Author: Huw Slater, ICF
In December and January, at the height of winter, central and eastern China undertook its most extensive power rationing in a decade. This came as a surprise to international observers, as China’s coal-power sector has run over capacity for years. Average utilisation rates have dropped below 50 per cent nationwide and are as low as 20 per cent in some provinces.
Rationing in Zhejiang, Jiangxi and Hunan provinces raised speculation that coal supply may be impacted by the central government blacklisting Australian imports since October. But before the embargo, Australian exports only accounted for under 3 per cent of coal used for power generation in China. While coastal Zhejiang was a key consumer of Australian coal and Jiangxi receives some via river-borne trade, landlocked Hunan is more dependent on domestic coal.
Several factors led to the rationing. First, the rapid recovery of the Chinese economy post-COVID-19. Second, an especially cold winter in central China. Third, insufficient transmission infrastructure. And fourth, strict energy efficiency targets.
While strict COVID-19 lockdowns impacted economic activity in the first quarter of 2020, stimulus measures led a quick recovery, with year-on-year growth reaching 6.5 per cent by the end of 2020. Electricity generation grew by over 9 per cent year-on-year after being around 5 per cent lower year-on-year in the first quarter. The provinces affected by power rationing saw a surge in demand in December due to increased economic activity and cold temperatures.
High winter demand masks the low level of utilisation and the persistence of a development model that favours cheap finance and subsidies to heavy industry and coal power. The model worked in the decade leading up to the global financial crisis as Chinese exports surged — but demand has flatlined and local governments did not adapt.
Prior to the pandemic, China’s coal-power fleet ran at about 50 per cent of capacity, and by late 2020, plants in Zhejiang and Hunan ran at 40 per cent. At these levels, much of the coal-power fleet will only be needed during peak demand. This is set to decline further as renewables continue growing rapidly. China’s electricity pricing mechanism does not provide peak pricing to incentivise operators’ readiness to ramp up if called upon, leading to a supply crunch once the post-COVID-19 industrial surge kicked in.
In December, Hunan saw a peak load of over 33 gigawatts (GW) — over 10 per cent higher than that seen the previous year, and exceeding local dispatchable generation capacity by about 4 GW. On 7 January, Jiangxi saw a peak load of 28 GW — about 16 per cent higher than a year earlier, roughly 6 GW beyond dispatchable capacity. For perspective, Australia’s coal-power fleet capacity is about 25 GW.
At least 4 GW in Hunan were offline due to what was described as technical faults, though speculation is that this was a case of operators refusing to operate at a loss due to high coal prices. Hydro, solar and wind power output were also impacted by the cold weather.
The central grid region, to which Hunan and Jiangxi belong, has 330 GW of thermal and hydropower, and should cope with an overall peak load of 164 GW. But the grid is not as well integrated internally or connected externally as it should be. Plans to increase capacity in coming years should add some stability to the central grid. Improving intra-grid transmission, such as connection to Sichuan and Hubei hydropower resources, would also help.
Hunan said it was entering a ‘war state’ to deal with power issues, requiring industrial and commercial users to avoid consumption during peak hours. Jiangxi also intervened to shave morning and evening peak loads, asking companies to reduce usage, limiting street and other lighting and quoting national policy on the need to limit unreasonable demand for electricity.
In Zhejiang, the heaviest restrictions on power usage were in the city of Yiwu. The provincial government issued special restrictions between 12–31 December, intended to help ‘win the energy battle’ of improving energy efficiency and controlling total energy consumption. It included electricity quotas for everything from government departments to karaoke bars. Some factories were temporarily closed and some essential production had to be run with diesel generators.
A Yiwu city official commented that the measures were due to ‘energy conservation and emission reduction policies’. The Zhejiang government’s 2018 targets aimed to achieve reductions in…