Energy

Costly coal hits profits of power producers

By Wan Zhihong (China Daily)
Updated: 2010-04-29 14:44

BEIJING - China's power consumption, a barometer of the economy, will increase rapidly this year as industrial production continues to ramp up, an industry association said on Wednesday.

But the country needs to further reform its electricity pricing system to relieve financial pressure on domestic power producers, according to the China Electricity Council.

China's overall power consumption rose 24.2 percent year-on-year to 969.5 billion kWh in the first quarter. Power consumption for industrial use has increased 81.8 percent in the same period, according to the council.

However, domestic power producers are under pressure from rising costs.

Coal prices have risen around 15 percent this year and are eating up power producers' profits.

China's hydropower producers incurred 900 million yuan ($132 million) in losses in the first two months of 2010, as hydropower production dipped. That sector reported over 1 billion yuan in profit during the same period last year.

Wang Zhixuan, secretary-general of the council ,said the government should consider adopting a more flexible system whereby electricity prices are linked to the coal price, easing the load on power companies.

"Given the rapid rise in coal prices, power producers are under a great deal of pressure," he said.

The government approved a mechanism linking coal and power prices at the end of 2004. Under the system, electricity prices go up incrementally after coal prices have risen by more than 5 percent over a six-month period.

However, the government has tweaked electricity prices using this mechanism only twice to date.

The National Development and Reform Commission, the country's top economic planning body, said earlier that China would see an uptick in power prices this year. Industry insiders are also forecasting a power price hike in the second quarter. The council said China's power consumption in the first half of 2010 is expected to rise 20 percent.

"Although power consumption in the first quarter has seen over 20 percent growth, we expect the figure to drop some in the second half," said Xue Jing, an executive with the council.

Xue said consumption in power-hungry industries such as steel, chemicals, nonferrous metals and construction materials has seen rapid growth in the first quarter, but uncertainties will exist in the second half.

China is expected to see a balance between power supply and demand this year, with the nation's eastern, northeastern and northwestern regions experiencing a surplus.

Regions including Jiangsu, Zhejiang, Hubei, Hunan, Jiangxi, Sichuan provinces, and Chongqing municipality would see temporary power shortages.

A total of 660 billion yuan would be allocated to the country's power sector this year, half of which would go to power generation facilities and the other half to power grids, the council said.