Financially crippled coal plants are shutting down their generators, even though the country is facing one of its most severe power shortages ever, which could hamper the 12th Five- Year Plan starting this year.
Some 26 provincial regions under the management of the State Grid Corp of China (SGCC) would suffer combined power shortages of at least 30 gigawatts this year, Shuai Junqing, the company’s executive vice president, was quoted by the Xinhua News Agency as saying Monday.
The deficiency could reach 40 million kilowatts when power consumption reaches its annual peak during the summer, Shuai said, adding that the situation could become worse in 2012 and 2013.
In 2004, China suffered its worst power shortage since the 90s, imposing power cuts or limits in 27 out of its 31 provinces, municipalities and autonomous regions.
As more than 70 percent of the country’s electricity generation comes from burning coal, analysts pointed out that the rising price of coal and the fixed price of electricity have forced many coal plants to trim production in order to curb losses.
According to the Hong Kong-based Wenweipo newspaper, compared with 2007, the average electricity rate has risen by 15 percent, compared to a 75 percent surge of coal price in the same period.
China’s five biggest power generation groups had accumulated up to 60 billion yuan ($9.23 billion) in losses in their coal power business since 2008, according to the State Electricity Regulatory Commission (SERC), and the deficit continued to expand in the first four months of this year.
“Many coal plants have shut down their generators because the more they produce, the bigger the losses they will suffer,” Li Chaolin, a coal and energy industry analyst at Anbound Group, told the Global Times.
“The gap cannot be filled under the current system – on the one hand coal prices are driven up by the market while on the other, the price of electricity is being squeezed by government intervention,” he added.
According to the Guangming Daily, the capability of coal plants in Hunan Province is up to 14.17 gigawatts, but only half of them are working, with the rest being told to undergo an overhaul.
A similar phenomenon was also found in Henan Province, where more than 20 percent of coal electricity utilities were left unused.
Some analysts suggested that the government adopt a more flexible electricity rate to help coal plants.
“The coal industry is in a market economy, but the power industry is still in a planned economy,” the Oriental Morning Post said in a commentary.
The newspaper said that the government could let the market set the electricity rate for industrial users, especially high energy-consumption enterprises, while at the same time maintaining control over the rates for residential consumers.
Li pointed out that the fees paid by power plants to State-owned power transmission and distribution companies should also be decided by the market.
Owning assets totaling 2 trillion yuan, the SGCC made nearly 45 billion yuan in profits last year.
Citing statistics from the SERC, the Xinhua Daily Telegraph reported that in 2010, power plants sold electricity to State-owned grids at an average rate of 383.89 yuan per megawatt hour, while these grids set the average rate for end users at 571.44 yuan per megawatt hour.
That means distributors gain 49 percent in gross revenue by selling electricity from the plants, the report added.
“State-owned distribution companies should not be given the authority to settle prices at both ends. Their role should be limited to serving as a platform for both buyers and sellers,” Li said, adding that the monopolized power transmission industry should be opened up to more competition.
Wang Wei, an industry analyst with Shanghai-based Guotai Junan Securities, told the Global Times that one of the solutions is to ask power distributors to raise their payments to power plants.
“That’s a decision that should be made by the National Development and Reform Commission. At the same time, the government needs to make more efforts to regulate coal prices,” Wang said.
Meanwhile, citing analysts, the Guangming Daily reported that another cause for the electricity shortage is the underdeveloped state of inter-provincial transmission grids.
According to the paper, while provinces along the eastern coast are in need of more electricity, inland regions are worrying about how to sell their excess supplies of power.
Analysts also suggested that the ongoing drought that hit the middle and lower reaches of the Yangtze River had greatly hindered hydropower generation in the region, which has exacerbated the power shortage.
Liu Linlin contributed to this story