China’s State Council on October 8 said it would allow coal-fired power producers to adjust prices by up to 20% from benchmark levels, an increase from the previous lower limit of 15% and upper limit of 10%. The move is expected to encourage power providers to boost their output to tackle the ongoing energy crisis.
However, the National Development and Reform Commission said that prices for energy-intensive businesses would not be bound by the 20% top limit to encourage more efficient power consumption. The state planner also noted that residential users, agricultural users, and public welfare initiatives would continue to be charged fixed prices.
However, analysts said a 20% increase would not be enough to help coal power plants break even at current prices. China’s main thermal coal futures contract surged 11% to an all-time high of CNY1,507.8 ($233.55) per ton on Tuesday.
Higher electricity costs are also expected to put additional price pressure on consumers. Economists at the Commonwealth Bank of Australia estimated that a 5-10% increase in electricity prices in China would raise consumer inflation by 0.2-0.5 percentage points. Analysts at Nomura expect the new policy to raise consumer inflation by up to 0.4 percentage points.
