Economy

China mulls differentiated power prices

(Xinhua)
Updated: 2010-10-09 16:34

BEIJING -?China's top economic planning body announced Saturday that it had started to seek public views on its intentions to change the way residential electricity use is charged.

A tiered electricity pricing mechanism for residents would help save energy and protect the environment without causing a marked increase in the cost of power for the majority, Cao Changqing, director of the ?department of pricing with the National Development and Reform Commission (NDRC), told Xinhua.

In the proposed progressive pricing mechanism, electricity prices of residential users would be charged according to three tiers set by the NDRC in accordance with power usage, said the official.

"The prices would be adjusted to be reflective of the costs arising from scarcity of resources and environmental damage," the official said.

A man is seen dealing with his electricity account with a worker at a service outlet of a local electricity company of State Grid in Liangyungang, East China's Jiangsu province, Oct 9, 2010. [Photo/Xinhua]

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According to the proposed pricing reform, which has two proposed tracks, power prices for households who consume no more than 110 kWh or 140 kWh per month would remain the same or rise by 1 fen (0.15 US cent) per kWh.

Statistics provided by the national State Grid company showed that the pricing reform would leave about 70 percent or 80 percent of Chinese households totally unaffected or slightly affected, said the official.

Another 20 percent or 15 percent of the households who consume electricity of no more than 210 kWh or no more than 270 kWh each month would have to pay prices at least 5 fen per kWh more for the additional power beyond the line of 110 kWh or 140 kWh.

For the remaining 10 percent or 5 percent who consume more than 210 kWh or 270 kWh per month, power use beyond the level would be charged at a price of at least 20 fen per kWh higher than the current uniform price.

One of the options would be chosen and adopted later this year based on public submissions before being implemented on a provincial basis, said Cao.

The price rise for residential consumption of electricity had been long anticipated after the NDRC in November 2009 announced price rises for non-residential use by 2.8 fen per kWh on average nationwide.

However, the announcement has still come as a surprise to many experts as it had been widely expected that the authorities could hold off on price increases until next year when the inflationary pressure is muted.

China's consumer prices, after falling for most of 2009, have edged up this year. In August, the CPI, a major gauge of inflation, posted a 22-month high of 3.5 percent year on year.

China has set a target of a 3-percent rise in consumer prices this year. Official statistics show that, for the first eight months, the country's inflation increased 2.8 percent year on year, accelerating from the 2.7-percent gain in the year to July.

However, Lin Boqiang, director of the China Center for Energy Economic Research at Xiamen University, called the proposed reform as a relatively "modest" move, saying the adjustments would not seriously push up the inflation as it targets only 20 to 30 percent of Chinese households.

In the meantime, the reform would promote energy saving though rises of 5 fen or 20 fen would increase electricity bills as the average prices of residential use of electricity in most Chinese provinces are about 50 fen, said Lin, who also serves as a senior advisor to the NDRC.

The modest move has pointed to the sensitivity of the pricing reform of residential use of electricity and is widely seen as an indication that the authorities are still treading cautiously to avoid inflation.

But, in the long run, rising resources and environmental cost would make higher electricity bills inevitable, not least because prices of residential electricity in China are still lower than the prices of non-residential electricity, said Lin.

For instance, electricity for residential use in Beijing was 49 fen per kWh, while that for agricultural use was around 52 fen per kWh, for secondary industry use 76 fen per kWh and for commercial use 79 fen per kWh, according to Beijing Electric Power Corporation.

However, in most foreign countries, the prices of residential electricity are normally 50 percent to 100 percent higher than the prices for non-residential use of electricity, Lin said.

The move exposed a major dilemma facing the Chinese government, which needed to reach its energy efficiency target while avoiding undermining living standards and adding to inflationary pressures, he said.

"Even slight adjustments demonstrated the direction of power pricing reform, which would distribute most of the burden on those who consume an amount of electricity beyond ordinary levels," said Lin.