By Alfred Cang
September 27, 2021, 6:34 PM GMT+7
People
purchase food from a roadside vendor in the Futian district of Shenzhen. A
power crunch across China has rippled from factory floors to homes and even
traffic lights in some places, leading economists to cut their growth forecasts
for the world’s second-largest economy. The shortages mirror tight energy
supplies in Europe and elsewhere that have roiled commodity markets, as well. Part of the
problem is that the economic rebound after Covid lockdowns has boosted demand,
while lower investment by miners and drillers has constrained production. But
the crisis in China is partially due to its own environmental agenda, as
President Xi Jinping’s vision of de-carbonizing the economy discouraged the
burning of coal, a cheap energy source that subsidized its economic growth for
decades. 1. Why can’t China meet its power
demand? Mainly
because it’s short of coal. Coal-based producers account for
more than 70% of the country’s electricity generation, but Xi’s push to reduce
greenhouse gas emissions and go “carbon neutral” by 2060 has capped the growth of
coal mining. Demand for power from Chinese factories soared as orders from
overseas mounted, but utilities were unable to buy enough fuel after prices
surged. China’s coal production grew by 6% in the first eight months this year,
but the power output from coal-fire generators surged 14% in the same period,
leading to a decline in coal inventories. Certain northern areas also need to
reserve enough coal for the upcoming winter heating season, which is worsening
the current shortage. 2. Why didn’t the government ask coal
mines to dig more? Actually
they did, but it’s not that quick or easy. The National Development and Reform
Commission, the country’s top economic planning agency, has urged producers to secure supplies. But any new
or reopened mines also have to meet tighter environmental standards and
workplace safety rules under Xi’s green push and following a spate of deadly accidents. Complicating things further is
that, since China set goals to lower coal’s share of overall energy
production, some financial institutions have stopped funding the business. 3. Why doesn’t China import more
coal? China
traditionally has been a major importer. But it stopped buying the highly
energy-efficient Newcastle grade from Australia starting last year amid a political dispute between the once-close trading
partners, leading to sporadic shortages. That tension isn’t likely to ease as
U.S. President Joe Biden seeks to rally allies, including Australia, to counter
Beijing’s influence across the Indo-Pacific region. Rising purchases from
Indonesia helped make up for the missing Australian coal this year, but energy
demand in Southeast Asia’s biggest economy also soared, and increases from
other sources are in doubt. Mongolia, China’s resource-rich neighbor, sold less
coal this year partly due to China’s strict border controls to prevent the
spread of Covid-19. 4. Can China use more renewable
power? It’s
been gradually lifting the share of energy derived from carbon-free sources and
plans to reach 20% by 2025. But the power crunch in China (as well as Europe) has exposed some of the disadvantages of
relying on renewable sources such as wind and hydro. For instance, a late start to the rainy season reduced
hydropower generation in China’s southern provinces this year, forcing power
rationing. A sudden reduction in supplies from wind farms was
blamed in part for shortages in northeastern China, where some homes lost power
and traffic lights didn’t work over the last weekend in September, causing
chaos on the roads. Rising Renewables China
is lifting the share of its energy it gets from carbon-free sources Source:
National Bureau of Statistics 5. How common is the problem? Rationing
is actually normal in China, especially for factories. Local power grids
sometimes schedule cuts to manufacturing hubs to prioritize urban customers
during peak periods. The rationing of residential and public services in some
northeastern provinces in late September, even after curbs to factories,
highlighted the tight supplies. 6. Are Chinese power plants willing
to produce more? A
lot aren’t because they are swamped with operating losses. Coal prices are
soaring to unprecedented levels, but the prices utilities can charge customers
are largely controlled by the government. Even some of China’s most efficient
power plants are losing money, state-run China Energy News reported in September. Some local governments,
such as the southern provinces of Guangxi and Guangdong, have started adjusting the pricing
mechanism to allow electricity suppliers to receive additional fees
from the clients, according to industry publication bjx.com. 7. What would higher electricity
prices mean for the economy? Millions
of producers that relied on cheap and stable power supplies for decades would
not be happy. In the short term, it might further push up factory gate
inflation, which reflects the changes in prices producers charge to
wholesalers. That index hit a 13-year high in August, mainly driven by higher
commodity prices. The Chinese government has sought to keep such inflation pressures from dampening the economic
recovery, with so far limited effect. 8. Will China abandon its climate
goals? Not
likely. The People’s Daily, a Communist Party mouthpiece, blamed poor planning by local governments for the
power cuts, arguing that the guidelines and targets for limiting energy
consumption had been in place for almost six years. In any case, the party is
going to convene in November to lay the ground for a
twice-a-decade party congress in 2022. A key agenda item of this meeting -- at
which Xi is expected to be given an unprecedented third term -- will be
reviewing the party’s major achievements over its 100-year history. Xi’s
carbon-neutral pledge, which he renewed at the United Nations General Assembly
meeting in September, should have a prominent role. The Reference Shelf — With assistance by Dan Murtaugh, Stephen Stapczynski, Lin
Zhu, and Jing Li
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