The National Development and Reform Commission recently announced that it will adjust electricity pricing structures by utilizing the space created from the drop in thermal coal prices, while keeping the overall sales price level unchanged. This move aims to appropriately increase the price of renewable energy electricity, denitrification, and dust removal charges. These adjustments are intended to support the growth of renewable energy sources, encourage coal-fired power plants to implement denitrification and dust control measures, and ultimately improve air quality.
How is China's electricity sales price categorized? And how will future tariff classifications change? A spokesperson from the Price Division of the National Development and Reform Commission explained that China plans to restructure its sales price classification over the next five years. Currently, the system is divided into seven categories—residential, agricultural, large-scale industry, commercial, non-industrial, general industry, and non-residential lighting. The goal is to gradually transition toward a system primarily based on electricity load characteristics, aiming for a simpler, clearer, and more reasonable structure.
Critics argue that the current classification system is overly complex. Some claim that China has the most intricate electricity pricing system in the world. While this may be an exaggeration, it reflects the reality that the system was developed during the planned economy era and is largely based on industry and usage type. Over time, as power supply has increased and market reforms have advanced, this structure no longer aligns with the needs of a modern market economy.
One key issue is that the current classification doesn't accurately reflect the actual cost of power supply. Additionally, there are unfair cross-subsidies among different user groups, such as residential and agricultural users being subsidized by industrial consumers. Another challenge is that the existing system hinders further progress in power sector reforms, which aim to let market forces determine electricity prices more effectively.
Electricity, as a unique commodity, has specific characteristics: it is transmitted through a grid, consumed instantaneously, and provides universal service. Its pricing must consider these aspects. Factors like peak demand, consumption timing, and voltage levels significantly impact supply costs. Therefore, a more accurate pricing model should take these elements into account.
The reform also emphasizes protecting the interests of residential and agricultural users, who are often more vulnerable to price changes. Over the next five years, the government aims to simplify the sales price classification system, shifting from usage-based categorization to one that better reflects electricity cost and load characteristics.
Internationally, many countries use different approaches. For example, France uses detailed time-of-use pricing, while the UK applies real-time pricing for large consumers. South Korea separates users into six main categories but still incorporates cost-based sub-classifications. These models offer valuable lessons for China as it continues to refine its own electricity pricing system.
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