China faces power shortage
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Spurred by a string of measures to curb inflation and runaway property prices, this year's round of power supply shortages differs from the shortages of previous years.
The State Grid has announced that power supply systems in the central Chinese provinces of Hunan, Hubei, Henan, Jiangxi and Shanxi are facing significant pressure. Southern parts of the country, including Guangdong Province, are also feeling the pinch as hydropower plants falter over a lack of rainfall.
THERMAL POWER SUPPLY SLUMP
This year's power shortage is closely related to the country's push to transform its economic development pattern by encouraging investment in emerging industries, such as new energy.
This push has raised the entry threshold for energy-intensive sectors, triggering an output slump in some traditional industries, including electricity, cement and machinery, and prompting a spike in demand.
For example, thermal power previously accounted for 75 percent of China's total installed power capacity and 82 percent of the country's generating capacity. But investment in the sector dropped to 130 billion yuan (about 20 billion U.S. dollars) last year from 200 billion yuan five years ago, said Yu Yanshan, deputy director of the office of the State Electricity Regulatory Commission (SERC).
Furthermore, the nation's newly-added thermal power capacity hit 10.01 million kilowatts (KW) in the first quarter of this year, 2.68 million KW less than the same period last year.
Despite huge investments in wind power, solar power and other new energy industries, these industries have contributed very little to the growth of the country's installed power capacity.
China Electricity Council (CEC), a power industry association, predicts a decline in the growth rate of China's installed power capacity over the next three years.
The CEC said that the newly-added installed power capacity may rise 8.2 percent to 85 million KW this year, but the growth rate is likely to slow to 7.3 percent in 2012 and 7.6 percent in 2013.
Xue Jing, director of the CEC's statistics department, said 10 million KW of new energy installed power capacity is only equivalent to 4 million KW of thermal power.
"The recent drops in investment in the thermal power sector dragged down the electricity supply," he said.
COAL PRICES HAMPER ENERGY OUTPUT
Coal-fueled power plants are reluctant to boost production amid rising coal prices, especially since early this month when coal prices rose to their highest levels since November.
Coal prices at the port of Qinhuangdao, a benchmark for China, hit a 36-month high last week as inventories at China's top coal ports sunk to their lowest levels in about six months, according to data from the China Coal Transport and Distribution Association.
Under China's tight price caps on energy-related products, including power, fuel and gas, energy producers can not pass on increases in feedstock costs. A surge in costs affects their profit margins and undermines their willingness to increase output.
China's five major thermal power plants reported losses of more than 60 billion yuan over the past three years, according to a report released by the SERC.
"The key to addressing power shortages is to establish a reasonable power price formation mechanism that takes feedstock costs into consideration. The government should consider raising electricity prices to stimulate the power generators' enthusiasm for production," said Tan Rongyao, the SERC chief supervisor.
But he warned of the possibility of higher inflation as a result of rising power prices.
Coal is currently the primary energy source for around 80 percent of China's power generation. The country wants at least 15 percent of its energy to come from renewable resources by 2020.
Additionally, the country needs to strengthen power transmission systems to cope with rising power demands. China's electricity transmission capacity is far from meeting expectations, leading to a power surplus in the nation's western regions and insufficient supplies in parts of eastern and southern China.
The CEC estimates that China will have a 30 million KW power shortfall this summer.
