• Fri
  • Jul 11, 2014
  • Updated: 4:52pm

Competition squeezes Huaneng tariffs

PUBLISHED : Saturday, 15 April, 2006, 12:00am
UPDATED : Saturday, 15 April, 2006, 12:00am

Capacity growth and regulatory pressure pose threat to earnings in key eastern provincial markets


Huaneng Power International faces increasing tariff and sales volume pressure in Liaoning and Jiangsu provinces because of stiffer competition in their amply-supplied electricity markets.


China's largest listed independent power producer earlier this week reported 2.8 per cent year-on-year generation growth in the first quarter of the year.


According to a Merrill Lynch research report, the company's average utilisation rate fell to 69.1 per cent - the lowest since the second quarter of 2003 - from 71.1 per cent in the same period a year earlier.


The biggest decline was in eastern China, where plant utilisation fell to 65.4 per cent from 70.2 per cent as new capacity growth outpaced power demand, the brokerage said. The region accounts for about 50 per cent of Huaneng's output.


'The fall in utilisation of [its] Nanjing [plant] from over 6,100 hours last year to an annualised 4,585 hours this year reinforces our view that Jiangsu is a problematic area for Huaneng,' UBS head of Asian Utilities research Alice Hui Suk-fong wrote in a research note.


Eastern China started trial tariff sales volume and tariff bidding on April 3. Most of the region's 221 generation companies took part in the bidding, according to the State Electricity Regulatory Commission (SERC).


They were supposed to put some 15 per cent of their generation volume up for bidding, a senior SERC official said.


The commission aims to lower power tariffs and raise industry efficiency by subjecting an increasing volume of power sales to competition. Tariffs are set by local governments on a cost-plus-return basis.


Another thorny area for Huaneng is northeastern China, where it recorded a 2.3 percentage point year-on-year increase in first-quarter plant utilisation to 74.9 per cent.


'This strong performance could prove to be temporary as power pooling [and bidding] restarted in early April,' wrote Merrill head of Asia-Pacific utilities research Joseph Jacobelli.


The commission suspended bidding in the northeast at the start of the year after some power companies complained that the capacity tariff offered to them was unreasonably low, industry sources said.


Capacity tariff is guaranteed income to power firms, compensating their fixed costs such as depreciation and giving them a reasonable return, while volume tariff is determined through bidding.


It is understood that plants whose investment costs are less than seven million yuan per megawatt are allowed a capacity tariff of 5.1 fen a kilowatt-hour, while those with costs exceeding seven million yuan are given 7.5 fen per kWh.


'Given that pretty much all of the coal-fired plants in China cost less than seven million yuan per MW, there is no differentiation in the capacity tariffs between efficient and inefficient plants, so it is unfair,' a source said.


The SERC official said some rules had been revised now that bidding had been resumed, but he was unable to offer details.


Huaneng's spokesmen were unavailable for comment on the matter. Liaoning and Jiangsu account for 27 per cent of the company's generation capacity.


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