China to cut coal-fired power capacity

The roadmap for cutting overcapacity in the coal-fired power field has finally been issued. The Economic Information Daily reporter learnt that China will suspend or postpone construction on 150 million kilowatts of coal-fired power generation capacity and eliminate over 20 million kilowatts of coal-fired power generation capacity during the 13th Five-Year Plan period, according to a guidance released by 16 ministries and commissions. By 2020, the coal-fired power installation capacity across the country should be within 1.1 billion kilowatts.

According to this year’s government work report, China will suspend or postpone construction on or eliminate no less than 50 million kilowatts of coal-fired power generation capacity this year. The Economic Information Daily reporter learnt that a series of policies have been introduced in the first half of this year. Nur Bekri, deputy director of the National Development and Reform Commission (NDRC) and head of the National Energy Administration (NEA), said that the NDRC and NEA will further work with local governments to clarify the target for coal-fired power reduction for this year, and will work with relevant departments to carry out inspections.

It is worth noting that the guidance proposes to actively promote reorganization and consolidation. The merger between Shenhua Group and China Guodian Corporation and that between China HuaNeng Group and State Power Investment Corporation (SPIC) are under discussion. Local coal and electricity companies have also taken actions in setting up joint venture. Industry insiders believe that there will be major changes in the industrial pattern.

Statistics from Wind Info shows that thermal power saw drastic decline in performance in 2016, and the trend still remains this year. As of July 31, among the 36 thermal power companies included in CITIC Securities’ power sector, 17 have released earnings forecast for the first half of this year. All of them, except Jiangsu Wujiang China Eastern Silk Market Co., Ltd. (000301.SZ), projected decline in performance. 5 of them forecasts a loss of over 100 percent; while 9 forecast a loss of 50-100 percent.

This is not alone. Data from the National Bureau of Statistics shows that the total profit in China’s electricity, heat production and supply registered 147.68 billion yuan from January to June 2017, down 34.6 percent year on year. Reasons for the decline point to a sharp rise in coal prices and overcapacity in thermal power enterprises.

Obviously, authorities have been aware of the severity of the problem. The guidance proposes to eliminate or shut down non-conforming coal-fired power units (including fire coal self-providing units) with less than 300,000 kilowatts productivity. Meanwhile, it requires coal-fired power projects that are under construction without approval in advance, or with illegal approval, non-conforming approval and without complete procedures for commencement of works to shut down.

Another major task in cutting excess coal-fired power capacity is to strictly control the scale of new capacity. The guidance makes it clear that provinces that are rated with red and orange warnings should not expand the construction of coal-fired power. Those that do have the need to add new coal-fired power should first shut down some capacity.

It is noteworthy that the roadmap also proposes to actively promote reorganization and consolidation. It encourages and promotes reorganization and consolidation among large power generation groups, encourages enterprises in both the upstream and downstream of the coal and electricity industries to take synergistic effect, strengthen long-term cooperation among coal and power enterprises, stabilize coal prices; support advantageous and major enterprises to integrate coal-fired power resources via asset restructuring, equity cooperation, asset swap and free transfer of assets.

China has a total of 12 central state-owned energy enterprises that are engaged in power generation. As their business is much homogeneous, there is a large improvement room for the industry’s concentration. China Shenhua Energy Company Limited (601088.SH) under Shenhua Group and GD Power Development Co., Ltd. (600795.SH) under China Guodian Corporation have released three synchronous announcements on trading suspension due to major events since June, arising speculation for their consolidation. Haitong Securities analyzes that this marks a beginning of coal-fired power joint venture, and the next case might will take place among central state-owned enterprises.

While another speculation is the merger between SPIC, the youngest of China’s five major electricity companies, and China’s largest electricity company China Guodian Corporation. SPIC Wang Binghua has publicly said that “merger in China’s power industry will come soon, and we can now wait and see.”

China Securities analyzed that it is a trend for coal-fired power enterprises to consolidate. Via consolidation, enterprises can improve coal self-sufficiency rate and ease risks of volatility in coal and electricity profits brought by fluctuations in coal prices. At the same time, it will help reduce electricity costs by reducing circulation process to effectively reduce industrial enterprises’ burden in electricity consumption.

In a report for the new energy industry, TF Securities estimate that the growth of thermal power installed capacity will decrease to 5.3 percent. If the work of cutting overcapacity moves smoothly, thermal power plants are likely to see their profit bottom out in the cycle of this year.

 

Source: Xinhua

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s