According to a public statement to the Shanghai Stock Exchange, China Yangtze Power Company plans to buy a 45 percent stake in Hubei Provincial Energy Group Co. for 3.1 billon yuan.
The move will diversify the firm's power-generating structure and boost growth in the long run by increasing its output, the company said.
Yangtze Power will gain about 2.01 million kilowatts of installed capacity through the acquisition, the Beijing-based firm said.
Analysts said the hydropower giant needed to strengthen its fire-powered electricity generating capability to enrich capacity.
"The firm's strength is hydropower capacity. But hydropower has its peak and low seasons. Given this, it is natural the energy powerhouse would diversify its capacity structure," said Han Xiaoping, executive vice-president of Beijing Falcon Pioneer Technology Co Ltd.
Yangtze Power made clear that it was buying Hubei Energy because the local company had not only hydropower but also fire-powered capacity: "The investment will help the company avoid operational risks caused by natural conditions.
"Another reason leading to the deal is that Hubei is an important market close to Yangtze Power's capacity."
Hubei Energy owns 5.38 million kilowatts of power capacity, of which 2.33 million kilowatts are in operation and 3.05 million kilowatts are under construction.
According to Han, it is inevitable Chinese energy giants will consolidate their position and power by seeking mergers and acquisitions (M&As) this year.
"As long as these M&As can fit the companies' profitability requirements, these deals can play positive roles in reshuffling and consolidating regional power capacity layout," Han said.
In an earlier interview with China Daily, Cao Guangjing, vice- president of Yangtze Power's parent company, said the firm is always seeking suitable power assets around the country to boost its portfolio and improve profitability.
In another statement, Yangtze Power, operator of the world's biggest hydropower project, the Three Gorges Dam, said 2006 profit rose 8.3 percent to 3.62 billion yuan.
Bloomberg reported the firm's sales fell 4.7 percent to 6.92 billion yuan, according to its preliminary earnings statement. It did not elaborate as to why sales had dropped.