Six things you need to know about China’s coal on-grid tariff reform

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Following the introduction of competitive auctions to replace the feed-in tariff system for wind and solar PV in 2018, China is now reforming its coal-fired electricity pricing mechanism. The new system will set prices with a variable element limited at 15% below or 10% above the annually determined benchmark price. This latest move will impact the coal and power markets. An influx of more new coal supply capacity will depress spot coal prices. Together with lower long-term contract prices, dropping fuel costs will support the planned coal on-grid tariff cut in 2020. We expect market transaction prices for coal-fired electricity in 2020 will be around 13% below the current benchmark on-grid tariff. The impact on renewables will be mixed. Legacy projects as well as subsidy-free and low-subsidy projects approved before 2020 will see little impact, but the economics of projects approved from 2021 onwards may face greater uncertainty.

Table of contents

  • 1. Existing coal-electricity pricing mechanism is ineffective
  • 2. Softer spot coal prices will justify the on-grid tariff adjustment
  • 3. VAT rate change creates headroom for long-term coal price drop
  • 4. On-grid tariff cuts may ease coal import restrictions
  • 5. Market transaction price will be around 13% below on-grid tariff in 2020
  • 6. Impact on renewables will be mixed

Tables and charts

This report includes 6 images and tables including:

  • Benchmark coal on-grid tariffs 2014-19
  • Delivered coal prices at power plants 2014-19
  • 2018 market transaction volume and penetration in coal-fired electricity
  • Historical long-term contract and spot prices for QHD 5500
  • On-grid tariffs, market transaction prices and generation costs
  • 2018 on-grid tariffs and price drops in market transactions

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    Six things you need to know about China’s coal on-grid tariff reform

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