China to introduce graded electricity pricing

Guest post by chinadialogue intern Wang Haotong

China’s top economic planner, the National Development and Reform Commission (NDRC), recently announced that 29 provinces and municipalities will adopt a “ladder” scheme for electricity prices. The new trial system will be phased in by July 1. 

The aim is to use graded pricing as an incentive for people to make energy savings and emission cuts. 

According to the latest plan, the residential electricity price “ladder” will be divided into three steps: 

*The first step – the base quantity – is supposed to cover 80% of the electricity use by residential households, ensuring that those families’ electricity costs will not increase.

*The second step – the threshold – raises the price by 0.05 yuan per kilowatt-hour for any amount exceeding the base quantity. This is expected to affect 95% of households

*The third step will apply to 5% of households with the highest electricity consumption. For this margin, the price will rise by 0.3 yuan per kilowatt-hour.  

China’s price “ladder” proposal has taken shape over the past four years. An exploratory study in 2008 was followed by an initial public consultation on the issue.  Since May this year, provinces across the country have held public hearings on the “electricity price ladder”, the most extensive series of such hearings on the issue to date. 

But critics have called the proposal a “price increase in disguise”. Some have also said that pushing a “ladder system“ for residential electricity prices will fail to alleviate the country’s power shortages, and may even increase the burden on middle and low-income households and exacerbate inflation.

Rather than installing a "ladder" for residential electricity prices, they say, the pace of China’s electricity market reforms should be increased, with a focus on ending price controls and monopolies.

This article is translated and published here as part of our Green Growth project, a collaboration between chinadialogue and The Energy Foundation.

Translated by chinadialogue volunteer Jonas Borchers