China will set up power trading platform in move to free prices

[HONG KONG] China is setting up trading platforms to enable power-generating companies to sell directly to customers at market rates, part of government reforms to remove controls on the pricing of electricity.

Work to set up the platforms has started, Lian Weiliang, deputy director at the National Development and Reform Commission, said at a briefing Wednesday in Beijing. NDRC, China's economic planner, will give up its pricing authority once the new rules are in place, Mr Lian said, without giving a timeframe.

"The power trading platform will be a place where power generators and buyers will come in and set the price," Mr Lian said. "The trading has to be fair and independent." China issued rules to overhaul its electricity market in March, aimed to gradually loosen the state's monopoly and encourage competitive energy pricing. State-owned transmission companies such as State Grid Corp of China will operate as a utility, charging only a transmission fee.

China expanded direct power sales to seven cities from just one, Shenzhen, earlier this year, and will add more cities as part of a pilot program, Mr Lian said. The government will encourage the investment of private capital to help introduce competition in the retail power market.

"The pilot programme on power prices is a way of implementing reform, unlike other pilot programmes that aim to explore the approaches of reform," Mr Lian said. "There are about 10 major areas where we have to set up rules and policies to get the whole reform going, and currently we have finished about three of them." China will encourage mid-term and long-term electricity trading between regions with excess power and those experiencing shortages. The government will also study starting power-trading related futures and derivatives when the time is right, according to the plan.

BLOOMBERG