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China ups power tariffs 5.4%, to hit smelters

Reuters | Thu, 19 Nov 2009 13:19
[miningmx.com] -- China will raise power prices for non-residential users by around 5.4 percent from Friday, the first rise since July 2008, to compensate grid firms that lost out because of a government cap on prices.

Power prices for non-residential users, which constitute more than 80 percent of consumption, will rise 0.028 yuan (0.4 U.S. cents) a kilowatt hour (KWH), the National Development and Reform Commission said.

The increase, slightly above the 0.025 yuan/kwh level expected by some industry officials, will probably raise the cost of production for China's electricity-hungry aluminium smelters, such as Aluminum Corp of China Ltd (Chalco).

"The rise is mainly to compensate power grid firms who suffered two on-grid power price rises last year, but only one retail price rise," said an official with State Grid Corp, the country's largest grid operator.

Liu Qiang, board secretary of Chalco, the country's top producer of the metal, declined to comment on the rising costs.

"We have to see the overall situations," Liu said, adding that several of Chalco's smelters were in talks with power firms to seek direct-sale deals, following a pilot pact sealed last month to help industries cut production costs.

Heng Kun, an analyst at Essence Securities, estimated the cost of production of aluminium smelters would increase by about 400 yuan per tonne to 14,400-14,900 yuan per tonne due to the power fee increase.

The production cost per tonne of copper smelters would rise about 20 yuan and for zinc smelters, 100 yuan, he added.

"Aluminium prices are going to rise," said Heng, who predicted Chinese aluminium prices would rise by 300-400 yuan a tonne in these two days.

RESIDENTS SHIELDED

The government has also raised slightly benchmark on-grid tariffs -- the prices power generators charge the grids -- for coal fired power plants in 10 provinces by a range from 0.002 to 0.015 yuan per kwh while trimming rates for seven other provinces by 0.003 -0.009 yuan per kwh, the NDRC said in a post on www.ndrc.gov.cn.

Such a move will have a muted impact on power producers such as Huaneng Power International, which have turned profitable since the third quarter as fuel costs retreated and power demand recovered.

Charges will stay unchanged for residential users for now, the government said, but they will be charged on a progressively increasing scale in the future, which means the more electricity they use, the higher the bill.

China raised only on-grid tariffs in August 2008 after hiking both on-grid and retail rates in July, to help power generators that bore the brunt of soaring coal costs in a global commodity boom.

Beijing said then the higher power purchasing costs that grid firms underwrote would be compensated in the next price move.

"I think the reason for the unchanged residential power price is because of concern over residential incomes. Though China still has negative inflation, many people still face the pressures of rising prices and shrinking purchasing power," said the State Grid official.

HIGHER SURCHARGE

The National Development and Reform Commission said it would also increase a surcharge on retail power prices that is used to subsidise development of power from renewable energy sources such as wind farms, but it did not specify the increase.

Beijing was expected to collect some 5 billion yuan of the surcharge this year, 10 percent more than in 2008, according to a researcher with the Energy Research Institute under the NDRC.

The fund is used to cover the on-grid price difference between renewable energy sources and coal-fired power plants.

The benchmark on-grid tariffs for wind power plants ranged from 0.51 to 0.61 yuan per kwh, varying by region, higher than the rates for coal-fired plants that ranged from less than 0.3 yuan to more than 0.4 yuan.

With the rapid expansion of installed power generation capacity from renewable energy, the surcharge standards need to be adjusted, the NDRC said.