The State Council rectifies the “one size fits all” suspension of production and production restrictions! Electricity price fluctuation increased to 20%

According to the Chinese government website, Premier Li Keqiang hosted an executive meeting of the State Council on October 8 to make further arrangements for the supply of electricity and coal this winter and next spring to ensure the basic lives of the people and the smooth operation of the economy. The meeting rarely mentioned the “six guarantees”, an important spirit raised during the epidemic last year, which means that the position of the “energy supply” issue is quite high.

The meeting proposed to adjust the fluctuation range of market transaction electricity prices from no more than 10% and 15%, respectively, to no more than 20% in principle, and strengthen classification adjustments, and for high energy-consuming industries, prices are formed by market transactions, and the price is not increased by 20%. Restrictions and other six major measures to solve energy supply problems. At the same time, the meeting requested that some places be rectified to suspend production and restrict production across the board or to reduce carbon emissions through sports, and to oppose inaction and indiscriminate actions.

Six violent moves by the State Council

Premier Li Keqiang of the State Council presided over an executive meeting of the State Council on October 8. The meeting pointed out that since the beginning of this year, energy prices in the international market have risen sharply, and domestic power and coal supply and demand have continued to be tight. Various factors have led to recent power cuts in some places, which have affected normal economic operations and residents’ lives. Relevant parties have adopted a series of measures to strengthen energy supply guarantee in accordance with the deployment of the Party Central Committee and the State Council. In view of the still high pressure on the supply and demand of electricity and coal this winter and next spring, the meeting emphasized that ensuring energy and ensuring the stability of the industrial chain supply chain is an important part of the “six guarantees”. We must give full play to the role of coal, electricity, oil and gas transportation guarantee mechanisms, and effectively use the market. Chemical methods and reform measures to ensure the supply of electricity and coal.

It is worth mentioning that this is the “six guarantees” mentioned again for a long time. What is the “six guarantees”? On April 17, 2020, the Political Bureau of the Communist Party of China Central Committee held a meeting to emphasize the work of ensuring employment, ensuring basic livelihood, ensuring market players, ensuring food and energy, ensuring the stability of the supply chain of the industrial chain, and ensuring the operation of the grassroots level. It can be said that this time to solve the energy supply problem, the position of straightening out the energy supply logic is very high.

The meeting put forward six main points to solve the energy supply problem:

First, we must give priority to people’s livelihood, guarantee people’s livelihood and winter heating energy, and especially ensure that the northeast region uses coal and electricity in winter.

Second, under the premise of ensuring production, we must promote the release of production capacity of potential coal mines, and accelerate the commissioning of approved and basically completed open-pit coal mines. The transportation department should give priority to guaranteeing coal transportation.

Third, we must support coal power companies to increase power supply. In response to the difficulties of coal-fired power companies, a phased tax deferral policy has been implemented to guide financial institutions to ensure reasonable financing needs.

Fourth, we must reform the market-oriented formation mechanism of coal and electricity prices. Promote all coal-fired power generation to enter the electricity market. Under the premise of stabilizing the electricity prices for residents, agriculture, and public welfare undertakings, the fluctuation range of market transaction electricity prices will be adjusted from no more than 10% and 15% respectively to no more than 20% in principle. Strengthen classification adjustments, and market transactions form prices for high energy-consuming industries, and are not subject to the 20% rise. Encourage local governments to implement phased preferential treatment of electricity for small and micro enterprises and individual industrial and commercial households. This is also a concern of the market, and the electricity price ceiling of high energy-consuming industries may be opened up. This may be a good event for power companies, because industrial companies consume about 70% of electricity.

Fifth, we must promote the construction of large-scale wind power and photovoltaic bases, and make good reserves of coal, gas, and oil.

Sixth, we must resolutely curb the blind development of the two high-level projects. The dual control mechanism for local energy consumption promotes that new renewable energy consumption will not be included in the total energy consumption within a period of time.

In addition, this meeting has a very important statement. The meeting requested that all parties should consolidate their energy supply and production responsibilities. Strengthen overall planning. All localities must implement the responsibility of territorial management, do a good job in orderly management of electricity use, rectify some places that cut production and limit production across the board or reduce carbon emissions through campaigns, and oppose inaction and chaotic actions. Coal-producing provinces and key coal enterprises must increase production and supply as required. The central power generation enterprise’s thermal power unit should be exhausted. Power grid enterprises must strengthen operation scheduling and management. Those who fail to implement the guarantee responsibility must be held accountable seriously. “Rectify some places to stop production and limit production across the board or reduce carbon emissions through sports, and oppose inaction and chaos.” This statement is also popular in the market. The one-size-fits-all “double restriction” behavior will indeed destroy the industrial chain, and it will also disrupt market expectations.

The energy supply situation is improving

Recently, the “guarantee supply” policy is being implemented intensively. From a central perspective, before and after the “11th”, state-owned regulatory agencies convened meetings to urge central coal-fired power enterprises to ensure supply and increase production. Under the premise of laws and regulations, making all-out efforts to increase production is the main policy tone for domestic supply.

On October 3, the General Office of the National Development and Reform Commission issued the “Supplementary Notice on Doing a Good Job in the Full Coverage of Medium and Long-term Coal Contracts for Power Generation and Heating Enterprises”. The notice mainly clarified the pricing mechanism for the supplementary signing of long-term agreements. 80% of the corporate thermal coal long-term association can be freely negotiated for pricing, while the part within 80% of the long-term association needs to be priced according to the “base price + floating price” mechanism.

On October 8th, according to China Youth Daily News, Shaanxi Province, an important national energy base, actively performed the responsibility of regional coal supply guarantees, organized coal-producing cities and key coal production enterprises in the province to rapidly increase coal production capacity, and compiled the state-issued Shaanxi The task breakdown table of 39 million tons of coal in 14 provinces including Hunan and Hubei was guaranteed, and the coal-fired power enterprises in the province ensured the demand of 9.26 million tons of coal for power generation and heating in the fourth quarter.

Xinhua News Agency reported on the same day that the Energy Bureau of Inner Mongolia Autonomous Region recently learned that with the arrival of the northern winter heating coal consumption peak period, Inner Mongolia has made every effort to promote the release of coal production capacity. The mid-to-long-term agreement will be supplemented, and efforts will be made to stabilize coal supply this winter and next spring.

Ordos is a major coal production city in China. In order to stabilize the coal market, the city has recently actively promoted qualified coal companies to apply for start-up filing and joint trial operation to speed up the construction of productive coal mines. Since the beginning of this year, the city has received a total of 107 open-pit coal mines approved for temporary land use, with an approved production capacity of 169 million tons. As of the beginning of October, the city has normally produced 225 coal mines with a production capacity of 640 million tons per year, and the city’s average daily output exceeded 2.1 million tons, reaching its peak since the beginning of this year.

In order to implement the national development and Reform Commission’s medium and long-term coal supply guarantee requirements for full coverage of coal sources for power generation and heating, Inner Mongolia actively coordinated coal sources, connected with relevant provinces (autonomous regions and municipalities), and fulfilled the task of guaranteeing supply without compromise. At present, the task of 53 million tons of coal resources in 18 provinces (autonomous regions and municipalities) has all been decomposed to 29 key coal production enterprises, and they are corresponding to all provinces (autonomous regions and municipalities) in a point-to-point manner.

According to estimates by CITIC Securities, the new production capacity in the fourth quarter is about 80-100 million tons, corresponding to a single-season increase of 20-25 million tons in the fourth quarter. Even with the seasonal expansion of stock capacity, the supply gap is expected in the fourth quarter. There are still 30-40 million tons.