(Yicai) Jan. 26 -- A number of Chinese biomass power and heat generation companies are at risk of shutting down as the price of the agricultural and forestry waste that they use to generate electricity surges and government subsidies are withheld.

Fifty-four biomass power and heat generation firms, out of the more than 500 in the country, told authorities last month that they are experiencing a cash flow crisis. They have not received government subsidies for four years, amounting to a shortfall in income of around CNY14.4 billion (USD2 billion). Twenty-six of them provide heating services to 1.3 million households.

Many of the biomass power and heat generation firms that Yicai visited in Jiangsu, Jilin and Heilongjiang provinces have already been shuttered and many others only have enough organic matter to last for another 10 days.

“My biomass power and heat generation plant has been closed for over a month now,” said owner Xu Rongchao. The company, which is the biggest of its kind in Zhenjiang, eastern Jiangsu province, has a funding gap of as much as CNY30 million (USD4.1 million) and several suppliers are starting to claim assets in return for the raw materials supplied to the power station.

Raw material prices account for between 60 percent and 70 percent of a biomass power plant’s operating costs, but the price of organic scrap, such as straw and wood, has been rising in recent years, a source at the China Association for the Promotion of Industrial Development said.

Straw now costs CNY280 (USD40) a ton, whereas in 2016 it cost CNY200 (USD28) per ton, Leng Dawei, a distributor of biomass fuel, told Yicai.

These power plants are highly dependent on state subsidies. Before 2019 they would receive full state subsidies each year, but since the second half of 2019, these grants have not been paid in full, company sources told Yicai. In the past four years, many businesses have only received less than half the normal subsidy.

And the situation could get even worse as a new draft policy is currently in circulation which, if it comes into force, would reduce the subsidies to biomass companies even further. And few banks will lend them funds over concerns about their ability to pay them back.

Biomass power companies can find new sources of income by branching into green electricity trading, carbon emission reduction schemes and other market mechanisms, but at this stage, many need government support to survive, an insider at a Jiangsu province-based industry body told Yicai.

Editor: Kim Taylor