Recently, the National Development and Reform Commission issued the "Notice on Further Deepening the Market-oriented Reform of On-grid Electricity Prices for Coal-fired Power Generation," outlining plans to further deepen the market-oriented reform of on-grid electricity prices for coal-fired power generation.

The “Notice” clarifies that the floating range for market transaction prices of coal-fired power generation will be expanded from the current upper limit of no more than 10% and a lower limit原则上 of no more than 15% to a principle of no more than 20% for both upward and downward fluctuations. Market transaction electricity prices for high-energy-consuming enterprises are not subject to the 20% price cap. The notice takes effect from October 15, 2021.

As soon as this news broke, the industries with high energy consumption were the ones most severely affected. In the past, energy-intensive industries were major electricity consumers, and some regions even offered them relatively favorable electricity prices. However, this time, there are no limits on the increase in electricity prices for these high-energy-consuming industries. Given the current tight balance between electricity supply and demand, electricity prices for such industries could rise significantly, posing a major challenge for them.

Electrical energy is one of the primary energy sources used in the cement production process. As a traditionally energy-intensive industry, the cement sector is significantly affected by this electricity price reform.

1. Coal prices continue to soar, electricity prices are rising without limits, and cement production costs are set for another significant increase.

Currently, social coal inventories are at low levels. Coupled with the approaching heating season and the resulting increase in coal consumption, the market’s coal supply elasticity has declined, keeping coal prices firmly supported. Market reports indicate that the spot price of thermal coal at Qinhuangdao Port has now exceeded 2,300 yuan per ton. Under these strong coal price conditions, if electricity prices for high-energy-consuming industries such as cement remain unregulated and continue to rise, it will further intensify cost pressures on cement production.

Data shows that currently, the comprehensive electricity consumption per ton of cement in China is approximately 90 kilowatt-hours (including electricity consumption for clinker production and cement grinding). Based on the nation's cement production volume of 2.377 billion tons in 2020, the cement industry alone consumed over 200 billion kilowatt-hours of electricity in 2020. As major electricity consumers, cement enterprises would see a significantly noticeable impact on their production costs if electricity prices were to rise substantially.

According to the requirements of the “Notice,” residential and agricultural electricity prices will remain stable. Given persistently high coal prices, in order to avoid losses, companies have no choice but to pass on these costs to energy-intensive industries. Wan Jingsong, Director of the Price Department of the National Development and Reform Commission, also pointed out that... This reform will help guide high-energy-consuming enterprises to raise their market transaction electricity prices to a greater extent, thereby more fully passing on the upward pressure on power generation costs. To curb unreasonable electricity consumption and improve the balance between electricity supply and demand.

Therefore, in the short term, given the persistently high coal costs, the implementation of the “Notice” will lead to a significant increase in electricity costs for cement enterprises.

2. Drive cement companies to undertake energy-saving and consumption-reducing upgrades, thereby enhancing their competitiveness.

The introduction of a trading electricity price system for high-energy-consuming industries will likely push up production costs in the short term. However, in the long run, as the “dual carbon goals” are steadily advanced and policy requirements for energy conservation and consumption reduction continue to tighten, it is unlikely that domestic high-energy-consuming enterprises will be able to return to the “low-cost” era in terms of energy expenses. Enterprises must control costs and enhance their competitiveness by upgrading technology to reduce consumption and phasing out outdated production capacity.

As a high-energy-consuming industry, cement plants rely almost entirely on electricity to carry out their various production activities. The greater the electricity consumption, the higher the production costs will be. Therefore, if the new electricity pricing policy—under which market transaction prices for high-energy-consuming enterprises are no longer subject to the 20% cap on price increases—is implemented, If enterprises want to control production costs, they must strengthen their control over electricity consumption at cement plants and carry out relevant energy-saving renovations to effectively reduce the energy consumption associated with cement production.

Wan Jinsong once stated that this power sector reform will help high-energy-consuming enterprises increase their investment in technological upgrades, improve energy-use efficiency, and promote the transformation and upgrading of industrial structures. Han Fang, deputy director of the Planning and Development Department of the China Electricity Council, said that after the reform is implemented, it will encourage high-energy-consuming enterprises to raise their market transaction electricity prices more significantly. More fully passing on the pressure of rising power generation costs will compel these enterprises to proactively conserve energy and reduce emissions.

To reduce electricity consumption at cement plants, it is essential to focus on promoting and applying new technologies and equipment, rationally set energy-saving targets for production lines, and strengthen energy-efficient lighting designs within plant premises. In terms of energy-saving upgrades at cement plants, it’s crucial to carry out energy-efficient renovations of both power supply and distribution systems as well as associated equipment; pay close attention to energy-saving improvements aimed at reducing line losses; and ensure the effective implementation of energy-saving upgrades for electrical equipment—for instance, by adopting high-efficiency motors and fans. Moreover, the cement industry can also vigorously promote intelligent upgrades, leveraging smart technologies to enhance electricity-use efficiency.

3. Promote the transformation of energy consumption structure and support the achievement of the “dual carbon” goals.

According to estimates by certain organizations, the cement industry accounts for 7% of global carbon emissions. China alone produces nearly 60% of the world’s cement annually, meaning that the cement industry in China accounts for nearly half of the total carbon emissions from the global cement sector.

Recently, the China National Building Materials Federation held its first-ever press conference in Beijing and released the “China Building Materials Industry Carbon Emission Report (2020).” The report indicated that in 2020, the cement industry’s carbon dioxide emissions totaled 1.23 billion tons, an increase of 1.8% over the previous year. Among these emissions, those from coal combustion rose by 0.2% year-on-year, while emissions from industrial production processes increased by 2.7% year-on-year. Additionally, the electricity consumption of the cement industry can be indirectly converted into an equivalent of approximately 89.55 million tons of carbon dioxide. With the ambitious “dual-carbon” goals and tight timelines ahead, the domestic cement industry faces severe pressure to reduce emissions, making the task particularly challenging.

Data shows that residential electricity consumption accounts for about 15% of China’s total electricity demand, while industrial electricity consumption accounts for roughly 70%. In the short term, encouraging coal mining to address immediate power shortages is inconsistent with China’s dual-carbon goals. Therefore, taking action against high-energy-consuming industries—reducing coal resource usage in the medium and long term—will not only help alleviate the current coal-fired power shortage but also, in the long run, significantly contribute to achieving the “3060” dual-carbon targets.

For the cement industry, the reform of on-grid electricity prices for coal-fired power generation will help promote the industry’s energy transition, expand sources of electric power, and thereby reduce carbon emissions—a crucial step toward achieving the “dual-carbon” goals.

According to China Cement Network, recently several domestic cement companies have begun to embark on a transition toward a new energy mix. Take Jiande Conch, a subsidiary of China’s leading cement company, Hailuo Cement, as an example: The company has utilized the space within its plant site to install solar photovoltaic power generation facilities. Under conditions of ample sunshine, the electricity generated daily by these 33,765 solar panels—after absorbing solar heat—enables the company to achieve “zero electricity purchase” during daytime production.

Relevant data show that the Jianshi Hailuo Cement New Energy Photovoltaic-Storage Integrated Project has a final installed photovoltaic capacity of 14.7 megawatts, of which approximately 1.3 megawatts have been connected to the grid so far. Upon completion, this project will generate an average annual electricity output of about 11.3466 million kilowatt-hours. Compared with thermal power generation producing the same amount of electricity, the project can save the country 3,100 tons of standard coal annually and reduce carbon dioxide emissions by 11,312.6 tons each year.

Regarding electricity consumption in the cement industry, Gao Changming, a senior consultant at China Cement Network, proposed the “Four Zeroes and One Negative” concept for the cement industry many years ago, one of which emphasized achieving “zero consumption” of external electricity. Fortunately, in recent years, cement enterprises have been continuously improving the efficiency of waste heat power generation, building photovoltaic power stations, and gradually breaking free from their reliance on external electricity, inching closer and closer to “zero electricity purchases.” This electricity price reform may, to some extent, accelerate the cement industry’s transition to cleaner energy and its path toward low-carbon development.