China’s Regulated Electricity Power Squeezed by Surging Coal Prices

China’s ever-rising coal prices and the stalled government-controlled electricity price are putting pressure on power generators, and companies are losing money. The five biggest power producers have been urging an upgrading of the coal-electricity linkage policy for some time. The National Development and Reform Commission (NDRC) is said to be studying the question but so far coal goes up while electricity prices remain the same.
While coal prices have been left to market determination, the price of electricity is under strict regulation. Naturally, coal prices have been rising these years. Since the 2002 marketization of coal, the price of coal used to generate electricity has increased from 110 yuan per ton in 2002 to nearly 950 yuan now, and in some regions, the price has reached 1000 yuan per ton. Taiyuan’s coal companies, affected by the price hike of raw materials and the shortage of supply, have increased their coke prices by 100 yuan to 200 yuan per ton. Many miners are now selling their first level coke at over 2000 yuan per ton.

According to the coal-electricity linkage policy, if average coal prices rise more than 5% in 6 months, electricity prices will be adjusted accordingly. By the end of 2007, the price of coal in the National Coal and Coke Trade Fair had increased by more than 10%, and the coal used for generating electricity by 30-40 yuan, adding around 42 billion yuan to power producers’ costs. Analysts have calculated that the increased cost could be absorbed by an increase of only 0.02yuan per Kwh in the electricity price. But prices have not been allowed to rise.

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