Shanxi Coal and Electricity Co., Ltd., known as the "Coal Province," has made significant progress in recent developments. Seven major coal groups have signed long-term power coal supply agreements with five leading power companies and several local energy firms. For the first time, both sides have used economic contracts, which provide a stronger legal framework for these agreements. Additionally, they have clearly defined the settlement price, ensuring transparency and stability.
Historically, coal-fired power plants have entered into long-term agreements, but these often suffered from unrealistic pricing. With the current downturn in the coal industry, the "strong constraints" of these new agreements reflect the accelerated pace of coal and electricity integration.
Since the start of this year, slowing global and domestic economic growth, along with falling international commodity prices, have led to reduced coal demand and declining prices. As of August 6, the Bohai Thermal Coal Price Index—China's key coal market benchmark—has remained flat for nine consecutive months. Data from the China Coal Industry Association shows that in the first half of the year, national coal output and sales declined year-on-year, and railway transportation volumes have been negative for 13 months. Six provinces, including Heilongjiang, Jilin, Chongqing, Sichuan, Yunnan, and Anhui, reported losses in the coal sector.
In Shanxi, the situation is no better. According to the Shanxi Provincial Department of Coal, coal sales in the first half of the year grew by just 0.1%. The average coal price dropped from 656 yuan per ton in May 2011 to 450 yuan in June of this year—a decrease of 31%. Industry-wide profits fell by 53% compared to the previous year.
To address the coal crisis, the Shanxi Provincial Government issued 20 emergency measures on July 25, emphasizing the need for continued integration between coal and power. It encouraged coal companies to sign contracts with key users such as power, metallurgy, and coking industries to achieve harmony between coal and electricity. Later, on the 31st, Shaanxi announced it would explore policies to support the coal industry, making "coal and electricity integration" a central theme once again.
However, coal and electricity have long been at odds despite their interdependence. When coal supply falls short, power companies struggle to secure supplies, while when there's an oversupply, coal companies are forced to sell at low prices.
Before signing the agreement, both sides conducted detailed assessments of their energy resources and coal demand. Based on this, they signed a supply and demand agreement under the principle of "autonomous resource linking, independent contract signing, price negotiation, and contract fulfillment." They also clearly outlined the quantity and quality of coal to be supplied, with specific settlement prices agreed upon in various forms.
Zhang Youxi, chairman of China's third-largest state-owned coal enterprise, stated that the medium- and long-term agreements involve 120 million tons of coal. This year’s purchases and sales amount to 33 million tons, accounting for a quarter of the group’s total commercial coal, significantly easing coal sales pressure.
Qiao Baoping, chairman of China Guodian Corporation, emphasized that these long-term agreements not only help resolve coal and electricity supply-demand conflicts but also create a win-win situation for both sectors. They also contribute to national energy security and promote economic health.
Beyond long-term coal-power agreements, capital-linked coal-electricity joint ventures are gaining attention. Since the beginning of the year, Shanxi Coal Group merged with International Power to reorganize Jinneng Company, while Lu'an Group signed a coal-electricity cooperation agreement with Gemini International. Among the 34 main thermal power enterprises in Shanxi, 22 are integrated coal-electricity companies, and 17 have established long-term contracts, significantly enhancing market risk resistance.
Additionally, Shenhua Group, China’s leading coal company, has accelerated its coal-electricity joint venture efforts. In 2012, its power generation business accounted for over a quarter of its operations.
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