Xinhua News Agency, Shanghai, November 19th (reported by Liu Xue) - Recently, the National Development and Reform Commission (NDRC), in consultation with the State Electricity Regulatory Commission and the National Energy Administration, has issued an electricity price adjustment plan. Starting from November 20, 2009, the average sales electricity price nationwide will be increased by 2.8 cents per kilowatt-hour. There are differences in the electricity price adjustment standards among regions and industries.
The main content of this electricity price adjustment is to make adjustments to the feed-in tariff with both increases and decreases. The benchmark feed-in tariff for coal-fired power units in Shaanxi and nine other provinces (regions, municipalities) will be appropriately raised; while in Zhejiang and six other provinces (regions, municipalities), it will be appropriately reduced.
In 2008, the feed-in tariff was increased twice but there was no change in the sales-side electricity price, which made asymmetric electricity price adjustments one of the important reasons for State Grid Corporation's over-billion-yuan losses in the first half of 2009. Currently, the country is actively promoting the construction of the power grid and will increase investment in ultra-high voltage construction in the next few years.
"Based on this inference, if the sales electricity price is increased, it may be due to considerations of restoring the profitability of the power grid and boosting power grid investment," said Xie Dacheng, an analyst in the power industry at Guosen Securities. According to calculations, as long as the sales electricity price is increased by 1-1.5 cents, the State Grid Corporation can not only erase its losses in the first half of 2009 within six months after the price adjustment, but its future profit levels will also be quite considerable.
To date, the new round of electricity price adjustment plans has been finalized, and power grid companies undoubtedly benefit the most. According to the electricity sales volume of State Grid Corporation in 2008, the new electricity price adjustment will bring nearly 60 billion yuan in profit benefits to State Grid Corporation. However, from the perspective of listed companies, there are very few listed power grid enterprises, lacking good investment targets.
Regarding the regulation of "reducing the feed-in tariff in eastern regions," the industry generally reacted strongly. Chen Shuwei, an analyst in the power industry at Orient Securities, believed that the reduction in feed-in tariffs would squeeze the profit margins of regional power plants, and if coal prices rise beyond expectations next year, the contradiction between coal and electricity will become more acute. In the long term, the practice of subsidizing the power grid through power generation will dampen the operating enthusiasm of thermal power enterprises.
"In terms of listed companies, among the five major power groups, Huanneng International, which has 60% of its thermal power units located in East China, is the most significantly affected by the policy of reducing feed-in tariffs," said Chen Shuwei, but added that Huanneng International’s valuation is relatively low and it offers better safety.
While the increase in feed-in tariffs in western regions brings direct benefits to related listed companies, industry insiders pointed out that power generation enterprises in western regions have poor profitability and high valuations, making them less than ideal investment targets. Xie Dacheng indicated that the regions where feed-in tariffs were increased are those where thermal power profits are extremely poor or even loss-making, and the adjustment of electricity prices can only slightly improve their performance. The recent rise is not sustainable.
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