China’s “power cut” situation continues. In response to the “electricity shortage”, China’s Development and Reform Commission issued a notice on Tuesday (12), will orderly liberalization of electricity price restrictions, high energy-consuming enterprises market tariff increases are not set a ceiling. Some financial scholars pointed out that in China continues not to relax the ban on coal imports from Western countries, the government can hardly solve the problem of coal supply shortage, but at the same time for high energy-consuming industries, it is a “devastating” blow.
In response to the coal shortage, China has implemented power production restrictions in many places since the end of last month. Chinese Premier Li Keqiang said on Monday (11) that he wanted to rectify the one-size-fits-all restrictions on electricity and production or campaign-style carbon reduction in some places to ensure that the northern masses stay warm and safe through the winter.
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But what can the authorities do to deal with the “power shortage” without taking measures to restrict electricity and production?
China’s Development and Reform Commission issued a notice on Tuesday (12) to further deepen the market reform of coal-fired power generation feed-in tariff, which will orderly liberalize all coal-fired power generation feed-in tariff, and form the feed-in tariff through market transactions within the range of “benchmark price + up and down fluctuation”, and expand the range of up and down fluctuation of the traded tariff from the current upward fluctuation of no more than 10%, downward floating in principle not more than 15%, expanded to up and down floating in principle are not more than 20%. The market price of electricity traded by high energy-consuming enterprises is not limited.
The NDRC issued a notice on Tuesday to further deepen the reform of the feed-in tariff for coal-fired power generation. Peng Shaozong, deputy director of the price department, believes the reform can encourage enterprises to increase power supply and suppress unreasonable market demand. (China Development and Reform Commission notice)
Development and Reform Commission also pointed out that all places should orderly promote the commercial and industrial users to enter the electricity market, the abolition of industrial and commercial catalog sales tariff. At the same time also to give priority to low-cost power supply for the protection of residents, agricultural electricity, to maintain stable prices for residents, agricultural electricity. Development and Reform Commission also called for strengthening the supervision of the coal and electricity market, in conjunction with relevant departments to investigate and deal with market players in a timely manner price collusion, price gouging, the implementation of monopoly agreements, abuse of dominant market position and other acts.
Development and Reform Commission: policy on industrial producer prices (PPI) will have a push up effect
Peng Shaozong, deputy director of the price department of the Development and Reform Commission, pointed out on Tuesday that the recent rise in coal prices, coal-fired electricity prices in some local power markets have risen, and it is believed that the reform can, to a certain extent, ease the operating difficulties of coal-fired power generation enterprises, encourage enterprises to increase power supply and suppress unreasonable power demand. The outside world is concerned about the impact of the reform on prices, Peng Shaozong stressed that the policy is mainly to protect the stability of residential and agricultural electricity prices, no direct impact on the consumer price index (CPI), but the industrial producer prices (PPI) will have a certain push-up effect.
Peng Shaozong: “The reform, with special emphasis on maintaining the stability of electricity prices for residents and agriculture, has no direct impact on the consumer price index. If the market transactions of electricity prices, will to a certain extent push up the cost of electricity for enterprises, especially upstream production enterprises, the industrial producer price index will have a certain push up effect, but the reform measures are conducive to protect the demand for electricity for enterprises, to promote (enterprises) stable production, increase market supply, in general, is conducive to price stability.” >
A building in an industrial park in Houjie, Dongguan City, Guangdong Province, Sept. 30, 2021, where the area is subject to electricity restrictions. (AFP)
Analysis expects electricity price hikes to boost consumer prices
Looking up information, in August, China’s consumer price index rose 0.8% year-on-year, a five-month low; but industrial producer prices rose to 9.5% year-on-year, a 13-year high. Before the policy was introduced, Huaxi Securities conducted a special study on the impact of rising electricity prices on inflation in October this year. The report expects that electricity prices will directly and indirectly affect the consumer price index: “If electricity prices rose 5%, 10%, 15%, 20% for CPI pull were 0.34%, 0.68%, 1.02%, 1.36%. Combined with the rate of electricity price increase (probability between 10%-15%), we judge that this round of electricity price increase for CPI pull between 0.68%-1%.”
Financial Scholar: China Subject to Coal Import Ban Fails to Solve Coal Supply Problem Alone
Financial scholar Commander Tuesday (12) analysis of this station, in China’s continued failure to relax the ban on coal imports from Western countries, the government is difficult to solve the problem of inadequate coal supply, so take advantage of the policy introduced this time, the supply responsibility to the market.
Commander: “In fact, now she (China) hopes that the market can play a role in the supply of electricity. If the market demand for electricity is large, the price of electricity will rise, this time the profit margin of coal companies, power generation companies will become larger, may think of some doors, the Chinese government some unexpected places to get the source of coal.”
And check the information, China’s coal imports from Australia after the implementation of the restriction order, the first half of the coal imports from Australia 780,000 tons, down 98.6% year-on-year. And the price per ton of coal rose by more than 100%.
Streetlights at night in Shanghai, October 9, 2021. (Reuters)
Scholars expect a “devastating” blow to manufacturing
Some Chinese media quoted financial sources as saying that the proportion of industrial electricity consumption in China’s overall electricity consumption is close to 70%, while residential electricity consumption only accounts for about 14%. The electricity price reform does not set a limit on the price of electricity traded by high energy-consuming enterprises, what impact will it have on industry and commerce? Peng Shaozong, deputy director of the price department of the Development and Reform Commission, admitted that the policy aims to make more power-using and energy-consuming enterprises pay more, so that electricity prices can more flexibly reflect changes in power supply and demand and costs, helping to ease the operating difficulties of coal-fired power generation enterprises. At the same time will also encourage local governments to subsidize small and micro enterprises on a phased basis.
Steel industry and chip industry is a major consumer of electricity
However, the financial scholar Commander pointed out that China’s manufacturing industry is still labor-intensive, and electricity supply is of vital importance to the operation of the industry, especially the steel industry and chip industry, which are major consumers of electricity. He believes that as long as the authorities have not solved the coal supply problem, will continue to hit the manufacturing industry.
Commander: “If the power supply is insufficient, the blow to the manufacturing industry will be devastating. In the steel industry, many machines need electricity to operate and still rely heavily on raw energy. And among the chip industry, many polymer photovoltaic equipment, its operation is a major consumer of electricity.”
At the end of last month, a number of cities in the northeastern provinces had sudden power outages, with outages lasting as short as five hours and as long as 10 hours. The power cuts caused hardship for people, many of whom complained that they were unable to make electronic payments or contact their friends and relatives by phone due to the lack of power to their cell phones. In some areas, water and school were even suspended. The power cuts have since spread to 20 provinces across the country.