China’s Leading Coal Firms Pivot to Power Generation Amid Falling Mining Profits

Amid a downturn in coal mining profits, China’s largest coal producers are increasingly turning to power generation as a way to offset weaker market conditions. This shift comes as coal prices have dropped, demand has weakened, and China’s commitment to electrification and low-carbon energy growth has put additional pressure on the mining sector. Major coal companies like China Shenhua Energy Co. (Shenhua) and China Coal Energy Co. (China Coal) are adapting to these challenges by investing more heavily in the power generation sector, particularly renewable energy.

In 2023, profits at China’s top coal miners, including Shenhua—China’s biggest coal producer—and China Coal, have faced significant pressure. This is largely due to a combination of oversupply in the market and declining prices. Following years of national mining expansions, there is now a glut of coal, and prices for the fuel have fallen by nearly 8% year-to-date. As a result, profits across the coal mining industry have dropped by around 22%, significantly impacting the bottom line of many major players in the sector.

Shenhua, for example, has already begun scaling back its coal production. After promising earlier this year to shift investments away from mining, the company reduced its coal output in the third quarter of 2023. Instead, Shenhua has directed resources toward renewable energy, adding 305 megawatts of new power generation capacity through September, largely from solar energy installations. The company has acknowledged that the rising costs of mining, driven by the depletion of older deposits and the need for deeper, more expensive drilling, are contributing to this strategic shift. Shenhua’s chief financial officer, Song Jinggang, explained that mining operations have become more costly and less efficient, prompting the company to rethink its approach.

This move is also part of a broader strategy by Shenhua’s parent company, China Energy Investment Corp., which operates China’s largest fleet of thermal power plants. In recent years, China Energy has diversified its investments, seeking to shift from traditional coal power to renewables. By 2025, the company aims to exceed its renewable energy targets and has already become the world’s largest operator of wind and solar power plants.

Similarly, China Coal Energy, the fourth-largest coal miner in China, has been accelerating its investments in thermal power plants. The firm has made several strategic acquisitions and constructed new power generation facilities in a bid to hedge against the declining profitability of coal mining. Last year, China Coal rose to become the sixth-largest investor in thermal power generation in the country.

Despite being more profitable than coal mining, the power generation sector in China is not without its challenges. A growing number of regional markets, such as Guangdong in the south, are adopting market liberalization reforms that are pushing down electricity prices. These cheaper rates, in turn, are squeezing margins for power generators. In Guangdong, where market liberalization is most advanced, nearly half of all power suppliers are struggling to remain profitable, with reports indicating that electricity rates have fallen below production costs for many.

China’s top coal firms’ shift towards power generation comes amid both market and policy-driven changes. With government-backed climate goals prioritizing decarbonization and the transition to renewable energy, these companies are trying to balance the immediate economic challenges of coal production with the long-term potential of the clean energy transition. As demand for coal is expected to peak soon due to government emissions targets, the ability to diversify into the power sector, particularly renewables, is seen as a necessary move to secure future growth.