China’s power crisis prompts Beijing to liberalise electricity pricing

China says electricity generated from coal will be fully liberalised and industrial and commercial users will buy power at market prices

The electricity pricing reforms are Beijing’s latest attempt to tackle recent electricity shortages that have crippled industrial output

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Recent electricity shortages have crippled industrial output in China. Photo: Reuters

Published: 7:30pm, 12 Oct 2021Updated: 3:05pm, 25 Oct 2021

China’s top economic planning agency said on Tuesday it would liberalise pricing in the state-controlled power market to help resolve an electricity crisis that has caused rationing across more than half the country and threatens to weigh on economic growth.

Under the reform, industrial and commercial users will buy electricity at market prices and a direct power purchasing scheme that keeps costs artificially low for big users will be abolished, the National Development and Reform Commission (NDRC) said.

In addition, the state planner said all electricity produced by coal-fired power will be sold via the market, up from 70 per cent. It gave no indication when either of the changes would take effect.

The reforms are Beijing’s latest attempt to tackle widespread power shortages that have crippled industrial output and sparked debate about the effectiveness of the nation’s centrally-controlled electricity sector.

This is a very important reform for China’s power system

Lin Boqiang

Energy experts hailed the measures as significant changes that will bring more transparency to electricity pricing and alleviate operating difficulties for coal-fired power companies.

“This is a very important reform for China’s power system. Although [China’s power pricing] is not fully market-oriented, this is a very big step toward complete marketisation,” said Lin Boqiang, dean of the China Institute for Studies in Energy Policy at Xiamen University.

Although the NDRC is not expecting energy inflation as a result of the reforms, it said local governments should consider subsidies to small to medium-sized enterprises. There would be limited impact on consumer prices, it added.

“The cost of electricity for upstream users and industrial production … may be driven up, but the reforms will help [better reflect] supply and demand in the electricity market, better protect consumers, ensuring stable production at enterprises,” NDRC official Peng Shaozong said at a press conference.