Since the beginning of winter in December, a number of Chinese provinces have seen single-day electricity consumption break through historical records and gaps in power supply. Hunan, Jiangxi, Zhejiang, Inner Mongolia and other provinces have had to introduce restrictions on electricity consumption to ease the power supply crunch.
In the past 18 years, China’s power generation capacity has increased nearly seven times, but still once again, the power restriction measures have raised doubts. Some believe that the recent deterioration of relations between China and Australia and the imposition of import restrictions on Australian coal mines have led to this round of power restrictions.
However, data show that Australian coal accounts for a relatively small proportion of China’s power coal (coal for power generation) consumption, and the trade ban can hardly have a decisive impact.
However, analysis of the reasons for the tight supply and demand of electricity reflects the structural problems faced by China’s energy. And with the promise of “carbon neutrality by 2060,” it highlights the seriousness of the problem and the urgency of reform.
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What is the main reason?
Many provinces in China have had to pull the plug on electricity, and the main reason from the data is that demand has risen sharply, while supply has not been able to keep up and there is a shortfall in electricity consumption.
In Hunan province, for example, an official meeting held in early December disclosed that this winter, Hunan’s power supply broke through the supply limit, with a 3-4 million kilowatt gap.
Coal-fired power plant
Image source, Getty Images
On the demand side, industrial and residential electricity use is climbing in several provinces. Meanwhile, China enters a dry season at this time of year, when hydropower supplies are reduced.
With the epidemic raging, China, one of the few economies in the world to remain open for production despite the few impacts, has attracted a large number of international orders.
“From the end of August to the current state of burst orders, supply exceeds demand, orders are still in line, are scheduled to March and April next year,” said Deng boss of an insulation bottle manufacturing plant in Yiwu City, Zhejiang Province, “the end of August began to work overtime every day until more than 10 o’clock
Liang Xiaoling, general manager of the Trinx bicycle group brand, was quoted by Reuters as saying that a new wave of epidemics overseas has led to another wave of strong demand from September to December. He estimated that “Chinese bicycle [manufacturers] are taking orders until the third or fourth quarter of next year,” and that the company has already taken 70 to 80 percent of its orders for 2021.
The data also confirms the “order explosion” – China’s industrial value-added above-scale rose 7% year-on-year in November, not only hitting a high of more than a year and a half, but also exceeding pre-epidemic levels; exports performed even better, rising 21.1% year-on-year in November, a record high of nearly three years. The export performance is even better, with exports increasing by 21.1% year-on-year in November, a new high in the past three years.
Behind these figures are the ever-lengthening working hours of enterprises and the significant increase in electricity consumption.
At the same time, there was a sudden increase in residential electricity consumption, with frequent cold air activity in the first half of December, with many provinces experiencing average temperatures below those of previous years. Southern China is mainly heated by electrical appliances, unlike central heating in the north, so the low temperatures put more pressure on the power grid.
The combination of industrial and residential electricity consumption peaks has caused electricity consumption in many provinces to “explode”.
According to data released by China’s Development and Reform Commission, power generation in Hunan and Jiangxi both jumped by double digits in early December, 19.8% and 18.4% respectively, compared to the same period last year before the outbreak.
Is there a connection to the Australian coal ban?
With demand soaring, on the contrary, on the supply side, power generation could not keep pace. One of the key reasons for this is the imbalance between supply and demand for coal and price movements.
At one point in April and May, when the epidemic was at its worst in China this year, coal prices hit a low of 467 RMB. Since then, with the resumption of production in China, coal prices have moved all the way up, even recording a 58% increase of RMB 738 per ton in the most recent week.
Looking at the structure of coal used in China, it is still dominated by domestic coal. In the first November of this year, China produced 3.48 billion tons of raw coal and imported 260 million tons of coal.
Coal is one of Australia’s main export goods.
Image source, Reuters
Image annotated with text.
As a percentage, the import restrictions on Australian coal are likely to have a smaller impact.
Domestic coal mining is affected in the first place. This restriction occurs mainly in the southern provinces, with only Inner Mongolia in the northern provinces. Inner Mongolia happens to be the main source of raw coal in China. However, an anti-corruption investigation into Inner Mongolia’s coal system began in February this year, involving 410 cases.
In the first 10 months, Inner Mongolia produced 801 million tons of raw coal, down 10.4 percent year-on-year and 80 million tons less than in previous years.
Reuters quoted a commodities researcher in Tangshan, Hebei province, as saying that the gap between domestic coal supply and demand is now about 1 million tons a day. Inventories at the four major ports in the north are now low and have been de-stocking, and downstream inventories at southern power plants such as those in east and south China are also low, and inventories in all segments are low.
Domestic production is low, while China is also lowering coal imports as a whole. Among them, Australia dropped significantly, Refinitiv compiled ship tracking data show that Australia’s exports of coking coal and power coal to China in October was 3.35 million tons, only about a quarter of the 12.33 million tons in June.
The aforementioned researcher said, “The demand for power coal is more adequate by the end of the year, but the supply has restricted imports on the one hand, and domestic production on the other hand has not reached the level of last year.”
Therefore, the coal ban brought about by the Sino-Australian crossfire has some relevance to China’s now tight power supply, but in terms of proportion, the impact of the Australian coal ban may be limited.
China imports between 70 million and 80 million tons of coal from Australia each year, accounting for less than 2 percent of China’s total coal use, of which about 40 percent is also coking coal used for high-temperature smelting, and the remaining 40 million tons or so is power coal for electricity generation.
Chinese-supported coal plant in Serbia
Image annotated with text.
China is funding a large number of coal projects in countries far away from its home country. In addition to Australia, China imports coal from a number of countries.
Structural Power Shortages Resurface
This round of power restrictions reveals a deeper problem in the energy mix.
In fact, “pulling the plug” is not new in China; there was a serious power supply shortage in 2008, but the main cause was the southern snowstorm.
Earlier, more serious was in 2002, the implementation of “pulling the plug” of the provinces and regions reached 12. At that time, the main difficulty faced was that overall power generation could not keep up with the strong economic growth.
Since then, China’s power generation has soared along with economic growth, increasing nearly sevenfold.
In recent years, China has been pressured by environmental protection to slow down the construction of thermal power plants, shut down a large number of small coal mines, and increase the proportion of clean energy. In Hunan, for example, hydropower accounts for more than 30% of the province’s installed capacity.
Tiananmen Square in the haze
Image source, Getty Images
Image captioned with text.
The Chinese government wants to replace coal with clean energy to solve the air pollution problem.
But the greater use of clean energy relative to thermal power plants has weakened the ability to cope with winter power peaks.
Southern China is rich in hydropower resources, but during the dry winter months, hydropower generation is difficult to match in the summer, while wind and solar power, unable to instantaneously ramp up generation, cannot afford the sudden arrival of electricity loads.
Chinese President Xi Jinping announced at the United Nations General Assembly this year that China’s carbon dioxide emissions are striving to become carbon neutral by 2060, while also committing to peak by 2030. This means that fossil energy consumption, including coal, will be under pressure from now on.
China’s energy supply is thus caught in a dilemma – relying on coal to generate electricity to cope with winter peaks, but the commitment to reduce emissions means having to reduce coal and increase the proportion of clean energy.
Some experts believe that the way out is to carry out market-oriented reforms in the field of electricity, through capacity compensation mechanisms, construction of capacity markets and other economic means to guide the power market “peak and fill the valley”, otherwise, as the proportion of clean energy continues to increase, the sudden arrival of the electricity load caused by the systemic “power pulling” is difficult to avoid.
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