Why COVID is affecting China’s energy rations
On Wednesday, a man uses his smartphone lamp to light his bowl of noodles while eating breakfast at a restaurant during a power outage in Shenyang, northeastern Liaoning Province. China). People ate breakfast by flashlight and traders used portable generators as power cuts imposed to meet official conservation goals disrupted manufacturing and daily life. // AP, Olivia Zhang
Updated October 1, 2021 at 7:31 a.m.ET
BEIJING – Here’s a conundrum: China has more than enough power plants to meet the demand for electricity. So why do local governments have to ration power across the country?
The search for an answer begins with the pandemic.
“Coal consumption skyrocketed in the first half of the year due to a very energy-intensive and industry-driven recovery from COVID-19 lockdowns,” said Lauri Myllyvirta, chief analyst at the Center for Research on Energy and Clean Air in Helsinki.
In other words, as China’s export machine came to life, energy-hungry factories were producing fast fashion appliances and home appliances for customers in the United States and elsewhere. Regulators have also relaxed controls on coal-intensive sectors such as the steel industry in order to recover from the economic slowdown caused by the pandemic in China.
Today, the price of thermal coal has tripled on some commodity exchanges. About 90 percent of the coal used in China is mined domestically, but mining volumes in some of China’s northern provinces have fallen by as much as 17.7 percent, according to respected Chinese financial magazine Caijing.
Normally, these higher coal prices would have been passed on to energy consumers. But electricity utility rates are capped. This lag has pushed power plants to the brink of financial collapse, as rising coal prices forced them to operate at a loss. Earlier this month, 11 Beijing-based power generation companies wrote an open letter asking a central decision-making body, the National Development and Reform Commission, to increase electricity tariffs.
“When coal prices are very high, what happens is that it is not profitable for many coal-fired power stations to generate electricity,” says Myllyvirta.
The result: Coal-fired power plants simply shut down.
“Now in some provinces up to 50% of coal-fired power plants either pretend to be out of order or are so short of coal that they cannot produce,” he said. About 57% of Chinese electricity comes from the combustion of coal.
Traffic jams and closed factories
In northern China, sudden power outages resulted in flashing traffic lights and massive traffic jams. Some cities have said they are closing elevators to save energy. To fight against the cold autumn, some inhabitants burn coal or gas inside; 23 people were rushed to the northern hospital in Jilin City with carbon monoxide poisoning after doing so without adequate ventilation.
In the south, the factories have been cut off from electricity for more than a week. The lucky ones are rationed three to seven days of electricity at a time.
Energy-intensive sectors like textiles and plastics face the most stringent electricity rationing, a measure intended to alleviate both current shortages but also to work towards long-term emission reduction targets. China’s latest five-year economic plan targets a 13.5 percent reduction in the amount of energy used to produce each unit of gross domestic product by 2025.
Ge Caofei, manager of a textile dyeing factory in southern Zhejiang province, said the local government was rationing electricity by cutting off its electricity three days out of ten. He says he’s even considered buying a diesel generator, but his factory is just too big to be powered by one.
“Customers need to plan ahead when placing orders because our lights are on for seven days and then off for three days,” he says. “This policy is inevitable because each [textile] the factory around us is under the same ceiling. “
Rationing delays supply chains
Power rationing has created long delays in global supply chains that depend on Chinese factories.
Viola Zhou, sales manager of Zhejiang Cotton Textile Printing Company Baili Heng, said her company fulfilled orders within 15 days. Now the waiting time is around 30-40 days.
“There is no way around these rules. Let’s say you buy a generator; regulators can easily check your gas or water meter to see how much resource you are consuming,” Zhou said by phone from Shaoxing, a city known for its textile industry. “We can only follow in the government’s footsteps here.”
China is reforming its energy grid so that power plants have more flexibility in how much they can charge. Some of these higher electricity costs will be transferred from factories to global consumers. In the long run, electricity rationing underscores the urgency of renewable energy and natural gas projects.
The National Energy Policy Commission said this week it is working to stabilize medium and long-term coal contracts between mines and power plants and will reduce the amount of coal that power plants must keep on hand, in order to alleviate the financial pressure on the sector.
More immediate problems loom as winter approaches. About 80% of heating in China is coal. Getting power plants to operate in the red could be a challenge.