Reuters reported that China will review on grid power tariffs annually and adjust them if thermal coal prices fluctuate by more than 5% a year. Government marking a small step towards broader market-oriented energy pricing reforms.
China's power tariffs are heavily regulated and are set by the government. Fixed tariffs have in the past saddled many thermal power plants with heavy losses and forced them to cut generation as they struggle with soaring coal prices.
China's State Council or cabinet, said that under the new mechanism, when average coal prices rise by more than 5%t within a year, 90% of that increase will be passed through to end users via a hike in on grid tariffs. Power producers will bear the remaining 10% of the coal price increase.
Under the current system, reviews are not conducted on a regular basis and utilities must shoulder 30% of the burden of higher coal costs.
The move will allow domestic power tariffs to better reflect fuel prices and comes after the government said it would scrap a regulation that caps spot thermal coal prices and would no longer intervene in annual coal price negotiations.
China has vowed to reform its energy and resource pricing system to encourage users to be more economical with their energy use.
The National Development and Reform Commission, the country's top economic planner which sets oil and gas prices, also submitted plans last year to revamp the retail fuel pricing system to better reflect market costs, including the possibility of more frequent price changes.
