Coal costs dent profits of Chinese power generators

• 13 years ago (2010-07-20)
• David Flin

Asia 859

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Even though China’s electricity generation capacity continues to grow, the China Electricity Council (CEC) has said that the rate of growth is likely to decline if high coal prices continue to eat away at profit margins.

CEC said that nationally, electricity producers generated 1.78 TWh during the first six months of 2010, up 22 per cent year on year. Amongst those companies, China Guodian Corporation’s output increased 15 per cent, Huadian Power’s output rose by 25 per cent, and SDIC Huajing Power rose by nearly 31 per cent. Analysts have said, however, that the growth momentum may not be sustained as high costs and low electricity prices will damage profitability. Xue Jing, Head of CEC’s Statistics Department, said: “Although earnings have turned positive, thermal power plants are still weak in profitability due to unstable coal prices.”

Coal prices have stabilised in the second quarter. The spot price for coal at Qinhuangdao, China’s biggest port for coal, was 755 yuan per ton on July 12, compared to 805 yuan six months ago. Lin Boqiang, Director of the Centre for Energy Economic Research of China, said: “The current coal prices are still high and could continue to go higher.” He said power companies may suffer higher losses on a yearly basis.

To help control electricity producers’ costs, the National Development and Reform Commission (NDRC) has tried to cap contract coal prices at the end of June at 570 yuan/ton, 200 yuan below market prices. However, according to a senior official from a national power company, coal suppliers are unwilling to honour the contract prices, and may circumvent government price controls.

Lin Boqiang said: “The ultimate solution to the problem is to liberalise electricity prices.”