China introduces gas-power price link, sets tariff ceiling

China introduces gas-power price link, sets tariff ceiling
A gas station attendants holds money as he feeds fuel into a customer's car at a filling station in Beijing January 9, 2015.

BEIJING - China has linked electricity tariffs to natural gas prices as of the beginning of the year to help gas-fired power stations pass rising fuel costs on to consumers, the country's top economic planner said on Wednesday.

The price link means the fees that generators charge to grid operators can vary with the cost of natural gas, although provincial authorities will still set the tariffs.

The tariffs will be capped by a ceiling at 0.35 yuan (US$0.056) per kWh above the benchmark tariffs charged by coal-fired plants or the average purchasing cost the grid companies pay in that region, the National Development & Reform Commission (NDRC) said in a statement posted on www.sdpc.gov.cn.

Power generation is expect to be one of the key drivers for China's surging natural gas demand over the next two decades, experts say, as the government tries to curb the country's heavy dependence on dirtier coal.

The planning agency, however, said the building of new gas-fired generators needs tighter government oversight to keep the pace of expansion under control, a move analysts said was aimed at preventing shortages of the cleaner-burning fuel.

Energy consultancy Wood Mackenzie forecast last October that China's gas demand is likely to reach 335 billion cubic meters by 2017, double that of the country's gas use in 2013.

Beijing still regulates gas prices, but uses a mechanism that links domestic gas prices with the cost of alternative fuels. It last raised prices for bulk buyers and non-residential use last September.

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