The on-grid electricity price will be reduced by 3% starting next year

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The last edit to this post was made by yinkuilin6868 on 2015-12-14 at 14:02. On December 7, the authorities in charge of electricity prices submitted a plan to reduce electricity costs to the State Council, and it was approved. “There is strong demand from local areas for a reduction in electricity prices. ”Sources close to the National Development and Reform Commission told reporters that under the newly approved electricity price adjustment plan, the reduction in the wholesale price of coal-fired power generation is expected to be 3 fen per kilowatt-hour on average across the country, with the changes taking effect starting from January 1, 2016. “Based on last year’s total electricity generation of 4.17 trillion kWh, a reduction of 3 fen per unit means that power generation companies’ profits will decrease by 125.1 billion yuan. ”Guan Dali, a coal and power analyst at Zhongyu Information, told reporters that a 3-cent adjustment in electricity prices has a significant impact on the industry. It began with the linkage between coal and electricity generation. As various supporting documents for the new electricity reform measures were implemented recently, an opportunity for adjusting electricity prices has emerged. On December 7, reporters were informed that the plan for adjusting electricity prices has been approved by the State Council. The reduction in electricity prices is now awaiting official announcement; it is expected that the average reduction across the country will be 3 fen per kilowatt-hour, with these changes taking effect starting from January 1, 2016. Price adjustments will still be primarily based on the rules governing the linkage between coal and electricity. The aforementioned source told reporters that the direct reason for this reduction in electricity prices is the significant drop in coal prices, while the decline in GDP in various regions has led local authorities to hope to alleviate the profit pressures on industries and businesses by lowering electricity costs. Previously, reporters reported that, in response to requests from various localities to lower electricity prices, the National Development and Reform Commission initiated a review process to reduce the on-grid electricity prices for thermal power across the country. Local authorities **hope that the central government will reduce electricity prices as soon as possible, but the adjustment mechanism linked to coal prices operates on an annual basis. Since electricity prices were already adjusted once in 2015, the date for this adjustment has been set for January 1, 2016. On April 8, 2015, the executive meeting of the State Council decided to reduce the average price per kilowatt-hour for coal-fired power generation sold to the grid by about 2 fen, in line with the coal-electricity linkage mechanism. Power companies will suffer losses of 125.13 billion, which represents a relatively large adjustment in the history of electricity price changes. “Due to the reduction in electricity prices, the power industry will lose some of its profits. At present, the main source of profit for power plants is the price difference that arises as coal prices decline. Based on last year’s total electricity generation of 4.17 trillion kWh, a reduction of 3 fen per unit means that power generation companies’ profits will decrease by 125.1 billion yuan. ”Guan Dali told the reporter. An executive from one of the five major power generation groups told reporters that a reduction of 3 cents per kilowatt-hour in the on-grid electricity price would have a significant impact on the power industry; the profits of these five groups alone would decline by at least 50 billion yuan. In fact, the current ease for power companies is entirely due to the relentless decline in coal prices. Judging from the third-quarter reports released by listed companies in the power sector so far, thanks to the decline in coal prices, China’s four largest listed companies that rely primarily on thermal power generation managed to maintain their profit levels. These four power companies are Guodian Power, Datang Power Generation, Huaneng International, and Huadian International. According to the third-quarter reports, the revenue of all four companies mentioned above declined in the third quarter. In its performance report, HuanDian International stated that the decline in operating revenue was mainly due to a decrease in power generation volume and lower grid connection prices. According to statistics from the China Electricity Council, it is estimated that the operating hours of power generation equipment in 2015 will be around 4,000 hours; among these, the operating hours of thermal power generation equipment will be below 4,400 hours, showing a significant decline. HuanDian International stated that the significant increase in profits was mainly due to the decline in fuel prices. At the beginning of 2016, **electricity prices were set to be reduced, and power generation companies affected by declining demand would inevitably face pressure on their profits. Coal prices will be even worse next year. “Normally, 3 cents should correspond to a coal price of at least 40 yuan.” Therefore, a reduction in electricity prices will surely increase the pressure on power plants to lower coal prices, accelerating their decline. ”Guan Dali believes. According to statistics from Qinhuangdao Coal Network, from November 30 to December 6, coal inventory in the Bohai Sea region decreased from 14.027 million tons in the previous week to 11.936 million tons, a drop of 2.091 million tons or 14.9%. Everbright Futures believes that with the arrival of winter, the daily consumption by power plants has risen to over 650,000 tons. Although this is lower than the same period last year, it is still better than the 500,000 tons level seen in earlier times. The purchase of low-calorie coal for domestic heating has shown significant improvement. As railway shipments declined, port inventories also dropped significantly. At the beginning of December, inventory levels at the Qinhuangdao port remained below 5.85 million tons. With water and electricity prices continuing to fall, this might currently be the best time in terms of the fundamentals for thermal coal. Yet, even at this point when the fundamentals for thermal coal are at their best, it still cannot stop the decline in coal prices. According to the latest report released by Qinhuangdao Coal Network on December 2, the comprehensive average price of 5,500 kcal thermal coal in the Bohai Rim region was 372 yuan per ton, down 1 yuan per ton from the previous period, thus setting a new low since such reports began to be issued. Li Xuegang, an expert in the coal industry, believes that the accelerating rise in sea freight rates for coal indicates a continued recovery in demand for coal in consumption areas ； The gradually increasing daily coal consumption levels of major thermal power companies indicate that the characteristics of peak winter demand are becoming apparent ； The rapidly declining coal inventory at the main shipping ports has reduced downward pressure on coal prices, and various positive factors continue to emerge or strengthen, bringing some hope to the thermal coal market in the Bohai Sea region in the near term ； Meanwhile, various negative factors such as the previously high coal inventory levels held by power companies, the daily consumption of thermal coal remaining below that of the same period last year, and increased sales pressure resulting from production cuts by major coal companies continue to hinder the recovery of coal prices. “The spot market will remain stable ahead of the Spring Festival; it is a great advantage that large companies maintain stable prices. Yet it is precisely for this reason that any price drops after the festival could be severe. ”Everbright Futures believes. Guan Dali also believes that the coal market will be even more dismal next year; lower prices will force a reduction in the industry’s production capacity. Even if electricity prices do not drop, coal prices will continue to fall, and a reduction in feed-in tariffs will further accelerate this decline in coal prices.