China Power International Development Ltd. (02380.HK), a listed unit of China Power Investment Corp., one of the country’s top power-generating groups, is the latest electricity producer to report orders from the National Development and Reform Commission to cut its rates for on-grid coal-fired power.
Local media had reported that this round of tariff adjustments could take away up to 50 billion yuan (US$8.1 billion) in profit from the entire power generation industry. But such estimates of huge profit discounts are overblown in the case of China Power.
The state-owned utility revealed in a regulatory filing that the average tariff cut on its installed coal-fired power is about 12.59 yuan per mill-watt-hour, or just 3 percent off the average on-grid tariff it received in the first half of 2013. It’s also important to remember that the price of thermal coal, the major fuel of domestic power stations, which generally accounts for about 60 percent of power generation costs, has fallen by a fifth this year.
At the same time as ordering the widespread rate cuts, Beijing has raised the denitration tariff subsidy from 8 yuan/MWh to 10 yuan/MWh for qualified coal-fired power plants and handed out a new dedusting tariff subsidy of 2 yuan/MWh. With the cushion of these green subventions, the actual tariff cut should be held to about 2 percent.
But, of course, the power utilities can only make the most of the subsidies if they have the pollution-filtering equipment in place to meet tougher standards. Environmental protection and energy conservation solutions providers such as Guodian Technology & Environment Group Corp. Ltd. (01296.HK) ought to be major beneficiaries from the overhaul of the on-gird tariff structure.
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