Guangdong removes power price limit to encourage generation Price 2022-08-09 11:02:28

Southern China's Guangdong province has suspended the implementation of level-2 limit for spot electricity prices, according to a circular issued by the Guangdong power trading center on August 1, in a way to spur the power generation enthusiasm amid rising concerns over a power shortage.

The level-2 scheme is used when the spot power prices have been already running high for a while. According to the current rule, the level-2 cap stands at 694.6 yuan per MWh.

The persistent scorching weather has put a heavy pressure on local power producers since July. The China's leading manufacturing powerhouse is broadly dependent on coal- and gas-based power generation during peak hours, but global gas prices have jumped high at present, resulting in "no one dares to buy spot gas in the market". Market sources noted Guangdong's spot power prices have been above the level-2 cap for 10 days in a row in the second half of July.

Meanwhile, coal prices have been maintained high since last year, which significantly added the cost of power generation. While the spot prices had exceeded the cap, spot transactions were only allowed to be settled within the price limit.

Facing mounting cost while product prices were capped, utilities' willingness to produce has taken a big hit, which may exacerbate the supply shortage during the summer.

Guangdong's renewable power generation, which has been developing swiftly in these years, plays a limited role in supporting the immediate load during peaking hours.

On the first day when the removal took effect, the average trading prices of coal-based power increased to 867.6 yuan/MWh and gas-based power prices increased to 880.3 yuan/MWh in normal time and 1,122.8 yuan/MWh in peaking hours.

China promised no power outages across the country during peaking hours. In doing so, the country has greatly scaled up domestic coal production.

In the first half of the year, the country's coal production reached 2.19 billion tonnes, up 11% year on year, official data showed. The production has been rising with a double-digit year-on-year growth for five months in a row.

Sufficient production has driven domestic coal prices down to 1,150 yuan/t, down from 1,700-1,750 yuan/t in mid-March this year.

More importantly, the country capped the prices of contracted coal, which accounted for more than 80% of supply to the power sector, at 770 yuan/t.

The price limit will be restored depending on the market circumstances, the circular said.

(Writing by Alex Guo  Editing by Tammy Yang)
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