China hikes electricity rates to counter shortages

SHANGHAI (AP) — China has raised electricity rates for some industrial users as parts of the country grapple with their worst energy crisis in years, despite concerns higher costs may add to inflation.

Residential rates were unchanged, the government announced late Monday. It gave no details of where the changes would be imposed.

The increase of about 20 yuan (about $3) per 1,000 kilowatt hours, ordered by the National Development and Reform Commission, is meant to encourage conservation and to give producers a financial incentive to increase output despite losses from surging coal and oil costs.

Household customers apparently were exempted to ease the impact on a public that already is struggling with inflation that pushed up food prices by 11.5 percent in April.

Some 20 Chinese provinces and regions are enduring their worst shortages in years, with factories and residents facing power cuts as supply runs short of demand — a problem worsening as a drought dries rivers, reducing hydroelectric capacity.

Closures of older coal-fired plants to reduce emissions of greenhouse gases and other pollutants have also cut into supply.

Authorities have warned that manufacturers in booming industrial regions west of Shanghai may face even tighter power rationing when demand surges in the peak summer months.

It is unclear if the rate increase will do enough to help to rebalance supply and demand.

The industry group China Electricity Council has estimated a power shortfall of up to 40 million kilowatts in the summer. That is less than 5 percent of China’s generating capacity, but the shortages are concentrated in key manufacturing regions such as Zhejiang and Jiangsu, near Shanghai.

The thermal power plants that provide about 80 percent of China’s electricity have balked at investing in new facilities given the poor prospects for profitability due to government price controls that prevent utilities from passing on increases in costs.

The five biggest utilities reported losses of 10.6 billion yuan ($923 million) in January-April, up 220 percent from a year earlier, analyst Dariusz Kowalczyk said in a recent report for Credit Agricole.

Increasing rates “would not solve the problem as shortages largely reflect a swift increase in demand, insufficient capacity growth and unfavorable weather conditions,” he said.

In the meantime, Shanghai’s utility has warned that department stores and some factories may need to close during the hottest days of summer to ensure adequate supplies to residential users.

Businesses in the country’s prosperous Zhejiang region, west of Shanghai, are so used to power rationing that many have installed diesel generators to use as a backup — adding to costs and straining supplies of that fuel.

“We can use diesel, while ordinary homes cannot. But we don’t like to use it because it’s more expensive and costs will be higher,” said a human resources manager surnamed Sun at Cixi Sunbay Hats and Accessories Co., in Cixi, southwest of Shanghai.

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Associated Press researcher Fu Ting and writer Joe McDonald in Beijing contributed to this report.

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