China hikes power prices and caps coal costs

China has increased its electricity prices for the first time in six months and announced a cap in thermal coal costs as it aims to reduce outages.

Wholesale rates charged by coal-fired power stations to distributors, rose by CNY0.026 (US¢0.41)/kWh and increased by an average CNY0.03/kWh at retail level, according to a statement by the National Development and Reform Commission. Price advances for contract thermal coal next year will be limited to less than 5%. Spot prices will also be capped – at CNY800/t for thermal coal with an energy value of 5500kcal/kg at northern Chinese ports, starting 1 January 2012.

The price hike and cost cap is expected to reduce pressure on profit margins at power plants, encouraging them to boost generation. The country faces a shortage of 40GW in winter and spring. Power prices had been frozen since June as the government focused on fighting inflation, despite benchmark prices for domestic thermal coal rose to a three-year high last month.