China announced a 5.7 percent increase in electricity prices for businesses and industries and said it will adjust residential tariffs early next year through a new pricing mechanism to promote energy savings.
The last time China raised electricity rates for non-residential users was in July 2008 when they went up by about 5 percent to 0.494 yuan per kilowatt-hour. The tariff for residential use has not moved since July 2006 when it was raised by about 1 percent.
“The increase will help power grids cover rising costs,” said Peng Jizhong, an analyst at Guosen Securities Co. “It will also help them raise capital to boost investment in grid construction.”
China in 2005 introduced a cost pass-through mechanism that allows power companies to lift prices whenever coal rates rise by more than 5 percent over six months.
But the government refrained from increasing retail power rates amid the global economic downturn after raising on-grid power tariffs, charged by power producers to grids, by 5 percent in August 2008.
In comparison, the price of coal used for power production has risen nearly 4 percent this year after a 10 percent jump in 2008.
China’s two biggest power distributors, the State Grid Corporation of China and China Southern Power Grid Co, incurred a net loss of 16.1 billion yuan (nearly 2.3 billion US dollars) in the first eight months, according to the NDRC.
The country plans to introduce a new pricing structure for residential users as early as the first quarter of next year, the NDRC said. Households that use more electricity will face higher tariffs, it said, without giving details of the plan.
The pricing adjustment is aimed at boosting conservation, and any increase will be limited to keep inflation in check, the NDRC said.
China National Radio recently quoted Cao Changqing, an NDRC official, as saying that homes may face a higher tariff on monthly power consumption exceeding 87 kilowatt-hours, the average household use in China.
China’s electricity generation grew in October at the fastest pace in 19 months.
The country’s industrial output and investment continued their strong momentum in recent months, bolstering forecasts for the country’s economic growth to exceed the 8 percent target. However, concerns about overcapacity are also mounting.
In October, China promised to curb excess investment in its key industries as the government seeks to prevent a reckless investment spree from spoiling economic recovery.
The government said it would withhold approval for and curb lending to projects that don’t conform to state guidelines in industries such as steel, cement and wind power equipment.
“The rate hike will negatively affect producers of aluminum and cement,” said Luo Weiwei, a Bank of China analyst.
“Demand from the automobile and property industries may help in the near term, but challenges will come if these booming industries cool as inflation rises.”