According to Nikkei Asia, as it recovers from the pandemic, China’s electricity consumption soared significantly due to the necessity to satisfy orders from other countries. As a result, China is experiencing a severe power deficit at this critical time.
In addition to rising electricity demand, the Chinese Communist Party’s (CCP’s) campaign to reduce emissions and a sharp decline in coal supply are two reasons for this power crisis.
Coal supply shortage
The crisis began at the end of September when many parts of China began to experience severe power shortages. As a result, the CCP implemented large-scale power cuts to factories and households. As textile, steel, and other factories closed and production fell, a domino effect disrupted global supply chains.
The area with the worst power outages in the past few weeks is Liaoning province, northeast China. A power plant worker said he had never seen anything like it in his 20 years working there.
This person also told Caixin on Sept. 26 that their plant is losing money for every kW/h of electricity produced and that the coal is only enough to run for two days.
Hunan province also cut off power to high-rise buildings, billboards, and similar structures. On Sept. 22, the State Grid Co. Hunan branch warned that the coal supply is only enough for nine days.
Most areas in China are short of coal. Data from industry portal cctd.com.cn showed that as of Sept. 27, thermal coal inventories in China’s eight most developed provinces reached 18.29 million tons, down 30% from a year ago.
Coal prices hit record highs
China ordered railway companies and local governments to improve the efficiency of coal transportation to power plants on Sept. 29. Due to power disruptions in vital areas, China’s industrial activity has come to a halt.
The extremely high coal prices result from a direct conflict between tightening coal supplies to meet stringent emissions requirements and growing Chinese production demand.
The price of thermal coal futures in China hit an all-time high of $212.92 per tonne on Wednesday, Sept. 29. Rising coal prices have put additional pressure on power companies as they cannot cover the increased fuel costs.
Chinese officials this week have repeatedly sought to reassure people that they will have electricity for home use and heating as winter approaches.
China’s electricity usage has increased by 10% since the beginning of the year, as companies cranked up production to meet surging demand from outside.
Although the world condemns the CCP for its behavior of spreading the pandemic and is suspected to be the country that created the virus, China still receives orders from other countries.
While other countries’ economies were contracting, China’s total export value reached a new high of $2.1 trillion from January to August, a rise of 23.2% over the same period last year.
Energy usage also exceeded forecasts as a result of the increase in exports. As a result, China’s electricity consumption climbed by 13.8% in the first eight months of the year, exceeding the growth rate of power generation by 2.5 percentage points.
The worst power outages
Liaoning province authorities issued a Level II orange alert for severe power shortages on Oct. 11. The province’s most serious electrical shortfall was 4.74 million kilowatts. The area has issued an orange alert for the seventh time in two weeks.
China has faced the threat of catastrophic power shortages in recent years, but such widespread and long-term power outages are uncommon.
According to a State Grid employee, power outages hurt people’s lives and are the last resort in an emergency.
Power shortages in Guangdong reached 10% as the province’s energy consumption reached a new high of 141 million kilowatts at the end of September, up 11% from last year’s peak.
In comparison to 2020, Beijing wants to cut national energy consumption per unit of GDP by 13.5 percent by 2025.
The Zhejiang energy bureau said the province would replace some energy-intensive industries with new, more energy-efficient businesses in late September.
Some industries in China consume a lot of electricity but are not economically efficient. For example, the eight sectors with the most significant demand for energy, including textiles and dyeing, account for 43% of the electricity consumption of the province but only contribute 13% of economic output. Therefore, the CCP wants to convert them.
The steel industry is an example. According to China International Capital Corp., the National Development and Reform Commission has barred 19 provinces, accounting for 53% of the total, for failing to satisfy energy control targets for total steel production.
Anshan Iron and Steel Group manager in Liaoning said production restrictions would force steel companies to switch to more premium products.
Zhang Xiaogang, an adviser to the China Metallurgical Industry Planning and Research Institute, said China’s steel industry is significant but not strong enough. Export output is high, but some highly sophisticated steel products still have to be imported.
Under pressure from energy targets and capacity cuts, China’s crude steel output fell 13.2% in August to 83.2 million tonnes.