September 29, 2011 / 9:45 AM / 6 years ago

UPDATE 2-Chinese regions face severe winter power shortage-NEA

5 Min Read

* South, central China face shortage due to low water levels

* Shortfall to hit coal-producing regions on lower power price

* Energy-intensive firms face power cuts, gas demand may rise

* Power market reform, coal market freedom undermined (Adds details, background)

By Jim Bai and Chen Aizhu

BEIJING, Sept 29 (Reuters) - China's southern and central regions, which depend heavily on hydropower, will face a power supply squeeze this winter due to low water storage and strong demand growth, the country's top energy agency said on Thursday.

The National Energy Administration's (NEA) remarks echo an earlier comment by the state-run China Southern Power Grid Corp, which estimated that shortages at five provinces in the south -- Guangdong, Guizhou, Guangxi, Yunnan and Hainan -- would amount to some 14 gigawatts (GW).

The shortage, roughly 8 percent of total installed capacity in areas the Southern Power Grid services, will potentially curb operations of energy-intensive firms like metal smelter Chalco which are already facing power rationing.

It may also increase demand for gas in regions such as Guangdong, which has begun to take in the cleaner fuel via pipeline from Turkmenistan, in addition to liquefied natural gas imports through the country's first receiving terminal Dapeng.

Guangdong alone has about 5 GW of gas-fired power generating capacity that is under-utilised due to a gas shortage and high cost of the fuel, according to Zhong Jun, general manager of the Southern Power Grid.

Chongqing, a municipality serviced by the Central China Grid, has forecast its power deficit may expand to 3.8 GW in the winter-spring season, or more than 30 percent of maximum demand, the local grid has said.

"The winter and spring outlook of power supply and demand allows no room for optimism," the NEA said.

"According to forecasts by relevant departments, power demand growth in the fourth quarter is likely to fall slightly from the first half, but it will remain at an elevated level... and winter hydropower generation is set to be lower than normal."

In August, China's power use grew at the slowest pace this year at 9.1 percent on a year-on-year basis, with consumption growth by heavy industry falling to single-digit for the first time since February.

For the first 8 months, China, the world's second-largest electricity user after the United States, consumed nearly 12 percent more power than a year earlier.

Coal-to-Power Dilemma

Coal-producing areas where on-grid tariffs for coal-fired power plants were relatively low would also be hit hard by the winter shortfall, the NEA said at a briefing.

The energy watchdog did not specify the areas or give any shortage forecast, but some thermal power plants in major coal-producing provinces such as Shanxi in the north had repeatedly complained that they could not make ends meet due to low grid feed-in prices.

A total of 23 coal-fuelled power generators, or 7 GW, were forced to shut down due to coal shortages in the summer, compared with 10 generators with total capacity of 1.89 GW last year, the NEA said.

"Power generating firms' losses were mounting and many thermal firms had cash flow problems, affecting normal power generation."

China's five state-owned power generating groups lost 18.1 billion yuan on their thermal power businesses in the first seven months, though they made a profit when other businesses such as coal mining were included, government and industry data have shown.

China's coal market, the world's largest, would be balanced in the fourth quarter as supply capacity increases, the NEA said.

As of Sept. 10, coal stocks at major thermal plants totalled 65.1 million tonnes, deemed a normal rate that is enough to cover 15 days of generation, according to the NEA.

Thin inventories of coal -- partly due to transport constraints -- and the unwillingness of power plants to stock up the fuel as capped power prices hit their margins -- has been the main factor causing severe power shortages in previous years.

Power sector liberalisation has been repeatedly postponed, and China seemed to have started to backtrack on market reform by pushing many private coal miners out of businesses and encouraging mergers between coal and power firms.

"Given a balanced coal market and little room for power price hikes amid a government emphasis on keeping the general price level steady, coal miners should keep both coal supplies and coal prices stable," the NEA said.

The government will encourage large power and chemical firms to take over coal mines while supporting coal mines to take stakes in power firms, so as to facilitate mutual cooperation and ease coal and power shortages, the administration said. (Editing by Michael Urquhart)

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