China’s largest power producer, Huaneng Power International, has posted a 31per cent year-on-year drop in net profit for the first half of the year.
The listed Chinese company, predominantly a coal-fired power generator, has seen utilisation of its plants squeezed by weak power demand growth, and rising competition from nuclear and renewable energy output.
South China Morning Post reports that the company reported a net profit of 6.18 billion yuan, down from 8.95 billion yuan in the year-earlier period. It was 12.8 per cent lower than the 7.09 billion yuan average estimate of analysts at Citi, Deutsche Bank and Morgan Stanley.
“Most [Hong Kong-listed mainland Chinese] power producers should see first-half net profits below consensus estimates due to tariff and [plant] utilisation cuts,” Citi head of Asia utilities research Pierre Lau said in a note ahead of the Beijing-based company’s results.
One factor affecting coal-fired plant utilisation was major excess industry capacity and reforms facilitating direct trading between generators and large industrial end-users.
It is part of government-driven industry reform to enhance efficiency through competition and reduce power costs for manufacturers by allowing users and generators to directly negotiate volumes and prices, bypassing power distributors.
The coal-fired power industry as a whole has seen plant utilisation rates fall to their lowest levels in 38 years. Higher hydro power output due to unusually high rainfall was another factor cutting into coal-fired plants’ output.
Lower plant utilisation has an adverse impact on profits since more fixed costs such as plant depreciation and maintenance are borne by each unit of power sold.
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