SHANGHAI. The bakery company cannot get all the capacity it needs for its bakeries. A chemical supplier for some of the world’s largest paint manufacturers has announced production cuts. The port city changed electricity rationing rules for producers four times a day.
Electricity shortages in China are spreading to factories and industries, testing the country’s status as the world capital of sustainable production. The coal shortage has prompted a push in the country to mine and burn more coal, despite government promises to cut climate change-causing emissions. And this deficit calls into question whether Beijing will be able to deliver the strong economic growth that the people of China have expected in the coming months.
The electricity crisis also exposed one of China’s strategic weaknesses: it’s an insatiable and increasingly hungry energy hog.
The world’s # 2 economy relies on energy-intensive industries such as steel, cement and chemicals to drive growth. While many of his new factories are more efficient than their counterparts in the United States, years of government control over electricity prices have lulled other industries and most homeowners have put off improvements.
With the winter heating season approaching, which will require China to dig and burn even more coal, Beijing must decide whether to allow factories to continue to fully produce industrial materials for global supply chains.
“They have to donate something to provide heat and electricity to the household,” said Chen Long, co-founder and partner of Beijing-based economic and policy research firm Plenum. “They have to cut down on energy-intensive industries.”
Electricity rationing appears to have eased somewhat since late last month, when massive blackouts and blackouts caught factories by surprise. But the winter heating season officially begins Friday in the northeast of the country and continues in north-central China next month.
China faces a tough choice. It burns more coal than the rest of the world combined, and is the No. 2 consumer of oil after the United States.
China is rapidly expanding its use of natural gas, as well as solar panels, wind turbines and hydroelectric dams. However, China still does not have enough energy to meet demand. Even switching to clean energy can be costly – the country’s limited electricity supply has increased the cost of producing solar panels.
Sustained supply constraints could force China to reshape its economy, just as the high oil prices of the 1970s forced the countries of North America and Europe to change. These countries have developed more efficient cars, adopted other fuels, discovered many new supplies, and moved production overseas, mainly to China. But the process was long, painful and costly.
At the moment, China is increasing its coal consumption less than a month before world leaders gather in Glasgow, Scotland to discuss tackling climate change.
Regulators announced last week that the country’s banks should lend to the coal sector to boost production. Premier Li Keqiang oversaw a meeting of the country’s top energy officials on Saturday, which called for more coal, although he also pledged more investment in green energy.
Board members of the European Union Chamber of Commerce in China said Wednesday that power shortages have worsened this week in some cities and narrowed in others. They predicted that electricity problems would last until March.
Until there is enough electricity, China’s factories risk unexpected and destabilizing shutdowns. Factories in China consume twice as much electricity as the rest of the country’s economy. China’s factories typically require 10 to 30 percent more energy than factories in the West, said Ma Jun, director of the Institute of Public and Environmental Issues, a Beijing-based research and advocacy group.
Over the past two decades, China has achieved more energy efficiency success than any other country over the past two decades, according to Brian Motherway, head of energy efficiency at the International Energy Agency in Paris. But since China began the century with an inefficient industrial sector, it still hasn’t caught up with the West, he said.
The impact of the power shortage has been mixed. Car assembly plants in northeastern China were allowed to continue operating, but the tire factories nearly ceased operations. Wuxi Honghui New Materials Technology, which makes chemicals for global paint manufacturers, said the power outage damaged production.
Others revealing difficulties include Toly Bread, with a national bakery chain, and Fujian Haiyuan Composites Technology, a battery box manufacturer for China’s fast-growing electric vehicle industry.
Fred Jacobs, a 57-year-old Seattle-based software seller, ordered two high-performance SSDs from China at the end of the summer, but was offered a refund a week ago as power shortages would delay production delays.
“I was overwhelmed because I had heard about supply problems to China, but not about food or infrastructure problems with Chinese suppliers,” he said. “The risk is much higher now and I will buy from US suppliers even if I have to pay more.”
The loss of electricity has resulted in loss of life, which could be exacerbated if homes are cut off from electricity in winter. At least 23 workers were hospitalized in northeastern China late last month with carbon monoxide poisoning when power went out at a large chemical plant.
The government is taking steps to improve efficiency, such as allowing utilities to raise prices for industrial and commercial users by 20 percent so that they can buy more coal.
China virtually halted new investment in coal in 2016 as concerns arose over the sustainability of the industry. Anti-corruption officials have launched investigations focusing on some important coal deposits in the Inner Mongolia region, further hampering investment.
In late summer, many mines were closed for security checks. Flooding this fall in Shanxi province, China’s largest coal mining center, has forced at least 60 mines to close.
With demand rising since the pandemic, prices have skyrocketed. Power plants were losing money for every ton of coal they burned, so they were running at about three-fifths of their capacity.
Chinese officials hope to replace most of the coal energy with solar power. But solar panel production in China requires a huge amount of electricity, mostly from coal.
Polysilicon, the primary feedstock for solar panels, has more than tripled in value recently, with much of that growth in the past couple of weeks, said Ocean Yuan, president of Grape Solar, a solar panel distributor in Eugene, Oregon.
In China, the cost of building large solar panel farms has jumped about 25 percent since the beginning of this year.
“We haven’t seen this level in years,” said Frank Haugwitz, a solar panel manufacturing consultant in China.
China is also looking to improve the efficiency of its steelmaking industry. Its steel mills consume more electricity annually than all the houses in the country and account for about a sixth of China’s greenhouse gas emissions.
Chinese steel companies continue to rely on coal-fired blast furnaces, which smelt mainly iron ore to make steel. The West has largely switched to steel production in efficient electric arc furnaces that smelt scrap metal and iron ore. China is trying to improve the collection of scrap metal from demolished buildings, but the transition to electric arc furnaces will be gradual, said Sebastian Lewis, a Chinese energy and commodities consultant.
So far, China’s worries are focused on winter. During a cold snap last December, some cities ran out of coal and cut production capacity, turned off street lights and elevators, and limited office heating. Problems arose even when the power plants began the winter with several weeks’ worth of coal.
Coal data from China’s CQCoal says that this year the largest provinces in China will have a shelf life of 9 to 14 days.
“The stocks are low, much lower than they should be,” said Philip Andrews-Speed, China energy specialist at the National University of Singapore. “And they panic about winter.”
Li Yu and Claire Fu contributed to the study.