On Tuesday, the NDRC announced (Chinese only) that the price at which coal based electricity generators can sell electricity to the grid networks would rise by between 10-25 RMB per MWh, effective Wednesday.
For context, see this statement released by Huaneng Power International, detailing their on-grid tariffs both before and after the price adjustment. Huaneng now charges just under 250 RMB/MWh in Gansu Province (their lowest rate) and just over 520 RMB/MWh in Guangdong (their highest rate, excluding their Combined-cycle plant in Shanghai, which is a bit of an outlier at 604 RMB/MWh). The rise represents around 4-5per cent of current prices. Last month’s price rise was around the same magnitude [Wall Street Journal].
In mid-June the NDRC raised the price of oil in China by 18per cent (see my post: Understanding China’s oil prices). It remains to be seen how long yesterday’s 4-5per cent price hike will mollify China’s big 5 electricity generators. It is unlikely to be long, and once they decide they need to raise their prices again, they’ll resort to cutting supply (deliberate electricity shortages) to pressure the government into agreeing.
The problem here is not that prices are too low; its that they don’t adjust quickly enough. This problem is inherent in a system where government sets prices. Flexible prices allow markets to clear (supply to match demand). If the price is fixed in a changing market, supply will not match demand. The result is either surplus or shortage. In this case, wide spread shortages of electricity.
As long as power generators face market prices for their inputs and central-government-mandated prices for their outputs, this is a history that will be repeated in China again and again.
—-
** From Zhao Yong, in Drysdale, Jiang and Meagher (eds) (2007): Five firms manage and operate 36 per cent of China’s electricity generating assets: 1) China Huaneng Group, 2) China Datang Group, 3) China Guodian Group, 4) China Huadian Group, 5) China Power Investment Group. Much of the rest is operated by relatively small firms.
China’s 7 regional grids are managed by the State Power Grid Company and the Southern China Grid Company (both state owned).
NDRC = National Development and Reform Commission
SERC = State Electricity Regulatory Commission
SAAC = State-owned Assets Administration Commission