China May Raise Retail Electricity Prices by 5%, CLSA Says

By Bloomberg News

Nov. 6 (Bloomberg) -- China, the world’s second-biggest energy user, may raise retail electricity prices by 5 percent this month to help power distributors cover losses, CLSA Asia- Pacific Markets said.

A possible increase is 0.025 yuan (0.4 cents) per kilowatt- hour, said Dave Dai, a utilities analyst, said in an e-mailed note today. The government may raise residential tariffs more than commercial and industrial charges to avoid overly increasing operating costs that will put pressure on the economic recovery, Dai said.

The Chinese government controls power costs to curb their impact on inflation and it last raised retail tariffs in July 2008. China’s two electricity distributors, State Grid Corp. of China and China Southern Power Grid Co., incurred a net loss of 4.39 billion yuan in the first eight months as the government kept power prices unchanged because of the economic slowdown.

This is in line with “our view that China may eventually subsidize grid companies via increase in retail tariff,” Dai said. The increase “can be negative to downstream end users including aluminum, steel, chemical and cement industries.”

Wang Yonggan, secretary-general at the China Electricity Council, said he hasn’t seen any official government notice of the potential power price adjustment. Li Pumin, a spokesman for the National Development and Reform Commission, didn’t answer calls made to his office.

On-Grid Charges

The Shanghai Securities News reported today that the government may also adjust wholesale electricity charges, or the on-grid cost of power paid by distributors to producers. China last raised on-grid power prices in August last year.

Wholesale prices may drop in eastern China and rise in the west as power plants’ costs vary in different regions, the newspaper reported, without saying where it got the information. Prices of electricity generated by coal-fired power stations may fall 0.007 yuan a kilowatt-hour in Guangdong while those in Shanxi may increase by 0.012 yuan a kilowatt-hour, it reported.

“The key reason for this up and down adjustments is related to different paces of profit recovery in 2009” between power producers in in-land regions and in coastal areas, Dai wrote in the note.

The country’s “top government officials” want to adjust prices this month or “no later than” coal producers and power utilities meet to discuss coal supply contracts for 2010, the report said, without giving details.

To contact the Bloomberg News staff on this story: Ying Wang in Beijing at ywang30@bloomberg.net