Workers put up transmission wires in Haimen city, Jiangsu province. The government will have to confront the severe discrepancy between coal and power prices when electricity shortages become serious again this winter. Xu Congjun / For China Daily

As inflation slows, State can help plants to battle high cost of coal

BEIJING - Now is a good time to raise electricity prices to ease power plants' losses while China's inflationary pressure is easing, experts with the Energy Research Institute of the National Development and Reform Commission (NDRC) said on Monday.

The government has to confront the severe discrepancy between coal and power prices when power shortages become serious again this winter, said Jiang Kejun, a researcher at the institute, which is an energy policy think tank for the country's top economic planner.

"Considering the effect on inflation, the government has been hesitant to raise the on-grid power prices," Jiang said. "But with China's inflation easing to a five-month low last month, this is a good moment to make the move."

The consumer price index edged down to 5.5 percent year-on-year in October from 6.1 percent in September, according to the National Bureau of Statistics.

"Coal prices are soaring, which has increased the costs of power plants," Jiang said. "To raise the electricity price could ease the situation to some extent, but it is still not a complete solution."

He said China needs an effective system to balance the discrepancy between coal and power prices, which has gone on for many years.

The coal prices in China are market-oriented while the government sets the price of electricity. Many coal-fired power plants operate at a loss because of the on-going increase of coal prices.

To tackle the power shortage, the NDRC raised on-grid electricity prices twice this year, in April and June. The price of electricity for industrial use was raised by an average of 0.02 yuan in some provinces on April 10 and by an average of 0.0167 yuan again in June.

China is considering increasing on-grid power prices for a third time this year, and the government is likely to give the approval soon, the China Securities Journal reported on Monday.

According to the China Electricity Council (CEC), the power industry association, China Guodian Corp, China Huadian Corp, China Datang Corp, China Huaneng Group and China Power Investment Corp all face increasing losses from power generation - a 7.46 billion yuan ($1.2 billion) total loss in the first seven months this year.

However, Han Wenke, director of the Energy Research Institute, said the discrepancy cannot be solved just by raising the cost of electricity because coal prices will rise again later, as has happened before.

"Ultimately, we will see that a coal price increase will soon offset the higher electricity price for the power plants," he said. "And the problem will still stay in place."

Coal prices will remain high in the following months because of the increasing demand in winter, said Dai Bing, a senior analyst at coal trading website coal.com.cn.

According to the State Electricity Regulatory Commission, China will have a power shortage of 26 million kilowatts at periods of peak use in the coming months. The CEC estimated that the power shortage will even reach 30 million to 40 million kilowatts.

The council said that because of the bad climate, less water and tight thermal coal resources, the power supply in the winter will be insufficient. The provinces in southern China, in particular, will be hard hit.

Many provinces in South China have already set the power supply limits for factories to ensure the supply for households.

Jiang said the country should increase its efforts to develop various means of power generation to complement coal-fired power generation.

"For coal-fired power plants, it is important to employ advanced technologies to increase generation efficiency and reduce the costs," he said. "I believe forming a low-carbon society is the best solution for the energy shortage, and local governments should include it in the power safety plan."

China Daily

(China Daily 11/15/2011 page13)