A thermal power plant of privately-owned Weiqiao Pioneering Group in East China’s Shandong Province has been shut down by the local government days after the company sold it to a State-controlled investment company.

Weiqiao Pioneering, which ranks 440th in the Fortune 500 list released by the Fortune magazine Monday, decided to sell its thermal plant in Binzhou, Shandong Province on June 15 to China Zhonghai Investment (Group) Co for 698 million yuan ($109 million), with only 2.22 million yuan earned from the deal.

On July 4, the local government decided to shut down the power plant and announced that residential buildings will be built on the site, in order to cut emissions and protect the environment in the area.

Media reports said that the Shandong-based company had previously provided electricity to local businesses and households at a price nearly one-third lower than the State-owned grid companies.

A 21st Century Business Herald report in May said that there have even been conflicts between Weiqiao and local grid companies because Weiqiao was providing much cheaper electricity to local households.

“Electricity from Weiqiao is priced at 0.6 yuan ($0.09) per kilowatt hour, 0.2 yuan cheaper than that from State Grid,” said the 21st Century Business Herald report, citing a manager of a local restaurant.

Some netizens said that the case underlines the difficulties private companies are facing in getting a foothold in the energy sector, and that the energy sector should be further opened to private businesses.

“Of course the households want cheaper electricity, but it is still not legal for companies to transmit electricity directly to households. And there are also problems in terms of environmental protection and safety,” Qilu Evening News, a local newspaper in Shandong Province, reported, citing an official from the National Development and Reform Commission.

At present the country’s grid system is still dominated by State Grid, and media reports said that the government is now considering opening the grid sector to private companies, which may be allowed to take part in electricity transmission in rural areas.

But Lin Boqiang, director of the Center for Energy Economics Research at Xiamen University, said that it is unclear if private companies are willing to enter the power distribution sector, given that the country’s power prices are still set by the government, which means profits can not be guaranteed.

“A pilot scheme is needed before private investors are allowed to enter the grid system,” said Lin.

Weiqiao Pioneering now has 1,410 megawatts of installed capacity of thermal power generation, according to a company statement on June 15, but the company told the Global Times that it would not provide power to the public any more.

“Electricity generated will be used to support our production,” an executive from the company told the Global Times.

By the end of 2011, 179 companies in Shandong Province had built their own power plants in order to cut costs, according to Qilu Evening News.

Lin of Xiamen Universiry noted that before private capital is allowed into electricity transmission, companies can choose to sell the extra electricity they produce to State Grid.

By Liang Fei