Electricity price regime

A three-tiered progressive pricing system for residential electricity use is to be implemented gradually nationwide. The era of one price fits all will end, as under the new system the more electricity a family uses the higher price it will have to pay.

Piloted in Zhejiang, Fujian and Sichuan provinces as early as 2004, the reform is aimed at bridging the gap between the cost of generation and the price for use.

While coal prices are set freely in the market, power prices are kept low by the government. The cost of producing 1 kilowatt hour of electricity is about 0.80 yuan now, but the price for users is only 0.49 yuan.

The new pricing regime aims to increase the revenues of power companies and relieve their financial burdens, as most power generators would have gone bankrupt without government subsidies.

The price of electricity for 80 percent of households in the first tier will remain unchanged, about 0.49 yuan ($0.08) per kilowatt hour, but it will increase by 0.05 yuan per kilowatt hour for households in the second tier, while for those in the third tier the price will rise by about 0.30 yuan.

Public hearings have been held to verify the feasibility of each category's power consumption limit in different provinces, with most of the hearings yielding constructive feedback conducive to helping deepen this reform.

It is absolutely right for the authority to stress that no matter which electricity policy is implemented, at least 80 percent of households will not be affected and families that get basic living allowances use 10 to 15 kilowatt hours of power for free each month.

But with the top 10 percent of residential electricity users accounting for about 33 percent of the total residential consumption nationwide, a progressive pricing policy will also hopefully increase residents' awareness of the need to conserve energy.

The cost of electricity for business and industry users has increased by about 40 percent in recent years, so the new residential pricing system will be another significant step toward addressing the conflict between power consumption and the supply of coal.

About 55 percent of China's coal is used to generate electricity. Considering the country's limited coal resources, its fast urbanization and its increasingly fragile ecology, such rapid growth of coal consumption is not sustainable.