High costs compared to transactional electricity prices result in losses for coal-fired power plants; Guangxi issues guidelines to encourage market entities to adjust contract electricity prices

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Polaris Power Trading Network has learned that the Guangxi Department of Industry and Information Technology recently issued a notice titled \"Notice on Matters Related to the Adjustment of Medium- and Long-Term Electricity Trading Contracts for 2021\" (the full text of the document can be found at the end). The notice states that since the beginning of this year, high coal prices due to factors such as tight supply have led to electricity generation costs for coal-fired power plants being higher than the average market price for electricity. As a result, these plants are operating at a loss and facing significant difficulties. To ensure the smooth, orderly, and sustainable operation of electricity market transactions, power generation companies, electricity sales firms, and electricity consumers are encouraged to, based on their own circumstances and through full consultation and agreement, adjust the contract prices for the remaining unbilled electricity volume from the 2021 electricity market transactions by means of signing supplementary agreements, among other approaches. (Source: Polaris Power Sales Network, Author: Seven Yuan) According to relevant sources, this is the result of the marketization of coal. Due to the persistently high coal prices recently, the power generation costs for power plants are high; as a result, the power plants want to modify the prices agreed upon for the additional electricity volume transactions. According to the statistics from Polaris Power Trading Network, Guangxi conducted a total of 3 rounds of additional electricity trading this year, with a total volume of electricity traded amounting to 12.582 billion kWh. The transaction details are shown in the figure below: Adjusting the contract electricity price is, of course, beneficial for power generation companies. Industry insiders say, “There is a shortage of thermal coal in the south, and it needs to be transported. Rising fuel costs increase the production costs for power generation companies; large-scale losses are not conducive to maintaining the capacity of power plants.” ” For electricity-consuming enterprises, the potential benefits they can enjoy will decrease. Some companies have complained that \"in 2020, power plants raised prices collectively before signing contracts, and now they try to do the same after signing the contracts; in any case, they never take the initiative to negotiate lower prices when coal prices are low.\" ” Opinions among industry insiders regarding electricity sales companies vary. Some say it has little impact on power sales companies, while others argue it is beneficial for them; if coal prices rise as per the original contracts, power sales companies will suffer losses. For example: if the original contract provided a discount of 11 cents per kilowatt-hour to the electricity consumer, and now that the electricity price has increased, the total profit for the electricity sales company is only 9 cents per kilowatt-hour, then the company incurs a loss of 2 cents per kilowatt-hour. A professional in Guangxi’s electricity sales market said that this document is merely a guiding document; it is an official document that suggests electricity sales companies negotiate new prices with end-users. Theoretically, it is beneficial for electricity sales companies, but the actual outcome depends on whether the end-users are willing to engage in such negotiations. In response to the high coal prices, the State Council ordered measures to ensure a stable supply and price level for bulk commodities at a regular state council meeting held on May 19. Coal prices did decline, but they have shown a tendency to rise again recently. Regarding this, a responsible official from the Bureau of Economic Operation Regulation under the National Development and Reform Commission said that the recent rise in coal market prices is mainly driven by expectations of increased energy demand during the peak summer period, as well as the shutdown of some coal mines. As temperatures rise, electricity demand is increasing at a rapid pace. Water availability has been lower than in previous years, and it is expected that coal consumption for electricity generation will continue to rise. Additionally, there have been several safety accidents across the country recently, prompting safety inspections in various regions. Some coal mines have stopped operating or reduced production, and certain coal traders have taken advantage of this situation to raise prices, thereby fueling bullish sentiment in the market. Regarding the future trend of coal prices, a responsible official from the Economic Operation Regulation Bureau of the National Development and Reform Commission said that as hydroelectric and solar power generation increases during the summer, along with rising coal production and imports, the supply-demand imbalance for coal will ease. It is expected that coal prices will start to decline in July, with a significant drop in prices. Rising coal prices have led to instability in electricity trading markets in various regions, with the Guangdong spot market being a vivid example. It remains to be seen whether coal prices will drop significantly in July and how electricity trading will change as a result. The details of the document are as follows: Source: Polaris Power Network