China appears to be heading for its worst power shortage since 2004, putting pressure on already struggling industries and strained livelihoods due to restricted energy access. The 26 provinces served by the State Grid Corp of China could face a combined power shortage of 30 gigawatts (GW) this summer. Central, southern, southwestern and eastern provinces introduced power use restrictions and rationing in late March, well ahead of the summer peak demand season, fueling concerns that shortages could worsen and spread to other regions.
Jiangsu, Henan, Zhejiang, Guangdong and Hubei provinces are most susceptible to electricity shortages this summer. Jiangsu province alone is expected to face an 11 GW gap between available power supply and expected demand, accounting for 37 percent of the country’s total shortage. Due to power use restrictions and rationing, many factories in the export-oriented eastern provinces have been forced to significantly reduce output, or instead meet their power demands with costly diesel generators.
The recent financial difficulties faced by China’s power companies caused the thermal power supply slump driving these severe shortages. This is particularly true of coal-fired power plants, which provide more than 70 percent of the country’s generation capacity. According to the 2010 Annual Report of the State Electricity Regulation Commission (SERC), the overall deficits for China’s five major thermal power companies (China Datang Corp., China Guodian Corp., China Huadian Group, China Huaneng Group and China Power Investment Corp.) exceeded 60 billion Yuan ($6.23 billion) from 2008 to the end of 2010. In May 2011 alone, these “big five” lost 12.16 billion Yuan ($1.88 billion).
The financial woes facing most of China’s thermal power plants can be attributed to the unique market structure of the country’s power sector. While fuel prices, including for coal, are now largely determined by the market, electricity prices are still set by the National Development and Reform Commission (NDRC) with slightly different fixed rates for regions across the country. Therefore when coal prices rise, utility companies are unable to raise electricity prices accordingly, and as a result end up losing money. From August 2010 to May 2011, the average coal price in China rose by about 30 percent, while the utilities were only allowed to increase electricity prices by 2 percent. According to the coal-electricity price synchronizing system issued by the NDRC in 2004, the government-set electricity price should capture at least 70 percent of the market fluctuation of the coal price. As current utility prices have not been permitted to respond to coal price increases, completion of new coal-fired power plants has been delayed and almost all thermal generators are operating below their full capacity. Several coal-fired generators have been shutdown in Guizhou, Henan, Hunan, Qinghai, Shaanxi and Shanxi provinces.
China’s current power shortage can also be attributed to fast-growing electricity demand. With an average of 9 percent annual growth over the last two decades, electricity demand has increased more rapidly in China than anywhere else in the world. Electricity consumption increased 14.6 percent from 2009 to 2010, greater even than the 10 percent growth in gross domestic product (GDP). Electricity demand this summer is expected to surpass demand for the same period last year by 12 to 14 percent.
The financial struggles caused by rising coal prices could spur the growth of substitute electricity technologies. However, these energy sources face development barriers of their own.
China currently has 14 nuclear power reactors in operation and more than 25 under construction. Although the active plants generate less than 2 percent of the country’s total electricity supply, they play an important role in rapidly developing but fossil fuel-scarce coastal areas. The Chinese government originally planned to construct 40 GW of new nuclear generation capacity by 2015, and set a target of 70 GW total installed capacity by 2020. In the wake of the Fukushima crisis, however, construction and planning for new nuclear power projects were suspended pending a strict safety assessment and the release of new regulations by the end of this year. Although a recent statement from the China Atomic Energy Authority (CAEA) signals that China will continue to develop new nuclear plants, it remains unclear whether nuclear capacity targets will remain feasible under new safety regulations. Moreover, unreliable water supply due to increasing extreme weather conditions also poses a threat to China’s plans for inland nuclear development.
Hydroelectric dams represent 22 percent of China’s power generation capacity but require full reservoirs to meet their generating potential. In April and May of this year China’s southern region, where most of the country’s hydropower capacity is installed, experienced a serious drought which significantly lowered the country’s hydro generation. Serious ecological concerns further limit consideration of hydropower as a viable energy alternative, and heated disputes over the environmental impacts of China’s Three Gorges Dam occur during every drought and flood season. As China starts construction on over 140 GW of planned new hydropower plants (the equivalent of eight Three Gorges Dams) in its southwestern region, worries over environmental damages could spread to the entire Southeast Asian water basin.
As detailed in a 2010 Worldwatch Institute report, renewable energy has experienced unprecedented growth in China in recent years. However, all (non-hydro) renewable sources accounted for slightly over 1 percent of total electricity output in 2010. Meanwhile, further renewable energy development faces physical and technical restrictions. As analyzed in a previous blog, integration of renewable energy into China’s electricity mix is constrained by limited grid capacity, which will take years to improve. As a result, it remains unclear how much of the planned 70 GW of new wind capacity by 2015 will actually be connected to grid to help meet the nation’s surging power demand.
None of these barriers can be overcome through a traditional sector-by-sector approach. To successfully shift to a more sustainable growth pattern, China needs a comprehensive energy development plan based on analysis of economic, environmental and social factors. Dedicated to providing a vision for a sustainable world, Worldwatch has long been advocating for such an integrated approach to energy development. With support from the German International Climate Initiative (ICI), we are currently working closely with the governments of Jamaica, Haiti, and the Dominic Republic to establish low-carbon energy roadmaps tailored to each country’s specific context. In the near future, we hope to expand such comprehensive green development approaches to areas within China. Our holistic and sustainability-focused approach could serve as an implementation guide in support of the Chinese government’s Energy Plan for the 12th Five-Year Period, which is expected to balance the development of diverse energy sources.