with demand above 10 kV.
But the NDRC insisted on the price stability for electricity supplied to families and farms and asked authorities to dispatch low-priced electricity to them first.
"If the market-trading electricity prices move up, it will, to a certain extent, push up the cost of electricity for enterprises and the industrial producer price index (PPI) has a certain increase as well, but the reform is conducive to improving the supply and demand situation, easing power producers' operating difficulties to encourage them to increase supply, and therefore better protecting the demand for end-users," said Peng Shaozong, an official with the NDRC.
"Overall, the impact of the reform on consumer price index is limited." Peng Shaozong said.
The reform is Beijing's latest effort to deal with an energy crisis gripping the world's second-largest economy that is expected to last through the year-end.
Wan Jinsong, direct of the NDRC's price department, said the reform will smoothen the relationship between coal and power producers. In the long run, the reform aims to roll out the rest 30% of coal-fired power output sold through market transactions, laying a foundation for electricity generated from other sources going into the market.
(Writing by Alex Guo Editing by Tammy Yang)
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