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China raises power rates

China will raise electricity rates on Jan. 1 to discourage consumption and help power companies finance new generators as the biggest energy-consuming nation after the US faces power shortages that may stunt its industrial growth.

Beijing Datang Group (北京大唐集團) and other big energy generators said this month said they can't afford to produce more electricity at current rates because they have to pay up to 25 percent more for coal. About 70 percent of China power plants are fueled by coal.

China also is expected to put the brakes on growth in steel, carmaking and other high-energy industries where expansion may outstrip demand or lead to smaller profits for foreign investors.

Premier Wen Jiabao (溫家寶) chaired a Cabinet meeting on Wednesday to discuss limiting entry and slowing project approval in some industries, the official Xinhua news agency reported.

"China's power shortages and runaway growth in energy-guzzling industries such as steel and autos may affect the nation's growth and overseas investment," said Zeng Sheng, an analyst at China Merchants Securities Co in Shanghai.

"It's necessary for the government to put the brakes on now," he said.

Power demand in China next year is forecast to rise 11 percent to a record 2.09 trillion kilowatt-hours, State Grid Corp, China's biggest electricity distributor, said in a report earlier this month. More blackouts are expected next year, after as many as 19 of China's 29 provinces suffered power shortages last summer. Capacity isn't expected to catch up with demand until 2006, the report said.

"It's hard to say how much a price increase will help" without knowing how much further coal prices may rise, said Meng Jing, a spokeswoman at Huaneng Power International Inc (華能國際電力), China's biggest private power producer.

The 2.5 percent, or 0.007 yuan a kilowatt-hour, average rate rise granted by the State Development and Reform Commission is the first nationwide increase since 2000. It allows power grids that buy electricity from Huaneng, Beijing Datang and other power generators to pass on the increase to consumers.

The rise may help boost net profit at Huaneng by 6 percent next year, at SP Power Development Co by 7 percent and at Bei-jing Datang by 5 percent, said Rui Kun, an analyst at Shanghai-based Xiangcai Securities Co.

That in turn may convince more investors that power is a profitable industry, he said.
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