China Considers Hiking Industrial Power Prices to Ease Supply Crunch

(Bloomberg) -- The Chinese government is considering raising power prices for industrial consumers to help ease a growing supply crunch.

The rate hikes for factories to textile mills could come in the form of higher flat fees, or in rates that are linked to the price of coal, according to people familiar with the details of the plan.

The government has also discussed raising rates for residential users if the industrial increases aren’t enough to solve the crisis, said the people, who asked not to be identified because the information isn’t public. The plans may still be changed and are subject to final approval, the people said.

The discussions are coming as the world’s second-biggest economy faces power shortages that are threatening to slow growth and further strain global supply chains. Record-high coal prices mean many power generators are losing money at current electricity rates, keeping some from boosting generation to meet demand.

Most power in China is sold at regulated rates, which provinces are allowed to raise or lower by as much as 10%. Several provinces have already added the maximum 10%, so an additional hike would have to be more than that to have an effect. 

Higher power prices could give generators reason to produce more electricity, while also incentivizing users to try to reduce consumption to lower their bills.

To be sure, underscoring China’s power crisis is a shortage of coal, and generators burning more of it will only exacerbate the issue and add to greenhouse gas emissions. Higher power bills for factories could also add to inflationary fears in the country.

Hunan’s Provincial Development and Reform Commission is planning to unveil a trial program in October that would link industrial power prices to the coal market, China Business News reported.

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