High costs force CR Power to cut back

PUBLISHED : Wednesday, 22 March, 2006, 12:00am
UPDATED : Wednesday, 22 March, 2006, 12:00am

Company will reduce the number of gas-fired generation units in Guangdong project from six to one

China Resources Power Holdings (CR Power) has been forced to scale down its planned gas-fired power and heat generation project to supply Guangdong's Nansha Industrial Development Park, according to chief executive Wang Shuaiting.

The red-chip unit of conglomerate China Resources Enterprises has proposed to the Guangdong government to reduce the number of 180-megawatt gas-fired generation units from six to one. It wants to replace the remaining five units with coal-fired generators.

'The economics of [gas-fired units] is infeasible [at current gas prices],' Mr Wang said yesterday. 'You can buy all the gas you want as long as you have the money, but the problem is the cost is too high for such projects to be profitable.'

This is bad news for US equipment giant General Electric, which had bagged many gas-fired plant equipment contracts in China, including that for CR Power.

Mr Wang's comments came as other gas-fired projects in eastern China are facing a lack of affordable gas, with gas prices tied largely to international crude oil prices.

The China Electricity Council recently warned that about 4,000 megawatts of gas-fired power plants being built in east China were not expected to secure enough gas by the time they were supposed to come on stream.

CR Power's project is a heat and power co-generation project which would supply steam round the clock to Japanese carmaker Toyota Motor Corp's new assembly and engine plants in the industrial park. The assembly plant will come on stream in the middle of this year.

'The Guangdong government has agreed to provide sufficient steam to Toyota's plant, so it would be up to the government to balance the need for greener energy and cost realities,' Mr Wang said, adding CR Power's revised proposal is being vetted by the government.

He said the company would proceed with future investment in gas-fired projects 'with a lot of caution', as their operating costs were double that of coal-fired ones.

It is negotiating with China National Offshore Oil Corp on the gas prices of its revised proposal.

Despite the setback, CR Power plans to plough six billion to eight billion yuan into renewable energy projects, expected to account for 5 to 10 per cent of its total generation capacity by 2010.

After buying a 55 per cent stake in a 24-megawatt wind power project in Shantou, the company will focus its future renewable energy investment in hydro projects. It plans to buy projects being developed by its parent in Yunnan and Sichuan provinces.

CR Power has signed contracts to buy all its coal needs for this year at a price rise of 3.5 per cent from last year. Last year, its plants saw an average coal cost rise of 21 per cent per unit of power generated.

Average plant utilisation hour is expected to fall 10 per cent this year due to a rapid rise in new capacity.

The company plans to spend 10.5 billion yuan this year and next to raise generation capacity by 71.9 per cent to 8,494 megawatts.