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China’s power problems expose a strategic weakness

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SHANGHAI A bread company does not get all the power it needs for bakeries. A supplier of chemicals to some of the world’s largest paint manufacturers announced production cuts. A port city changed the electricity rationing rules for producers four times in a single day.

Electricity shortages in China are raging across factories and industries, testing the status of nations as the world capital for reliable production. The shortage has sparked a national rush to mine and burn more coal, despite authorities promising to curb emissions that cause climate change. And the shortage is calling into question whether Beijing can deliver in the coming months the strong economic growth the Chinese people have been waiting for.

The power outage has also highlighted one of China’s strategic weaknesses: it is a greedy and increasingly hungry pig.

Economy Nr. 2 of the world relies on energy-intensive industries like steel, cement and chemicals to boost growth. While many of its newer plants are more efficient than their counterparts in the United States, years of government electricity price controls have drawn other industries and most homeowners into delaying improvements.

As the winter warm season comes, which will require China to dig up and burn even more coal, Beijing will have to face whether it will allow factories to continue working with industrial materials for global supply chains.

They have to sacrifice something to make sure families have heat and energy, said Chen Long, a co-founder and partner of Plenum, an economics and politics research firm in Beijing. They need to cut energy-intensive industries.

Power rationing seems to have eased somewhat since the end of last month, when major power outages and power outages caught factories by surprise. But the winter warm-up season officially begins Friday in the Northeast and continues in north-central China next month.

China faces difficult choices. It burns more coal than the rest of the combined world and is the number 2 consumer of oil after the United States.

China is rapidly expanding its use of natural gas, as well as solar panels, wind turbines and hydroelectric dams. However, China still does not have enough energy to meet demand. Even switching to green energy can take considerable power, the limited electricity supplies in the country have increased its costs for the production of solar panels.

Tight stable supplies could force China to recover its economy, just as the high oil prices of the 1970s forced North American and European countries to change. Those countries developed more efficient cars, embraced other fuels, found numerous new supplies, and switched production overseas, most of them to China. But the process was long, painful and costly.

Right now, China is boosting coal consumption less than a month before world leaders gather in Glasgow, Scotland, to discuss tackling climate change.

Regulators announced last week that domestic banks should lend to the coal sector to expand production. Premier Li Keqiang oversaw a meeting Saturday with the country’s top energy officials calling for more coal to be used, though he promised more investment in green energy as well.

Board members of the European Union Chamber of Commerce in China said on Wednesday that electricity shortages had worsened this week in some cities and eased in others. They predicted that electricity problems would last until March.

Until enough energy enters the internet, China’s factories risk sudden and destabilizing outages. Factories in China consume twice as much electricity as the rest of the country’s economy. China’s factories tend to require 10 to 30 percent more energy than their counterparts in the West, said Ma Jun, director of the Institute of Public and Environmental Affairs, a research and advocacy group in Beijing.

China has gained more in energy efficiency in the last two decades than any other country, said Brian Motherway, head of energy efficiency at the International Energy Agency in Paris. But because China started the century with an inefficient industrial sector, it has yet to catch up with the West, he said.

The impact of energy shortages is mixed. Car assembly plants in northeast China were given permission to continue operating, but tire factories almost stopped operating. Wuxi Honghui New Materials Technology, which makes chemicals for global paint manufacturers, found that power outages had damaged production.

Others finding trouble include Toly Bread, with its bakery chain, and Fujian Haiyuan Composites Technology, a manufacturer of battery boxes for the fast-growing electric car industry in China.

Fred Jacobs, a 57-year-old software trader in Seattle, ordered two high-performance, solid-state drives in late summer from China, only to be offered a refund a week in advance for power outages would cause delays in the factory.

I was amazed because I heard about transportation issues with China, but not energy issues or infrastructure with Chinese suppliers, he said. Now the risk is much higher, and I will buy from US retailers even if I have to pay more.

Power outages have taken on human damage, which can get worse if homes lose energy during the winter. At least 23 workers were hospitalized in northeast China late last month with carbon monoxide poisoning when electricity was cut off at a large chemical plant.

The government has taken steps to improve efficiency, such as allowing enterprises to raise prices for industrial and commercial users by up to 20 percent so that they can buy more coal.

China virtually halted new coal investment in 2016 after concerns were raised about the viability of the industries. Anti-corruption officials have launched investigations focused on several important coal fields in the Inner Mongolia region, discouraging further investment.

By the end of the summer, many mines were closed for safety reviews. Floods this fall in Shanxi Province, China’s largest coal mining hub, have forced the closure of at least 60 mines.

As demand increased after the pandemic, prices soared. Power plants found themselves losing money with every ton of coal they burned, so they worked at a capacity of about three-fifths.

Chinese officials hope to replace a lot of coal energy with solar energy. But the Chinese manufacturing processes for solar panels require large amounts of electricity, most of it from coal.

Polysilicon, the main raw material for solar panels, has tripled in price recently, with most of the increase in the last two weeks, said Ocean Yuan, president of Grape Solar, a solar panel distributor in Eugene, Ore.

In China, the cost of building large solar panel farms has risen about 25 percent since the beginning of this year.

We have not seen such a level in years, said Frank Haugwitz, a Chinese consultant to the solar panel industry.

China is also seeking to improve steel production efficiency. Its steel mills use more electricity each year than all the country’s homes and account for about one-sixth of China’s greenhouse gas emissions.

Chinese steel companies still rely on coal blast furnaces that melt mostly ore to make steel. The West has largely shifted to the production of steel in efficient electric arc furnaces, which melt a mixture of scrap metal and ore. China is trying to improve garbage collection from destroyed buildings, but the transition to electric arc furnaces will be gradual, said Sebastian Lewis, a Chinese energy and commodities consultant.

For now, China’s concerns are focused on winter. During a severe cold snap last December, some cities had no coal burning and limited plant operation, turned off street lights and elevators, and limited office heating. Problems arose even though power plants started the winter with a few weeks of coal in storage.

This year, China’s largest provinces have only 9 to 14 days of storage, according to CQCoal, a Chinese coal data firm.

Shares are low, much lower than they should be, said Philip Andrews-Speed, a Chinese energy specialist at Singapore National University. And they are in a panic for the winter.

Li You and Claire Fu contributed to the research.

Sources

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2/ https://www.nytimes.com/2021/10/13/business/china-electricity-shortage.html

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