A few days ago, Jiang Shaojun, secretary-general of the China Electric Power Development Association, said in an exclusive interview with a China Securities Journal reporter that the price of an electric coal contract next year is unlikely to be lower than the current coal price, but it is also difficult to increase.

China Securities Journal: What is your expectation of the NDRC's action to limit coal prices? How do you predict the price of coal contracts for next year?

Jiang Shaojun: In the short-term, the government's restriction on coal prices will be difficult to play a fundamental role, that is, it is difficult to reduce the prices that have risen back to the original level. Personally, it is expected that the price of power coal contracts in the next year will be hardly lower than the current level of coal prices, but it is also difficult to increase. Because it goes up again, power generation companies can hardly afford it anymore. At present, the cost pressure of thermal power companies is such a large increase, which directly increases the expectation of an increase in on-grid tariffs. This expectation is likely to continue into next year.

China Securities Journal: Do you think that the rapid rise in coal prices in October will have much impact on the power industry?

Jiang Shaojun: Coal prices have been operating at a high level after more than a month of skyrocketing. The accumulated profits of power generation enterprises for the first half of this year have been greatly eroded. The average price per ton of coal for this round of price hike has risen by about RMB 100. Calculated on the basis of 7 billion kilowatt-hours of thermal power generation per month, the thermal power generation company will increase the cost of electricity generation by 30-40 per month after this round of coal price increases. 100 million yuan.

Before the data showed that the power industry's loss reached 50%, it now appears that this data may be further expanded. However, overall, the level of performance of the power industry this year is less than the level of loss of the entire industry.

China Securities Journal: What do you think about the increase in M&A activity in the current power industry?

Jiang Shaojun: In fact, mergers and acquisitions in the electric power industry are not short-term behaviors, but are long-term brewing as a strategy for many power companies. The direct reason for the recent increase in M&A activity in the power industry is that power companies are increasingly willing to seek diversification, and the underlying reason is the "hedging" mentality of power companies, and they must not be overly subject to rising coal prices.

Coal prices have skyrocketed in 2008 when the government later imposed price limits on coal, but it did not allow coal prices to fall back. In recent months, once again, coal prices have skyrocketed. Now that the government has begun to limit the price of coal, the market expects it will be difficult to limit the price of coal back to its pre-upgrade level. Therefore, many power companies understand that it is difficult to pin their hopes on the real decline in coal prices. In order to improve profitability, only alternatives can be chosen.

China Securities Journal: At present, it seems that the power companies should mainly choose what way out?

Jiang Shaojun: The most realistic way out is mergers and acquisitions. On the one hand, power companies will choose to expand their industrial chains upstream to offset the cost pressures brought about by rising coal prices, such as acquiring coal mining assets or participating in coal companies; on the other hand, power companies will choose horizontal mergers and acquisitions to choose suitable within the power industry. asset. At present, it seems that domestic local power companies are less willing to sell, due to local government concerns about local power safety. This forces some powerful power companies to choose the target of acquisition in the international market.

In addition, there are still some power companies that choose to purchase assets that have little to do with the power industry. These assets, while not tied to power, can bring significant benefits. This is also a frustration for many power companies to reduce cost pressures, and it is difficult to give affirmative or negative evaluations.