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Coal price rise hits electricity producers

By Wan Zhihong (China Daily)
Updated: 2007-12-19 07:20

The price of coal used for power plants in China will go up 10 percent next year, an industry group said yesterday.

"The country's major power companies have completed contracts with coal producers for next year's supply. The average increase was 30 yuan per ton," said Liang Dunshi, vice-chairman of the China Coal Transportation & Sale Association (CCTS).

The nation's big electricity and coal producers gathered in Hebei Province's Xianghe this week to sign coal supply contracts for 2008. The top five power producers have all completed contracts for next year, he said.

The five companies are China Huaneng Group, China Datang Corp, China Guodian Corp, China Huadian Corp and China Power Investment Corp.

Booming demand is pushing up coal prices, said Liang. The nation's power generation will increase 17 percent this year, the CCTS said.

But coal production will only rise 8 percent this year, it said.

Analysts said higher coal prices would put further pressure on coal-fired electricity plants, forcing them to operate at a loss.

Domestic coal-fired power plants are expected to consume 1.3 billion tons of coal next year, half the country's total coal demand, according to statistics.

The 10 percent price rise will add about 40 billion yuan in extra fuel costs for coal-fired power companies, the CCTS said.

Earlier media reports said the country's power producers had called for the government to raise electricity prices. But analysts said price increases are unlikely this year due to the high consumer price index.

Coal pricing has long been a bone of contention between power generators and coal producers. The government in 2004 approved a mechanism linking coal and electricity prices, allowing electricity to move in line with coal price increases.

Under the mechanism, electricity prices could be adjusted if the price of coal rose by more than 5 percent in a six-month period.

Also, 70 percent of coal price increases are transferred to end-users, while power generation firms bear the remaining 30 percent.

The government used the mechanism to raise electricity prices in 2005 and 2006. Liang said there is no timetable for a third electricity price hike under the mechanism.

Coal-fired power plants account for over two-thirds of the nation's installed capacity. Last year, the nation's total generating capacity surpassed 622 gigawatts, an increase of 20.3 percent, according to the China Electricity Council.

Coal-fired power plants account for over 77 percent of the nation's total installed capacity, it said.

The government has vowed to use more clean energy sources in its power sector, such as wind and solar electricity.

(China Daily 12/19/2007 page14)