Rare Bright Spot for Gas in China’s Coal-Heavy Power Mix at Risk

(Bloomberg) -- One of the few bright spots in China’s coal-dominated power mix for cleaner-burning natural gas is at risk after a proposed tariff cut.

The southern province of Guangdong is mulling a 5-12% cut in the rates gas-fueled generators can charge, according to a report on a website run by China Southern Power Grid Co., referencing an unpublished policy consulting paper from the Guangdong Development and Reform Commission. The hike could be enough to idle some marginal power plants that had been feasting on cheap gas imports.

Guangdong is one of the few Chinese provinces with enough gas-fired generation to create price competition with coal, which dominates the country’s power sector. Similar competition in Europe and the U.S. has seen cheap gas eat away at coal’s market share, helping reduce pollution and carbon emissions along the way.

China is largely reliant on coal, of which it has abundant resources, and its clean energy investments have been aimed at hydropower, nuclear and wind and solar. Guangdong is a rare exception. Wealthy and relatively far away from the coal mines in the north, gas-fired power makes up about 18% of its capacity, compared to 48% for coal.

The province is planning to boost gas-fired capacity to about 35 gigawatts from 23 gigawatts now, Lin Shitao, director of a subsidiary of Shenzhen Energy Group, said in a webinar Thursday. That would be more than than the entire U.K., according to International Energy Agency data.

When LNG prices began falling toward $2 per million British thermal units, Guangdong utilities were among a handful of buyers snapping up cargoes as power demand faltered elsewhere in Asia. China National Offshore Oil Corp.’s Dapeng terminal saw tanker arrivals surge to a record 775,000 tons in May.

The tariff cut threatens to derail that growth. Even with the lower gas prices, older and less-efficient plants struggled to operate at a profit in the first half, according to Lin.

The proposal follows Premier Li Keqiang’s announcement at last month’s National People’s Congress that a 5% cut in power prices employed during virus lockdowns would be extended the rest of the year.

Guangdong’s proposed new tariff rates would be 0.029-0.08 yuan (0.4-1.1 cents) per kilowatt-hour lower than the current level of 0.533-0.665 yuan, according to the report on the consultation paper, which didn’t specify the timeline for implementation. It didn’t mention what would happen to coal tariffs.

©2020 Bloomberg L.P.

With assistance from Bloomberg