Hydropower generation has increased as water levels of the country's hydro lakes continue to rise, but sluggish thermal power supply means electricity shortages are set to continue through summer.

Demand had not eased because of the latest power price hike, but hydropower supply has been boosted due to recent heavy rains, said Xue Jing, director of the Statistical Department of China Electricity Council (CEC) on Friday.

However, it's only a temporary relief and it won't alter the previous forecasted shortage of a 30 million kilowatt (kw), according to sources with the State Grid Corp. of China (SGCC) who declined to be named.

Just weeks ago the middle and lower parts of the Yangtze River basin lay parched from a searing drought and many hydropower turbines -- lacking water to drive them sufficiently -- were switched off.

In a matter of days the situation was turned around. Downpours hit the region causing floods that quickly raised the levels of hydro lakes.

SLUGGISH THERMAL POWER PERFORMANCE

China's top five thermal power generators reported 12.16 billion yuan of losses in the first five months, up 7.86 billion yuan (1.21 billion U.S. dollars) from a year earlier, according to the CEC.

Soaring coal prices were the main reason for the losses, according to the CEC.

Thermal power generators now report 0.05 yuan of losses per kilowatt-hour (kwh) despite the recent hikes, said Zhang Shumin, chief engineer with China Guodian Corporation on Friday.

China raised power prices despite the risk of exacerbating the country's inflation problem. The Consumer Price Index (CPI), a major gauge of inflation, rose to 5.5 percent in May, well above the government's target ceiling of 4 percent for the year.

The National Development and Reform Commission (NDRC) in late May raised electricity prices for industrial, commercial and agricultural users in 15 provinces and municipalities by 16.7 yuan per 1,000 kwh.

However, it has not raised power prices for residential users.

The move aimed to check growth of energy-intensive sectors and ensure power supply for residents, according to the NDRC, the country's top price regulator and economic planner.

Zhang said further power price hikes were not likely in the second half year if inflation continued to run high.

PRICING MECHANISM UPGRADE NEEDED

The best way to solve the problem was to implement an efficient power pricing mechanism, said Lin Boqiang, director of China Energy Economy Research Center with Xiamen University.

The market should be at the center of power pricing, he said.

Xie Jun, an analyst with GF Securities, said coal prices climbed 40 to 50 percent last year, but power prices have remained almost unchanged.

Some power plants have sat idle, with their operators claiming they were being overhauled, to avoid losses in production due to climbing coal prices and relatively low power prices.

About 85 percent of the nation's power came from thermal power plants in the first quarter, according to the NEA.

Regional imbalance also contributes to the power problem with heavy consumption in the east and rich supply in the west.

The power shortfall is regional since provinces like Guangdong, Jiangsu and Zhejiang rely heavily on energy-guzzling industries for economic growth, China Energy Network's Chief Information Officer Han Xiaoping said.

Huge power demand from energy-intensive sectors burdens power supply.

The problem did not reveal itself last year as many factories cut output to meet the central government's target of saving energy and reducing emissions for the 11th Five-Year Plan period (2006-2010).

But this year, the country has seen a sudden revival of the energy-guzzling sectors and a huge demand for power, said Lin Weibin, deputy director with the Chinese Energy and Strategic Resources Research Center, Beijing Normal University.

THE POWER CRUNCH

Jiangsu, a key manufacturing base in eastern China, forecasts about 11 million kw of power shortages this year, which is possibly the worst in the country. About 68,000 enterprises in the province will have to suspend production during busy hours.

Already there is a significant shortage of power in 26 provinces and municipalities, according to the SGCC.

Power consumption restrictions have been introduced in eastern and central regions, to ensure power supply for residential homes, hospitals, schools and other sectors key to public interests and state security.

The 30 million kw of power shortages predicted for this summer is the worst ever, according to the SGCC.

The power crisis will worsen to about 50 million kw of shortages in 2012 and 70 million kw in 2013 if effective reforms are not made, according to the SGCC.