China frees up its coal prices to face the global energy crisis

The government of China decided last Tuesday, October 12, to allow coal-fired power plants to charge some of their customers for electricity at market prices. This, as part of a series of actions to boost coal production and manage electricity demand in industrial plants.

In a context marked by power generation deficits associated with shortages and record coal prices, the National Development and Reform Commission (NDRC) reported that all electricity generated by coal plants would be priced at through the market “in an orderly manner” starting this Friday, October 15.

In a report collected by World Energy Trade, it was learned that China also instructed commercial and industrial users to buy as soon as possible directly in the market or through agents on the network.

“The worsening power shortage has forced production in sectors such as cement, steel and aluminum to be restricted, which has dampened the outlook for the Chinese economy,” the report said.

This is because utilities have struggled to meet the demand for electricity after the pandemic, and power plants have generated less because the rising price of coal has made their operation unprofitable.

Pushing all industrial and commercial users onto the electricity exchanges and allowing prices to be set by the market is expected to encourage deficit generators to increase production.

“Relaxing thermal energy prices is positive for growth by reducing power outages,” Frederic Neumann, co-director of Asia Economic Research at HSBC, told Reuters.

“Rising electricity prices in China will add to concerns about rising global inflation,” said Kevin Xie, chief Asia economist at the Commonwealth Bank of Australia. He estimated that a 5-10% rise in the price of electricity in China will increase consumer inflation by 0.2-0.5 percentage points.