The day before yesterday, the State Council released new guidance aimed at deepening the market-oriented reform of coal power. Among the key points highlighted by the industry, the proposal to eliminate the dual-track pricing system for coal was a major focus. This move is expected to pave the way for the long-awaited coal-fired power price linkage mechanism, which is anticipated to be implemented next year.
Yunnan's thermal power sector has been struggling in recent years due to various challenges, including fluctuating coal prices and declining demand. The introduction of this policy is seen as a positive step toward improving the financial health of thermal power companies in the region.
According to the guidance issued by the State Council on December 25, the coal price linkage mechanism will be refined. The document emphasizes that market-oriented reforms in the coal power sector are essential for sustainable development. It stresses the need to let the market play a central role in allocating coal resources, while gradually establishing a more efficient regulatory framework.
One of the key measures outlined is the establishment of a new system for coal production, transportation, and demand. Since 2013, major coal contracts have been abolished, and the dual-track pricing system has been phased out. The National Development and Reform Commission no longer sets fixed frameworks for inter-provincial coal railway capacity, allowing coal and power companies to negotiate prices independently.
Another important point is the improvement of the coal price linkage mechanism. When coal price fluctuations exceed 5%, the on-grid tariff will be adjusted accordingly. The proportion of coal price volatility that power companies must absorb will be reduced from 30% to 10%. However, since current coal prices are relatively stable, no immediate adjustments to the on-grid tariff are expected.
Experts suggest that while the short-term impact on electricity tariffs may be limited, the reform is still crucial. They emphasize the need for clearer operational guidelines to ensure the effectiveness of the new system.
In Yunnan, thermal power companies have faced significant losses due to falling demand and increased hydropower generation. From January to August this year, thermal power generation dropped sharply, with some companies reporting substantial losses. Many rely on loans to stay afloat, and cash flow issues remain a pressing concern.
The Yunnan Electricity Regulatory Office has taken steps to address these challenges, aiming to stabilize operations and ensure grid reliability. Despite the difficulties, thermal power remains a vital part of the province’s energy mix, accounting for over 32% of total installed capacity.
Analysts believe that the implementation of the coal price linkage mechanism could significantly improve the financial situation of thermal power companies. By aligning electricity prices more closely with coal costs, the reform aims to reduce risk and promote stability in the sector.
This reform also marks a major shift in the coal market, breaking down administrative barriers and promoting a more market-driven approach. As a result, both coal and power companies are expected to benefit in the long run.
While coal prices are expected to remain low in the near future, the reform provides a foundation for future price adjustments. Experts predict that residential electricity costs will not be affected, as the changes only apply to the on-grid tariff, not the final retail price.
Overall, the new policies represent a significant step forward in aligning the coal and power sectors with market forces, ensuring greater efficiency and sustainability in the energy industry.
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