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China industrial consumers to source power from market by 2018: draft rules

[BEIJING] China's energy regulators are planning to expand power trading to allow all industrial consumers to buy electricity directly from suppliers by 2018, according to a draft policy document published by financial magazine Caixin on Friday.

The plan is part of reforms for the power sector aimed at driving down electricity costs for industrial and commercial consumers amid a cooling economy. Solar, wind and biomass power producers are also to be given preferential treatment in the opening of the retail electricity markets to help curb emissions from coal-fired plants.

China has already rolled out pilot power reform programmes in a number of provinces to allow generators and consumers to reach supply deals independently of the grid companies, which remain responsible for transmitting power.

The National Energy Administration (NEA), China's energy regulator, is looking to set up unified rules to create a nationwide power market, according to legal experts. Local regulations are currently inconsistent and have been drawn up primarily to ensure long-term power supplies to large consumers.

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The policy paper - which has not been officially released - will remain in the consultation stage until April 5, with local authorities and state-owned power companies able to submit their opinions on the plan, Caixin reported.

In the first stage of reforms, the National Energy Administration (NEA), which drafted the paper, plans to raise the amount of power delivered through bilaterally negotiated contracts to 30 per cent of the total.

In later stages, the figure will rise to 100 per cent for industrial users in 2018 and for commercial users in 2020.

China launched its first two power trading exchanges in Beijing and Guangdong on March 1, run by the country's two government-owned power distribution firms, the China State Grid and the China Southern Power Grid.

The two exchanges are expected to ramp up cross-regional trading and the use of clean power, the National Development and Reform Commission (NDRC) said in a statement at the time.

The NEA has asked provinces that have been given the go-ahead to roll out reforms to draw up regulatory plans and trading rules to allow for both long-term contracts and spot-delivered power as soon as possible, according to the draft policy.

Industry experts, though, are sceptical that a spot power market can be quickly developed in China.

Feng Yongsheng of the National Academy of Economic Strategy, writing in the official China Energy News on Wednesday said that the country still lacks the required institutional and regulatory capacity.

Prior to the reforms the authority to set prices and distribute power has rested with the government and the state grid companies, although exceptions have been made for a few giant power users to buy directly from suppliers.