Pilot Deal to Cut China Smelter's Power Bill - Paper

BEIJING, Dec. 3 -- Fushun Aluminum Plant, a unit of Chalco (2600.HK: Quote)(601600.SS: Quote), will save more than 30 million yuan ($4.40 million) in electricity costs in the fourth quarter due to cheaper rates under a pilot direct-trade scheme, state media reported on Wednesday.

    China's power users have to buy electricity from grid operators, which in turn purchase power from generators, all at fixed rates set by the National Development and Reform Commission, a powerful ministry.

    But Beijing introduced a pilot plan earlier this year, aiming to open 20 percent of the power market for direct trade between power generators and users.

    Even so, it was difficult to reach any deals if the "route fees" charged by grid operators were not fixed, creating more uncertainty in negotiations between users and generators.

    In October, Beijing set the first power transmission and distribution rate in the pilot plan for Fushun Aluminum Plant and Yimin Power Plant, a unit of Huaneng Group, at 0.117 yuan per kilowatt hour (kwh), excluding a basic charge.

    Fushun and Yimin agreed last month to an on-grid power price of 0.2 yuan per kwh and electricity volume of 406 million kwh in the fourth quarter, the Chine Electric Power News reported.

    The overall power price that Fushun would pay in the current quarter, including on-grid power price, grid charges and other government levies, was between 0.396 and 0.398 yuan per kwh -- lower than the 0.41 yuan a kwh it paid before or the 0.474 yuan that the local grid firm charges major industrial users -- the report said, citing a plant official.

    The on-grid price that Yimin agreed to was only two-thirds the normal on-grid rate it sells to the grid operator, which "would be unacceptable for most other power plants", Yin Long, general manager of Yimin, was quoted as saying.

    Yimin, a power plant built next to a rich coal mine, has unusually low coal costs, and the deal would boost its plant utilisation rate by nearly 200 hours in addition to the 4,000-4,200 hours a year that had been included in the grid's operational plan, Yin said.

    China's power generators are eager to have higher exposure in the grids' operation plan because any capacity left out of the plan is effectively forced to remain idle.

    The grid operator also surrendered 0.003 yuan per kwh to facilitate the direct power trade between Fushun and Yimin, the newspaper report added.

    Power costs account for more than 40 percent of aluminum smelters' operational costs.

    (Source: Reuters)