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Print Edition> Business
UPDATED: October 25, 2010 NO. 43 OCTOBER 28, 2010
Why the Tiers?
China mulls a tiered pricing system to curb household electricity use

EXPENSIVE POWER: Technicians check a 220-kv transformer station in Jilin Province. Prices of electricity could rise across China if a tiered system is adopted (WANG HAOFEI)

As part of ongoing green efforts, China will soon adopt a tiered electricity pricing system to encourage residents to cut back on energy use. The government will first determine a basic electricity quota, and any consumption above that level will be charged at higher prices.

The National Development and Reform Commission (NDRC) announced the possible tiered pricing system on October 9 and requested public feedback from October 9-21.

The NDRC said it had received tens of thousands of comments via the Internet and is now using those comments to make appropriate changes to the proposed mechanism. The tiered pricing system is likely to be officially adopted at the beginning of next year.

NDRC statistics showed 70 percent of Chinese households consume less than 110 kwh per month; 80 percent consume less than 140 kwh; 90 percent less than 210 kwh; and 95 percent consume less than 270 kwh per month. In line with the statistics, the NDRC divided consumption into three tiers with prices increasing progressively and offered two sets of schemes for public opinion.

The first scheme is as follows: If the monthly electricity consumption is below 110 kwh, users will fall into the first tier where the price will be maintained at the current level; if the consumption is between 110 kwh and 210 kwh, it will fall into the second tier and the resident will have to pay an extra 0.05 yuan ($0.0075) per kwh; and if the consumption exceeds 210 kwh, the resident falls into the third tier and an extra 0.2 yuan ($0.03) will be charged in addition to the second-tier price.

The second scheme is more or less the same as the first one, except the threshold for the first tier falls at 140 kwh with a charge of 0.01 yuan ($0.0015) more than the current level for consumption below 140 kwh. For the second and third tier, the threshold would be 270 kwh—electricity consumption between 140 kwh and 270 kwh will be charged an extra 0.05 yuan ($0.0075) per kwh, while the consumption above 270 kwh a month will be charged 0.2 yuan ($0.03) more.

The two schemes are subject to change. So far the online survey shows that netizens are in favor of the second proposal.

Necessary tiers?

Electricity prices of the power sector are determined by the NDRC. Residents in each province are subject to a unified and relatively low price. At present, the electricity price in Beijing is 0.48 yuan ($0.07) per kwh; the price in Guangdong Province is the highest of up to 0.61 yuan ($0.09) per kwh; and the price in Qinghai Province is the lowest at 0.42 yuan ($0.06) per kwh.

In China's power structure, thermal power accounts for 75.6 percent and hydropower 22.6 percent. Nuclear power accounts for only 1.3 percent. The proportion of new energy power, such as wind power, is even smaller. As a result of its dependence on fossil fuels, coal in particular, the power industry in China has become a high polluting one.

Cao Changqing, head of the pricing department of the NDRC, said the ultimate purpose of adopting tiered electricity prices is to save energy and reduce carbon emissions.

In recent years, the Chinese Government had enacted a series of pricing policies to save energy and reduce emissions. For instance, companies with high energy consumption are subject to a differentiated electricity pricing system and companies with extraordinary power consumption have to pay punitive electricity prices. Those prices are higher than the current electricity price, some twice as high as current prices. Raising the price of power can enhance a company's sense of energy conservation and environmental protection, said Cao.

However, in today's world where energy is in short supply and the environment is degrading, it is not just companies' responsibility to save energy—ordinary citizens are also obliged to cut emissions and save energy. The tiered electricity policy will in effect extend the industrial practice to households and urge them to use less power.

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