BEIJING – China is considering compensating utilities for all the coal-fired power they’ve built, including plants that are likely to sit idle as Beijing accelerates its transition to clean energy.
The reimbursement would come in the form of capacity fees for power users, in addition to the rates they pay on the electricity they consume, according to a draft of the plan seen by Bloomberg.
Charges would apply to industrial and commercial users from the beginning of 2024. The document has been circulated by the National Development and Reform Commission (NDRC) to power companies for their opinions. The economic planning agency didn’t respond to calls seeking comment.
China has accelerated its build-out of coal-fired power to tackle persistent supply shortages that have crippled the economy in recent years. But much of that capacity is likely to be idle for extended periods because it’s needed only as a backup to intermittent wind and solar. That’s a cost to power plants, which already have to contend with government-mandated price caps and rising carbon costs.
Despite the breakneck speed of China’s renewable power installations, coal still accounts for 59 per cent of its electricity. President Xi Jinping’s pledge to cut coal use from 2025, a key milestone on the path to carbon neutrality, is likely to dissuade generators from expanding capacity unless they’re compensated for the effort.
The proposal could reduce losses at utilities and justify the construction of new plants, said Dr Peng Chengyao, an analyst with S&P Global Commodity Insights.
But the potential consequences for an economy that has relied on cheap electricity to deliver much of its growth are clear.
“It will drive up power prices,” said Dr Nannan Kou, head of China research at BloombergNEF. Allowing power plants to trade capacity is another option that’s being discussed for the future, he said.
The NDRC’s plan would allow power plants to claw back at least 30 per cent of their fixed investment costs through 2025, via fees that range from 100 to 230 yuan (S$19 to S$43) per kilowatt of capacity each year. That could rise to 50 per cent by 2026.
To be eligible for the payments, coal plants will need to be connected to the grid and compliant with their energy conservation and emission targets. They’ll also need to be able to transfer electricity to regions short of power. BLOOMBERG
