Chinese factories with onsite power plants to pay fees, help fund broader energy price cuts

BEIJING (Reuters) - China will force factories with onsite power plants to pay fees to help fund $12 billion in cuts to commercial and industrial electricity prices, the government said on Tuesday.

The move, which partly formalizes a draft plan released in March, comes after Premier Li Keqiang vowed to lower electricity prices by 10 percent by year-end as part of a push to make China’s energy markets more efficient.

Beijing wants to curb the use of onsite coal-fired electricity plants, also known as ‘captive’ power plants, which companies such as steel, aluminum and cement makers sometimes use to avoid drawing more expensive energy from the grid. It also wants to crimp their usage as part of its ‘war on pollution’.

“Local authorities and grid companies must urge captive power plants to pay financial subsidies and use them to lower electricity prices for general industrial and commercial users,” the National Development and Reform Commission (NDRC) said in a statement on Wednesday.

The NDRC in March issued a draft plan to regulate onsite power plants by banning construction of new facilities in smog-prone regions and cracking down on illegal plants. It also said in the draft that it would force onsite power plants to pay fees to subsidize other users.

The size of fees paid by onsite power plants will be decided by provincial governments, according to the draft plan.

“Low-cost electricity is like a drug to energy-consuming industries, giving them less incentive to improve energy efficiency,” said Cheng Gong, an energy analyst at Zheshang Securities.

The NDRC statement on Wednesday also promised to further expand cross-region electricity trading and to cut some fees on major national hydro projects to give industrial and commercial users access to cheaper power.

The NDRC had cut electricity prices by about 7 percent by mid-May, a spokeswoman for the commission said at that time.

The chairman of the State Grid Corporation of China [STGRD.UL], the country’s largest grid operator, said in March that broad cuts in power prices would save companies around 80 billion yuan ($11.77 billion) in total this year.

In the first half of 2018, China’s industrial consumption rose 7.5 percent from a year earlier to 2.2 trillion kilowatt hours.

Reporting by Muyu Xu and Josephine Mason; Editing by Joseph Radford