China's coal-fired power sector expected to see profit recovery

The average spot price in Q1 was lower than the annual average of 2023.

China’s coal-fired power sector is poised to experience another year of profit recovery due to the decline in coal prices, according to S&P Global Ratings.

The report noted that spot coal prices domestically and internationally were down by around 11% due to abundant supply.

In the first quarter of 2023, the average spot price was around 4% to 5% lower than the annual average of 2023.

“We expect coal price declines will be more meaningful to IPPs than cuts to power tariffs,” S&P said.

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“Several provinces announced annual power contracts in 2024, and most of them still showed tariffs at 11%-18% above coal-fired benchmark prices, representing about a 2%-8% decline from 2023 levels,” it added.

Meanwhile, the recent implementation of capacity tariffs is expected to add $0.0028 (RMB2 cents) to $0.0034 (RMB2.5 cents) per kilowatt hour for thermal power plants, supporting the earnings stability of independent power producers. This is equivalent to around 4% to 7% of coal-fired benchmark tariffs.

“The tariff pays producers according to their installed capacity, regardless of how much power is actually generated. The measure thus insulates entities from volume risk,” the report added.

$1 = RMB7.25