CCM - China: Price of Feed-in Tariff Being Reduced to Help Eliminate the Outdated Capacity 12-28-2015

Premier Li Keqiang chaired the State Council executive meeting on 23rd December, which decided to drive the feed-in tariff of the coal-fired power generation down in China, with an average decrease of RMB 3 cents per kilowatt-hour around the country, so as to reduce the burden of the enterprises and to promote structure optimization.

 

 

This is the new measures taken by the State Council to alleviate the burdens on the industrial and commercial enterprises, followed by the decisions made on 8th April of average decrease of RMB 1.8 cents on the enterprises electricity prices, with the national average feed-in tariff of the coal-fired power generation of about RMB 2 cents per kilowatt-hour.

 

The sum of the reduce price would mainly be applied to reduce the sale price of the power to the same degree on the general industry and commerce and to support the reform of the ultra-low emission in the coal-fired power plants and the development of the renewable energy; it would also be used to establish a special fund for the structural adjustment of industrial enterprises to help settle down the unemployed from the outdated industries that has been eliminated, like the coal industry or the steel industry. The so called feed-in tariff refers to the settlement price the power grid paid for the power generation enterprises.

 

The adjustment among the feed-in tariff and the sale price of the power is related to the continuous decline of the coal price, according to sources. After the Golden 10-Year, the coal industry has all the way suffered the price down, especially this year, the price even hit the bottom.

 

For example, China’s coal output in 2014 was 3.87 billion tonnes, with a decrease of 2.5%. During the first three quarters in 2015, the profits of 90 large-scale coal enterprises has declined sharply and suffered the deficit of 810 million compared; while the profits of the corresponding period of last year had reached 45.02 billion. The price of the water steam coal (5800 calories) was about RMB 410-420 per tonne on 23rd December in Qinhuangdao, with a year-on-year decrease of 26%.

 

The coal price has decreased by RMB 70 per tonne since 8th April. In fact, the price of the steam coal (5800 calories) was about RMB 760-780 in 2008 in Qinhuangdao, compared with which the present coal price has fallen by a half.

 

Although the price of the thermal coal has increased by RMB 5 to 10 per tonne since the heating supply period began in the North China, the coal demand would decline, around the period of two sessions, when the heating supply period end, thus the thermal coal price still faces the downward pressure.

 

The coal price decreased, with which the cost of electricity power enterprises, especially the coal-power enterprises, would correspondingly decrease, then the power price should decrease as well to accord with the fair and impartial market rule.

 

Actually, contrary to difficult situation the coal enterprises have suffered, the power industry has enjoyed the more abundant earnings. According to the performance report of some public power companies published this year, the power industry is quite profitable against the economic environment of downturn, of which the net profits increased significantly, which with no doubt violated the coal and power price linkage mechanism.

 

The decrease of the feed-in tariff this time is definitely the bad news for the coal powered enterprises. The nationwide feed-in tariff decreased by RMB 0.03 per kilowatt-hour. Calculated on the basis of gross thermal power generation (4,204.9 billion kilowatt-hour) in 2014 released by the National Bureau Statistics (NBS), the total profits of the power industry shrunk by RMB 126.3 billion in one year.

 

The China government not only aimed to alleviate enterprises’ burden and propel the structure optimization, transformation and upgrading of the enterprises through the feed-in tariff decrease, but also to catch up with the megatrends energy conservation and emission reduction.

 

The issue of the haze, which has recently been the national topic, was mainly caused by the coal-fired power generation.

 

Thus the executive meeting decided that the sum of the reduce price would mainly be applied to reduce the sale price of the power to the same degree on the general industry and commerce and to support the reform of the ultra-low emission in the coal-fired power plants and the development of the renewable energy; it would also be used to establish a special fund for the structural adjustment of industrial enterprises to help settle down the unemployed from the outdated industries that has been eliminated, like the coal industry or the steel industry.

 

The decrease also carried a very obvious intension of energy conservation and emission reduction.

 

While in the early December the executive meeting of the State Council decided to fully implement the reform of the ultra-low emission and energy conservation therefore to substantially reduce the coal consumption of the generation and pollutant emission to meet requirements of the green development. From this point of view, the decision of decreasing the feed-in tariff of the coal-fired power made in the executive meeting on 23rd December and the previous policy are in the same strain.

 

Zeng Ming, director of the Energy and Power Economy Research and Consulting of North China Electric Power University, believed that the decision is benefit to the development of the industry and the commerce. Currently, with the continuous decline of the coal price, the cost of the generation has also decreased, which created the space for reducing the feed-in tariff of the coal-fired power and sale price for the industry and commerce power.

 

"It depends on the operation situation of the coal market that the price reduction would continue or not in 2016.” said Zeng Ming.

 

According to Xu Zhongbo, the professor of the School of Metallurgical and Ecological Engineering, University of Science and Technology Beijing, the industries of steel, cement and coal are in the serious situation of excess production capacity at present, thus those who suffered heavy losses should shut down as soon as possible. And it’s the time to put the special fund for the structural adjustment of industrial enterprises into use.

 

"The enterprises that have been closed could receive the funds for settling the laid-off workers. The later the enterprise shut the less financial aid it would get. These measures together could accelerate the structure adjustment of the industry.” said Xu Zhongbo.

 

The industries of steel, cement and the coal have suffered serious overcapacity, in which the huge losses appeared. During the period of January to October, the loss of the member enterprises from the China Iron and Steel Association has exceeded RMB 72 billion.

 

According to some experts, the power price should not be reduced to some heavy energy-consumption industries, which is good for the economic structural adjustment.

 

*This article is a translated and re-edited version by CCM. The original article comes from www.cnchemicals.com/.

 

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