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China’s power market tests upper limit of price reform as electricity generators, users set own trading terms
- Rising volumes and higher-than-benchmark tariffs have been observed in the annual market trading contracts signed between gencos and users for 2022: Fitch
- Caution needed as higher tariffs pressure inefficient users at a time when the Chinese economy is still recovering from the Covid-19 disruption
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China’s power tariffs could test the upper limits this year as the government allows electricity producers and users to set their own trading prices to stabilise supply and prevent a repeat of blackouts last year.
Rising volumes and higher-than-benchmark tariffs have been observed in the annual market trading contracts signed between generation companies (gencos) and end users for 2022, according Fitch Ratings, indicating an increase in tariffs this year, it added.
China loosened its price controls in October amid blackouts as several provinces rationed supplies. Electricity prices for industries were allowed to swing by as much as 20 per cent on either side of the benchmark. Prices were previously allowed to rise by 10 per cent or drop by 15 per cent from benchmarks. The rates for agricultural and residential sectors were kept unchanged.
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That will be a boon for gencos’ operating performance in 2022 while also encouraging commercial and industrial (C&I) customers to participate in the market and rationalise their costs, analysts said.
“China’s electricity prices have long been significantly underpriced as a matter of policy to protect end users,” said Andy Chen, senior analyst at Trivium China, a Beijing-based consultancy. “For power generators, especially thermal power plants, this is good news.”
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