China will raise on-grid power prices and electricity rates for industrial users effective Thursday, and put a ceiling on coal prices, as the government moves to adjust the energy pricing system.
A man pays for electricity using a State Grid Corp terminal in Cangzhou, Hebei Province.
On-grid electricity prices will increase by 0.025 yuan ($0.0039) a kilowatt hour (kWh) and electricity for industrial users will cost 0.03 yuan more for each kWh, the National Development and Reform Commission (NDRC), the top economic planner, said on Wednesday.
Industry sources said that the price hikes will help coal-fired power plants cut their losses, especially as the government also decided to control coal prices.
According to the NDRC, the government will cap the spot price for benchmark coal at Qinhuangdao Port at 800 yuan a ton and limit increases in term-contract unit coal prices to less than 5 percent.
"Compared with the other two electricity price rises in April and June, this hike will be more effective for solving the contradiction between rising coal prices and the in-creasing losses of coal-fired power plants," said Lin Boqiang, director of the China Center for Energy Economics Research of Xiamen University.
Since coal prices are market-oriented, while electricity prices are set by the government, rising fuel costs in recent years have put many coal-fired power plants into financial difficulties.
Lin said raising on-grid power prices while simultaneously controlling coal prices will help cut coal-fired power plants' losses and ease power shortages this winter.
However, he said that based on previous experience, it wasn't certain that the policy on term-contract pricing would be followed.
Another industry insider who declined to be identified said that the higher power prices coal-fired plants could charge would easily be offset by the increased costs of new emission policies that take effect next year.
The government has ordered all coal-fired power plants to strictly observe the new rules, which require 100 percent denitration during power generation. This process prevents the dispersal of compounds that contribute to acid rain.
The insider said that the rules mean coal-fired generation costs will rise by 0.02 yuan a kWh, not including the cost of denitration equipment.
Another important change in the power pricing system that the NDRC announced on Wednesday is the end of uniform pricing for residential users.
Up to 80 percent of all residential users will continue to pay uniform unit prices.
However, households whose power use exceeds a certain level - which has not yet been announced - will pay more than 0.05 yuan a kWh for the excess, with a maximum charge of 0.3 yuan a kWh for those who use the most electricity.
There will also be a certain amount of free electricity use for poor households.
Details of the new regulations for residential use will be released after local governments hold hearings and gather public feedback.
Lin said the new residential power pricing system would be fair and effective, as it asks affluent households to pay more, and it would also contribute to reducing carbon emissions.