China has implemented a new electricity pricing model aimed at achieving fairer and more transparent rates while ensuring efficient distribution across the world's largest power grid.
The National Development and Reform Commission released a notice establishing the "cost plus reasonable profit" principle for calculating power transmission and distribution fees. This change allows grids to pass on certain costs to users for the first time, enabling more precise cost calculations, reasonable profit margins, and improved investment efficiency. Additionally, the new pricing structure removes the fee category for large-scale industrial users and bases power transmission and distribution fees on voltage levels rather than user categories, creating a more equitable pricing system.
The updated tiered pricing system in China assigns lower transmission fee rates to businesses that require higher voltage. This approach reflects the utilization of power transmission and distribution assets by users with different voltage needs more accurately. The previous pricing model, which charged the same rates regardless of voltage levels, did not account for the increased costs associated with longer routes for low-voltage power transmission. By aligning charges with voltage levels, the new system encourages better allocation of power transmission resources by grid companies.
The reforms also aim to make electricity bills more transparent by separating certain additional charges. Pumped hydroelectric storage capacity charges, related to power line losses and auxiliary service costs, are now listed separately from transmission and distribution fees. This breakdown helps consumers understand the significance of load balancing in the power system. Furthermore, industrial and commercial users are incentivized to evaluate their power usage and improve grid utilization through the expansion of the difference between consumption tariff and capacity tariff. Discounts on electricity bills are provided to large power users with high load factors, promoting more efficient use of the electricity system.
While these changes bring greater fairness and transparency to pricing for industrial and commercial users, residential and agricultural customers, who traditionally paid lower rates, are not affected by the reforms. The previous cross-subsidy model, where revenue from industrial and commercial users subsidized residential and agricultural customers, has been maintained. Although this model has supported national energy policy and inclusive access to power service, it has also resulted in higher costs for businesses, which are ultimately passed on to consumers. The gradual reform of the power system is expected to continue, with policy research suggested to improve the residential electricity price policy in the future.
Source: asia.nikkei.com