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China Changes Coal Pricing Mechanism

Coal News - Published on Thu, 09 Jan 2020

Image Source: Coal Price China
Benchmark coal tariffs have been the foundation of China’s electricity pricing since 2004 but this mechanism was replaced on January 1 with a more flexible system. Industry insiders say the change may increase pressure on coal power generators, which are already struggling to be profitable. The new mechanism includes a base price that’s set at the same level as the benchmark tariff it replaces and a float so that it can deviate up to 10% higher or 15% lower. Prices will be negotiated by power generators, supply companies and electricity users. The new mechanism to set tariffs is a step towards a negotiated market that limits this one-sided subsidy. Coal power producers will be able to negotiate with their buyers to raise power prices. On the developed east coast of China, where big users compete for access to reliable generation, coal generators are more likely to succeed in raising prices beyond the base price.

But most power market experts don’t see much opportunity for coal generators to raise prices. Except for small pockets of high demand on the east coast, China has a power surplus, meaning generators could be pressured to lower tariffs, reducing revenues even further.

Previously, the state determined how much the power grid would pay for coal power. China’s central economic planner, the National Development and Reform Commission, set on-grid tariffs according to the costs of each type of generation and any pollution-control measures they employed, such as desulphurisation. Firms in the same region, operating to the same environmental standards, received the same price for their power. NDRC could make annual adjustments to reflect changes in coal prices but rarely did so. Since 2013 the benchmark tariff was adjusted downward four times and increased just once, despite coal prices having rallied since 2015. As a consequence, many coal generators are losing money.

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Posted By : Yogender Pancholi on Thu, 09 Jan 2020
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