Many Chinese coal-fired power plants are suffering from large losses now, even though domestic coal prices are virtually heading downward.
"We are losing money in both heating and power generation businesses. I hope the government can convince coal miners to lower their prices so as not to break our capital chain," a source from a combined heat and power plant complained.
The complaint epitomized coal-fired power enterprises have been in wide losses across the country for the time being.
Photo – A thermal power plant is struggling to survive in Sichuan province Source: powerfoo.com
In fact, coal enterprises have made a big concession mediated by the central and local governments.
On the eve of the National Day holidays (October 1-8), Shenhua, China Coal and other 24 large coal miners adjusted down their own prices by 10 yuan/t at northern ports.
Particularly, the central government made a commitment to strictly punishing malicious hoardings and false information spreading activates in a conference just after the holidays.
It was said in September, prices for the domestic spot 5,500 Kcal/kg NAR coal traded at northern ports rose to the highest of 740 yuan/t FOB with VAT, and even 800 yuan/t some traders placed.
The main reason behind the large-scale losses is the excessive investment in the coal-fired power industry that made the supply-demand relation unbalanced.
The actual power output, according to media report, is only 50% of its total capacity, which means half of generation units are idled.
"Spurred by fat profit in the sector, lots of coal-fired projects started building in 2015," pointed out Yuan Jiahai, professor of North China Electric Power University. "Local governments also wanted to drive GDP by funneling huge investments into the power sector."
Statistics shows coal-fired projects that passed the environmental assessments reached 150 GW in 2015, equivalent to the total amount in the past three years.
When these projects were set up and came online, their surged demand for thermal coal can't be covered in a short time, which still not be completely addressed today.
Hu Zhaoguang, head of China Electric Power Promotion Council, warned strict de-capacity measures are necessary in the power sector.
Data from the National Energy Administration showed about 2.4 GW outdated power capacity had been shut down across the country in the first three quarters this year.
Gao Shixian, director of the Energy Research Department of the National Development and Reform Commission, said M&A between coal and power enterprises can reduce middle links and fend off negative factors like speculative hoarding aimed to push up prices.
In addition, long-term supply contracts between the two parties can also avoid the risks of price fluctuation in the spot market, which are always being encouraged by the government.
In the China Coal Trade Conference 2018, large power plants have signed mid- and long- term supply contracts with major coal miners totaling 130 million tonnes.
(Writing by Alex Guo Editing by Harry Huo)
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