China: Power companies struggle with shrinking profits

The relentless rise in energy prices, particularly coal, is pushing domestic power companies to a corner with no obvious way out other than an increase in electricity charges, which are controlled by the government.

Although some economists have predicted a power tariff rise will have a marginal impact on inflation, nobody expects any changes before the consumer price index (CPI) shows signs of leveling off or decline. To be sure, the major power companies are still operating in the black but they say their profit margins have been squeezed to uncomfortable levels.
These economic realities look particularly harsh to many domestic power enterprises used to operating at profit margins that were considerably wider than the international averages, largely because of the plentiful supply of coal at stable prices. Electricity rates on the mainland have always been on the low side compared with other emerging economies in Asia.

Coal is the primary source of energy for more than two-thirds of the electricity produced in China. Industry experts say coal costs comprise an average of 50 to 70 percent of power generators’ expenses.

The continuous coal price rise has already wiped out a big part of the earnings of Chinese power plants. According to the first-quarter earnings reports posted by several major electricity producers, the average profit margin has dropped to 10.7 percent from 21.5 percent compared with the corresponding period last year.

China Daily