Friday January 25, 2008

Record power shortage hits China

reuters.com :

China is facing its most severe power shortage ever as some plants struggle to secure increasingly costly coal and others shut down capacity rather than rack up losses by selling electricity at low rates. The rebellion by power plant managers unwilling to generate at a loss is likely to worry policymakers still haunted by the nationwide diesel supply crisis last autumn, when refiners under similar pressure quietly curbed output and forced the government to make an unplanned and unwanted rise in fuel prices.

Beijing is battling high inflation and has promised not to raise energy prices in the short-term, so few analysts expect an immediate hike in power tariffs. But the shortages may prove a tricky test of the central government's resolve and power. Brownouts have hit at least 13 provinces, and at its peak nationwide demand outstripped supply by nearly 70 gigawatts, or the equivalent of most of Britain's generating capacity. Many plants are being turned off or running at reduced rates as capped electricity tariffs combined with record coal costs demolish profits, traders and industry figures said. About 80% of China's electricity is generated by burning coal.

At its core, analysts said the problem was largely the result of Beijing's attempts to control inflation and avoid social unrest by controlling the price of some types of energy, like power, while allowing others like coal to be liberalised. Officials are caught between two policies - fixed power tariffs, and coal prices freed to float several years ago.

- Yet another lesson on the abject failure of price controls. The Chinese are doing something about it but it will be difficult. It is easy for governments to give price subsidies and to implement price controls "for the sake of the people", but it is not easy to take these back.

- Update : the Chinese have halted coal exports to try to deal with the situation - China's Transport Ministry ordered ports on Friday [25 Jan 2008] to temporarily stop loading coal for export as the country struggles to meet domestic needs amid mounting power shortages. It warned of "severe" consequences for failing to comply with the order, to stay in effect through the Lunar New Year holiday in February and the annual session of the national legislature in early March.

See also :

1. Living the diesel shortages in China
2. China in grip of inflation
3. Shanghai facing summer blackouts
4. China proposes market-based energy pricing in draft of energy law

(2008-01-25 13:49:45 SGT) [Energy] Permalink

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