However from the perspective of incentive compatibility whether or not
According to “the Guidance on Establishing Coal-electricity Price Linkage Mechanism” in 2004, the change rate of coal price more than 5% in more than 6 months will trigger the coal-electricity price Riluzole program. In this case, the change of the benchmark on-grid power price will be determined byequation(1)ΔPpower=ΔPcoal×(1-αabsorption)×β×7000λ×(1+17%)(1+13%)where ΔPpower,ΔPcoal and αabsorption denote allowed change in the benchmark on-grid power price (CNY/kW h), real change in coal price (CNY/g) and self-absorption proportion of power plants, respectively. β is allowed value of standard coal consumption per kW h generated (g/kW h) which is labia minora declared by the government annually. And λλ represents calorific value of coal used by individual power generation plants (calorie/g). Since China set 7000 calories per g coal as the calorific value of standard coal, 7000/λ7000/λ converts different kinds of coal used by individual power plants into the standard coal. Before Jan 1, 2009, the value-added tax rate for coal was 13% and 17% for electricity. Thus, the term (1 + 17%)/(1 + 13%) was used to adjust the difference in tax rate, which is not necessary today since the value-added tax rate for coal has been increased to 17%.