Energy

Wed, 03/03/2010 - 12:53

Shanghai. March 3. INTERFAX-CHINA - Thanks largely to the drop in coal prices over most of last year, Chinese power generators managed to climb back to profitability in 2009.

China's five largest power generators, China Huaneng Group, China Huadian Corp., China Datang Corp., China Power Investment Corp. and China Guodian Corp., booked combined profits of RMB 19.6 billion ($2.87 billion) in 2009, according to the state-run Shanghai Securities News.

In comparison, the companies reported combined losses of about RMB 40 billion ($5.87 billion) in 2008.

"Thermal power accounts for 75 percent of China's installed capacity, so 2008 was probably the worst year ever for thermal power generators because of the skyrocketing coal prices at the time," Beijing-based independent energy expert Han Qiang told Interfax. "When coal prices tumbled in 2009 following the global financial crisis, Chinese power generators saw their bottom lines improve."

However, the price shock of 2008 impacted more than just the bottom lines of these companies. Han pointed out that it also pushed Chinese power generators to increase their control over the upstream coal sector and seek out opportunities in the burgeoning renewable energy industry.

China's five largest power generators have a combined coal production capacity of more than 200 million tons, according to industry estimates. In 2009, Huaneng produced 44.08 million tons of coal. The same year, China Power Investment and China Guodian produced 42.97 million tons and 32 million tons, respectively.

These companies plan to boost their coal production capacity further in 2010 to reduce their reliance on foreign and domestic coal producers.

Huadian and Huaneng plan to add 31 million tons and 12.20 million tons of new coal production capacity this year, respectively. Meanwhile, China Power Investment plans to add 22.60 million tons of new capacity. China Datang, which produced less coal than the other power giants last year, aims to boost its coal production capacity to 100 million tons by 2015, up from 7 million tons in 2009.

"Controlling coal resources would effectively offset fuel costs in times of high coal prices. All of the Chinese power generators have a strong incentive to purchase more coalmines," Han said.

Chinese power generators are also aggressively expanding into hydropower, wind power, solar power, nuclear power and biofuels.

By the end of 2009, Guodian had 11.78 gigawatts (GW) of installed capacity from clean energy sources, accounting for 14.3 percent of its total installed capacity.

Huaneng has a plan to boost clean energy-sourced power installed capacity to account for more than 16 percent of its total installed capacity by the end of 2010.

Although the companies have expanded rapidly into clean energy, thermal power remains their primary source of revenue, said Liang Yumei, a power industry analyst with Shanxi Securities. 

Hydropower and wind power account for the vast majority of these companies' electricity output, Liang said. But challenges remain to developing these power sources.

Hydropower is a mature technology, but wind power development in China remains hampered by insufficient power grid connections, which has made it only modestly profitable for power generators, Liang said.

Coal prices are now on their way up again, and Chinese power generators are once again feeling pressure on their bottom lines.

"Coal prices have risen by at least 5 percent in China since the start of 2010. In some regions, prices have jumped by more than 10 percent. This rise in prices has overshadowed this year's outlook for Chinese power firms' profitability," Liang said.  

Liang predicted that Chinese power generators will lobby the government to raise domestic power tariffs at some point in 2010 to help offset the additional cost. 

She added that larger power companies are likely to perform better than their smaller counterparts in 2010 because of their greater control over coal resources and stronger bargaining when negotiating prices with coal producers.