China to press ahead with power pricing reform

• 8 years ago (2016-09-12)
• David Flin

Asia 892 North America 1021

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The pace of reform in China’s electricity market is gathering speed, after stalling for a decade. Several policy documents have been released indicating increasing competition and further downward pressure on prices. Large power users, particularly energy-intensive manufacturers, will emerge as the biggest winners, while the least efficient power generators will be hit the hardest.

Hu Xinmin, a senior manager at the electricity industry consultancy The Lantau Group, said: “Due to current overcapacity, power prices can only go down as more competition is introduced.”

The current power supply surplus is 45 per cent, as new power plants come on line combine with a slowdown in power demand that began three years ago.

Beijing has proceeded cautiously in the latest round of reform. It has started by encouraging generators and large commercial and commercial end-users to negotiate volumes and prices bilaterally, by-passing the grid operators.

It also forced grid companies to calculate and report their own operating costs, on which distribution tariffs were set. They are encouraged to cut costs, under an incentive system that allows them to keep some of the savings instead of passing them on to end-users. Grid companies were also stripped of their monopolies in the retail segment, as other firms have been allowed to retail electricity.

Two-thirds of the amount subject to market pricing this year will be from bilateral negotiations with end users, with the remainder from open market competition and cross-regional power trading.

The National Energy Administration has published details on the pilot market reform plans for Hubei, Sichuan, Liaoning, Shaanxi, and Anhui. Each outlined broad objectives for establishing their respective provincial power trading market.

The Sichuan government aims to set up trading rules and build trading support and risk management systems by 2020, establish a spot market over the following four years, and integrate with other regions’ power markets after 2024.

In Shaanxi, authorities will set up an independently-run power trading platform by 2018, and a long-term contract based trading system supplemented by some spot market trading by the end of 2020.

In Liaoning, authorities have set a target to expand the total amount of direct bilateral trading volume between generators and large users by 40 per cent to 14 TWh this year.

The Anhui document did not set any timetable for implementation of its plan.