Tag Archives: electricity

Powering Up Rebalancing

Bar chart of electric power consumption in China by sector, Jan-May, 2018, year-on-year % increase.

ELECTRIC POWER CONSUMPTION acts as a proxy for economic activity. These sectoral figures from the National Development and Reform Commission (NDRC) for the first five months of this year give a snapshot of where the growth is strongest, and points up how the economy is rebalancing.


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Power Consumption Becoming A Less Reliable Proxy For China’s Growth

We have long used changes in electricity consumption in China as a proxy for economic growth in the country. Like all such irregular economic indicators we know that it is a rough and ready approximation, but serviceable as a directional guide. So we should note that as China’s economy becomes more dependent on service industries, it may be becoming less serviceable in that regard. The case is newly laid out by Bloomberg News:

The country divides its economic data into three segments: primary industries, which include agriculture and livestock; secondary, comprised of manufacturing and construction; and tertiary, which includes services and logistics. Electricity consumption in secondary industries grew less than 5 percent in each of the four months through June compared with 10 percent to 14 percent during the same period in 2011, government data show. The primary group’s consumption fell from a year earlier in March, April and May. The tertiary group’s power consumption, by comparison, grew more than 10 percent from a year earlier for most of the first half.

Bloomberg’s conclusion:

A stagnation in electricity output that fanned speculation China’s slowdown is intensifying may instead be evidence of an accelerated transition to a more services-based economy.


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Slow Burning Coal

Changes in electricity consumption are a rough and ready proxy for GDP growth. In the first five months of this year, China’s electricity consumption grew by 5.8%. In the same period last year, it grew by 12%. To this Bystander that feels like a better measure of the extent of the current slowdown than the official GDP numbers.

One other irregular but related measure of economic activity is how much coal is stacked up at the docks. China generates more than two-thirds of its electricity from coal. There is a lot of it right now. Coal stockpiles at China’s largest coal port, Qinhuangdao, reached 8.8 million tonnes earlier this month, up from 7.8 million tonnes at the end of last month and approaching record high of 9.2. million tonnes in November 2008 during the depths of the global financial crisis. Typically, stocks are in the 6 million-7 million tonnes range.

It is a similar story at Hebei’s other coal ports, Huanghua and Tangshan, and at Guangzhou and Fangcheng in the south. In all there are around 20 million tonnes of coal with nowhere to go. The six large power generators in eastern and southern China now have enough coal stockpiled for more than a month’s generation.


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China’s Power Shortages Set To Persist

The drought in southwestern China is now not only leaving farmland parched but it is also starting to hit industry hard. Officials say a lack of water to drive hydroelectric power plants will cause electricity shortages not just this autumn, as has become the seasonal norm, but through the winter .

Water levels in the drought affected areas are down 30-40% from last year, with only limited replenishment from rains expected this autumn. The hydro-caused shortages are been exacerbated by coal-fired power plants also falling short of output goals. Coal prices are rising but utilities can’t raise prices to end-consumers by anything like as much, so they are cutting back production and taking plants off-line for ‘maintenance’ rather than suffer increased losses by generating power.

Difficulties in shipping coal to the power plants has only made matters worse, while the lack of a national grid means that regions with surplus power, notably Inner Mongolia, can’t export it to the rest of the country. Industrial plants in Shanghai and elsewhere on the eastern seaboard have been subject to intermittent power rationing since the summer, as have those in some other parts of the country, such as Guizhou, Qinghai, Gansu and Shanxi. Commercial users have been leaned on to reduce their demand by closing down operations at times of peak demand.

Earlier this year, officials anticipated a nationwide shortage equivalent to a generating capacity of 40 gigaWatts, or 4% of national capacity. The persistent drought in the south and southwest has probably made that number an underestimate. The power shortages are said to be the worse since 2004.

Demand has also been boosted by the boom in sales of white goods over the past couple of years and the property bubble, which has seen badly insulated buildings thrown up by the acre. On some estimates four out of five new homes built since 2008 are thermally inefficient.

With an installed power generation capacity of more than 1,000 GW, China has the largest power system in the world after the U.S. but demand is growing at more than 10% per year. Meeting it requires investment along a rickety supply chain that runs from antiquated coal mines to power plants and on to end-users.

Getting more market based pricing for electricity would go a long way to sorting out the problem. Wholesale electricity prices were raised in parts of the country in May and some commercial and industrial users saw higher tariffs in June, but it is politically difficult to raise prices for residential consumers while consumer price inflation remains so stubbornly high. In truth, China’s energy sector is stuck half way between state and market. As a result, there are incoherent signals about what is the necessary level of supply and investment, and over the incentives for energy saving, despite the much touted development of green energy technologies to make the economy less energy intensive.


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China To Hold Growing Sway Over World Energy Industry

The International Energy Agency’s latest World Energy Outlook (to 2035) says China’s demand for energy will rise by 75% between 2008 and 2035, accounting for 22% of the world’s energy consumption, up from 17% today. Put another way, China will account for 36% of the growth in the world’s energy demand (see snapshot of IEA graph below). The IEA’s projections are based on the assumption that governments will do no more than meet any commitments already given on energy conservation, greenhouse gas emission reductions and the phasing out of fossil-fuel subsidies. (That so-called New Policies Scenario is the most conservative of the three sets of assumptions about governments’ intentions the IEA makes.)

It is hard to overstate the growing importance of China in global energy markets. [The IEA’s] preliminary data suggest that China overtook the United States in 2009 to become the world’s largest energy user, Strikingly, Chinese energy use was only half that of the United States in 2000….Prospects for further growth remain strong, given that China’s per-capital consumption level remains low, at only one-third of the OECD average.

The IEA also says that China’s growing need to import fossil fuels will have an increasingly large impact on international markets. It will account for half the net growth in global crude oil demand over the period, largely because it will need more fuel for cars and lorries. It will also have a voracious appetite for natural gas, the more so if coal use is restrained on environmental grounds. Its needs are likely to make the oil and gas producing nations of Central Asia such as Kazakhstan, Uzbekistan, Turkmenistan and Azerbaijan which draw from the Caspian basin a significant new energy region. Similarly, Beijing’s push to develop new low-carbon energy technologies could help drive down the costs of those through economies of scale.

In China, energy demand triples between 2008 and 2035. Over the next 15 years, China is projected to add generating capacity equivalent to the current total installed capacity of the United States.

Electricity generation is likely to be at the forefront of the transition to low-carbon technologies. The greatest scope for increasing the use of renewable energy sources in absolute terms, the IEA says, lies in power generation. China is already a leader in wind power and solar photovoltaic (PV) production as well as having become a leading supplier of the equipment thanks to strong government investment support. The IEA says China will add 335 gigawatts of wind generation capacity, 105 gigawatts of nuclear and 85 gigawatts of solar PV by 2035 (and put 8.5 million electric vehicles on its roads).  That said, coal-fired generation will remain substantial in China, with 600 gigawatts of new capacity exceeding the growth of the renewables and exceeding the current capacity of the U.S., E.U. and Japan.

The IEA takes aim at subsidies for fossil fuels, which it calls the “single most effective measure to cut energy demand”. It wants them phased out to end the market distortions that make it more difficult for low-carbon technologies to get development investment. It says that such subsidies amounted to $312 billion worldwide in 2009, though that was down from $558 billion the previous year. China was the fifth largest subsidizer in 2009, behind Iran, Saudi Arabia, Russia and India, at just shy of $20 billion. About half of that went to electricity generated from fossil fuels and most of the rest equally to coal and oil. Beijing has been moving towards more market based pricing for energy, but as the figures show, there is still a ways to go.

The subsidies analysis was done at the behest to the G-20, whose leaders are meeting in Seoul shortly and where climate change and the successor to the expiring Kyoto protocol on climate change will be on the agenda. The IEA lays out how heavily the burden lies on China and the U.S. to cut back emissions if the ideal target of limiting the increase in global temperatures to 2°C is to be hit by 2035: 32% China, 18% the U.S. 50% rest of the world. Low-carbon technologies would need to account, the IEA reckons, for over three-quarters of global power generation by then and plug-in hybrids & electric vehicles for 39% of new sales. That day may not come, or at least not fully, but the era of cheap fossil fuels is over. China is already investing heavily in those areas and giving itself a first mover advantage that the rest of the world may find difficult to claw back.

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