First drop in China coal power investment for five years

Investment in coal-fired power generation fell 26 percent in China last year, the first drop in five years, according to figures released by the State Electricity Regulatory Commission (SERC). Last year's investment across the sector was 105.4 billion yuan (USD17 billion), less than half the amount in 2005.

China's top five state-owned coal power producers, which are responsible for about half the country's electricity supply, suffered combined losses of 15.1 billion yuan (USD2.37 billion), and they have debt-to-asset ratios as high as 85.7 percent, according to the SERC. In 2010 these producers lost 11.8 billion yuan in coal-fueled electricity generation and their cumulative losses between 2008 and 2010 reportedly reached 60.3 billion yuan due to rising coal prices.

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

Coal currently accounts for about 80 percent of China's total power production and while coal prices are market-driven, 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.

China is estimated to have been 30-GW short of power last year and the gap could widen to 50-WW this year, according to the Development Research Center of the State Council. Without new investment in coal power, China will face a bigger power shortage over the next three to four years, said Cao.

While a lot of investment has gone into renewable energy, outside of hydroelectric power the sector still contributes a small proportion of the country's total power and, with its fluctuating output, is in not positioned to take up the slack in providing base load power to China's grid. The country's ambitious nuclear power development plans have also been delayed to deal with safety concerns following Japan's Fujushima nuclear crisis.

Reform is under way to let the market decide power prices and China will launch a tiered power pricing scheme for households starting 1 July. This, however, will only have a limited effect since households accounts for only for 30 percent of demand.

The financial performance of the power firms is, however, expected to improve, meaning lower losses this year, according to Wang Nengyuan, energy and power consultant and partner with Beijing-based Adfaith Management Consulting. With increasing coal imports and high inventory levels, the prices of coal have dropped about 10 percent from early this year to an average of 650 yuan per tonne.