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China to extend reforms to electricity pricing

The Chinese government will expand a reform programme intended to open up the power market to 12 more provincial power grids and one regional network.16 Mar 2016

The programme was first rolled out by the National Development and Reform Commission in Shenzhen, and aims to separate the power transmission and distribution price from the sales price, allowing the market "have a bigger say in deciding the final price", state-owned news agency Xinhua has reported.

Unlike the power generating companies and sales firms, which have "abundant competition" and little pricing power, power grid companies are natural monopolies that can determine prices, Xinhua said.

Under the reform the power grid companies will no longer profit from the difference between costs and sales prices. Instead, they will charge a service fee decided by the government based on the cost of transmitting and generating power.

Power grids in regions including Beijing, Tianjin, Chongqing and Guangdong will be included in the pilot power transmission and distribution pricing reform, joining Inner Mongolia, Anhui, Hubei, Yunnan and Guizhou where the reform was brought in in 2015, Xinhua said.

Hong Kong-based John Yeap, an energy expert with Pinsent Masons, the law firm behind Out-Law.com said: "China has been experimenting with liberalising its power market since the start of the reform of the industry with the break up of the State Power Corporation in December 2002. There have been several false starts but the move towards regulated transmission pricing for open access is one that is consistent with global de-regulated power markets where the natural monopoly of the transmission network is recognised and regulated as such."

The State Grid Corporation of China (SGCC), China's leading electricity utility, said last year that it planned to spend 420.2 billion yuan ($64.7 billion) on grid infrastructure in 2015, representing a year-on-year increase of 24%.

2015 would also see the launch of “pre-project work for four power links connecting China with Kazakhstan, Russia, Mongolia and Pakistan”, Xinhua said at the time.

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