The National Development and Reform Commission recently announced that it will adjust electricity pricing by utilizing the space created from the decline in thermal coal prices, while keeping the overall sales price level unchanged. This adjustment includes properly increasing the prices of renewable energy electricity, denitrification, and dust removal charges. These changes aim to support the development of renewable energy, encourage coal-fired power plants to implement denitrification and dust removal measures, and ultimately improve air quality.
How is China’s electricity sales price currently structured, and what changes are expected in the future? According to an official from the Price Division of the National Development and Reform Commission, China plans to reclassify its sales prices over the next five years, shifting from the current seven categories—residential, agricultural, large-scale industry, commercial, non-industrial, general industry, and non-residential lighting—to a simpler system based on load characteristics. The goal is to create a clearer, more reasonable, and simplified structure for electricity pricing.
Currently, the classification of electricity sales prices is considered overly detailed. Some critics argue that China has one of the most complex electricity pricing systems globally. While this may be an exaggeration, it reflects the complexity of the system. The current structure, inherited from the planned economy era, categorizes electricity use by industry and purpose. However, as China moves toward market-based reforms, this system no longer aligns with modern economic demands.
One key issue is that the current classification fails to reflect the true cost of electricity supply. Additionally, there are unreasonable price disparities among users with similar load characteristics, leading to cross-subsidies and unfair burden distribution. For example, residential and agricultural users often subsidize industrial users, and high-load users subsidize low-load ones. These imbalances hinder the smooth transition to a more market-driven pricing model.
Electricity is a unique commodity, characterized by its networked nature, instantaneous production and consumption, and universal service requirements. Unlike other goods, electricity cannot be stored in large quantities and must be produced and consumed simultaneously. The grid infrastructure must also be built in advance to meet demand. As a result, electricity pricing must consider factors like user load patterns, scale of usage, voltage levels, and time of consumption.
To address these challenges, the reform aims to shift from a usage-based classification to one based on cost and load characteristics. Over the next five years, the system will simplify the current structure and introduce more accurate pricing mechanisms that better reflect actual costs. This will help reduce the electricity burden on certain industries, especially residential and agricultural users, promoting sustainable growth in related sectors.
Internationally, many countries adopt different approaches. Some, like France, base their pricing on capacity, peak times, and seasonal variations. Others, such as the UK, use real-time pricing for large consumers. South Korea, for instance, divides users into six main categories but still applies cost-based sub-classifications. These models offer valuable insights for China as it continues its electricity pricing reform.
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