BEIJING -- As power shortages plague China, provincial governments are beginning to approve rate hikes for electricity, mostly centering on supplies to factories, a move that is likely to raise production costs.
The southern province of Guangdong, the nation's economic powerhouse, approved peak-time rate hikes of up to 25% for electricity transmitted from state-owned power companies to factories and other businesses, starting Friday. The hike does not apply to ordinary households.
Peak hours for factory power usage are from 11 a.m. to noon, and from 3 p.m. to 5 p.m., on days when temperatures reach 35 C or hotter.
Guangdong is banning neon signs celebrating the lengthy National Day public holiday that starts Friday. Operators of other neon signs are being urged to keep them on for shorter times as the provincial government looks to provide a stable supply of electricity by controlling demand at peak hours.
Meanwhile, in the coastal province of Zhejiang, which borders Shanghai, peak-hour prices for factories will be hiked, starting Oct. 15, according to Chinese media. The peak time will be doubled to four hours, and off-peak prices will be cut.
The province may even require plants to suspend operations for a number of days. In those instances, the company will be allowed to choose the schedule.
In Shanghai, the government has reversed course on a policy forbidding coal-burning plants to raise electricity rates for business customers. Now the plants can lift rates by up to 10%.
Inland governments are also acting and have started letting fossil fuel power producers sell electricity to distributors at higher wholesale prices. The power providers look to scale up operations to compensate for the earnings drag from higher coal prices.
Notices authorizing peak-hour rate hikes for electricity have reportedly gone out in Guizhou and Anhui, along with the Guangxi Zhuang Autonomous Region.
Local governments in coal-producing regions, as well as inland areas that transmit power to coastal regions, have started to allow hikes on wholesale electricity prices. The Inner Mongolia and Ningxia Hui autonomous regions have permitted price increases of up to 10%. Hunan Province will authorize higher wholesale power prices based on rises in coal prices.
The central government sets overall policy for power prices, but provinces and other local governments implement the policy independently and effectively guide wholesale power rates and the charges paid by factories and households.
Fossil fuels, mainly coal, account for roughly 70% of China's power generation mix. Electricity consumption for January to August grew 14% from a year earlier. But coal production climbed only 4%.
Due to the tight demand-supply balance, the price of thermal coal has apparently jumped more than 70% in the last three months.
And more than 60% of the 26 listed fossil fuel power companies have seen first-half profits fall short of year-earlier numbers. Nearly a fifth have reportedly slipped into the red.
China is home to more than 3,000 fossil fuel power plants with capacities of 100,000 kW or more. Earnings at most have deteriorated, and it appears that utilization rates have fallen.
The state has started to boost coal output. The government of key coal-producing province Shanxi sealed an agreement Wednesday with local coal companies to provide low-cost supplies to 14 provinces and provincial-level regions, including Guangdong and Zhejiang. A coal industry group sent out a notice urging mining companies to assume that conditions are more dire than anticipated and to upgrade supply capacities.
The Chinese government's decarbonization push has also contributed to electricity shortages. Local government leaders are instructing enterprises to curb power consumption so that environmental targets can be met. Many believe that the power shortage cannot be resolved solely by hiking electricity prices.