(Yicai Global) Oct. 18 -- The new market-oriented pricing system for coal-generated power, which came into effect for businesses last week, will help ease the operating pressure on China’s power generators which have been struggling to make ends meet this year due to the surging price of coal, according to analysts.

Coal prices have soared 70 percent in the past year to an average of CNY1,200 (USD186) per ton, meaning that almost all thermal power plants in the country are working at a loss and many have cut production or shut down, an industry insider told Yicai Global.

To ensure supply, the government relaxed the floating range for coal-generated electricity to 20 percent above the base tariff from 10 percent. Power rates to high-energy consuming industries can be raised without restriction. Electricity prices for residents and agriculture, though, will not change.

This means that electricity costs for most businesses is likely to rise by 20 percent. The move will transmit the pressure of rising coal prices to downstream users, especially high-energy-consuming companies, to protect the profits of power companies, said Shao Linlin, an analyst at Essence Securities.

Fourteen thermal power firms are forecasting a big drop in net profit in the first three quarters from the same period last year and some are even predicting a loss, Yicai Global noted. Shanghai Electric Power anticipates profit to shrink up to 76 percent to CNY240 million (USD41.95 million) and Zhejiang Zheneng Electric Power by as much as 60 percent. Huadian Energy could lose CNY1.47 billion (USD228.39 million) and Guangdong Electric Power Development is bracing for losses of CNY260 million, compared with profit of CNY1.6 billion a year ago.

The higher electricity prices are unlikely to completely offset the rise of coal prices in the short term because coal prices continue to climb sharply and some transactions are still charged at the old base rate made by the government, said Jian Zhenhua, vice president and senior credit rating director of Moody’s.

Editors: Tang Shihua, Kim Taylor