The power market's oversupply must be cured by marketization

A new round of "electricity shortage" struck again. According to reports, after entering the month of September, 11 provinces and cities such as Shanxi and Zhejiang were in short supply. For a time, the situation of coal-fired top cattle that had just been "adjusted" through the increase of on-grid tariffs was once again formed. In this regard, the CEC had called for an increase in the on-grid tariff and sales price of 3 cents/degree to offset the gap. In fact, the root cause of the frequent power shortages is still the contradiction between “market coal” and “planned electricity”.

In this connection, simply increasing terminal electricity prices may allow the "electricity shortage" phenomenon to be delayed slightly, but it has failed to touch the problem of the power market, and it will also trigger public opinion rebound in the context of high inflation.

Looking into the long-term, only by introducing a market competition mechanism in the coal-fired power market in all aspects, can it be possible to open up price transmission channels and reduce the phenomenon of unnecessary internal consumption of resources.

In fact, the "electricity shortage" is not really "power shortage." Although the power supplier said that this year's poor water conditions and increased electricity consumption are true, they are not enough to cause nearly 15% of the electricity shortage in the country. From the perspective of the power supply structure, stable thermal power generation still dominates the market, and it is not difficult to replace the shortage of thermal power with hydropower. Moreover, this year's total electricity load has not yet exceeded 650 million, while the installed capacity of power generation companies has 960 million watts. Even taking into account the normal equipment maintenance work stoppage, it will not lead to the situation of power shortage. So, what is the director of this "electricity" farce it? The truth of the problem lies in the fact that power companies are hovering in power generation because of the cost-price inversion. Nowadays, the price of thermal coal has gone to the market, and the price of electricity has stayed at the level of government guidance. As terminal electricity prices are related to people's livelihood, especially in the context of high prices, it is not easy to increase, while coal prices have recently been affected by the international market. Although in order to protect coal power supply, the executive authorities are still trying to match coal and electricity companies to sign key contracts and reduce the cost of coal for power generation as much as possible, but it is still impossible to change the loss situation of power companies. Some of the power companies will simply expand the area of ​​suspension of operations, sell the key contract coal at market prices, and earn the difference. Although the production of coal has maintained a steady growth, coal mines are naturally unwilling to send large amounts of coal to power companies at low prices. The data shows that in 2010, the fulfillment rate of key coal contracts in some regions was below 50%.

It can be seen that the administrative intervention that has come to stabilize electricity prices has actually disrupted the normal rhythm of market operations. From the previous solution, we often end up with a small increase in electricity prices to temporarily quell resistance among coal-fired power companies. However, rumors such as “The annual salary of the grid meter-reading employee is RMB 100,000” have caused public opinion to question the reasonableness of the electricity price. The frequent increase in the price of electricity will inevitably face the risk of plagiarising, and it may make the allocation of resources in the electric power market difficult to return. As a result, the administrative regulation of the electricity market has become increasingly rampant.

What should be seen is that only by straightening out the coal-fired power system, it is possible to change the strange phenomenon that "there is no coal to sell, and there is no electricity". The key is to let the prices of resource products embark on the road of marketization as soon as possible and the administrative departments return to the supervisory duties of operational order. Once market regulation plays a leading role in the power and other resource sectors, mechanisms such as competition games and price discovery will play an active role. By then, the competent authorities will no longer have to worry about exploring reasonable electricity prices. The majority of consumers will also benefit from supply-side competition. Perhaps the bottleneck of new energy generation can be quickly cracked.

Of course, in the course of the return of electricity prices, the economy will inevitably face labor pains, which is why the competent authorities are struggling to wait for the opportunity for resource price reforms. Obviously, the current high prices are not the ideal time window, but this does not mean that there is only a "price increase" solution. Including the abolition of unreasonable taxes and fees in the coal industry and the provision of special subsidies for power coal can all reduce the cost of power generation. In the electricity market, the economic interests between power companies and the power grid should also be rationalized. Since the “grid-grid separation” reform in 2002, power grid companies have steadily earned the monopoly profits between the on-grid tariff and the terminal selling price, and the market operating risks have been entirely borne by the power generation companies. The delineation of the profit pattern of the electricity market by human factors should be reformed.

Objectively speaking, the prices of China's power and other resource products have been lingering below the equilibrium price for a long time. This in fact forms a subsidy for large consumers with high energy consumption, which is not conducive to the promotion of energy conservation and emission reduction. The various irrational behaviors that exist in the electricity market now need to be completely clarified by relying on the “invisible hand” of the market.