Better pricing may solve power shortages

China is steadily promoting reform of energy pricing, with local provinces further liberalizing how coal-fired electricity is traded.

This follows last week's statement from the National Development and Reform Commission, the country's top economic regulator, that all coal-fired power prices will be determined by market forces.

In response, Jiangsu Electric Power Trading Center Co Ltd said 294 transactions were made on Oct 15 for less than 2 billion kilowatt-hours at a price of 468.97 yuan ($73.3) per megawatt hour, up almost 20 percent over the benchmark.

As many as 44 power generation enterprises and 69 electric power trading companies participated in the trading, it said.

These represented the first set of transactions after the government announced prices of coal-fired power can fluctuate within a range of 20 percent, compared with the former ceiling of 10 percent and floor of 15 percent.

The improved pricing mechanism will lift costs for high energy-consuming enterprises, which are not bound by the 20 percent upper limit, in order to curb "irrational power consumption" and to encourage firms to improve their energy efficiency, the NDRC said.

According to the Jiangsu Provincial Development and Reform Commission, the adjustment to coal-fired power prices came after the government announced last week it will further liberalize pricing to help coal-based power plants resolve their cost difficulty.

Coal prices had been surging due to tight supplies, leading to output cuts at power stations seeking to avoid losses.

Other provinces are also pushing forward power price reforms. Analysts said enterprises that consume high amounts of energy will see their costs rise substantially.

Wei Hanyang, a power market analyst at research firm BloombergNEF, said the reform will improve pricing mechanism and encourage such enterprises to improve their energy efficiency in order to keep their costs low.

This will in turn help ease the ongoing power shortage and deepen the sector's market-oriented pricing reform, Wei said.

Lin Boqiang, head of the China Institute for Studies in Energy Policy at Xiamen University in Fujian province, said wider price fluctuations will effectively ease the country's tight power supply situation.

In the long term, however, it is necessary to reform the industry structure and optimize the country's energy structure to solve power shortages. Energy guzzlers should be pushed to further implement energy conservation and emission reduction measures to avoid getting weeded out, he said.

According to the NDRC, corporate consumers of high levels of electricity might still break the 20 percent ceiling, but residential and agricultural users, as well as public welfare initiatives, will continue to have fixed power prices.

State-owned enterprises, including State Grid Corp of China, the largest power provider in the country, are also stepping up measures to ensure adequate domestic power supply during the upcoming heating season.

Earlier this month, coal enterprises in Erdos, the Inner Mongolia autonomous region, have signed agreements with many provinces and municipalities, including Tianjin, Heilongjiang and Jilin, for supply of 77.06 million tons of coal, to ensure sufficient electricity supplies.

On Wednesday, the National Energy Administration asked power grid companies to ensure wind and solar power suppliers are connected to their grids as soon as possible, so as to ensure energy supplies remain adequate.