China Struggles to Keep the Lights On Amid Sky-High Demand

China’s roaring industrial rebound from the pandemic has an unforeseen consequence -- the surge in power demand has left factories, office buildings and street lights in some areas straining under an electricity shortage.

The country’s local governments are cutting power to some industrial and commercial customers in several provinces. State-owned companies are sending an army of workers to inspect power lines, and authorities are urging coal miners to produce more.

But that’s done little to quell the stream of domestic media reports on struggling cities. With the rest of the world growing ever-more dependent on China’s medical equipment and electronics exports as their pandemic-ravaged economies suffer, the focus abroad is also increasingly turning to the Asian manufacturing giant’s power supply.

China Struggles to Keep the Lights On Amid Sky-High Demand

“As the global economy recovers, it will be imperative for China to stabilize its power supplies,” said Rana Mitter, professor of Chinese politics at the University of Oxford. “There is a move in the West to re-shore supply chains and unreliability of power supply in China could be another motivation to do this.”

The world is relying on China’s factories like never before. As one of the first economies to emerge from a pandemic induced lockdown, and as a leading producer of protective gear and medical equipment, China’s exports have soared to record levels. That’s led to surging demand for power, with November consumption up 9.4% over the previous year, the highest level in more than two years.

On top of that, colder-than-normal weather is now adding to winter demand as people heat their homes, and ice is also wreaking havoc on grid infrastructure. Meanwhile, some parts of the country are curtailing electricity to keep emissions in check. That’s left some regions without enough power during peak hours, with two expected to have lasting shortfalls.

China Struggles to Keep the Lights On Amid Sky-High Demand

“Weather conditions for the following months will be the key factor to determine the scale of the outage,” said Hanyang Wei, an analyst with BloombergNEF. “Peak load would drop quickly if cold weather lasts for just a few days.”

This is all happening as coal, the fuel of choice for a majority of China’s power generation, remains in short supply. The government had limited imports to support domestic miners, and imposed an unofficial ban on Australian shipments amid a diplomatic spat. But domestic supplies haven’t risen as much as needed following a recent spate of deadly mining accidents.

That’s left the country grappling with surging energy prices. Local coal futures have soared to a record, while the costs for natural gas, another heating and power fuel, have also jumped. State-owned energy giants have gone so far as to warn firms against publicly discussing the supply-demand issue on concern prices will rise further, and the government has urged major mining regions to boost output.

Nearly all major cities are facing colder temperatures this winter, with some as much as 5 degrees Celsius below last year’s levels, Morgan Stanley analysts including Sara Chan said in a Dec. 23 research note. This is the main reason behind the surge in coal prices and is helping drive government intervention in power allocation.

In Hunan and Jiangxi provinces, power supplies have been cut to some industrial and commercial customers after demand rose at least 18% from a year earlier and transportation issues curtailed coal supplies, a National Development and Reform Commission official said Monday. Hunan’s power supply could be short by as much as 12%, according to BNEF.

The power crunch “will probably linger as an issue for a couple more months,” said James Stevenson, senior director for coal, metals and mining at IHS Markit. “When you get this short, really what you need to do is curtail demand, and that is what we are seeing.”

Big industrial users are on the front-lines of being cut off from electricity, followed by commercial buildings, in order to keep supply safe for residential consumers, according to BNEF’s Wei said. “Local industries will take a hit if the outage lasts for long,” Wei said.

Other regions are facing challenges as well:

  • In Guangdong province, China’s industrial heartland, frozen power lines and equipment caused brief outages Monday.
  • In Zhejiang province, some local governments have ordered power plants and industrial users to shut for the rest of the year to meet five-year plan targets for coal consumption and energy intensity cuts, according to Morgan Stanley.
  • State Grid Corp. of China, which operates power lines for most of the country, said it would mobilize workers to mitigate any outages in Bejing, Chongqing and Jilin, which all face rising demand and tight supplies because of the cold weather.

In Changsha, the capital city of Hunan, workers had to climb 20 to 30 floors of stairs after power was shut to office buildings, according to local media. In Yiwu, the Zhejiang city famous for the world’s largest wholesale market, factories were asked to shut for a few days a week, and some owners surreptitiously turned to diesel generators to continue production and meet export contracts.

“The impact of power restrictions on business will definitely be great,” an unnamed business owner in Yiwu told China Economic Weekly. “Many enterprises cannot deliver orders on time.”

©2020 Bloomberg L.P.

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