In the fight against the energy crisis, China will let the price of coal-fired electricity float freely and force industrial and commercial consumers of energy to buy it on the market on the grid "as soon as possible." This was announced on Tuesday by the National Development and Reform Commission of the People's Republic of China (NDRC).
Growing power shortages in China have forced production cuts in industries such as cement, steel and aluminum as power producers, unable to pay sky-high coal prices, cut their generation.
It is expected that involving all industrial and commercial consumers in power exchange transactions and allowing the market to set prices will stimulate producers to increase their electricity production.
“The pricing reform is designed to reflect electricity demand and consumption and to some extent ease the working hardships of power companies and encourage power plants to increase their power supply,” said Peng Shaozong, an NDRC spokesman.
The reform will allow coal-fired power plants to shift the bulk of fuel procurement costs to end users through market electricity prices.
About 44% of China's industrial and commercial companies currently trade in electricity markets, buying electricity from exchanges in cities such as Beijing and Guangzhou, while other such consumers buy electricity at fixed prices directly from state-owned grid companies.
China's State Council on Friday said it would allow coal-fired electricity prices to hover up to 20% from baselines.
The NDRC also stated that residential and agricultural users, as well as public welfare initiatives, will continue to follow fixed electricity prices, which are often set too low to cover the cost of generating utility fuel.
Local governments are encouraged to offer support to small and medium-sized as well as individual business users on electricity prices to reduce the financial burden of potential electricity price increases.
Analysts and traders are forecasting a 12% cut in industrial electricity consumption in the fourth quarter, as coal supplies are expected to decline this winter and prices are unlikely to fall.
China's most active thermal coal futures contract soared 11% on Tuesday to a record high of 1505.6 yuan ($ 233.33) per tonne.