Li Jianwei, Vice President of Shanxi Provincial Electricity Council, said in an article on the NDRC's website that large power generators have little incentive to maintain huge production, because the more electricity they produce, the more money they lose. Smaller ones have even been unable to afford the high-price thermal coal, he added.

Alleviation efforts

The government is not relaxing its efforts to fight its way out of the coal predicament. Zhang Guobao, Vice Minister of the NDRC, recently told a news conference that the Central Government would adopt several measures to ease strained coal supplies, including energy conservation plans and infrastructure improvements to increase transport capacity. Detailed plans have yet to be released.

Because most of the country's thermal power plants are currently engaged in low-technology and low value-added production, large-volume and high-parameter power generations are encouraged to increase their energy efficiency, Guo Yuntao, Director of China Coal Industry Development Research Center, told the 21st Century Business Herald.

Analysts say a more sustainable solution would be to loosen the controls on power pricing to balance the supplies of and demand for electricity and coal. In June, the government resumed temporary price controls on thermal coal bought directly from mines in an effort to take some pressure off the generators. But spot market prices continued to rise defiantly, because of supply-demand gaps.

The government also raised fixed electricity prices by 4.7 percent as of July 1, but the increases were still considered too low to offset the losses incurred by thermal generators.

On August 19, the NDRC increased the price of coal-generated electricity that grid operators must pay thermal power plants by 0.02 yuan per kwh, starting from August 20. Unlike the previous rate hike, the new one has had almost no direct impact on the producer price index or consumer price index. It also would not affect retail rates for corporate and household end users, a report by Merrill Lynch & Co. said. The government would have much more leeway to raise power prices now that the country's inflation rate is showing signs of cooling down, the report said. China's CPI was 6.3 percent in July, down from 8.5 percent in April.

Meanwhile, Li Jianwei of the Shanxi Provincial Electricity Council also said the government should increase its efforts to break the barriers between coal and electricity industries and hasten their integration. It should encourage thermal power generators to buy into or take over coal plants or develop their own coalmines so that they could ensure stable coal supplies and at the same time benefit from coal price surges, Li said. In the long run, the coal plants also would gain momentum for their future development from the scale effect and higher production efficiencies, he added.

Almost all of China's state-owned power giants have stakes in coal plants. Huaneng Yimin Coal and Electricity Co. Ltd., wholly owned by China Huaneng Corp., was the country's first large enterprise to integrate coal production and power generation. It has logged annual profits of more than 200 million yuan ($29.3 million) since 2006 and maintained high revenue growth.

Dai Wei, General Manager of Huaneng Yimin, told Xinhua News Agency that his company has defied the downturns in the energy industry, because it has its own coal mines. It costs the company about 0.04 yuan to generate 1 kwh of electricity, much less than the national average of 0.15 yuan, Dai said.