China may live with power shortages this winter

Some parts of central and south China are facing power cuts and electricity rationing as soaring coal prices discourage power plants from producing at full capacity, heightening concerns that the country has to live with power shortages over the next few months. The country's power shortage may peak at 40 million kilowatts in the winter and spring as demand growth outpaces supply, the China Electricity Council said in a report. The industry group said coal inventories in some power plants in the provinces of Yunnan, Guizhou, Sichuan and Hunan are only able to hold up for seven days, while 17 provinces and cities, including Hunan, Hubei and Guizhou, may ration electricity to industrial users. Less than normal rainfall in southwest China has cut the region's hydropower capacity, forcing provinces like Yunnan and Guizhou to rely more on coal-derived power and putting more pressure on supplies, according to a report issued by the Haitong Securities Co. "China is facing greater pressure than ever to ration power this year as coal prices soar," said Li Chaolin, a coal industry expert. In October, the average price of thermal coal rose to a record high of 853 yuan (135 U.S. dollars) per metric ton following eight consecutive weeks of increases, according to the Bohai Rim Steam Coal Price Index, China's government-run coal price gauge. Rising coal prices erode profit margins of power generation companies and curb their enthusiasm for production, Li said. During the first seven months of the year, the nation's five largest power generation companies, including Huaneng, Huadian and Datang, reported combined losses of 7.46 billion yuan in their electricity generation businesses. Li said high logistics costs should be blamed for soaring coal prices. The pithead price of coal mined in Shenmu county in the province of Shaanxi is around 320 yuan per metric ton. However, it costs 395 yuan to carry each ton of the coal from Shenmu to Qihe county in Shandong province, just an 800-km journey. Drivers said fuel costs, tolls and fines are three main parts of the transportation fees. Similarly, capacity shortages on China's rail network exacerbated tightness in coal supplies. Some media reports said sometimes coal companies have to bribe railway officials in order to ensure their coal can be carried to destinations without delay. "Lowering transportation expenses is the key method to drag coal prices down," Li said. In addition to cutting logistics costs, analysts said some "structural" problems must be solved in order to eliminate power shortages. The country has hesitated to increase state-controlled electricity prices partly due to inflation concerns. China's consumer prices rose 5.5 percent in October, the slowest rise in five months, but still exceeded the government's full-year target of 4 percent. The price gap between coal prices and electricity tariffs has prompted some power plants to reduce output, said Lin Boqiang, director of the China Center for Energy Economics Research of Xiamen University. Lin suggested the country accelerate the reform of the electricity pricing mechanism to let tariffs better reflect market supply and demand. Central and western regions must reduce their reliance on energy-guzzling industries in fueling economic growth, in order to cut their demand for power, Li noted.