Coal prices open As the new year's power coal contract negotiations approach, the ongoing tension between coal and electricity sectors seems poised for some resolution. However, with the peak winter electricity usage looming, thermal power companies face even greater financial strain. With the year-end drawing near, the debate over coal pricing has sent ripples through the market. "For energy price reform, this discussion might seem futile in the short term," quipped Li Junfeng, Director of the National Center for Climate Change Strategic Research and International Cooperation Center. The trajectory of coal prices is shifting, with industry insiders suggesting that integrating coal prices could bring key contract coal prices closer to market rates. Hao Xiangbin, Director of the Economic Operations Department at the China Coal Industry Association, mentioned in an interview with the China Economic Times on November 25th that merging coal prices would benefit both coal and electricity sectors, but would require supplementary measures like detailed execution plans. In the current oversupply market conditions, there’s an opportunity for coal prices to align. According to data released by the National Development and Reform Commission, since 2013, the domestic coal market has been fully liberalized, with the state stepping back from direct intervention in coal pricing. Reports indicating the cancellation of key coal contracts to expedite coal price integration have been submitted to the State Council. While many see hope in easing the coal-electricity conflict post-coal price integration, skepticism remains. At the 4th "Energy and Power Development" forum on November 25th, Li Ying, Chief Engineer at the State Grid Energy Research Institute, argued that "merging coal prices won't resolve existing conflicts. Currently, major coal contracts and spot market coal are two distinct types of coal sold in separate markets. Even if all coal prices were aligned with spot market prices, it wouldn’t eliminate these tensions, and might introduce additional volatility." An official from the National Energy Administration’s Policy and Regulation Department, speaking to the China Economic Times during the conference, noted that coal price integration should be part of a broader electricity price reform, including improved coal-electricity linkage policies. This would ensure real-time adjustments between coal prices, on-grid tariffs, and retail electricity prices. Unilateral approaches focusing solely on coal price mechanisms are unlikely to yield lasting benefits. Hao Xiangbin proposed reducing coal price linkage rates and decreasing the share borne by power companies—perhaps between 5%-10%—to maintain their negotiating leverage while minimizing distortions in coal price fluctuations. Li Ying emphasized the need for a unified national coal long-term contract and spot market platform. He advocated strict monitoring of transportation costs and setting a cap on electric coal prices in line with international market benchmarks. The current electricity pricing structure doesn’t align well with energy conservation and emissions goals. Wang Baole, Director of Planning and Development at Guodian Group, pointed out that due to delays in implementing the coal-electricity price linkage mechanism, thermal power plants have incurred significant losses. For instance, the top five power generation groups lost 12.8 billion yuan from January to September this year. Public records show that since 2003, the average return on total assets in China’s power sector has been just 2.4%, far below the 29.6% in the oil and natural gas industries and 7.9% in the coal sector. Comparatively, since 2006, China’s electricity price growth rate of 3.4% has lagged behind the Consumer Price Index (CPI) growth rate of 3.7%, resulting in a real decline in electricity prices. Wang Zhixuan, Secretary-General of the China Electricity Council, told reporters that thermal power remains crucial for ensuring electricity supply and will continue to grow cleaner. However, these losses dampen operational enthusiasm, discourage investments in thermal power, and threaten stable electricity supplies. Li Ying argued that the electricity pricing system should drive clean energy development. For example, in terms of power investment, there should be incentives for clean energy adoption, with benchmark prices for clean energy decreasing annually to reflect advancements in technology and cost reductions. Distributed power supply and microgrid pricing mechanisms should guide their development scientifically. In power operations, Li Ying suggested focusing on incentivizing grids to support peak load management and attract more clean energy. Breaking away from the current uniform on-grid tariff, she recommended implementing peak and off-peak benchmark tariffs for coal, gas, nuclear, and hydroelectric power. A robust pricing mechanism for ancillary services and energy storage is also essential. Li Ying recommended enhancing the cross-regional transport capacity of clean energy bases by appropriately increasing subsidies for renewable energy access systems and including large-scale renewable energy projects within provincial subsidy frameworks. "The state should prioritize boosting clean energy utilization in low-demand periods," Li Ying added. All users should adopt peak and off-peak pricing or seasonal pricing schemes, widening the gap between peak and off-peak rates. Eventually, residential electricity should also follow tiered time-of-use pricing models.

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