11 December 2018

Tariff trend burnishes gas sector appeal

With television images of mainland citizens wearing face masks outdoors all too frequent nowadays, it reminds us just how bad the air pollution problem has become in the country and the need for the government to speed up the adoption of clean fuels. As the green theme occupies more mindspace, gas plays, among other environment-related counters, will remain good investment bets in the Year of the Horse.

In late January, Beijing, Shanghai and Tianjin announced a hike in electricity tariffs for non-residential users, alongside with a higher on-grid tariff for gas-fired power plants.

The parallel adjustment sent a very important signal to the gas industry — the government is serious about promoting the use of clean energy. Also, authorities are testing the market in regions where the proportion of industrial users is relatively low.

Based on such moves, a rollout of similar adjustment across the country shouldn’t be too far away. Using gas to produce power has gotten more expensive since last year’s nationwide gas price hike. A hike in on-grid tariff means power plants can offset heavier cost burdens easily, rather than relying on subsidies, which often come late or less than promised.

But if the grid companies cannot charge more, they won’t be happy to pay power producers more. That’s why raising the power tariffs for non-residential users is crucial to bringing a change in the nation’s power-use mix. The policy will also provide an incentive to the all-important transmission industry to carry gas-fired power.

CITIC Securities told the China Securities Journal that the move implies market demand-supply is going to play a bigger role in the gas-fired power sector. That could ease concerns about higher costs holding back gas power industry growth.

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EJ Insight writer

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