Power giants take hit from high cost of coal

Updated: 2010-12-02 11:22

By Liu Yiyu (China Daily)

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Power giants take hit from high cost of coal

A worker inspects coal on a conveyor belt at a colliery in Lingxin, near Yinchuan, Ningxia Hui autonomous region. China's coal price is at its highest level this year, according to China Investment Consulting. [Photo/Agencies]

Beijing - China's five major power-generation giants are suffering serious losses due to rising coal prices while the authorities are taking measures to curb the hikes, according to the China Electricity Council.

China's five State-owned power producers - China Huaneng Group, China Datang Corp, China Guodian Corp, China Huadian Corp and China Power Investment Corp - are easily running 50 percent losses this year mainly due to soaring coal prices, said Xue Jing, director of the statistics department of China Electricity Council.

Coal prices at Qinhuangdao Port, a Chinese benchmark, rose to the highest level in two years at the end of November. China's domestic coal prices typically increase during winter because of heating needs.

Coal with an energy value of 5,500 kilocalories per kg rose from 820 yuan ($123) to 830 yuan a ton on Tuesday while stockpiles at Qinhuangdao, which handles half of the nation's shipped coal, also decreased.

China's coal price is at its highest level this year, according to China Investment Consulting.

Industry experts attribute the soaring prices to winter heating needs and the undersupply caused by industry consolidation in major coal provinces such as Shanxi and Henan.

Fueled by booming domestic demand, China's net coal imports are expected to jump by 63 percent to more than 200 million tons in 2011, when demand is likely to grow 7.3 percent, Citigroup said on Tuesday.

The upward pressure from China's consumer price index (CPI) makes it impossible to increase the electricity rate, according to Hu Zhaoguang, vice-president of the Energy Research Institute affiliated with State Grid Corp.

China's CPI, the main gauge of inflation, is likely to grow from October's 4.4 percent to 4.7 percent in November, a report issued by the Bank of Communications said.

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To hedge the risk of a coal price increase, power generators have chosen to look upstream to the coal mining sector.

"The purpose of investing in the coal industry is not to profit from coal, but streamline the mining and power-generating parts of the industrial chain to sharpen our core competitive edge," said Lu Qizhou, general manager of China Power Investment Corp.

Fuel accounts for 70 percent of thermal power generation costs. Huadian Power International Corp, the listed arm of Huadian Corp, announced on Friday that it will spend 704.5 million yuan to acquire two coal mines in Shanxi province.

Huadian Power plans to integrate the two mines with its Wantongyuan Erpu mine to increase its production capacity to 2.1 million tons a year.

The company's acquisition of coal resources in Shanxi province will help reduce expenditure on coal purchases, as its power plants rely mainly on coal mines in the province.

Meanwhile, electricity companies are expanding overseas as State-controlled electricity rates prevent them from passing on fuel costs to consumers.

China Huaneng Group, the nation's largest electricity producer, agreed to pay $1.23 billion for a 50 percent stake in Massachusetts-based power utility InterGen in its biggest overseas acquisition in more than two years.


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