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An outbreak of electricity shortages has taken China’s government by surprise, exposing cracks in the country’s energy policies and economic recovery plans.
The first signs of trouble in the energy sector emerged in November as electricity consumption jumped 9.4 percent, spurred by rising industrial production and the start of the winter heating season, as power generation rose only 6.8 percent.
In early December, power demands in southern China’s Hunan province led State Grid officials to warn that shortfalls would last until spring, according to state media.
Since then, unusually cold weather has combined with low coal supplies and recovery strains to produce a range of energy shortages in southeastern Jiangxi and eastern Zhejiang provinces as well as Inner Mongolia.
Power loads on 20 provincial grids have been rising at double-digit rates, Reuters reported this week.
Officials have cited a series of contributing factors that have come together at the same time to stretch supplies thin.
In the Hunan capital Changsha, a local power official blamed the shortages on a drop in coal inventories, low water levels for hydropower, decreased power supplies from other regions and wind power problems in freezing conditions, Yicai Global news reported on Dec. 16.
In response, provincial authorities ordered rationing and a range of restrictions on consumption to prioritize power supplies for homes.
Measures have included shifting factory production to off- peak hours, shutting down elevators, cutting outdoor lighting and banning the use of dual-purpose air conditioners for office heating unless temperatures fall below 3 degrees Celsius (37.4 degrees Fahrenheit).
In Zhejiang province, steel mills have reduced or suspended operations while processing plants were required to stop production from Dec. 17 until the end of the year, Shanghai Metals Market news said.
On Dec. 19, Lin Boqiang, director of Xiamen University’s China Center for Energy Economics Research, said the power supply would be stabilized in “one to two weeks,” the Communist Party tabloid Global Times reported.
On Dec. 28, the National Development and Reform Commission (NDRC) said provincial rationing had eased. But the government’s planning agency also outlined new measures to boost supplies of gas, coal and power.
The National Meteorological Center renewed an orange alert for another cold snap in central and eastern parts of the country, raising its warning to the second-highest level on Dec. 29.
The Global Times stressed that the shortages had “nothing to do” with the government ban on Australian coal imports, which was aimed at punishing Canberra for a series of policy disputes ranging from 5G technology access to territorial claims in the South China Sea.
But the contribution of the coal ban to shortages could not have come at a worse time for China as the government has been whipsawed by conflicting agendas and forced to take conservation measures while it has hailed higher electricity consumption in some provinces as a sign of recovery from COVID-19.
The NDRC was caught offguard by the shortage crisis, which has pumped up coal costs and boosted Asian spot prices of liquefied natural gas (LNG) fivefold.
China’s benchmark coal prices have climbed to an eight- year high, while spot LNG prices are the highest in six years, Reuters said.
Stability assurances
On Dec. 21, NDRC Secretary General Zhao Chenxin told a press conference that the electricity supply was “largely stable” and that household consumption had not been affected.
“In general, please believe that our ability to ensure stable energy supply is not a problem,” said Zhao, according to The New York Times.
But the plea for credibility hardly seemed adequate to address the policy contradictions between stimulus-driven consumption and winter shortages.
The argument that the power crisis resulted from a confluence of worst-case factors is also unlikely to hold water with industrial interests and household consumers, since the NDRC is charged with taking such circumstances into account.
The NDRC has a history of aggravating or creating winter energy shortages as a result of planning and policy mistakes.
In the winter of 2017-2018, many homes, schools and factories were left in the cold when the NDRC tried to ban coal for heating in northern cities before gas and electricity networks were built.
In late 2010, the NDRC also cut power supplies to homes, factories and hospitals in an effort to meet the government’s five-year energy efficiency targets. The agency apologized for its actions in both episodes and promised that such shortages would not happen again.
In the latest crisis, Zhao’s qualified assurances came three days after the State Grid Corp. announced an eight- point plan to address the power supply problems, including an increase in transmission capacity.
But transmission capacity is not the source of China’s power problems, said Philip Andrews-Speed, senior principal fellow at the National University of Singapore’s Energy Studies Institute.
“There are probably enough wires,” Andrews-Speed said, citing the 22 ultra-high voltage (UHV) lines that have already been built as of June of this year.
Organization and policy problems are likely to be more important factors in addressing the provincial power shortages.
“As many have remarked over the past years, the system still works on the basis of agreeing annual sales, and provinces are generally reluctant to agree large imports that undermine their own power industries,” Andrews-Speed said.
“Given that there is an overall surplus of generating capacity, if China had a nationwide system to transmit electricity across the country at short notice, these local shortages could be resolved,” he said.
The future of coal
It is unclear whether the electricity shortages will affect the government’s decision on whether to allow more coal-fired power plants to be built during the next five years.
Environmental advocates have urged the government to stop new coal projects from going forward immediately in order to keep President Xi Jinping’s pledge in September to reach a peak in carbon emissions by 2030 and achieve “net zero” emissions by 2060.
Despite years of overcapacity and low utilization rates, China commissioned 21 gigawatts (GW) of new coal-fired generation in the first eight months of 2020, the Paris-based International Energy Agency (IEA) said in its annual coal report released this month.
Over 100 GW of new coal projects are in various stages of development, the IEA said. In the first three quarters of the year, 27 GW of new capacity was approved, a sharp increase over the 8 GW allowed in 2019, according to the report.
The new plants have been largely driven by provincial and local governments seeking to promote economic stimulus projects to provide employment, whether they are profitable or not.
The rash of provincial power shortages may support local arguments that more plants need to be built in the near term, regardless of Xi’s climate targets for 2030 and 2060. But the central government’s policy on new projects may not be known until it releases its 14th Five-Year Plan for 2021-2025 in March.
Xi’s “dual-circulation” strategy is also likely to weigh on the decision, since it relies on domestic consumption as the prime mover of economic growth.
“As usual, there is a tension between economic growth and energy use with carbon emission reduction. This will be exacerbated by the dual-circulation policy and calls to boost domestic energy production,” Andrews-Speed said.
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