Unifying the “dual-track” pricing mechanism for coal in China: Policy description, influences, and suggestions for government and generation enterprises

Abstract

The coal supply in China has been abundant in recent years, while the coal inventory of large generation enterprises has been sufficient. Therefore, overcapacity has occurred in China’s coal industry, and the coal price has been relatively low, compared to the coal price during 2008–2012. At the same time, many coal transportation railways will begin operation to improve transportation capacity, and these measures will be able to guarantee the stability of coal prices. Under such circumstances, the Central Government has published the Guidance on Deepening the Reform of the Coal Market and has unified the dual-track pricing system for coal. The development of the coal industry and power industry is a key energy factor that affects the development of the national economy; therefore, this policy has far-reaching implications for the steady supply of coal and the reliable production of electricity. However, due to the non-market-oriented power industry management mechanism, this policy could have some negative influences on the power sector and coal sector, especially for the generation enterprises that will be exposed to risks of upper stream coal price shocks. Therefore, this paper focuses on analyzing the negative influences caused by the unification, and it introduces related measures for the government and for generation enterprises. First, this paper introduces the features and development of a dual-track coal pricing mechanism, which originated in 1985, and subsequently analyses the conditions for implementing the unification for the dual-track coal pricing mechanism. Second, from the information in related government documents, we analyze the negative influences on the coal and power industry caused by the unification accordingly. Finally, recommendations and measures for the government and generation enterprises are offered.