Blacking out

Liang Jie, a worker at a power station in Taiyuan, Shanxi province looks at the power units in his plant in misery. "Because of the declining (power) consumption this winter, we have to idle one unit at the plant for one week."

Many other coal-fired power plants in Shanxi share the same problem. In Changzhi city, one plant with two 600-megawatt (MW) units is operating both units at 300 MW.

"A large part of the power plants in Shanxi now cannot operate in full capacity," says Li Jianwei, deputy head of the Shanxi Electricity Industry Association. "It has put many plants in great difficulty."

Statistics show that due to the financial crisis in October nearly 2,700 high energy-consuming companies in Shanxi cut their demand or stopped operation.

"Shanxi has many metallurgical companies, and because of the crisis many companies cut production or even stopped operation," says Li.

Besides Shanxi, many other provinces have seen declining power demand since September. In October power demand in 13 provinces fell, according to the China Electricity Council (CEC). It was the first negative growth since 1999 and fell 4 percent from a year ago.

Electricity output declined to 264.5 billion kilowatt hours, according to the National Bureau of Statistics.

The slowdown in power demand shows many companies in the manufacturing sector have cut production due to a continuous price slump of industrial commodities both at home and abroad, Guotai Jun'an Securities said in a report.

China's power generation will tumble 7 percent in November from a year ago, following the 4 percent decline in October, an official with CEC told China Business Weekly earlier.

It is first time that power output has declined for two months in a row.

Losses

Due to the rising fuel costs and the declining demand, China's power companies have so far posted over 20 billion yuan in losses.

According to a source with one of China's five leading power companies, the five biggest power generators have posted losses of 26.8 billion yuan from January to October.

China Huaneng Group, the nation's largest power company, lost 3.4 billion yuan, and China Datang Corp lost 6 billion yuan. China Guodian Corp had a deficit of 6.55 billion yuan, China Huadian Corp recorded a loss of 6.07 billion yuan, and China Power Investment Corp's losses were about 4.85 billion yuan, according to the source, who declined to be named.

"Among the five companies' coal-fired power plants, 90 percent are losing money right now," he says. "And I expect they will incur bigger losses later this year."

"For the country's power companies, their full-year losses will exceed 70 billion yuan," says Xue Jing, director of the department of statistics and information under CEC.

In the first half of this year coal prices increased sharply, which sent many domestic power companies into the red, says Xue.

Opportunities

Analysts say the country's power companies can also take the advantage of the declining demand to do some improvement in the sector, such as the restructure of the power mix and to develop more clean power.

They say one important task in the sector is to make a bigger investment in the country's power grids to enhance the power transmission capacity.

The State Grid Corporation of China (SGCC), the country's biggest power supplier, plans to more than double its investment for the next two years to a total of 1.16 trillion yuan for grid construction nationwide.

The planned investment is yet to be approved by the State Council, or China's Cabinet.

SGCC spokesman Lu Jian earlier said the company had already arranged 12 billion yuan in the fourth quarter for the development of urban and rural power supply in the country's central and western regions.

Analysts say power construction can directly benefit industries such as metallurgy, building materials, electricity and machinery manufacturing, as it will promote investment, consumption and trade.

Industry statistics show that the construction of every 100 km of power lines of a 500-kilovolt grid project consumed 5,000 tons of steel, 2,000 tons of aluminum and 7,000 cu m of cement.

In 1998, the government invested more than 300 billion yuan in grid building projects to stimulate the domestic economy and to fend off the financial crisis in the southeast Asia.

(China Daily 12/15/2008 page4)