Huaneng to spend 114b yuan on boosting capacity

PUBLISHED : Friday, 01 April, 2011, 12:00am
UPDATED : Friday, 01 April, 2011, 12:00am


Huaneng Power International plans to spend 114 billion yuan (HK$135.44 billion) to expand its generating capacity by half by 2015 to meet rising demand, even though government restrictions on power producers are clouding profit outlook.

The listed unit of the nation's largest power producer, China Huaneng Group, plans to expand gross installed generating capacity to 90 gigawatts from almost 60GW now, chairman Cao Peixi (pictured) said yesterday.

Coal-fired power costs about 3.8 billion yuan per gigawatt to build, implying at least 114 billion yuan in investment for Huaneng to add 30GW of capacity.

However, the costs are expected to be higher because Huaneng is aiming to derive 20 to 25 per cent of its 2015 capacity from clean energy sources such as hydroelectric, wind, solar and nuclear power, all of which cost substantially more to build than coal-fired units.

Beijing's failure to raise power prices in tandem with coal prices to tame inflation and prevent social unrest meant current tariffs were 5 to 6 fen per kilowatt-hour lower than they should have been, Huaneng chief accountant Zhou Hui said. This equals about 13 per cent of the company's average tariff last year.

Speculation is rife that tariffs may be raised soon. According to a Citi research report, the National Development and Reform Commission has proposed a 2.5 per cent rise today, less than the 4 to 5 per cent increases seen in previous adjustments because of inflation concerns.

On Tuesday, Huaneng reported a net profit of 3.35 billion yuan for last year, down 32 per cent from 2009. This was despite a 26 per cent rise in generation and a 1 per cent gain in average power selling price. A 14.7 per cent jump in fuel cost per unit of output and higher finance and operating costs ate up the higher revenues.

Still, Huaneng aims for output to increase 22.6 per cent this year, and targets to keep the rise in fuel cost per unit of output to within 8 per cent. Coal cost took up 71 per cent of operating cost last year.

To improve supply security and hedge against rises in fuel costs, it is aiming to source 40 per cent of coal from mines in which Huaneng or its parent firm has a stake.

It expects to burn 120 million tonnes of coal this year and has secured 70 million tonnes of supply by contracts. The rest will mostly be sourced from the spot market.