Idle capacity threatens profitability for power firms, say experts
Experts said China has to stop building new coal-fired power plants, after a senior official of the country's top economic planner admitted the country's coal-fired power plants are suffering from overcapacity.
National Development and Reform Commission (NDRC) secretary-general Li Pumin said the country's coal-fired plants have a bigger generating capacity than what is needed and a record low level of utilization hours of thermal power equipment.
In the first five months of the year, electricity generation from hydro plants and wind farms increased by 16.7 percent and 14.5 percent from the same period last year, respectively, Li said at a press conference in Beijing Tuesday.
Power generation from coal-fired plants, however, dropped 3.6 percent from the same period a year ago, and the average utilization hours of thermal power equipment declined by 178 hours, its lowest level in a decade, according to Li.
Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, said the utilization hours of thermal power equipment is at its lowest since data gathering began.
"China's current utilization for thermal equipment stands at around 4,000 hours, with a peak usage of 6,000 hours in 2002, and ideal utilization hours should be at around 5,500 hours," Lin told the Global Times on Tuesday.
The potential of electricity supply outpaces demand by 20 to 25 percent, and we consider this a dangerous level, Lin said.
China's coal and steel industries are seriously affected by a supply glut, caused by overcapacity, and are suffering industry-wide losses.
Coal output decreased by 8.4 percent in the first five months year-on-year, the NDRC said Tuesday, as coal-producing provinces and regions move to address overcapacity.
The growth rate of installed electricity generation capacity far outpaced that of demand, the China Business Journal reported last month.
The demand for power rose slightly by 3.2 percent in the first quarter from the same period last year, the report said, citing data released by the China Electricity Council in April.
However, during the same period, newly installed installed capacity reached 28.15 gigawatts, including 13.63 gigawatts from coal-fired plants, the fastest increase in history, according to the report.
An estimated 100 gigawatt capacity from all energy sources will be added in 2016, the report noted.
In 2015, investments worth 139.6 billion yuan ($21.18 billion) went into coal-fired plants, a 22 percent increase from the same period the previous year, media reports said.
In the same year, utilization hours for thermal equipment reached 3,969 hours, the report added.
Experts said power companies will have to absorb the costs of such a glut in power generation capacity as power plants cost a fortune.
"However, the slow market-oriented reform in the power sector means that electricity tariffs are less reflective of the market dynamics, and this situation will cushion some of the cost," Lin said.
Coal prices in China are market-oriented and have been fluctuating near a decade low while electricity tariffs are more or less constant.
With the mushrooming of new coal-fired plants and the significant increase in clean energy capacity, the situation is likely to worsen in the absence of a significant pickup in total power demand, Lin said.
Demand inched up 2.7 percent in the first five months of this year compared to the same period the previous year, the NDRC said Tuesday.
China will halt the construction of new coal-fired power plants until 2018 in 15 regions even for projects that have already been approved, the NDRC said in a joint statement with the National Energy Administration.
