| BEIJING, July 7
BEIJING, July 7 China has widened a scheme that
allows big electricity users to buy power directly from
generators, a tentative step towards reform of the power
The move offers a chance for big power users, including
dozens of metals smelters such as Aluminium Corp of China Ltd
(2600.HK) (601600.SS) and Jiangxi Copper (0358.HK) (600362.SS),
to reduce power fees and cut their costs of production.
Currently, the government sets the prices at which
generators sell power to grids as well as the prices that grids
charge end users. The gap between the two covers transmission,
distribution, sales and other costs as well as grid operators'
Open and fair charges for power transmission are part of
China's long-term plan for power market reforms that will
maintain the state's controls on the transmission pipelines
while freeing up power generation and distribution as well as
sales to end-users.
"Large end-users would be winners in cost saving by buying
electricity at lower prices via this scheme than at normal
retail prices," said Citigroup analyst Pierre Lau in a note to
But there is a catch: before they can get power directly,
the companies involved need to agree to the transmission fees
they will pay to the state-run electricity grids.
The original pilot programme involving 15 aluminium
smelters was launched in March, offering a major fillip to the
companies involved, since aluminium prices were nearing
breakeven at the time. Aluminium smelters use so much
electricity that power can rival their raw material, alumina,
as their biggest cost.
There has been no progress with that scheme.
"No aluminium smelters have reached agreement. It is all
about the grids' transmission fees," an executive at one of the
15 aluminium smelters said late Monday.
"We expect the NDRC is going to announce such transmission
fees soon," he said, referring to China's top planning body,
the National Development and Reform Commission.
He added that his smelter was about to agree a power supply
price with a generating firm and was waiting for the NDRC's
decision on the transmission fees to the regional grid.
Chalco may have set the transmission fees of 0.03-0.06 yuan
with the State Grid, Chinese daily, China Securities, said on
Tuesday. The fees would need approval from regional governments
for Chalco's smelters.
To widen the pilot scheme, the State Electricity Regulatory
Commission said in a statement dated June 30 that all power
users conforming with industry policies and consuming 110
kilovolts or more would be eligible, provided they bought power
from generating firms that met certain criteria.
With no independent pricing system for power transmission,
the electricity regulator said grid operators should charge 110
kilovolt-line users 10 percent less than the existing average
and 220-kv users 20 percent less.
But it did not provide any reference prices for such fees.
Excluding line losses, electricity transmission and
distribution charges averaged 0.134 yuan per kilowatt, or
around a quarter of China's average power retail prices, in
And, in a further hurdle, provincial governments must agree
to participate in the programme before any firms can take part.
"Such administrative processes can be enduring, and actual
implementation may not happen in the near term," said Nomura
analyst Ivan Lee in a note to clients.
Lau at Citigroup expected little movement in the next year
or two, with an "immaterial" impact on power firms' earnings.
Jiangxi Copper has already applied to Beijing for approval
to buy electricity directly from power companies, which would
help it save power costs, spokesman Pan Qifang said.
"The power cost saving will be huge if approved," Pan said,
adding that Jiangxi Copper consumed more than 2 billion
kilowatt-hours (kWh) per year.
(Editing by Ben Tan)