News report by Gunjan Sharma
Beijing, Oct 5: What began last week as sporadic power outages and rationing has now escalated (grown) into China’s worst energy crisis in a decade, with factories closing, traffic lights, and communication networks cut, and shopkeepers
forced to illuminate (light up) their premises by candlelight.
Earlier it was the soaring prices of natural gas and electricity in Europe, which was a reason to worry, but this energy crunch in China will have greater consequences (results) for the global economy.
What happened?
As many as 21 of the 30 provinces in China have been impacted by energy rationing. It means that millions of people are facing unplanned outage of electricity for long periods of time multiple times a week. The north eastern region of the country, which consists of Jilin, Heilongjiang, and Liaoning provinces and forms its industrial backbone, is the worst hit. The outage of electricity started back in August in small pockets and has since grown. It is currently impacting industries and residential areas as well. In some parts traffic lights must be dimmed, mobile towers are not operating, and people are spending nights in the dark.
What led to this situation?
As you might be aware, electricity can be generated from renewable sources (solar, wind, hydroelectric) and non-renewable sources (mostly coal). China is over-reliant on the latter. More than 50% of its electricity comes from thermal power plants where coal is burnt to turn water into steam. This steam then runs generators for electricity. The problem, however, lies not in the power plants. They have the capacity to generate more electricity. China is running low on the raw materialcoal itself. According to reports, it has a stock of about 11.31 million tons of coal which is enough for only 15 days.
What have been the contributing factors?
- Import Restrictions: Of the total coal used, China imports about 70 percent from other countries,
key among them being Australia and Indonesia. Earlier in the year, China had imposed import
restrictions on Australia after the Australian government launched investigations into the origins of
Coronavirus. This led to a shortage of coal. Even in terms of quality, Australian coal is more efficient
than Indonesian.
- High Demand: China is a developed economy and the manufacturing hub of the world. This
means that its electricity demand is constantly increasing. Add to it the further increase in demand
due to the recovery of the global economy after the 2020 pandemic slowdown. Factories in China
are under pressure to produce more goods and thus consume more electricity. - Climate Goals: China aims to become a carbon neutral country by 2060. This is a praiseworthy
and ambitious goal. The provincial governments are under pressure from central leadership to
reduce emissions. In a bid to achieve them, some governments are forcing power companies to
consume less coal. While this is a contributing factor, it only seems to be a minor one.
What is the Government doing?
In order to improve the situation, the government is raising coal imports to the country. It is also
focusing on enhancing the internal supply chain by maintaining safety level coal stocks in thermal
plants. In the long term, the country aims to move away from thermal plants to renewable sources.
What will be the impact of this crisis?
Due to the lack of electricity, factories are unable to operate and are forced to shut down a few
days a week. Even noted companies like Tesla and Apple are facing this issue. Since China
exports manufactured goods across the globe, the impact will be felt in several countries. It is
expected to be even more severe given the upcoming holiday season (Thanksgiving to New
Year’s) in western countries when consumer demand is at its peak.
Domestically for China, there could be tough days ahead since the winters are brutal and heaters
are needed even indoors. Given the situation, economists have reduced their growth projections
for the Chinese economy. The country will probably have to take major steps toward reshaping
its grid and power market, building fuel reserves, and adding more renewable and flexible energy
sources.