Power Prices May Rise in Second Half, China Power’s Lu Says

Power Prices May Rise in Second Half, China Power’s Lu Says

March 6 (Bloomberg) -- China, the world’s second biggest energy user, may increase wholesale electricity prices for coal-fired power plants in the second half, China Power Investment Corp. President Lu Qizhou said.

Rising coal prices will likely result in losses for the nation’s coal-fired power plants in the first half and lead to an increase in power prices in the second half, Lu said in an interview after attending a meeting of the nation’s parliamentary advisory body. The price of coal for power stations gained 12.2 percent during the first two months of 2010 as compared with last year, Lu said.

The government, which controls electricity pricing, considers possible price increases by power producers such as Datang International Power Generation Co., Huaneng Power International Inc. and China Power Investment under a mechanism triggered when the price of coal rises more than 5 percent over a six-month period. China last adjusted its retail and wholesale power prices in November.

“Various heads of power groups have been actively lobbying for such an increase in the past two months,” said Dave Dai, an analyst at CLSA Ltd. “This is also in line with our forecast of a 5 percent tariff increase in the second half of this year.”

Power Generation Losses

Higher coal costs led to losses of about 300 million yuan ($43.9 million) at China Power Investment’s thermal power plants between January and February, Lu said. All of the company’s other businesses are profitable, he said. China Power Investment is one of the country’s five biggest power producers.

Higher power prices in the second half could help the company post a profit this year of about 5 billion yuan, Lu said. China Power Investment, which also operates hydroelectric dams, wind farms and nuclear power plants, had about 50 million yuan of profit in the first two months of this year, Lu said.

China sets wholesale and retail power prices to keep rates affordable. Electricity prices remain “unsatisfactory” because they don’t reflect fluctuations in coal costs, China Power Investment Vice President Li Xiaolin said in an interview today in Beijing. About 80 percent of China’s power stations are coal-fired.

“We’ve been fighting for a market-based system for electricity prices since 2002 and we haven’t given up,” Li said. “The power pricing reform isn’t complete.”

China Power Investment paid 10 percent to 15 percent more for coal supplies this year, Li said, without saying what it paid.

Benchmark spot prices at Qinhuangdao, China’s largest coal port, rose 8.5 percent to between 700 yuan and 710 yuan per ton on March 1, compared with mid-November when the government last adjusted electricity prices, according to data from the China Coal Transport & Distribution Association.

--Wang Ying, Baizhen Chua. Editors: John Liu, Greg Turk

To contact the reporter on this story: Ying Wang in Beijing at ywang30@bloomberg.net Baizhen Chua in Beijing at Bchua14@bloomberg.net

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