Causes of the energy crisis in China

The shortage of electricity in China, the “world factory” on which the world economy depends, continues to grow. The lack of electricity is beginning to become one of the most important factors that reduces the production of Chinese factories and disrupts global commodity supply chains.

Northeast China’s most industrialized province, Liaoning, announced on October 11 a significant power shortage, Reuters reported. According to local officials, the province lacks 5 GW of electricity. According to the Chinese classification, the situation in Liaoning corresponds to a deficit of the second level – that is, the province lacks from 10 to 20% of the required amount of electricity.

The trade turnover of the three northeastern provinces of China, including Liaoning, with Russia in 2020 amounted to almost $20 billion, according to Xinhua. The deterioration of the situation in Liaoning occurred against the backdrop of active attempts by the Chinese authorities to increase coal supplies and control the distribution of electricity in the context of an energy crisis that has affected many countries of the world.

70% of electricity in Liaoning is generated by coal-fired power plants. They are trying to fill the shortage at the expense of other regions – the authorities of the Autonomous Region of Inner Mongolia and Shanxi Province, the main coal producers in China, ordered to increase production at more than 200 mines and, first of all, supply coal to the north-eastern regions, including Liaoning. But the situation with coal is still difficult. In China, there was a “perfect storm” in the energy market, somewhat similar, somewhat different from what happened in the EU, says Alexander Gabe.

head of the Russia in the Asia-Pacific region program at the Carnegie Moscow Center. In China, quite ambitious plans to reduce emissions have been in place since last year, which are included in the new five-year plan. The State Committee for Reform and Development, formerly Gopalan, the super agency that controls macroeconomics, has been pointing out to some provinces since mid-year that they are “overshooting” their emissions targets. The provincial authorities tried to reduce them as much as possible.

 

Due to this climate agenda, some mines with the largest carbon footprint have been closed since the beginning of the year, and it will take time to get them back on track, Gabe says. There is another reason for the difficulties with restarting mines: one of the important coal-producing regions is Inner Mongolia, Gabe points out, and there were major anti-corruption purges that affected the work of the coal sector. The emission control system in China is quite intricate.

The “double control” policy, which the Chinese government has been pursuing for several years with increasing activity, sets limits for energy consumption per unit of regional GDP for regions, depending on the increase in energy generation using coal generation, explains Vasilis Kashan, senior researcher at the National Research University Higher School of Economics. Its mission is to promote energy transition, clean air in major cities and achieve carbon neutrality goals. It is called “double control” because local authorities must comply with the standards that are determined by the center.

and the KPIs of local officials are strictly dependent on the implementation of these standards. It is complex, highly differentiated by regions, and includes measures for special control over large energy-intensive facilities, Kashan continues. “Double control” is triggered when there is a sharp spurt in electricity generation, primarily at coal-fired plants. All together, the system was so skewed that when this sharp spurt in energy consumption began this year (associated with post-COVID industrial growth), warnings from the center to local authorities rained down on limiting coal generation and.

accordingly, energy consumption, the expert continues. First, landscape lighting is turned off, facilities that are to be closed soon or violate environmental laws, and then the rest of the industry is transferred to a reduced work schedule. It is dangerous to cancel the “double control”.

since the center is not without reason afraid of sabotage of measures to reduce the volume of coal generation on the ground, says Kashan. Nevertheless, there are no plans for any easing by the PRC authorities. As China’s Vice Premier Han Ren said on October 11, the 14th Five-Year Plan 2021-2025 Beijing will “tightly control” the production of electricity based on coal and “strictly limit” the increase in consumption of this energy carrier.

The central authorities demand to increase the share of renewable energy. This is another facet of the problem. There is a lot of wind generation in the northeast of China, but this year it was rather windless both there and in Europe. The hot summer has led to the fact that in the south, where the role of hydropower is important, it does not work at full capacity – the reservoirs are not completely filled. According to Aleksey Grivet, Deputy General Director of the FNEB for gas issues.

the energy problems of recent months in China and the EU are somewhat similar, since the increase in the share of renewable energy in the energy balance creates approximately the same problems of system stability. It becomes more unbalanced, the risks of blackouts due to uncontrolled growth or decline in generation multiply, it becomes necessary to keep in reserve significant capacities of traditional generation with an appropriate fuel base. China is actively reopening generating capacity.

and 65% of generation is coal, reopening mines, actively buying coal where possible, and, apparently, the authorities will turn a blind eye to carbon targets, Gabe said. Another consequence of the energy crisis in China will be an increase in government-regulated energy tariffs. Since August, prices for coal and natural gas have risen sharply.

continues Gabe. And 70% of the tariffs are regulated, and you cannot increase them, generating companies have a cash gap, and in order to normalize the consumption of coal or gas, they began to introduce a reduction in consumption. At the end of September, the State Committee for Reform and Development allowed a 10% increase in the tariff for end-users, and this week China is waiting for detailed explanations on a gradual tariff reform that will make them more marketable and allow the price increase to be passed on to consumers, he said.