August 15, 2011 / 8:20 AM / 8 years ago

Q+A-What happened to China's power shortages?

BEIJING, Aug 15 (Reuters) - Earlier this year, China warned that it could be facing its worst electricity shortages in years and that blackouts and power rationing could dent the economy over the summer.

Experts said China’s fixed pricing system was eating into margins and discouraging power plants from producing at full capacity, especially as coal prices soared.

A long drought had also cut China’s hydropower capacity, forcing provinces like Henan and Fujian to buy more coal and diesel and putting more pressure on supplies.

Experts also worried about capacity shortages on China’s rail network, and urged railway bureaux to give priority to coal deliveries over the summer months.

But shortages have not been as severe as predicted, and overall industrial output has remained strong, with steel production still close to record highs.


Officials said China could be facing a supply gap of as much as 30-40 gigawatts over the summer, and some predicted a return to the dark days of 2004, when provinces on the eastern coast and in the hydropower-dependent southwest faced daily blackouts.

They also forecast a spike in diesel demand as firms resorted to their own standalone generators to keep running.

Analysts said the impact would be felt across a range of sectors, especially if shortages hit developed provinces along the eastern coast. Most expected metals producers to bear the brunt of a campaign to guarantee supplies to residential users.


In previous years, shortages have hit manufacturing centres such as Zhejiang, Jiangsu and Guangdong on the eastern coast, but this year they have been more pronounced in central Chinese provinces like Henan, Hunan and Jiangxi. Analysts have blamed the shortages on “structural” problems, with the regions still too dependent on energy-guzzling industries.

While some industries have suffered, including aluminium and zinc smelting, the impact has not been as severe as expected, with shortages largely local. Daily steel output has also remained resilient at more than 1.9 million tonnes.

Heavy rainfall in key regions has replenished China’s reservoirs and brought hydropower output up to healthy levels, and temperatures have not been quite as high as predicted, lessening demand for air conditioning.

But some regions have struggled to cope with persistently low water levels, with hydropower output in Fujian on the eastern coast down as much as 56 percent year on year in July.

Drought-hit Guangxi in the southwest is experiencing its worst hydropower shortages for 20 years, and companies like Chalco , China’s biggest aluminium producer, have been forced to switch to more costly thermal power to keep running.

Guangxi has cut cross-provincial power transmission and is offering subsidies to loss-making thermal power plants. Many local enterprises are using their own off-grid generators.


Several provinces were already imposing restrictions on power use as early as April, three months before the traditional summer consumption peak, with industrial enterprises on the eastern coast and in hydro-rich central regions forced to restrict operations or switch to night or weekend shifts.

The government also promised to punish any enterprise found to be raising coal prices in violation of state guidelines. It also said it would give priority to coal rail deliveries.

Analysts said that the measures have been more successful than expected, and early warnings also allowed enterprises in vulnerable regions to stockpile diesel for their own generators.

China’s railway network managed to raise deliveries of coal by 7.8 percent to 185 million tonnes in July, according to official data.


The peak consumption season is not over yet. Power use normally surges in August, and as a period of high temperatures known as the “autumn tiger” approaches, air conditioner use in big cities such as Beijing and Shanghai is set to occupy more than 40 percent of the total power load in the coming weeks.

The National Development and Reform Commission has already ordered regions to focus their attention on high-energy consuming projects, particularly those that violate state guidelines, in order to guarantee residential power supplies.

China’s senior energy official, Liu Tienan, said in remarks published last week that the country was “preparing for the worst”, with hydro output still uncertain.

Some analysts worry that the underlying problems have not been solved. Power prices continue to be fixed, depriving the sector of a crucial incentive to raise output and capacity, and another round of shortages could happen next year.

Wang Zhaofeng, secretary general of the China Electricity Council, said last week that China’s power deficit was “structural”, and capacity shortages were likely to reach 50 GW next year and rise further to 70 GW in 2013. (Reporting by David Stanway; Editing by Jacqueline Wong and Michael Urquhart)

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