A worker inspects solar panels in Gansu Province, China, September 16, 2013. Carlos Barria/REUTERS China has approved the merger between its biggest coal producer Shenhua Group Corp, and one of the top five state power companies, China Guodian Corp, in a deal that would create the world's largest power company by installed capacity and with assets worth $271 billion (1.8 trillion Chinese yuan).

China's State-owned Assets Supervision and Administration Commission issued on Monday a one-line statement that it has approved the merger, which is part of the Chinese government's efforts to streamline power operations and reduce the number of state-owned enterprises.

The new company resulting from the merger is expected to be named National Energy Investment Corp.

According to Bloomberg New Energy Finance, the generation capacity of the new energy behemoth will be 77% coal-fired, 14% wind power, 8% hydropower, and 1% solar power generation capacity.

Back in June, Bloomberg reported that Shenhua and Guodian were in talks to merge, quoting people familiar with the situation.

Talk of the possible merger has been circulating for several months.

Earlier this month, Wood Mackenzie said in a report that Shenhua and Guodian had reportedly submitted a merger proposal to authorities for review. If given the green light, the merger would create the world's largest power utility, with installed capacity exceeding 225 GW, as well as the biggest wind power developer—with 33 GW of capacity, and the largest coal producer, WoodMac said.

According to the energy consultancy, Shenhua could diversify its fuel mix toward cleaner energy, while Guodian could benefit from Shenhua's lower-cost coal and integrated transportation infrastructure, and more importantly—from cutting its debt using Shenhua's cash.

"The union of coal and utilities means both Shenhua and Guodian will balance their risks from commodities, but it will not necessarily boost its profit level," Li Rong, power analyst with SIA Energy, told Reuters.

Analysts expect other mergers to follow in the Chinese power generation sector as Beijing aims to cut inefficiencies and debts across its state power companies.