China hit by power cuts and factory closures as energy crisis bites

The world’s top coal consumer implements power rationing as supplies dwindle ahead of winter

Chinese state media says 20 provincial jurisdictions have implemented electricity rationing measures since mid-September. Photograph: Leo Ramirez/AFP/Getty Images

Peter Beaumont and agencies-Wed 29 Sep 2021 

China has told railway companies and local authorities to expedite vital coal supplies to utilities as the world’s second largest economy grapples with extensive power cuts that have crippled industrial output in key regions.

As many as 20 provinces are believed to be experiencing the crisis to some degree, with factories temporarily shuttered or working on short hours. Shopkeepers were left to light their stores by candles, and there were reports of mobile networks failing after a three-day outage hit three north-eastern provinces.

Growing alarm among residents at the power crunch, now in its second week, comes as China’s state planner – the National Development and Reform Commission (NDRC) – formally urged local economic planners, energy administrations and railway companies to beef up coal transportation to meet demand during the winter season. China is the world’s biggest consumer of coal-powered energy.

“Each railway company should strengthen coal transportation to power houses (utilities) with inventory of less than seven days and launch the emergency supply mechanism in a timely manner,” said the NDRC.

According to the South China Morning Post, quoting analysis by Sinolink Securities, stocks of coal used to generate electricity – held by the nation’s six biggest power-generation groups – stood at a record low of just 11.31m tonnes as of 21 September – enough to produce power for 15 days.

The energy crunch has been driven by a series of complex overlapping factors which have combined to create a perfect storm in an economy which relies on coal for 56% of its power.

Trying to reduce its emissions to become carbon neutral by 2060, the Chinese economy has lagged behind in improving energy efficiency even as coal production has slowed because of new regulations.

On top of that, the rebound in demand for goods from Chinese factories as the world reopens after the Covid-19 pandemic – a factor facing other economies – has left coal production unable to keep up with the demand for energy from factories.

With thermal coal futures in China hitting an all-time high of $212.92 per tonne earlier on Wednesday, the rising prices have put further pressure on power utilities unable to recoup added fuel costs.

 

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According to an analysis paper by S&P Global on Wednesday, the issues have been exacerbated by China’s own attempts to intervene in the crisis which it described as a “tinderbox of issues”.

“China’s latest measures to cap energy consumption have been widely blamed for causing the current power crisis, but the curbs more likely ignited a tinderbox of issues accumulating for months around soaring fuel prices and coal shortages, highlighting the difficulties in implementing energy policy in the context of a huge economy with numerous moving parts.”

The problems have been most acute in the three north-eastern provinces of Liaoning, Jilin, and Heilongjiang with local authorities in Shenyang, the capital of Liaoning province, warning of “the collapse of the entire grid” if power wasn’t rationed.

“If there’s a power cut in the winter then the heat stops too,” said Fang Xuedong, 32, a delivery driver in Shenyang, about a 90-minute flight north east of Beijing.

“I have a kid and an elderly person at home, if there’s no heat then that’s a problem.”

China, the world’s top coal consumer imported a total of 197.69m tonnes of coal in the first eight months of 2021, down 10% year-on-year. But August coal imports rose by more than a third on tight domestic supplies.

Officials this week have repeatedly sought to assure people there will be power for household use and heating as winter approaches.

But since last week, power rationing has been implemented during peak hours in many parts of north-eastern China, with news reports and social media posts showing outages of traffic lights and 3G communications networks in the region.

China is considering hiking industrial power prices to ease the supply crunch, Bloomberg news reported on Wednesday, citing unidentified sources.

The NDRC said later on Wednesday the government would not stop electricity prices from floating within a reasonable range and would let them reflect market fundamentals and changes in cost.

The curbs also continue to affect heavy industry, such as metal production, and manufacturers.

An internal document from a large technology components maker in China reviewed by Reuters said more than half its daily production in Kunshan, in the eastern industrial province of Jiangsu, had been suspended since earlier this week.

Meanwhile in Foshan, in southern China’s bustling province of Guangdong, the company was only allowed to produce late at night and in the early morning from mid to late-September, according to the document, which said manufacturers were “ambushed” with the new restrictions.