The CCA Newsletter is summary of articles about the Asia Business environment. This issue “Coal Consumption: To be or Not to be” is Part 1 of 3 of a series about China Power Crunch. Please follow-us on Linkedin for more.
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China Power Crunch (PART 1 OF 3):
Coal Consumption: To be or Not to Be
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Since mid-September 2021, China was overwhelmed by unexpected electricity cuts. It has been very different compared to past practices in the last decades which advance scheduled notices would be given to manufacturing sectors (especially for those in continuous process industries) while household usages would not be affected. Moreover, the electricity rationing would normally take place in the summer when there is higher power consumption.
However, the power cut that happened this September was considered to be during the off-peak period. The situation went sour because most of the shutdown were not provided advanced notices. As a result, not only did manufacturing encountered big disturbances in this production peak season, a number of accidents were reported because of unexpected power cuts (e.g. smeltery workers caught gas poisoning as a result of ventilation utilities stopping during the production process).
In addition, households also faced non-scheduled power cuts which generated great inconvenience in daily lives. Inhabitants in North-East Provinces feel the panic most because their winter starts much earlier than other regions in the country. No electricity means no heating water circulation to the household.
Places the Blame …
As more reports were publicized, different analysts and stakeholders tried to investigate what happened. It was discovered that some manufacturing hubs in the coastal areas such as Guangdong had started implementing power stoppage few days a week as early as May. When power stoppage happened in May, manufacturers considered this as a normal rationing as before; no critical action was taken.
Various theories, opinions and inside stories were widely discussed to explain “How did this happen?”. The following are the few theories that are believed to the reasons (from CCA’s observation, the outcome was a combination of these or more, no single reason is the sole source for the power stoppage):
Coal-fired Power Stations – still the backbone of China energy supply
Coal-fired Power Generation covers more than 65% of the total electricity generation of the country. Up until August 2021, the Y-T-D total power generation was 5,389 Terawatt-hour (TWh). Approximately 72% of total was from Thermal Power Generation with Hydo-Power providing another 14% power generation, and Nuclear Plant and Wind Farms contributed 5% and 6% respectively.
Both Hydo-Power and Nuclear Power Plants have long planning and construction cycle. It is very unlikely to increase more installations and having them operational in a short turnaround.
The total installed Wind Farm Capacity in China reached 281GW at the end of 2020, which made China the largest wind power generating country in the world. However, wind generated electricity in the total power generation mix is still low (at approximately 7%) when comparing to other developed countries (usually in double digit % within the electricity produced).
Within Thermal Power Generation, Oil-fired generation is negligible which is only in one-digit TWh/year.
Although Chinese LNG Power Generation annual output ranked #3 in the world (following the U.S. and Russia), the actual figure is only 247 TWh in 2020. China plans to construct more LNG Power Plants in the future. But China depends on importation of LNG (101 million tons imported vs 13 million tons domestically produced LNG in 2020) which limits the number of plants that can be installed.
China will still heavily depend on Coal-fired Power Generation in the foreseeable future. This is a fact well aware by the government, therefore the rules and regulations to produce and consume coal to be more environmentally friendly manner is a long-term national strategy.
The “Dual control system of total energy consumption and intensity” (a.k.a. Dual Energy Dual Control Scheme) is as follows:
Coal – a 3 Way Tug of War Game
Government announced measures: Getting Through the Maze – a Complicate Task
To tackle the power shortage issue, the state government announced the following measures of improvement including:
However, some of these measures were offset by the flooding in Shanxi, the biggest coal province. In early October, 60 mines were forced to be closed temporarily in Shanxi (these mines just recently re-opened). Coal price soared to all time high in mid-Oct (when this article was prepared) and has already been doubled this year.
The market is still observing how the measures will impact the supply chain in China; we will discuss this in the upcoming newsletters.
SHANGHAI ZHUHAI HONG KONG TAIPEI CLEVELAND