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Power Shortages Spreading

We noted at the beginning of this month that power shortages were starting to bite in Zhejiang, Guangdong, Jiangsu, Jiangxi and Hunan. State media are now adding Shanghai and Chongqing to the list

The China Electricity Council has repeated its estimate that it may be short of 30 million kilowatts of power come the peak summer season, with the council’s Xue Jing adding the color commentary earlier this week that that is the equivalent to the consumption of three Chongqings. However, given China generates 3,700 terrawatt hours of electricity, that is a relative drop in the bucket, to mix a metaphor, and explains why the impact on industry of the cuts has been mild to date. Rationing seems to be worst in Zhejiang, home of much heavy industry, where firms face being without power for a day every four to seven days. Elsewhere, air conditioning has been ordered to be turned down and street lights dimmed or extinguished.

Tightness between supply and demand is the reason for the cuts and rationing but it has been exacerbated by China’s dependence on coal for 70% of its power generation. While the price of coal has risen by a fifth over the past year, authorities have allowed power generators only a 2% increase in electricity prices as they battle inflation. The five biggest power companies, which generate half the country’s power, lost 10.6 billion yuan ($1.6 billion) in the first four months of this year. That dissuades them from running their plants flat out. The industry as a whole lost 18.3 billion yuan in the first quarter.

The National Development and Reform Commission now says that power companies in three power-short provinces, Jiangxi, Hunan and Guizhou, will be allowed a further modest price rise “to eliminate power shortages and boost local power companies’ flagging profits”. Henan and Hubei will reportedly get price hikes, too. Consumer prices will not be raised, however, so no market signals are being sent to dampen consumption.

A second exacerbating factor this year is the drought in central and southern China which has hit hydropower generation particularly in the south making the usual shortages ahead of the reservoir-replenishing summer rains worse than normal. A patchwork of regional power grids means it is nigh impossible to redistribute electricity from regions where there is surplus to those where there are shortages. Meanwhile exports of diesel have been banned so adequate supplies are available for emergency generators.

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