Increased electricity price is more likely to increase

The power companies are facing the most severe operational pressure since 2008. The power shortage in some areas has been reappeared, and some provinces and cities are again facing the test of power cuts. Under the background of eased inflationary pressures, the necessity and possibility of the upward adjustment of electricity prices in the country in the near future has been further increased. At the same time, the new emission standards for thermal power plants that began to be implemented on January 1 next year will also increase the urgency of increasing the price of electricity.

Power companies are facing the dilemma of losing power. According to the third quarter report of the power company, the profit of the power sector in the first three quarters fell by more than 26% year-on-year. The financial pressure on enterprises is huge. Some of the power plants have debt ratios approaching 150%.

Under such circumstances, the Electricity Regulatory Commission recently warned that the six provinces in central China will face the worst power shortage in history this winter and next spring, and some provinces and cities will once again face the test of power cuts. Now that it has entered the peak season of power supply and heating, the factors that increase the seasonal rise in thermal coal prices will increase, which will make the days of power companies more difficult.

In addition, the “Emission Standard for Air Pollutants from Thermal Power Plants” will be implemented starting from January 1 next year. According to preliminary calculations by CEC, the increase in environmental protection standards will increase the operating costs of thermal power plants by 90 to 110 billion yuan annually. In the case where the denitrification electricity price has not yet been introduced, it is very difficult for the electric power company to bear such a large amount of operating costs in case of serious losses.

Based on the above factors, the need to secure the supply of electricity is greatly increased in the short term. If power prices are not raised in a timely manner, power companies that have already suffered heavy losses will be even less motivated, and the impact of power shortages on the macro economy will be obvious. The relevant authorities recently reported the price adjustment plan. Considering that the declining trend of inflation has been established, it is highly probable that the tariff adjustment plan will be approved in the near future.

Industry insiders speculate that the price adjustment or continuation of the logic of price increases. On April 10 this year, the National Development and Reform Commission raised the on-grid tariffs in 12 provinces, and the rate of increase was about 2 points/kWh. On June 1, the NDRC raised the prices of industrial, commercial and agricultural electricity in 15 provinces and municipalities. Therefore, the price adjustment may still raise the on-grid price first, and then increase the sales price. Taking into account that the losses of power companies are nation-wide, the scope of price adjustment may no longer be limited to local ones.

According to estimates, the increase in on-grid tariff of 1 point/kWh can cover the cost pressure of rising raw coal price of about RMB 25/tonne. Measured at an average level, the on-grid tariff is increased by 2 points/kWh, and the profitability of power companies can be restored to the level of the end of 2010.

If the price adjustment is expected to be implemented, it will have a positive effect on alleviating short-term power shortages and improving the performance of power companies. However, according to past experience, the profit space brought about by the increase in electricity prices will soon be swallowed up by the rising coal prices. Therefore, coal-fired linkage based on administrative measures is only a transitional approach to narrowing the contradiction between coal and electricity. To solve the institutional difficulties of coal-fired dinghies, it is necessary to further deepen the reform of the power system and straighten out the crux of the relationship between upstream and downstream. This will be a long-term process. And yet another arduous task.