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More power price hike

(China Daily)
Updated: 2008-08-21 10:24

The government's second electricity tariff increase this year will somewhat reduce domestic power producers' losses, though still not enough to offset the rise in generators' fuel costs.

Such a hike of on-grid electricity tariff is needed to spur power plants to raise their output. Widespread power shortages will seriously hinder the government's efforts to sustain sound and fast economic growth.

However, it is more important that the move to boost the prices of electricity sold to distributors should pave the way for higher power prices to facilitate energy conservation across the country.

China raised the on-grid price of power supplied by coal-fired plants by 0.02 yuan (0.28 US cent) per kWh yesterday while leaving retail power price unchanged.

The 5-percent hike in electricity tariffs came as a relief to power producers. Soaring coal prices and government caps on electricity tariffs have much eroded the profit margins of power firms in the first half of this year, prompting them to curtail or even shut production.

Since the government keeps a lid on electricity prices for consumers, the current move will, at first glance, only shift the loss from the balance sheet of power producers to that of electricity distributors, not adding to consumer inflation for the moment.

Yet, by passing through the surge of coal prices further closer to consumers, policymakers are sending a signal to the public that they should better prepare for higher power prices as soon as possible.

It is widely believed that accelerated inflation early this year had largely deterred policymakers from hiking domestic power prices to reflect the jump of global energy prices.

Now, with the country's headline inflation cooling from 8.7 percent in February to 6.3 percent in July, the government has obviously gained more room for manoeuvre to introduce power price hikes that appear necessary to raise energy efficiency. The government has made it a top goal to cut the country's energy intensity by 20 percent between 2006 and 2010.

China has taken a slew of measures to encourage energy-saving efforts by all sections of the society. One case in point is the allocation of a considerable sum of fiscal funds to help spread the use of energy-efficient light bulbs.

Nevertheless, if the program is to be really effective, policymakers must raise electricity prices. Green subsidies can attract more consumers to buy energy-efficient light bulbs, but only higher power prices can ensure that they will use them in a thrifty way.