Facing an increase in coal prices of up to 10 percent this year,
China's electricity generators may resort again to asking for
government-permitted price hikes
"Power producers may suggest to the government raising
electricity tariffs in order to counter coal price increases of an
average of 30 yuan per ton this year," said Ye Rongsi, senior
adviser with the China Electricity Council (CEC).
However, an analyst from the China Coal Industry Association,
who did not want to be named, threw a spanner in the works by
saying that power companies cannot easily raise prices since they
face an on-grid electricity price bidding mechanism.
Rising coal prices have long been a bone of contention between
power generators and coal producers in China. Electricity giants
maintain that rising coal prices are undermining their profits.
Compared with the coal prices, which are more market-oriented,
the nation's electricity prices still come under government
control.
Due to the rising cost of coal which is China's main resource
for electricity production, the Chinese government decided to
approve a mechanism linking coal and power prices at the end of
2004.
Under the linkage, electricity prices will fluctuate in line
with coal price increases. If coal prices rise by more than 5
percent in a six-month period, electricity prices will be centrally
adjusted.
Under the mechanism, 70 percent of coal price increases are
passed on to consumers with power generating firms absorb the
remaining 30 percent.
Leaving key energy prices to market forces is an inevitable step
on the road to a market-oriented economy, said Zhou Dadi, former
director of the Energy Research Institute of the National
Development and Reform Commission (NDRC).
Coal prices rise
Just a few days ago China's electricity giants and coal
producers gathered in Guilin, South China's Guangxi Zhuang
Autonomous Region, to sign this year's electricity coal supply
contracts.
The recent gathering was the first following the government's
scrapping of its previous coal procurement meeting. Unlike meetings
in the past, electricity companies agreed to increases in coal
prices without the habitual tough negotiation.
Some analysts said the rapid development of the nation's
electricity industry has put pressure on power companies to produce
more coal for fuel expansion, leaving them in a bad position to
take a tough stance.
Electricity consumption is certainly on the rise. Datang
International Power Generation Co Ltd, one of China's five main
power companies, says the company produced 93.5 billion
kilowatt-hours of electricity in 2006, an increase of 31.65 percent
over 2005.
The rising price of coal is due to both environmental and safety
factors that have been included in overall cost calculations, said
analysts.
"The coal price rise in China will be a gradual process," said
Jiang Zhimin, vice-chairman of the China National Coal Association,
"and the nation should further improve its coal pricing system to
make it more market-oriented."
The electricity industry
Coal-fired power plants account for over two thirds of the
nation's installed capacity. Last year the nation's total
generating capacity surpassed 622 gigawatts, an increase of 20.3
percent, according to statistics from the CEC.
Furthermore, the proportion of coal-fired power plants saw a
rise in their total installed capacity amounting to over 77
percent.
The coal industry has undergone rapid development, producing
1.86 billion tons of coal in the first 11 months of 2006, an
increase of 12 percent, said the National Bureau of Statistics.
China's coal output is expected to reach 2.6 billion tons in
2010 as it continues to be the nation's most important energy
resource, according to an NDRC outline of the 11th Five-Year Plan (2006-10) for the coal
industry.
Despite the nation's economic reform, technological innovation
and energy-saving efforts, the demand for coal will not slowdown in
the foreseeable future, said the outline.
(China Daily January 25, 2007)