The Chinese government faces a dilemma in combating fuel prices, as increasing electricity costs would bring further pressures to an already inflationary economy. (File Photo/CFP)
Rising coal prices are putting further strain on China's maligned power plants as electricity shortages continue to grip the mainland.
China's major coal price index closed at 826 yuan (US$129) per ton on Sep 6, up 1 yuan (US$0.15) per ton from a week earlier. As China's central government insists on keeping the consumer price of electricity artificially low, state-owned coal power plants lack incentives to produce more power for fear of incurring further losses.
The country's consumer electricity price is 0.4407 yuan (US$0.06) per kilowatt hour, while the fuel cost stands at 0.442 yuan (US$0.06) per kwh.
Around half of the country's publicly-listed electricity companies are operating on debt. China's five major state power grids reported total losses of 7.46 billion yuan (US$1 billion) in the seven months to July, an increase of 8.27 billion yuan (US$1.2 billion) from last year's losses.
Though China's National Development and Reform Commission has raised consumer electricity prices two times so far this year, the increase does not cover the shortfall from surging coal prices.
Analysts said the most effective way to keep power companies out of the red is to raise electricity prices. However, the country's high inflation rate has left little room for maneuver. The most likely solution may be to restrain the development of energy-intensive industries, said a market analyst.
Lin Boqiang, director of the China Energy Research Center at Xiamen University, suggested that the government raise electricity prices but subsidize customers, to give power plants an incentive to increase power supplies while preventing consumers from paying more for electricity.