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More power to China!

May 31, 2011

As the summer heat takes its toll on the largest energy consumer,  China has decided to raise electricity prices for industrial, agricultural and commercial users in 15 provinces effective June 1st. The new tariff will see users paying an average of 1.67 yuan (US$0.25;  GB£0.16) extra per megawatt hour, according to the National Development and Reform Commission (NDRC), the nation’s top economic regulator.  The 15 provinces include Shanxi, Qinghai, Gansu, Jiangxi, Hainan, Shaanxi, Shandong, Hunan, Chongqing, Anhui, Hubei, Sichuan, Hebei and Guizhou.

This is the first time China has raised electricity prices since November 2009. Power prices paid by residential users  will remain however remain unchanged. China increased on-grid power tariffs, or prices paid to power producers by grid operators, last month to help electricity producers facing losses.

Adding to the woes of the worst drought in 50 years,  and a 5.3 percent inflation, China’s electricity board has been suffering from sever shortages as prices have been kept exceptionally low to help industries grow, additionally, rising coal costs and government caps on electricity tariffs have forced some utilities to curtail operations or even shut, leading to massive drops in supply. As China faces its worst energy shortage since 2004, then due to demand far outstripping supply, Beijing is  desperately trying to keep its cities gleaming.

China’s five state-owned power generating groups lost more than 10 billion yuan (US$1.5 billion) on their thermal power operations in the first four months of the year, an official with the council said on Tuesday.

The five groups, parents of China Power International Development Ltd, Datang International Power Generation Co Ltd., Huadian Power International Corp Ltd. and Huaneng Power International Inc., had racked up more than 60 billion yuan in losses in past three years, according to the State Electricity Regulatory Commission.

“This is obviously good for (dealing with) the power shortages and it was very much expected,” Lin Boqiang, director of the Centre for Chinese Energy Economics Research told the BBC. “The only way the problem can be solved is by adjusting prices,” he added.

The country which is battling an electricity supply shortfall that may reach as much as 40 gigawatts this summer, is expected to buy more coal and increase the efficiency of coal power plants. Coal is China’s main source of energy and contributes more than 70 percent of China’s energy.

China and India both are expected to double their coal demand over the next four years as demand exceeds supply. China’s thermal coal imports are expected to rise to 200 million tonnes in 2015 from around 90 million tonnes in 2011.

Benchmark power-station coal prices at Qinhuangdao port rose to between 830 yuan and 845 yuan a metric ton as of Monday, according to the China Coal Transport and Distribution Association. That’s the highest since October 2008.

China’s power-generating capacity was 960 gigawatts as of last year, with coal and oil-fired power plants accounting for 73 percent of the amount and hydropower dams 22 percent, the National Energy Administration said in January.

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