But coal shortages, price controls, and the "political mission" to guarantee the electricity supply during the Olympic Games have combined to create the worst electricity shortages that China has experienced in half a decade this summer.
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To help guarantee power supplies for the Olympic Games, some industries have begun to reduce their production. Twenty large Chinese electrolytic aluminum producers, including Chinalco, announced on Monday that they would reduce their production by 5% to 10% within a month.
According to figures released by the National Bureau of Statistics of China, power generation in June increased by 8.3% over the same time last year to 293.4 kwh. Among the total, thermal power generation increased by 6.8% to 230.6 kwh, the lowest increase since July 2007.
Industry insiders estimated in the first half of this year that power shortages in the summer would reach 10 million kwh, but now it seems the shortage will be 16 million kwh, according to estimates by the State Electricity Regulatory Commission (SERC).
Recently SERC began to take a record of the nationwide power coal stock. According to its figures, the electricity shortage this summer will reach 16 million kwh. The shortage in Guangdong alone will be 5 million kwh.
But the main culprit may still be the coal shortages and the upsurge in prices. Recently, coal prices have almost doubled. Since many enterprises are not willing to buy coal at such prices, many only have less than ten days�coal stock, while under normal circumstance it should be about twenty days. It is hard to predict how long the high prices will last.
The National Development and Reform Commission (NDRC) declared in July a temporary intervention in coal prices, but the power coal price is still increasing crazily. The power coal price in Qin Huangdao Port has doubled since the beginning of the year, and has broken the 1000 yuan/ton barrier. The liquidation price for optimal blended coal from Datong, Shanxi Province has reached a record high at 1080 yuan/ton, and is still increasing.
Despite the sharply increasing power coal price, the power price has only grown slightly, so non state-owned power plants are now unwilling to produce power. Meanwhile, due to tight funds, power companies are often having difficulties in paying their coal suppliers, and more and more generation equipment has had to be shut down due to coal shortages.
NDRC’s intervention in the power coal price seems to have relieved the pressure of CPI growth, but it has also affected the power coal supply from coal companies and, more seriously, has distorted the energy pricing mechanism.
Shenyin Wanguo, a securities firm based in Shanghai, said in an report that both the fulfillment ratio of power coal supply contracts and the coal quality are decreasing. During the second quarter of the year, the standard coal price for major power companies increased another 10% on the price in the first quarter. The losses of the whole thermal power industry totaled �.29 billion yuan, 108% down over the same period last year. 80% of the thermal power plants are suffering losses.
Many power companies hope that the government will lift power prices once more after the Olympic Games as currently the whole power industry is suffering losses. After the latest round of "power crunch", five major power groups may be set to acquire local power plants.