The Chinese Premier Li Kequiang said recently Beijing wants a nationwide 5% cut in power prices, instated during the lockdowns, to remain in place for the rest of the year. This national policy is meant to help revive the economy by giving energy-intensive industry access to electricity at a reduced cost.
Guandong’s regional government, in contrast, is considering levying higher rates predominantly on electricity from burning gas -- given that local utilities had rushed to buy cheap LNG cargoes after prices in Asia fell towards $2 per MMBtu. Critics dismiss the proposed rate cut as counterproductive to China’s nationwide clean energy aspirations.
Surge in shipments to CNOOC’s Dapeng LNG terminal
When energy demand and LNG prices began falling across Asia due to shutdowns to contain the coronavirus pandemic, utilities in Guandong were quick to snap up cheap cargoes. Shipments to CNOOC’s Dapeng LNG import terminal (pictured) recorded a record number of tanker arrivals of 775,000 tons in May.
However, the cut in power tariffs threatens to undermine this growth. Even with lower prices for imported LNG, utilities could no longer reap a profit from operating some gas-fired power plants. Several less-efficient plants would be at risk of being mothballed and lying idle temporarily, or even be permanently shut down.
The proposed new tariff rates would be 0.029-0.08 yuan (0.4-1.1 $cents) per kilowatt-hour lower than the current level of 0.533-0.665 yuan per kWh, according to local reports referencing a consultation paper from the Guangdong Development and Reform Commission.
New tariff could alter Guandong’s energy mix
If enacted, the lower power tariffs that utilities would be able to charge from their customers would mean that ageing and less-efficient gas power plant would no longer be able to operate at a province.
In the long run, the tariff cut could shift Guandong’s energy mix towards more coal generation. Contrary to the rest of China, coal currently accounts for less than half (48%) of Guandong’s energy mix while gas-fired power makes up about 18%.