What’s behind China’s power cuts?

Last Monday, Wen Peng was working the late shift at a parts factory in central China’s Hunan province when the power cut off. It was just after midnight.

“The machines stopped working, so the factory sent us home,” he said.

Parts of China have been experiencing power cuts that are hitting millions of homes and factories. Analysts at Goldman Sachs and Nomura have already downgraded their gross domestic product growth forecast for China for the year from 8.2% to 7.8% and 7.7%, respectively.

Power rationing was so abrupt in northeastern Liaoning province that a steel factory’s ventilators were turned off and sent 23 workers to the hospital to be treated for carbon monoxide poisoning.

As for Wen, he was given the rest of the week off just when the factory was getting busy.

• Energy use surge

The power cuts are caused by a surge in energy use and a shortage of coal. According to official statistics, electricity consumption from January to August increased 14% compared to the same period last year.

Much of the energy is used by the industrial sector, according to Lin Boqiang, dean of the China Institute for Energy Policies Studies at Xiamen University.

“China is the first major economy to recover from the COVID-19 pandemic lockdown, and so many overseas orders have gone to Chinese factories,” he said.

“The price of copper and aluminum are at their highest in years, so manufacturers tend to produce more. This is a big shock on the electricity market, because heavy industries consume 40% to 50% of the supply,” Lin said.

• Coal shortage

At the same time, he said China relies on coal to generate up to 70% of the country’s electricity. Currently, there is a coal shortage.

In theory, power cuts shouldn’t be happening in China, according to Lin.

“There is enough electricity generation capacity and enough coal underground. It is just that China is controlling its carbon emissions and not mining more coal this year,” he said.

The coal shortage isn’t all about protecting the environment.

China usually imports coal from Australia, but relations between the two countries are tense. The Chinese government has all but banned Australian coal. This has pushed coal prices up, which raises another issue.

• Electricity price caps

“In China, coal prices can increase and be determined by the market, but not electricity prices,” Lin said. The Chinese government wants to keep utility prices low. So power companies are not allowed to pass on their extra costs to users.

Currently, power plants are not operating at full capacity and have no incentive to produce more. Over 20 provinces are rationing energy, and this has created uncertainty for businesses.

“The cuts began last Sept. 25. There were more on the 27, and we were told the power would be off for the rest of the week. But it came back on the 28,” said Fox Fu, a manager of a software company in central Hunan province.

As for Wen, he hopes to return to the factory soon. Otherwise, he said his pay — like that of millions more Chinese — will be cut by a lot.

Source: marketplace