What caused the electricity crisis in China and when will it end?

SHENYANG, China –

Classroom lights were off at Baita Elementary School. The screen on the front door that normally displayed announcements had also gone out. Children played sports outdoors instead of learning, and mothers did not know when China’s energy crisis would end.

“We have never had a power cut like this in Shenyang,” said a mother, wearing a long, flowery skirt and permed hair. She refused to give her name. Power outages for an hour or two were annoying, if tolerable, but now entire neighborhoods of her town were losing power for periods of a day.

The woman was especially concerned that her elderly parents lived in a 33-story building. When the electricity went out, so did the water. She imagined them huddled in the dark, the elevators broken, their phones dead. She said people shouldn’t “have to live like this in modern times. At least the government should warn us before that happens.

China’s nationwide electricity crisis has caused drastic power cuts. Factories across the country have shifted to reduced hours or have been asked to shut down, slowing a supply chain already strained by shipping blockages due to coronavirus outbreaks. The crisis had been building up all summer but gained public attention last week when provinces in northeast China suddenly cut power to residential areas.

The shortages come at a time when Chinese leaders are faced with complaints from a growing middle class worried about housing, education and future prospects. These concerns have been underscored in recent weeks by news that one of the country’s largest real estate developers, Evergrande, is $ 300 billion in debt and at risk of collapsing. Analysts say such problems are signs of deep problems in China’s economic downturn.

In Shenyang, the capital of Liaoning Province, hundreds of cars were stranded on dark freeways for hours over the weekend as the traffic lights suddenly went out. On September 24, twenty-three people in Liaoyang, one hour south of Shenyang, were hospitalized with gas poisoning after power cuts at a steel casting company.

Chinese social media has been filled with complaints from other northeastern residents of being stuck in elevators, losing water and a case of carbon monoxide poisoning when exhaust systems have failed. lost electricity in the middle of the night. In a manufacturing area a few miles from Baita Primary School, all factories appeared to be closed this week except one called Jinbei, which manufactures auto parts. The faint roar of a generator hummed and hummed through the air.

A worker outside the plant, who declined to give his name, said the plant lost power earlier in the week, but managers had brought in this generator two days earlier. Most of the other businesses on the street had told workers to go home early for the October vacation. The factory was determined to complete its orders. “As long as Benz is still making cars, we will continue to make parts,” he said.

The sudden blackouts have exposed vulnerabilities in China’s power sector and economy. Overdependence on coal and too much emphasis on growth, which coincided with the rise in coal prices this year, have created shortages. Analysts say poor coordination between China’s energy and economic policies and structural problems in China’s power sector have made matters worse.

Coal prices have skyrocketed as the country struggles to meet growing demand as it spends on heavy industry, real estate and infrastructure construction to spur economic growth and recovery after COVID-19. A rebound of the coronavirus in the United States and Europe has resulted in increased demand for energy as China’s manufacturing industry shifts to meet increased orders. Meanwhile, droughts in southwest China have reduced hydropower production, leading to greater reliance on coal.

“What happened was a repeat of what happened every time there is a negative economic shock in China,” said Lauri Myllyvirta, chief analyst at the Center for Energy and Research. clean Air. “The government is using real estate construction and infrastructure construction as a means of stimulating the economy. This is what led to it.

Many mines were closed this summer after several fatal accidents ahead of the Communist Party’s 100th anniversary^e birthday. China has also closed inefficient or overcapacity coal mines in an attempt to improve energy efficiency. Inventories were further reduced when China stopped importing coal from Australia in retaliation to Australia calling for an investigation into the origins of the coronavirus that causes COVID-19.

Environmental concerns also played a role. Political pressure for smog-free skies for the Chinese National Games, a sporting event held in Shaanxi province in late September, has likely added to coal mine cuts. Calls for blue skies are now moving to provinces around Beijing ahead of the 2022 Winter Olympics.

Despite promises that China’s carbon emissions will peak by 2030 and be carbon neutral by 2060, the country remains the world’s largest coal consumer and has continued to increase its carbon footprint. coal consumption as part of its economic growth. More than 50% of its energy production is based on coal.

The problem is compounded by a structural problem in the Chinese energy sector: Power plants buy coal at market price but are not allowed to increase electricity tariffs for customers beyond low margins set by national planners. . When coal is expensive, many power plants report “maintenance failures” and reduce or shut down operations rather than incur losses.

“No one will generate electricity to waste more money because they know they are not only burning coal but also money,” said Li Shuo, senior global policy adviser at Greenpeace Asia. ‘East. This disconnect between market-based coal prices and regulated electricity prices is a symptom of China’s outdated electricity sector, he said.

“The challenge of our electricity system is that we are trying to integrate more technologies that belong to the 21^st century, ”Li said.“ But political economy, the way we run our electricity system, still belongs to the 1990s. It’s really about command and control.

This market rigidity has forced the northeastern provinces to make sudden power cuts to prevent a grid collapse.

“It’s a big disaster. It just shows that they are not prepared, ”said Yan Qin, chief analyst at Refinitiv. Beyond the issue of price regulation, provincial governments have also failed to plan for security of supply even as the central government prepares to shut down inefficient mines and reduce carbon emissions, a. she declared.

This lack of response stems from the fact that provincial governments prioritize gross domestic product growth as a measure of their performance. For decades, China’s overall economic model has relied on construction and heavy industry to drive growth, with local officials being rewarded for high production numbers.

This strategy may be changing. China’s leading economic planner, the National Development and Reform Commission, has set targets to reduce energy consumption while increasing efficiency. Many provincial governments have yet to meet these targets, but are under increased pressure to take corrective action.

“Provincial governments have prioritized GDP growth and industrial production. This is what they have always done, ”said Yan. “Now the central government is changing the mindset.”

Analysts say that in the future – despite the coming winter when coal mining and coal imports will increase to meet energy demand – the crisis is expected to reduce China’s dependence on fossil fuels and lead to investments in renewable energies to avoid high fuel prices.

“When China talks about energy security, it is basically talking about coal,” Li said. China’s power system is structured around coal-fired power plants in the hope that they can operate 24/7 and ensure stability, he said. “But what I see in front of me just demystified this story. Coal is not entirely safe and secure.

Ziyu Yang of the Times Beijing office contributed to this report.