Update | Coal giant China Shenhua Energy to get bigger in power generation
China Shenhua Energy diversifies further downstream via acquisition and greenfield power projects
China Shenhua Energy, the listed unit of the world’s largest coal supplier Shenhua Group, aims to complete by year-end the acquisition of 3.5 gigawatts of coal-fired power plants from its parent as part of the latter’s five-year asset injection plan.
The plants, including the mainland’s first commercialised “ultra-low emission” coal-fired power plant, together with 7.65 GWs of new plants slated to come on stream this year, would help raise China Shenhua’s profit from its power business further to levels closer or exceeding that of its coal operations in the next few years. It had 40.9 GWs of installed capacity at the end of last year.
“Work on the asset injection is in progress ... we expect by year-end to be able to complete the first batch of assets that include the nation’s first commercialised ultra-low emission coal-fired plant in Zhoushan, Zhejiang,” vice chairman Ling Wen told reporters on Monday.
He said such plants’ emission in soot, nitrogen oxides and sulphur oxides are lower than the emission standards required for the mainland’s natural gas-fired power plants.
Shenhua Group last June said it planned to inject 14 subsidiaries by the end of June 2019 into China Shenhua, encompassing mines with 140 million tonnes of annual coal output capacity, 24.96 GWs of power plants and plants capable of turning coal into 11.3 million tonnes of liquid fuel annually.
Ling would not be drawn on whether power generation will overtake coal mining as a profit contributor this year or next year, saying he is bound by listing rules not to give profit forecasts and a potential power tariff cut could reduce the profitability of power generation.
According to Ephrem Ravi, Barclays’ head of metals and mining research, China Shenhua has in the past year obtained Beijing’s approval to build 16GW of power plants, which would help raise its installed capacity by 40 per cent in the next three to five years.
This would help lift its profit from power generation despite looming power price reductions to reflect lower coal costs.
“Given the ongoing risk of tariff cuts for thermal power in China, Shenhua appears to be positioning itself better to offset a potential decline in profitability,” he said in a note.
China Shenhua plans to cut coal ouput by 10.8 per cent this year to 273.6 million tonnes, after it fell by 3.6 per cent last year, as it plays its part to cut oversupply to arrest the decline in coal prices amid weak demand growth from energy intensive industries and fast-growing renewable power output.
But it is targeting to grow power output by 6.6 per cent this year after a 5.1 per cent drop last year. The China Electricity Council, which represents power producers, predicts power demand growth to be 4 to 5 per cent this year.
China Shenhua posted last Friday a 14.2 per cent drop in net profit to 38.7 billion yuan for last year due to a 10 per cent fall in the average coal selling price and a 3.6 per cent decline in coal output.
Operating profit from coal mining dropped 29.2 per cent to 25.5 billion yuan, but that of power generation rose 9.3 per cent to 18.58 billion yuan.
