China will raise retail electricity prices starting Wednesday, the first increase in more than a year, to curb demand and boost power generation as the nation battles with a supply shortfall that may be the worst in history.

Power prices for industrial users in 15 provinces will increase starting June 1 and prices paid by residential users will remain unchanged, an official with the National Development and Reform Commission (NDRC), the nation's top economic regulator, said by telephone from Beijing on Monday, declining to be identified because of internal rules. Li Puming, a spokesman at the NDRC, declined to comment when contacted by Bloomberg News.

China is battling with an electricity supply shortfall that may reach as much as 40 gigawatts this summer, surpassing the shortage in 2004, the country's worst, according to State Grid Corp of China. The price increase would be the first since November 2009 and may spur power plants to increase utilization rates after rising coal costs and government caps on electricity tariffs forced some utilities to curtail operations or even shut.

"This will help power producers and give them more incentive to maximize production amid the power shortage," Zhang Long, a utility analyst at Essence Securities Ltd, said by telephone from Shanghai.

The country's five largest generators are China Huaneng Group Corp, China Datang Corp, China Power Investment Corp, China Guodian Corp and China Huadian Corp.

At least 10 provincial grids serving municipalities including Beijing, Tianjin, Shanghai and manufacturing bases in the provinces of Hebei, Jiangsu and Zhejiang will be hit by power shortages, the official Xinhua News Agency said on May 23, citing Shuai Junqing, an executive vice-president at State Grid.

China increased on-grid power tariffs, or prices paid to power producers by grid operators, last month to help electricity producers facing losses. With retail prices raised, there is room for further on-grid tariff increases, Zhang said.

The government boosted electricity prices for industrial users in 15 provinces by an average 16.7 yuan ($2.58) per megawatt-hour, China Central Television said Monday, citing the NDRC. Power prices for industrial users are currently at 470 yuan a megawatt-hour on average, according to government data.

China will increase retail power prices in the provinces of Shanxi, Qinghai, Gansu, Jiangxi, Henan, Hubei, Sichuan, Guizhou, Shaanxi, Shandong, Hunan, Anhui, Hebei and Hainan as well as Chongqing municipality, the China Securities Journal said on Monday. On-grid power tariffs in 12 provinces were increased by an average 20 yuan per megawatt-hour on April 10, according to the journal.

The retail power price increase will affect the consumer price index "indirectly" by 0.05 percentage point, CCTV reported on Monday, citing Liu Shujie, head of economic research at the NDRC.

The country will also ban local governments from giving power tariff discounts to manufacturers that consume large amounts of energy and also reinforce monitoring of coal prices to maintain stability, according to CCTV.

Benchmark power-station coal prices at Qinhuangdao port rose to between 830 yuan and 845 yuan a metric ton as of Monday, according to the China Coal Transport and Distribution Association. That's the highest since October 2008.

China's power-generating capacity was 960 gigawatts as of last year, with coal and oil-fired power plants accounting for 73 percent of the amount and hydropower dams 22 percent, the National Energy Administration said in January.

Bloomberg News

(HK Edition 05/31/2011 page2)