Virus-hit China slashes power prices for C&I consumers

The impact of the policy will be absorbed by grid companies.

China's National Development Reform Commission (NDRC) will cut the electricity price for commercial and industrial consumers, except for energy-intensive sectors such as steel and aluminum, by 5% for the period between 1 February to 30 June.

As a result of this directive and other measures, as much as $6.97b (RMB48.9b) and $1.51b (RMB10.6b) of revenue will be lost from the country’s behemoth utilities State Grid Corp. of China (SGCC) and China Southern Power Grid (CSG), respectively, according to both companies’ estimates.

"The tariff cuts in response to the coronavirus outbreak will be absorbed by gridcos, increasing challenges for the sector in the new regulation period starting 2020," said S&P Global Ratings credit analyst Gloria Lu.

The pressure on China’s gridcos has been mounting because of a slowing domestic economy, margin compression under more stringent regulations and less flexible capital spending, and now the coronavirus outbreak.

"Growth of electricity consumption in 2020 is likely to further slow down to 3%-4% in 2020 from 4.5% in 2019 and 8.5% in 2020. The commercial sector, the key driver of electricity consumption growth in recent years, has been hit hard by the virus outbreak," said Lu.

It is not clear if the government will compensate for the revenue loss to gridcos, noted S&P Global Ratings. According to the NDRC notice, the electricity price cuts are temporary. China has been improving its regulations on electricity transmission and distribution to be more transparent and rule-based.