China Environmental Law

I’m sorry if I’m beginning to sound like a broken record and a scold on the issue of China’s power supply, but the situation is becoming increasingly dire.  The problem highlights the fact that China needs a comprehensive energy policy which is systematically imposed and which includes a large chunk of mandated renewable energy.  Simply put: if you are going to plan energy supply and demand (rather than let the market direct the action), then you’d better have a plan.  China’s recent actions give the impression it is winging it on energy policy.  The jockeying for superiority in the energy arena among China’s various ministries needs to come to an end, and someone needs to take charge.

The bad news is pretty bad (as reported by Caijing, “Lights May Flicker as Coal Crunch Mounts“)

China’s power shortage this summer will reach 16 million kilowatt hours - a crunch far more severe than the previously expected 10 million kilowatt hours, said an official from the State Electricity Regulatory Commission.

Such grim statistics are included in a recent commission survey, which found that regions covered by the State Grid Co. distribution network will see shortages of around 10 million kilowatt hours, while regions supplied by Southern Power Grid Co. will fall short by 6 million kilowatt hours. The biggest power consumer, Guangdong Province, is expected to suffer a shortfall of up to 5 million kilowatt hours.

The power shortfall is caused by “the low supplies of and high prices for coal.” 

Wang [Shuang, an electricity analyst for United Securities] said many power generation companies have been forced to halt operations due to mounting losses caused by the gap between high coal costs and low prices for electricity.

A China Power Investment Co. source said an increasing number of turbines have been shut down due to a lack of coal. Even in coal-rich Shanxi Province, many power plants have stopped operating since June.

As we’ve discussed here before, the government’s “fix” for this situation seemed spectacularly ill-conceived: on June 19 “the National Development and Reform Commission announced the government would impose temporary price restraints on coal sold to power plants.” As an “electricity expert [I think this is a thinly veiled reference to CELB]” told Caijing “the intervention measure will discourage coal supplies, which will make the power shortage even worse.”

The price caps have been ineffectual in keeping coal prices down. According to Xinhua 

The fuel prices, however, continued rising, surging 22 percent to more than 1,000 yuan (146.6 U.S. dollars) per tonne in Qinhuangdao since June 19.

Nevertheless, the withholding of supplies from the market continues.  As a result there is even less coal available now (and at significantly higher prices) than there was on June 19.

Confronted with what would seem to be a failure of its initial policy, what does the NDRC do?  Treat yourself to a lump of coal if you answered “it issues a this-time-we-really-mean-it statement.”

China urged local regulators to tighten controls on coal price increases to help power producers cope with rising fuel costs, the National Development and Reform Committee (NDRC) said in a statement on Thursday.

Coal producers that continued raising prices and traders who hoarded supply to jack up prices would be punished according to the country’s Price Law. Such violators would also face media exposure, it said.

Oh no, not punishment under the country’s Price Law!  I don’t think I am going too far out on a limb if I predict that this renewed effort by the NDRC will have absolutely no effect on reigning in rising coal prices or increasing supplies.

Further power price increases are inevitable, but they probably won’t come fast enough to change the summer peak power supply shortfalls.  According to the Caijing article a “source at China’s leading power supplier Huaneng Group” reported that “we are expecting further power price adjustments after the Olympic Games.” 

If this situation has a silver lining, it is that renewable power has started to look more financially attractive to China’s power producers.  China Daily reports that

Because of the soaring coal prices, China’s leading power producers have all begun to eye clean energy. China Huaneng Group is now developing wind power plants in provinces such as Hainan, Guangdong, Jilin and Shandong, and the Inner Mongolia Autonomous Region.

After yesterday’s foul humor, I’m glad to end this post on the sunny side.