How bad is China’s energy crisis?

    02 Oct 2021

    China is implementing power rationing as supplies dwindle due to the price rise of imported coal. Let’s get to know what happens, thanks to The Guardian.

    The situation is widespread. In recent days, factories in 20 of China’s 31 provinces have suffered a loss of power, forcing many to shut down production, at least for hours at a time. Millions of households in the northeast of the country have also lost power and found that they cannot use electricity to heat or light their homes.

    Is the situation getting worse?

    The US carmaker Tesla, which has a large factory in China, is among many industrial firms that have been put on notice of longer shutdowns next week as the lack of electricity becomes acute in some regions. Most analysts believe it could take several months for the Chinese authorities to get a grip and match energy production with rising demand.

    Is China struggling to produce electricity?

    No, there is the capacity to generate electricity. Since the beginning of the year, electricity production has increased by about 10% as the economy has bounced back from the pandemic. It’s just that the Chinese energy juggernaut has run out of steam after running down stocks of coal, apparently in the hope that either Beijing would lift all environmental restrictions that increase the cost of producing electricity with coal or that world prices would fall. While Beijing has eased some emissions targets, world prices have carried on soaring.

    What is the industry’s response?

    Energy companies are, in effect, rationing electricity to industrial and domestic users under orders from president Xi Xinping’s officials to not pass on the higher costs from rising prices of imported coal.

    What is happening to fuel prices?

    China has dramatically reduced its coal consumption since 2017, cutting back the proportion used to generate electricity from more than 80% to 51.8% in 2019. Renewable energy, including wind and solar, has made up most of the difference. But with more than half of all electricity still made using coal, generators remain heavily reliant on the black stuff.

    Does China import coal?

    It is the world’s largest importer of coal ahead of India. Coal prices have soared in recent months in response to rising demand. The situation is made worse for China by a spat last year with Australia over Canberra’s call for an international probe of the origins of the coronavirus pandemic. Beijing imposed an unofficial ban on imports from Australia, the world’s second-largest exporter, making it more dependent on higher-priced coal from domestic suppliers and elsewhere.

    Why can’t energy producers maintain output and pass on higher costs to consumers?

    Beijing is concerned that higher energy prices will spark an increase in inflation that in turn will depress living standards and cause social unrest. China expert and head of Enodo Economics, Diana Choyleva, said higher inflation had the capacity to hurt all household finances and unify opposition to Xi. Rationing in the worst affected areas of the northwest is preferable to a broader price increase, she said.

    Is the climate emergency another factor?

    Choyleva said Xi was also concerned that his administration’s plans to decarbonize Chinese heavy industries and reduce pollution would be derailed by allowing energy firms to keep making electricity with dirty coal. Controls on emissions have raised energy production costs and meant that many producers will be making a loss, according to Julian Evans-Pritchard, senior China economist at the consultancy Capital Economics. Recent moves to ease emissions targets have had little effect on the overall situation, he said.

    What has Xi done to make things worse?

    Choyleva says Xi’s centralizing zeal means regional governments have come under closer control from Beijing, resulting in a series of crises. A clampdown on bank lending led to the near-collapse of several banks and, earlier this month, pushed the property giant Evergrande close to insolvency. “It used to be that a crisis came up every couple of years and was dealt with. Now they are coming thick and fast,” she said. Evans-Pritchard said Xi’s determination to hurry through reforms forcing businesses to conform more closely to Beijing’s policy agenda is causing problems. “One broader takeaway is that the current disruption highlights the economic costs inherent in China’s push for self-sufficiency and decoupling with the west,” he said.

    In China, Apple and Tesla plants stopped due to power outages. Check out more here.

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