Chinese government rations the electricity power for the industry. These days the Chinese industry is struggling with the shortages of electricity. What is interesting is that the Chinese government doesn’t hide this problem, those actions are affecting mainly the big factories and generally speaking the biggest industrial country in the world. But why do we have such a problem?
Firstly, we must describe and understand how the energy sector works in China. Who shapes the prices and production of the power? Prices of coal are dictated by the market, but the prices of electricity are shaped by the government. So, this creates a problem, if the price of coal is high then the powerplant must import cheaper material from abord. And the knowledge of this mechanism can partly explain to us why we have the biggest power crisis in the People’s Republic of China. When in the last year they faced the biggest Covid-19 crisis, the Chinese government elongated the holiday, all the industry halted. After a month all factories started to work, they had to face down this high demand in the market, so they worked for 110% (this creates a huge need for energy). What is interesting is that Prime Minister said that the prices of electricity can’t rise. But simultaneously prices of coal gone very high. This caused that powerplants started to burn the backup coal. The reserve of coal drastically went down (by 2020 there were over 80 million metric tons, it melted to 50 million tons by 2021). It was better to use the reseves than buying picey coal.
Secondly, China declared that they want to be a zero-emission country by 2060. It will be very tough because nowadays 70% of the electricity comes from coal. So, the local governments have developed their annual emission targets, to slowly prepare for this promise. When local authorities see that this level of emissions rapidly rises, they start to cut the power, by making days off for factories.
Thirdly, PRC’s diplomatic situation with Australia lately has gone very bad. Because of that case, China banned importing cheaper Australian coal. This forced power plants to buy local coal (more expensive than Australian). Also recently in many coal mines were more cases and accidents. The government decided to introduce more security restrictions that will improve working hygiene at the mine. This also affects the price of local coal.
How will this situation affect the Chinese industry and people? Chinese people have electricity in their houses and cities. There hasn’t been a situation of blackout in main cities in the country. But on the other hand, the industry can affect this very much. For example, Alibaba lately had a situation of cutting its power. I think that this problem will endanger the global market. Meaning that supplies shortages can be real, or many products assembled in PRC cannot be exported at the time to the customer.
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Nice article! Although I doubt that China will really become energy-clean by 2060 considering such a big amount coal-producing stations