Tag Archives: power generation

Power Cuts Highlight China’s Decarbonisation Challenge

Coal fired power plant in Shuozhou, Shanxi province. Photo credit: Kleineolive. Licensed under the Creative Commons Attribution 3.0 Unported license.

REPEATED POWER BLACKOUTS are a sign of misfiring economic management that does not reflect well on governments. Electricity shortages have hit many regions of China over the past month, affecting manufacturing, traffic and street lighting, and homes, often without warning. Sixteen out of 31 provinces have begun rationing electricity, and the northeast faces the prospect of power cuts running through the winter.

The power shortages are the consequence of a combination of contradictory policies: moves to improve energy efficiency and cut consumption in support of carbon reduction goals, and fitful reform of the largely coal-fired power generation sector where long-standing subsidies and price controls cannot withstand the rise in global coal prices, leaving power plants short on fuel.

Provinces’ implementation of obligatory emission-reduction targets imposed on them by central government has been haphazard, varying from draconian to lax. In addition, the 3% reduction target for energy intensity for 2021 has also got ahead of the planning process.

The 14th five-year plan (2021-25) mandates targets for improving energy intensity (energy consumption per unit of GDP) and reducing CO2 emissions per unit of GDP. There is also a binding minimum target for the domestic energy supply from all sources of 4.6 billion tonnes of standard coal equivalent (versus 4.86 billion in 2019), but no caps on carbon emissions and coal consumption, and only an aspirational goal to increase the share of non-fossil-fuels in total energy consumption.

The 14th Five-Year Plan for Energy, likely to be published around or after the COP26 summit in Scotland in November, will provide provincial and municipal governments with a more detailed road map. However, that will cover the years through to 2025 and not show the full path to the 2060 net carbon neutrality target date. However, until they have that road map, Chinese and foreign firms operating in China will delay drawing up the emissions reduction strategies that are likely to be required.

The current energy intensity target has also run headlong into China’s infrastructure-investment pandemic stimulus and export- and industry-driven recovery. Factories have put filling orders now, with the consequent surge in demand for power, ahead of improving their energy efficiency.

Last year, primary energy consumption rose 2.1%, coal consumption 0.6% and carbon emissions 0.3%, whereas energy consumption and emissions declined in almost every other economy. The trends have accelerated into 2021.

Beijing is now having to arrange emergency coal supplies for fuel-short provinces and marshall the distribution grid for inter-provincial power-sharing.

The power situation illustrates the costs Beijing will have to shoulder politically and economically if President Xi Jinping’s decarbonisation goals are to be met, and more generally in structurally changing the economy for the next phase of economic development.

Achieving both will mean slower growth, which will have political as well as economic management dimensions. All but the wealthiest provinces are still industrialising, reliant on energy-intensive infrastructure and industries for growth and jobs, and remain fossil-fuel dependent. Xi has also set a goal of doubling the economy over the next quarter-century, implying 4% annual growth.

Yet even with modest growth rates reducing energy demand, technological advances in energy efficiency and the fledgling national carbon trading market taking wing, it will still require rigorous enforcement of central government policies to change the country’s energy mix to lessen its dependence on fossil fuels. As the efforts to impose energy intensity standards are now showing, provincial and local officials will readily foot drag or worse in implementing Beijing’s policies when it is in their interests to do so.

As with many aspects of rebalancing, the tight networking of local officials and local industries provides inherent resistance to policy direction from the centre. This is exacerbated by many of the major players in energy, including the oil companies, major power generators, the two grid companies and industrial consumers such as steel and cement manufacturers, are state-owned enterprises with size and political influence, especially at the local level.

China is far from alone in having to deal with the conflicting tensions between climate mitigation measures and jobs and economic growth. Beijing has prioritised the former of late, but continuing to do will require sufficient political will at high enough levels of the leadership. That will continue to exist until it does not because the political calculations have changed.

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China Will End Coal-Fired Power Plants Abroad If Not Yet At Home

CHINA WILL STOP funding the construction of overseas coal-fired power stations under the Belt and Road Initiative, President Xi Jinping told the UN General Assembly meeting in New York via a video link.

The decision will be taken as a welcome, if somewhat symbolic, boost to global control of greenhouse gas emissions, with the next round of COP climate discussions due to take place in Scotland in November.

However, Xi was light on details of how the policy change would be implemented; his announcement amounted to a single sentence in his speech. It appears that China has not funded any coal-fired power stations abroad so far this year, although it has accounted for the majority of new coal projects around the world in recent years.

The bigger switch for China, the world’s largest emitter of greenhouse gases, would be to wean itself off its dependency on coal for domestic power generation.

Half the coal burned in the world is burned in China, and in the first half of this year, authorities approved the construction of 24 new coal-fired domestic power plants, according to Greenpeace, although that is a fall of 80% from the same period last year.

Many of these plants will have a lifespan of 40 to 50 years. That will make meeting Xi’s other climate commitments made last year at the UN, including China achieving peak emissions before 2030 and then transitioning to carbon neutrality by 2060, challenging to achieve.

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China Will Rebalance The World’s Energy

Wind turbines in Xinjiang, 2005. Photo credit: Chris Lim. Licenced under Creative Commons

ACROSS THE MORE heavily industrialised provinces, factories and plants are being ordered to shut down or limit production during the winter months. This is both to curtail excess industrial production and also to curb seasonal smog, a byproduct of China being the world’s largest consumer of coal, which provides 65% of its energy.

The newly published annual outlook from the International Energy Agency (IEA) brings a glimmer of a silver lining to that particular dark cloud. China, it says, will remain a ‘towering presence’ in coal markets, but it believes coal use peaked in 2013 and is set to decline by almost 15% over the period to 2040.

China burnt 2.75 billion tonnes of coal in 2013, more than the rest of the world put together.

It is no secret that Beijing sees pollution as a potential political problem and that it is keen for China to go green. Lian Weiliang, deputy head of the National Development and Reform Commission, said earlier this week that the country was ahead of pace in its goal to cut coal capacity by 500 million tonnes within three to five years of 2016, while the Ministry of Industry and Information Technology forecast that environmental protection equipment manufacturing would be a 1 trillion-yuan ($150 billion) industry by 2020.

The new era will be about energy policy where the focus is on electricity, natural gas and cleaner, high-efficiency and digital technologies, not an energy system dominated by coal and a legacy of serious environmental problems, giving rise to almost 2 million premature deaths each year from poor air quality.

The switch will also flow from rebalancing the economy from a development model based on heavy industry, infrastructure development and the export of manufactured goods to one driven by higher-value-added manufacturing, services and domestic consumption.

Signs of the new era are there to be seen. Energy demand growth slowed markedly from an average of 8% per year from 2000 to 2012 to less than 2% per year since 2012. Official plans call for it to slow further to an average of 1% per year to 2040.

Energy efficiency regulation is a large part of the explanation. Without new efficiency measures, the IEA reckons, end-use consumption in 2040 would be 40% higher.

Nonetheless, such is the compounding effect of economic growth that by 2040, per-capita energy consumption in China will exceed that of the European Union and electricity demand for cooling alone in China will exceed the total electricity demand of Japan today.

The IEA reckons that China will need to add the equivalent of today’s United States power system to its electricity infrastructure to meet the demand expected by 2040. Such will be the scale of China’s clean energy deployment, technology exports and outward investment that it will play a huge role in determining global energy trends and in particular provide the momentum behind the low-carbon transition.

“When China changes, everything changes”, as the IEA says.

The agency lays out the future thus:

One-third of the world’s new wind power and solar PV is installed in China … and China also accounts for more than 40% of global investment in electric vehicles. China provides a quarter of the projected rise in global gas demand and its projected imports of 280 billion cubic metres in 2040 are second only to those of the European Union, making China a lynchpin of global gas trade. China overtakes the United States as the largest oil consumer around 2030, and its net imports reach 13 million barrels per day in 2040. But stringent fuel-efficiency measures for cars and trucks, and a shift which sees one-in-four cars being electric by 2040, means that China is no longer the main driving force behind global oil use – demand growth is larger in India post-2025.

China will also continue to lead a gradual rise in nuclear output, overtaking the United States by 2030 to become the largest producer of nuclear-based electricity.

The shift to a more services-oriented economy and a cleaner energy mix will take a decade to have its effects on the skies above. The IEA projects carbon dioxide emissions will plateau at only slightly above current level by 2030 before starting to fall back.

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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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Power Shortages Start To Bite

A sign of how fast the economy continues to grow: state media are reporting power shortages in several provinces. The China Electricity Council says it may be short of 30 million kilowatts of power come the peak summer season. Zhejiang, home of much heavy industry, is already facing its most severe shortages since 2004. Guangdong, Jiangsu, Jiangxi and Hunan are also suffering from shortages with some rationing already introduced.

This is mostly a structural supply demand imbalance though coal shortages are playing a part now, particularly the disruption of coking coal imports from Australia following flooding in Queensland. Nationwide, electricity consumption in the first quarter of the year was up 12.7% over the same period of 2010, exceeding 1 trillion kilowatts. Supply is struggling to keep up, with capacity expansion planned to increase by 9% this year. More grist for the mill of those wanting the expansion of the country’s nuclear power generation to be resumed.

Footnote: China Law Blog considers the implications for locating a foreign-owned small business.

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Where China Put Its Big Bucks In 2010: Down South America Way

South America dominates the list of the biggest overseas acquisitions by Chinese companies this year. The two biggest to date: Sinopec’s $7 billion purchase of 40% of the Brazil assets of the Spanish energy group, Repsol; and the $5.6 billion CNOOC is spending in two phases for 50% of Bridas Corp., the investment vehicle of the Argentine vertically integrated energy group, Bridas. Bridas Corp.’s primary asset is Pan-American Energy (PAE). The partners are buying out BP’s 60% stake in PAE as BP raises cash to put in a piggy bank for any obligations arising out of the Deepwater Horizon accident, turning what looked in March like an iffy investment by CNOOC into something much more promising by the end of November.

Sinopec has since also picked up the U.S. oil company Occidental’s production and development assets in Argentina for $2.5 billion, the fourth biggest overseas investment by a Chinese company this year. The third biggest was Sinochem’s $3.1 billion purchase of a 40% stake in Statoil’s Peregrino subsalt field off the Brazilian coast. Add in a couple of smaller deals in Venezuela and Chinese firms have secured this year stakes in six projects that will eventually be producing upwards of 570,000 barrels of oil a day.

China’s state oil companies have long had a toe-hold in the region, but this year represents a big step forward, including diversifying China’s energy dependence on Venezuela. These deals have not only secured future oil supplies, they are also piecing together a vertical supply chain that includes refining, trading and storage — and further downstream power generation and distribution. State Grid, the world’s largest power utility and another state-owned behemoth, spent nearly $1 billion to acquire seven power distributors in Brazil as part of a deal it has won to be operate the power distribution system in densely populated southeastern Brazil.

Taken together those seven acquisitions would make a list of the ten largest overseas acquisitions by Chinese companies in 2010. As well as securing energy supplies for China’s own fast growing economy, Chinese companies will be well positioned to profit from the domestic growth of the emerging economies of South America.

In comparison the other big overseas acquisitions of the year seem small beer. PetroChina spent $1.6 billion to acquire Arrow, an Australian coal seam and power distribution company, in a joint bid with Royal Dutch Shell valued at $3.2 billion overall. Chinalco spent $1.3 billion to buy 45% of Rio Tinto’s Simandou iron ore business in Guinea through its Chalco subsidiary. China Huaneng Group, the country’s largest electricity producer, paid $1.2 billion for GMR Infrastructure’s 50% stake in InterGen, a U.S.-based utility that runs power plants in Britain, the Netherlands, Mexico, Australia and the Philippines.

The biggest industrial foreign acquisition was Geely’s $1.8 billion acquisition of Volvo from Ford Motor, the largest piece of business done by a company not state owned. The next largest industrial acquisition was the purchase of Nexteer, a parts-maker bought from GM by Pacific Century Motors, a joint venture between Tempo Group and the investment arm of the Beijing municipal government, a deal valued at less than $500 million.

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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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