Electricity Prices Could Be Cut As Early As October

The continuing sharp price cuts have forced the government to advance plans to adjust electricity prices this year.
On August 16, a source close to the national development and reform commission (NDRC) told reporters that the NDRC has already made a preliminary plan to adjust electricity prices this year, and will cut them as early as October this year if coal prices do not rebound.
At the same time, the continuing downturn in the coal market is a good time to reform the power system.
Electricity prices could be cut as early as October
Local governments were overwhelmed by falling coal prices and qi pressured the national development and reform commission to cut electricity prices.
In the first half of August, the price of coal in the bohai rim region continued to decline significantly. On August 14, the price index of coal in the bohai rim region released by the Marine coal network index center showed that the comprehensive average price of 5,500 kcal coal in the current period closed at 559 yuan/ton, down 6 yuan/ton from last week, down 1.06%, down 11% from the previous year.
Li xuegang, an expert on the coal industry, said the sharp increase in China’s coal imports in July hit demand for domestic coal in coastal areas again.
Falling coal prices and sluggish economic growth have led governments in many countries to call for coal power linkages and lower electricity prices to boost industrial power consumption and boost economic growth.
Sources told reporters that the national development and reform commission has made a preliminary plan to adjust the electricity price this year in order to maintain the severity of the implementation of the coal power linkage policy due to the huge drop in coal prices and pressure from local governments.
Speaking at a press conference on interim results, deputy chairman of China national electricity corporation (00002.hk), nguyen su suni-mekong, also said electricity prices were affected by a number of factors and therefore needed to be adjusted at the end of the year depending on conditions in the second half of the year.
But in the five big power group power expert liu’s opinion, because the cost of coal in power generation enterprises accounted for about 70%, the current downturn in the coal in the electric power enterprise profit, but due to high coal prices for many years in front of the electricity price is not to adjust accordingly, lead to electricity providers policy-related losses, the debt is expected to 5-10 years to finish, also the main cause of this is also the government carefully cut tariffs.
The increase in environmental costs is also a factor in the opposition of power companies to lower the electricity price. The comprehensive denitration and other environmental renovation work started last year requires large investment, and the subsidized electricity price issued by the state is far from enough to offset the increase in cost. The combined price of coal power in previous years is far from being in place, and the thermal power enterprises have a large amount of debt outstanding. The debt ratio of the five power generation groups is above 80%, which is far higher than the warning line of sasac.
The local government’s bailout of the city is not working well
The continued decline in coal prices has not only prompted the government to cut electricity prices, but also forced local governments to rescue the coal market.
According to the China coal industry association, the decline in the coal market has not only failed to improve this year, but also intensified. In the first half of this year, the profits of coal enterprises above the designated size decreased by 43.9% year-on-year, and the total loss of loss-making enterprises was 198.58 billion yuan, up by 134.6% year-on-year. Six provinces and cities in heilongjiang, jilin, chongqing, sichuan, yunnan and anhui all suffered losses in the coal industry.
Since late June, shenhua group, a domestic coal giant, has been engaged in a “price war” with China coal energy, another giant, sending the market for thermal coal into a deep slump.
In order to prevent the sharp decline in coal prices, Shanxi Province, a major coal producing province, has launched a series of measures to protect coal, including “20 coal lines”, “20 coal gas layers”, and a combination of shanxi coal enterprises and five major power plants. Li xiaopeng, governor of Shanxi Province, even went so far as to hold talks with five large power groups, hoping to increase coal procurement in shanxi and sign a long-term cooperation agreement.
At the same time, anhui province has also actively followed suit, guiding power enterprises to buy more coal in the province. In addition, shaanxi and Inner Mongolia two large coal – producing regions are also in preparation for a new coal policy.
Seven large coal groups in shanxi have signed medium – and long-term agreements on the supply of thermal coal with five power groups and some local power companies. The agreement is signed in the form of an economic contract and is more legally binding. The two parties have clearly agreed on the settlement price.
But in power expert liu’s opinion, the government’s administrative intervention force five big power group and the coal enterprise in Shanxi Province signed a long-term agreement, but the quantity and quality agreed, easily price in practice is very difficult, now see power plant inventory is still high, procurement is still not active, medium and long term agreement finally must perform the result is bad, or even go away.
However, the government rescue in part to promote the coal market tax clearing.
At present, all kinds of miscellaneous fees and taxes in the coal market account for more than 20% of the coal price. In order to save the market, some local governments began to clean up unreasonable fees.
“Shenhua group was actually less affected by the market downturn, mainly because shenhua’s coal cost is lower. Therefore, compared with the efforts of the government to save the coal market, it is the key for the coal enterprises to reduce costs and improve efficiency.” “Mr. Liu said.
Reform of the electricity system was carried forward
It is worth noting that the current environment of low coal prices is a good opportunity to accelerate the implementation of power system reform.
The China coal industry association believes that the era of rapid economic growth has come to an end. As the economic growth rate drops, the elastic coefficient of coal demand will further decrease. If the economy grows at about 7 per cent, then annual coal demand growth will be around 2 to 3 per cent. That is well below the 9 per cent growth rate recorded for several years before 2011.
The downturn in the coal market will continue in the short term, while power sector reform is in place. At present, the government has been gradually advancing the power system reform.
On August 8, the national energy administration (nea) issued a notice concerning the current direct transaction between power users and power generation enterprises, saying that the state authorities will no longer carry out administrative examination and approval for the pilot project. All regions should continue to promote the direct transaction between power users and power generation enterprises. Regions that have already carried out pilot projects should summarize their experience on the basis of the pilot projects, and continue to promote those that have not yet conducted direct transactions, and should carry out relevant work in accordance with the actual conditions of the regions.
The so-called direct transaction of electricity is to determine the price of electricity purchase and power purchase through direct negotiation between the power generation enterprise and the end-purchase large user, and then entrust the power grid enterprise to convey to the user. In the past, coal price was high and the profit of power generation enterprises was relatively thin. At present, the price of coal dropped and the profit of power generation enterprises increased correspondingly. The market environment is conducive to the development of direct power supply.
Although direct purchase of electricity may stimulate the development of energy-consuming industries, it is beneficial for the electricity market to change the current situation of state monopoly in power purchase and sales, as well as the market situation of multiple buyers and sellers.
From the price reform, transmission and distribution price reform is undoubtedly the most important. According to han huifang, chairman of the energy and water prices committee of China price association, at present, power transmission and distribution price is not set independently, but adjusted part of price space through annual transmission and distribution price and distribution price. The compensation used for construction projects is mainly reflected in the price difference between the sales price and the on-grid price. The implementation of direct power purchase means that the transmission and distribution costs of the grid will be open and transparent, which is conducive to promoting the reform of transmission and distribution prices.
At the same time, the recent “2013 power price management and reform seminar” also reported that the next step, the government will further improve the coal power price linkage mechanism, now the general direction has been clear, it needs to be further detailed.