Power generation investment falls

By Wang Xinyuan Source:Global Times Published: 2012-6-29 1:00:10

Investment in coal power generation fell 26 percent in 2011, the first drop in the past five years, and it may lead to further power shortages over the next few years, analysts said yesterday.

Investment in coal power totaled 105.4 billion yuan ($17 billion) in 2011, less than half the amount in 2005, according to a statement released by the State Electricity Regulatory Commission (SERC) Wednesday.

The top five State-owned coal power producers, which account for about half of the total market share, suffered combined losses of 15.1 billion yuan last year, and they have debt-to-asset ratios as high as 85.7 percent, the SERC said.

"Power producers are losing money, and that's why investors are reluctant to continue putting money into the electricity generation business," said Cao Yin, director of energy and power business with Martec Group, a consulting firm.

In 2010, the top five power producers lost 11.8 billion yuan in coal-fueled electricity generation - their core business - according to official statistics. Their total losses reportedly reached 60.3 billion yuan between 2008 and 2010 due to rising coal prices over the past few years.

Currently, coal accounts for about 80 percent of China's total power production. China's coal prices are market-driven but electricity prices remain tightly State-controlled, for fear that rising prices could pose inflation problems. As a result, power producers are unable to pass the rising cost of coal onto the end users.

Without new investment in coal power, China will face a bigger power shortage over the next three to four years, Cao told the Global Times.

Renewable energy such as solar, wind energy and hydro-electric power, which is only a very small portion of the nation's power production, is less predictable and hard to control, and cannot be expected to take the leading role in power supply, he said.

China had a power shortage of 30 gigawatts in 2011 and the gap could widen to 50 gW this year, according to the Development Research Center of the State Council.

It is important to make the coal power business profitable so as to lure more investment, Cao said.

Reforms are under way to let the market decide power prices, and China will launch a tiered power pricing scheme for residents starting July 1 nationwide.

However, "it will only have a limited effect for power producers," Cao said, as the power consumption of residents only accounts for 30 percent of the total.

But the performance of the power firms is expected to improve, meaning lower losses this year, Wang Nengyuan, energy and power consultant and partner with Beijing-based Adfaith Management Consulting, told the Global Times.

With increasing imports of coal and a high level of inventory, the prices of coal have dropped about 10 percent from early this year to an average of 650 yuan per ton, he said.

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