Power stocks surge on talk of rise in tariffs

PUBLISHED : Friday, 25 November, 2011, 12:00am
UPDATED : Friday, 25 November, 2011, 12:00am


Mainland power generators saw their share prices surge yesterday on speculation that Beijing would soon raise the price they receive for generating electricity and, at the same time, cap next year's coal prices.

Such a move would benefit many power generators that have been caught in a cost-price squeeze and have been losing money.

Although Beijing is trying to fight inflation, it is under pressure to lift the prices power generators can charge, as it did in June. Losses had curtailed producers' incentive and ability to build more plants to keep pace with demand in the mainland's eastern and central regions, raising concerns about power rationing.

The power producers' China Electricity Council has already warned that this winter's power generation capacity could be 4 per cent short.

Mainland power producer shares rose between 4.2 per cent and 5.7 per cent yesterday.

A report on the financial website Hexun.com said Beijing planned to cap the price of spot market coal with 5,500 kilocalories per kilogram of energy content at 800 yuan (HK$979) a tonne, 6 per cent lower than the current price.

Beijing also wanted coal contracts signed for next year to be no higher than 5 per cent above this year's price, the website said.

Spokesmen at power producers could not confirm the report.

The Economic Information Daily yesterday reported that officials from power producers in Shanxi had gone to Beijing to petition for higher power prices to relieve their losses.

Although power prices were lifted 1 to 5 per cent nationwide only five months ago, coal-fired power generators struggled to make a profit. The higher power prices were offset by a slightly higher spot market.

'While contracts signed are supposed to provide 60 per cent of power generators' coal supply this year, in reality just over half is honoured,' said Citigroup's head of Asian utilities research Pierre Lau. 'This means they have to buy 60 per cent of their needs from the spot market.'

Huaneng, Datang and Huadian's mainland coal-fired power generation operations were loss-making, Lau wrote in a research report. The results came even though Huaneng and Datang posted overall profits, thanks to gains from Huaneng's Singapore operation and Datang's coal-mining operation.