Guangdong Power Sales Companies in a Tough Spot: More Electricity Sold, but Less Profit?
Hello, everyone! I'm your financial analyst. Today, we're going to discuss a phenomenon that might seem counterintuitive: despite the increasing demand for electricity and the bustling transactions in the power grid, many of the companies responsible for selling electricity are actually losing money.
According to a report released by the Guangdong Power Trading Center, nearly 60% of power sales companies in Guangdong were in the red in the first half of 2026. It's like a huge market where electricity is selling like hotcakes, but the vendors are all losing money.
So, what's going on? Is there a problem with the power industry, or are these companies just not managing their businesses well? Don't worry; let's break it down in simple terms.
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The Surface Prosperity and the Underlying Crisis: More Electricity Sold, but Less Profit
First, let's clarify a key point: The demand for electricity is indeed high, but making a profit has become extremely difficult.
Data shows that electricity consumption in Guangdong increased by 8.8% in the first half of the year, with direct transactions rising by 16.2%, and even the peak demand (the maximum load the grid can handle) increased by 13.7%. This indicates strong economic activity in the region, with many factories operating at full capacity.
However, despite the overall increase in volume, there's a serious mismatch between prices and profits:
- In the past: Power sales companies bought electricity at low prices and sold it at higher prices, earning a small but stable profit margin.
- Now: The industry average profit per kilowatt-hour sold is only 0.0039 yuan (3.9 cents).
What does that mean? If you sell 1,000 kilowatt-hours of electricity, you only make 3.9 yuan. With rent, salaries, and marketing expenses to cover, that's barely enough to make ends meet. So, although 202 companies reported profits, this is more of a survival of the fittest situation. In reality, 298 companies are losing money, accounting for 59.6%. And these are just the figures on paper; if we include the actual operating costs, the number of companies in the red could be even higher.
In short: The market has grown, but the way profits are distributed has changed. Most companies are left with very little profit.
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The Crumbling Logic: Why Can't the Old Model Work Any Longer?
The business model of power sales companies is simple: they act as middlemen:
- Buying: They purchase electricity from power plants (the wholesale market) at low prices.
- Selling: They sell it to factories and businesses (the retail market) at higher prices.
- Profit: The difference between the purchase and sale prices.
This model works if the purchase price remains stable and lower than the selling price. But this year, that premise has been completely shattered, leading to a situation where the wholesale price is higher than the retail price.
What does that mean? You're actually losing money on each kilowatt-hour of electricity sold.
It's like going to a wholesale market to buy apples. If the wholesale price suddenly rises to 10 yuan per pound, but you can only sell them for 8 yuan per pound (because customers don't want to buy them or the contract price is fixed), the more you sell, the more you lose.
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The Culprits: Multiple Factors Driving Up Wholesale Prices
There are several reasons for the sudden surge in wholesale prices:
1. Soaring fuel costs: Due to international geopolitical conflicts, the prices of coal and natural gas have skyrocketed. Since power plants rely on these fuels, the cost of generating electricity has increased, and they're reluctant to sell electricity at a loss, driving up wholesale prices.
2. Sudden surge in demand: Guangdong has seen a return of foreign trade orders, with factories working overtime, leading to a sharp increase in electricity demand. At the same time, the output from renewable energy sources (wind, solar) has been unstable, forcing the grid to rely more on coal-fired power, which has further pushed up prices.
3. Supply shortages: Many power generation units are undergoing maintenance, reducing the amount of electricity available in the market.
As a result, by the end of March, the spot electricity price in Guangdong soared from 0.31 yuan per kilowatt-hour to 0.678 yuan per kilowatt-hour, and in some periods in April, it even exceeded 1 yuan per kilowatt-hour. If companies buy electricity from power plants at the previous low prices or from the spot market, they lose more than 0.6 yuan per kilowatt-hour. This is no longer about poor management; it's about extreme fluctuations in the market pricing mechanism.
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The Truth Behind the Numbers: Wholesale Prices Break Through, and Long-Term Contracts Become Ineffective
To make it clearer, let's look at some key data:
- The industry's minimum price (long-term contract): 0.372 yuan per kilowatt-hour. This is the price set by the state or the market, and wholesale prices should not fall below this level to ensure a safety margin for power sales companies.
- Actual wholesale price trends:
- April: 0.37245 yuan per kilowatt-hour (barely above the minimum)
- May: 0.48343 yuan per kilowatt-hour (well above the minimum)
- June: 0.40134 yuan per kilowatt-hour (still above the minimum)
This means that power sales companies usually sign annual contracts at the beginning of the year for a relatively stable low price. They hope to use this cheap electricity to meet most of the demand and buy the rest from the spot market. However, in April to June, even the long-term contract prices exceeded the expected cost levels.
- For example, if you buy at 0.37 yuan and sell at 0.48 yuan, you might think you're making a 0.11 yuan profit.
- Wrong! The 0.48 yuan is the comprehensive wholesale price, which means the price power plants charge you is higher. Since retail prices are often lower due to competition, any profit is minimal. If customers buy from the spot market or if you don't have enough contracted electricity, the losses can be devastating.
In other words: The cost base has increased, but the potential for profit has been significantly reduced.
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Future Prospects: Can Things Get Better in the Second Half of the Year?
Many power sales company executives are hoping for a turnaround in the second half of the year:
1. Seasonal factors: Summer is the peak electricity consumption season, but it's also when prices are most volatile. If the weather is normal and renewable energy supplies are stable, and coal prices stabilize, spot electricity prices may drop.
2. Market adjustment: The current high prices are unsustainable, and power plants and grids will adjust supply. Once wholesale prices return to the 0.37–0.40 yuan range, profit margins might improve.
However, risks remain:
- International situations: If geopolitical conflicts continue, energy prices could remain high.
- Increased competition: With over 5,000 power sales companies in the country, competition in Guangdong is fierce. Smaller companies without financial strength or risk mitigation capabilities may be eliminated in this price war.
For consumers:
If you're a business user, be cautious when signing electricity contracts:
- Don't just focus on low prices: Some companies may offer very low prices in hopes of lower prices later on or because they're financially strained. If they go bankrupt, your electricity supply could be affected.
- Review contract terms: Check for price adjustment clauses or guaranteed electricity volume.
- Choose reputable companies: Companies affiliated with power generation or grid operators usually have more resilience due to their access to resources and channels.
In summary: The power market in Guangdong in the first half of 2026 was hit by a combination of rising costs and increased demand, leading to significant price fluctuations. For power sales companies, it was a brutal reshuffle. For consumers, it's a time to re-evaluate their electricity purchasing strategies. We'll continue to monitor whether the market can return to stability in the second half of the year.