BEIJING - Power shortages are likely in Central and South China this coming winter because of increasing coal prices and some power plants will have difficulty storing coal, said power plant representatives and experts.

"The rising coal prices are largely responsible for the higher costs of power generation," said an industry insider who is close to China Huaneng Group, one of the country's five major power generation groups. "Many power plants of the group in Central China will have difficulty in building a reserve of coal for winter heating and electricity production."

He said those power plants are far from the coal production bases and the logistical costs of coal are increasing rapidly, so they have no recourse but to make efforts to reduce overall costs and increase production efficiency.

Some small-scale power plants in Central China will stop power generation when they cannot afford the high prices of coal, said Xing Lei, a professor at the Institute of China Coal Economy of the Central University of Finance and Economy.

"The total of China's coal production and imports can meet the total consumption, but the transportation costs are too high, and speculators add more in the costs," he said.

He said coal traders buy one ton of coal for about 400 yuan ($62) in coal mines in Erdos, the Inner Mongolia autonomous region, which is a major coal producer in China, and the unit price will increase to as much as 900 yuan to 1,000 yuan when the coal is sold to power plants in Shanghai.

China needs to resolve coal transportation obstacles to help deliver coal from the north to the south and the west to the east. Otherwise, the high logistical costs will never be eased, analysts said.

Some members of the National Committee of the Chinese People's Political Consultative Conference, namely Lu Yaohua, Niu Yuesheng, Xia Zhong and Song Xin, proposed building a rail line exclusively for coal from Erdos to Jingzhou, Hubei province, via Shaanxi, Shanxi and Henan provinces to improve coal transportation.

With a proposed transportation capacity of 200 million tons annually, the railway would greatly ease the high logistical costs. However, the proposed rail line was not built.

Xing said power plants will lose more money if they continue generating electricity when coal prices are too high, so they might choose to stop production in winter.

According to cqcoal.com, China's major coal trading platform website, the price of thermal coal in Qinghuangdao port reached 830 yuan a ton on Sept 9, 120 yuan higher year-on-year.

The coal reserves in the port decreased by 329,000 tons to 6.96 million tons on Sept 8, the first time they fell below 7 million tons in a month and a half, which will help keep coal prices going up.

The rising coal prices have frustrated many power plants from continuing power generation in the provinces and regions with insufficient coal production, said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.

"Some companies cannot afford the coal prices because of the ongoing losses, and some others don't want large coal reserves because of the high prices," he said.

China Electricity Council statistics show that all together, the power plants operated by the country's five major power generation groups - China Huaneng Group, China Datang Corp, China Guodian Corp, China Huadian Corp and China Power Investment Corp - lost 7.46 billion yuan in the first seven months of this year, 8.27 billion yuan more than the same period in 2010.

In July alone, they lost 980 million yuan.

The council said the increasing coal prices are the main reason for the losses and the situation is becoming more serious.

China Daily

(China Daily 09/15/2011 page13)