Coal stockpiles at the port of Lianyungang in Jiangsu province on Thursday. The port has opened an express channel for the transportation of coal to thermal power stations. Geng Yuhe / for China Daily

Supplies affected as plants cut back on stockpiles in winter due to high price of coal

SHANGHAI / BEIJING - The coming winter months may see nationwide power shortages, as the soaring cost of coal hits stockpiles, industry sources said.

China's top five thermal power generators are expected to post losses of as much as 35 billion yuan ($5.5 billion) in their thermal generation businesses this year, according to Chinese media reports on Thursday.

So far this year, China Datang Corp, a leading electricity producer that owns four publicly traded subsidiaries, has recorded a deficit of 3 billion yuan, and that figure is likely to climb to more than 4 billion yuan over the whole year, an unnamed company source told the China Economic Times.

The source said the group is heading for its worst loss since 2008. Meanwhile, 67 percent of Datang's coal-fired plants are in the red, with 30 of them on the verge of bankruptcy.

The company's coal reserves will only last five or six days, a decrease of half from the industry norm of 15 days and below its seven-day-alarm limit. The lackluster performance has made loans from banks unattainable, causing a financial vicious circle.

A power shortage of 26 million kilowatts is expected at periods of peak use in the coming months, said Tan Rongyao, chief supervisor of the State Electricity Regulatory Commission (SERC).

China has suffered a number of power shortages since the summer, as coal-powered plants were hit by the rising price of the fuel. Coal prices at the port of Qinhuangdao, a benchmark for China, hit 745 yuan a ton on Nov 8, an increase of 15 percent year-on-year, according to data from the China Coal Transport and Distribution Association.

The Chinese coal industry has become a seller's market since prices at the port of Qinhuangdao hit 1000 yuan a ton in 2009.

The country was a net importer of coal in the first nine months, with net imports of 111 million tons. Cash-strapped power generators have no alternative but to pay for coal prior to delivery, causing a rupture in the chain of capital.

Moreover, despite rocketing raw materials costs, the country has not lifted the grid price for householders, for fear of pushing up inflation expectations. However, there was a moderate increase in prices for industrial, commercial and agricultural users in 15 provinces and municipalities in May.

China Guodian Corp, China Huadian Corp, China Huaneng Group and China Power Investment Corp all face severe supply shortfalls and that situation may worsen during the rest of the year, said Xue Jing, director of the statistics department at the China Electricity Council (CEC), the country's power industry association.

In 2010, the five companies racked up a combined loss of 13.7 billion yuan in their thermal generation businesses, according to Zhai Ruoyu, a former Datang general manager.

Statistics from the National Development and Reform Commission, the country's top body for economic planning, showed that the net profits of the five main power generators stood at 60 million yuan in 2010, a sharp contrast to 3.3 trillion yuan in total assets.

Thermal power accounts for more than 80 percent of China's total generating capacity, according to SERC.

The inadequate supply of thermal power means electricity shortages are set to continue throughout the winter, said Dai Bing, a senior analyst at the coal trading website coal.com.cn.

"For instance, the thermal coal reserves in the coal-fired power plants usually ensure electricity production for 12 to 14 days, but currently, major coal-fired power plants in Hunan province only have coal reserves for three to four days. This is not a good sign for the winter power supply," Dai said.

He added that the poor transportation conditions and the growing cost of coal deliveries will also put a burden on the supply of thermal coal.

Coal prices climbed by 40 to 50 percent last year, but power prices have remained almost unchanged.

The Xinhua News Agency quoted SERC's Tan as calling for the establishment of a price formulation mechanism that takes raw material costs into consideration, which is key to addressing the current power shortage.

China Daily