China's escalating energy crisis and record-high coal prices - Mechanical Power Inc.

In September, China’s coal imports increased by 76% as power plants searched for fuel to alleviate a power shortage that has pushed domestic coal prices to record highs and disrupted corporate activity in the world’s second-largest economy. The supply situation has worsened as a result of flooding in a key coal-producing province, with analysts predicting that electricity shortages and rationing will continue into early next year.

China, the world’s top coal consumer, has been dealing with an escalating energy crisis caused by shortages and record-high coal prices. The government has taken a number of initiatives to increase coal production and manage electricity demand at industrial units, while power producers and other stakeholders have also taken action.

The government took the most daring move in a decades-long power sector reform on Tuesday, allowing coal-fired power plants to pass on high generation costs to some end-users via market-driven electricity rates, adding to concerns about rising global inflationary pressures.

China said it would allow coal-fired power prices to climb more dramatically in the belief that market forces could resolve a power shortage that has harmed economy and reverberated around the world.

The government’s economic-planning arm’s conclusion amounted to an admission that pricing regulations have distorted the market. Power producers have been affected by huge increases in the cost of coal, which they need to fuel their generators, but government regulations have mainly stopped them from passing those costs on to their customers.

The National Development and Reform Commission stated coal-fired electricity prices might climb by up to 20% from the commission’s benchmark price, compared to a 10% maximum previously. It stated that all coal-fired electricity will be included in market-based trading with a fluctuation range, up from 70% currently, without specifying a time limit.

It also stated that the price restriction will not apply to companies that use a lot of electricity, implying that those customers may pay even more when supplies are scarce.

Daniel Szwed - Digital Marketing Manager
Mechanical Power, Inc.