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China’s GDP engine Guangdong hit with perfect power grid uncertainty

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GUANGZHOU – Light rain, rising coal prices and rapid inland industrialization have left China’s southern manufacturing hub in Guangdong Province together in a power shortage that casts uncertainty on about 10% of the country’s economic output.

The effects are being felt on factory floors and in managers’ offices, with a Japanese-owned supplier of metal parts sending efforts to reschedule working hours after local authorities ordered power outages.

For ground-based manufacturers in the province – Procter & Gamble, Canon, Volkswagen and Japan’s top three vehicle manufacturers, to name just a few – the biggest question is how long the power outage will last. A Honda Motor spokesman said there was no impact on production at this time. But if energy constraints become chronic, they would jeopardize global supply noise.

“With two power outages a week, we can still provide enough output,” said an executive at the parts maker. “Anything more than that and there will be delays in delivery.”

A spokesman for the National Development and Reform Commission, China’s economic planning body, admitted at a news conference Thursday that Guangdong and other southern provinces face energy shortages. Separately, state-owned China Southern Power Grid network said usage in its service area increased by 23.2% for January-May compared to a year earlier. That increase was 5.5 percentage points faster than the national average, the company said.

During mandated power outages, companies can only use enough electricity for essential operations, such as safety. Crossing the border results in a penalty in the form of extended hours of restriction.

Home to 115.21 million people by the end of 2019, Guangdong makes up 8% of China’s population. Major cities include Shenzhen and Guangdong technology center. Some of the largest Chinese companies, such as Huawei Technologies, electric vehicle maker BYD, equipment group Midea and Tencent Holdings, are headquartered in the province.

The economic importance of Guangdong makes reliable energy supply essential. This made it increasingly unusual when energy authorities in May announced plans to adjust power supplies to various industries and companies in response to a shortage.

Authorities attributed the lack of drought to increased summer demand. Guangdong received only about 40% as much rainfall from January to early April as in the same period last year, while the average temperature was 2.2 C higher, local media report. This combination reduced hydropower generation while boosting demand for air conditioning and cooling.

Low coal inventories – an effect of rising prices – are also doing a disservice. Domestic coal prices stood at 878 yuan ($ 136) per tonne in early June, roughly 70% year-on-year, based on 5,500 kilocalories of heat per kilogram, official data show.

Environmental restrictions and an investigation into corruption in coal mines have squeezed fuel production, prompting some suppliers to raise prices.

Coal accounted for about 60% of China 2020 electricity generation, according to the International Energy Agency, with hydropower accounting for about 20%. A report by China’s Citic Securities says high fuel prices have created an incentive for companies to further push their fossil fuel-fired power plants.

Wider factors in the regional economy are also in action. About 30% of the energy used in Guangdong comes from distant distances from Yunnan and other provinces. Yunnan has seen an influx of investment in aluminum production and other energy-intensive industries in recent years. According to China Southern Network, energy use in Yunnan in January-April was about 30% higher than a year ago. This shortens energy availability for Guangdong.

China is working to alleviate structural barriers to its energy supply by building more nuclear and other capacity. Nuclear power accounts for less than 5% of China’s energy now.

One of its nuclear plants, in the city of Guangdong in Taishan, appeared in danger of releasing radioactive materials into the environment, CNN reported last week. Chinese authorities said Wednesday that there had been damage to the fuel rods at the plant, but gave some details on the situation.



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