Coal-fired power monopoly policy is released, Xinjiang mining industry may be negatively affected and electricity charges will rise

According to The Paper and China Energy News, the five major power generation groups will form a "one central enterprise in one province" pattern in Gansu, Shaanxi, Xinjiang, Qinghai, and Ningxia. Industry insiders are generally worried that the monopoly of central enterprises will lead to rising electricity prices, which will in turn have a negative impact on Xinjiang's cryptocurrency mining industry.

However, some people pointed out that the current sharp drop in coal prices has led to a 20% drop in electricity prices, which can temporarily offset the risk of monopoly on electricity price increases. In addition, local governments in Xinjiang still have a large amount of thermal power capacity that cannot be consumed. Through government relations, they can obtain certain benefits, including the use of more low-cost wind power and photovoltaic power in the mix.

On May 23, a document entitled "Notice on Issuing the First Batch of Pilot and First Batch of Transferred Enterprises for Regional Integration of Coal and Electricity Resources of Central Enterprises" issued by the State-owned Assets Supervision and Administration Commission of the State Council showed that China Huaneng, China Datang, China Huadian, State Power Investment Corporation, and State Energy Group will carry out the first batch of pilot projects in five pilot areas, namely Gansu, Shaanxi, Xinjiang, Qinghai, and Ningxia, in accordance with the "Pilot Plan for Regional Integration of Coal and Electricity Resources of Central Enterprises". Among them, there are 13 companies in Xinjiang with a total installed capacity of 6.294 million kilowatts, all of which will be transferred to Huadian Group before June 30. Coal and electricity groups in the pilot areas will also strengthen their bargaining power for "upstream coal procurement and downstream electricity market transactions".

The Paper reported that the integration plan caused an uproar in the industry as soon as it was released last year. Supporters believed that this was the most efficient way to relieve the difficulties of coal-fired power generation. However, more industry insiders were worried that the integration of coal-fired power resources would form an oligopoly market, which would directly lead to the failure of the provincial power market construction since the release of Document No. 9 on the power reform.

The reason for the introduction of the integration plan is that in recent years, the coal-fired power industry has entered a difficult period again due to the oversupply of the power market, the high volatility of coal prices that cannot be relieved by the increase of grid-connected electricity prices, and the rapid development of new energy squeezing the survival space of coal-fired power. In addition to losses, the asset-liability ratio of power generation groups has been running high for a long time. Although it has dropped from the highest level of 85% in 2008, it was still close to 78% in 2018, and huge financial expenses eroded current profits. Coal-fired power companies in Yunnan, Guizhou, Sichuan, Northeast China, Qinghai, Henan and other regions have suffered losses as a whole. Some coal-fired power companies are insolvent, or even shut down or go bankrupt.

According to the aforementioned report in China Energy News, the scope of regional integration of coal-fired power resources by central enterprises may continue to expand in the future, and some provinces in the Northeast and Southwest regions will also carry out relevant pilot projects based on the results of the first batch of pilot projects. In other words, thermal power in areas with dense mining areas such as Inner Mongolia, Sichuan, and Yunnan will also be affected to a certain extent.

A professional in Xinjiang mining farms told Wu Blockchain that unlike Sichuan and Yunnan, Xinjiang does not have many directly supplied electricity mining farms, but rather relatively compliant mining farms that use electricity from the State Grid. In the past, because they belonged to various major groups, they would compete with each other to lower the transaction price in the market in order to grab power generation indicators and electricity sales. After the implementation of this policy, a monopoly similar to that of the State Grid Corporation was formed, and the market transaction price of electricity was bound to rise.

In 2017, the Xinjiang government's management was relatively loose, and there were many direct-supply power mines. In addition, the price of coins soared at that time, which was a golden time for mining. In 2018, electricity prices began to rise, and the government strengthened supervision. The cost of grid electricity in compliance with regulations is more than 0.27, and it may rise to 0.3 next year. Taking Zhundong as an example, the market multilateral transaction electricity price has risen from 0.15 to 0.185 in less than a year, and it is expected to rise to more than 0.2 by the end of this year. Adding the 0.07 transmission and distribution price and taxes, the price of bare electricity will be around 0.3.

Since most of Xinjiang's coal-fired power is in a loss-making state, the central government is integrating it for the purpose of turning losses into profits, so there is a strong expectation of price increases. At present, Xinjiang's on-grid electricity price is 0.15-0.2, and the entrusted electricity price is basically above 0.3. But half of the thermal power plants are in a loss-making state. Compared with Sichuan and Yunnan, the electricity that cannot be connected to the grid by hydropower can only become abandoned water, so the price will be very cheap. But for thermal power, there are higher costs such as construction, manpower, and fixed asset depreciation, so the price increase of thermal power in Xinjiang may be an inevitable trend in the future.

According to Caixin, a document released internally by the State Grid on April 21 showed that the net profit of the State Grid in the first quarter of this year was -920 million yuan, compared with 15.3 billion yuan in the same period last year, a year-on-year decrease of 106%. The operating income profit margin was 0.3%, a year-on-year decrease of 2.9 percentage points. The huge decline in profits may bring about the possibility of subsequent price increases; but it may also lead to more overcapacity due to insufficient electricity consumption due to the epidemic. At the same time, coal production in March increased by 9.6% year-on-year. After overcapacity, the spot coal price in Qinhuangdao hit the lowest level since September 2016 in early April.