China’s Guangdong Scraps Fixed Power Prices for Industrial Users
(Bloomberg) -- China’s southern province of Guangdong, home to Huawei Technologies Co. and vehicle manufacturer Guangzhou Automobile Group Co., is eliminating government-fixed electricity prices for industrial and commercial users, according to a document seen by Bloomberg issued by a local planning agency.
Industrial users requiring high-voltage power supplies must buy all their electricity via public auctions at market prices immediately, according to the notice distributed to local authorities, major power producers and distributors from the Guangdong Provincial Development and Reform Commission on Wednesday. The new rules don’t apply to agriculture and civil users. The commission didn’t respond to a request for comment.
The changes are aimed at easing the power crisis in China caused in part by restrictions that didn’t allow electricity generators to pass along higher prices to power buyers even as the cost of fossil fuels skyrocketed. The change is set to provide relief to generators who had curbed output to avoid losses but could boost prices for everything from home appliances to vehicle parts that are produced in the country’s economic heartland.
The changes are in line with the new policy issued by China’s State Council two weeks ago, which allows supplies to the most energy-intensive sectors to be priced freely. All coal-fired electricity shall be traded at market prices, the Guangdong document said. The move took place just days after a visit by Chinese Premier Li Keqiang, who vowed to ensure power supplies for factories during his trip.
Chinese provinces have been reforming local power market regulations that had capped prices that could be charged to end users, which many analysts cited as a contributing factor in the crisis. Guangxi province slapped a 50% premium on power prices for the most energy-intensive users last week.
Guangdong is a major global manufacturing center and a pioneer region of China’s economic reform since the 1980s. The province of 126 million people was one of the country’s earliest destinations for foreign investment, with Terry Gou starting his first mainland Foxconn Technology Co. factory in 1988. The region’s gross domestic product reached $1.7 trillion last year, accounting for about one-tenth of China’s economy.
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