Foreign thermal power producers are leaving China amid rising coal costs in the tightly regulated industry, but analysts said Thursday that global producers needed to be enticed into the country's market in order to spur electricity pricing reform.
Top US power producer AES Corp, which entered China about two decades ago, is looking to sell all or some of its assets in the country, three sources familiar with the process were quoted by Reuters as saying.
The sources said that AES, which has a market value of around $10.5 billion, has hired an investment bank to begin the process.
The sale could potentially be worth $300 to $400 million.
The major cause for the firm's exit is likely to be the electricity price fixing system of China's power industry, in which prices are strictly controlled and set by the government, Lin Boqiang, director of the Center for Energy Economics Research at Xiamen University, told the Global Times yesterday.
In China, power generators have seen a dip in revenue because of soaring thermal coal prices, but the government has hesitated to raise electricity prices out of concern about inflationary pressure.
State-owned power producer Huaneng Power International Inc reported a loss of 6.5 billion yuan ($1.03 billion) in the thermal power generation sector last year.
In the past decade, top global power companies including American Electric Power and Alstom have gradually sold shares in their joint-investment plants in China.
"Introducing foreign power producers into the Chinese market could be helpful for reform of the country's electricity pricing," Li Ying, chief economist of the State Grid Energy Research Institute, told the Global Times yesterday.
"Different market participants, including foreign companies, State-owned companies and private ones could push forward a reasonable market-oriented pricing system," Li said.
Foreign power producers were encouraged to invest in the Chinese market at the end of the 1980s, when some local governments even promised to offer them a fixed return rate of as much as 20 percent.
More foreign power producers swarmed into the sector during the 1990s, when they had a 14 to 16 percent share of the country's thermal power market, according to Lin Boqiang of Xiamen University.
Lin estimated that foreign producers currently have a share of no more than 5 percent of the country's thermal power market due to the electricity price fixing system.