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Power crunch underscores China's energy challenge and dilemma

English.news.cn   2011-05-26 19:42:24 FeedbackPrintRSS

BEIJING, May 26 (Xinhua) -- Li Jihong has worked like a starving hunter in the past two months, hounding excess electricity every day from neighboring provinces and municipalities to fill the gap for Zhejiang Province, where power has been short for months.

"My job was pretty easy during the past years when the electricity supply was abundant," said Li, an official with Zhejiang Electric Power Corp. responsible for dispatching electricity to numerous factories and 54 million people living in the province.

"And unexpectedly, a power shortage comes again," he said.

The Zhejiang government's electricity authority predicts the province will be short of 3.5 million kw to 5 million kw of electricity this summer.

And it's not just Zhejiang. Such a power crunch will be widespread in the country this summer when demand peaks, warned the world's largest utility, State Grid Corp. of China (SGCC), in its forecast on Monday.

The situation in eastern and coastal regions will very likely be worse than that in 2004 when the worst power scarcity hit the country, according to SGCC, China's largest power distributor.

"This year will be the toughest for electricity supply in China," said SGCC deputy general manager, Shuai Junqing. He expects the situation over the next two years to be "even worse," with more deficiencies in broader areas and for a longer time.

According to SGCC, the electricity deficit will total 30 million kw in 26 provinces and municipalities, including Beijing, Tianjin, Shanghai, Hebei, Jiangsu, and Zhejiang this summer, an equivalent to the installed power generating capacity in southwest China's largest municipality of Chongqing, home to 28.8 million people.

However, electricity supply outpaces demand in resources-rich Inner Mongolia in northern China and Xinjiang and Gansu in the northwest. And power generating plants and coal producers are still unable to transport their excess electricity or thermal coal to the eastern and southern regions, which lack natural resources and are desperate for energy.

Shuai blamed a shortfall of thermal coal, insufficient power generating facilities in some areas, and grid transmission problems for the tight power supply in China's economically-developed eastern and coastal areas.

POSTPONED JUDGEMENT?

A study of electricity consumption in the provinces of Zhejiang and Jiangsu, however, highlights the challenges China faces amid the power woes, analysts say.

According to the Zhejiang Electric Power Corp., electricity consumption rose 12.6 percent from a year earlier to 94.8 billion kw in Zhejiang during the first four months this year, boosted by the expansion of high energy-consumption and high-pollution industries.

In Zhejiang, the industrial value-added output, which measures the industrial expansion, increased by only 12.9 percent year-on-year in the first quarter, but electricity consumption by non-ferrous metal manufacturers rose much faster -- a rate of 20 percent year on year.

"Last year, some local governments took temporary measures such as suspending approval of high energy-consumption projects just to meet the short-term goal of energy-saving and emissions reduction for the 11th Five-year Plan period (2006-2010)," said Wu Zhonghu, secretary-general of the Energy Economy Professional Committee with China Energy Research Society.

Wu said many such postponed projects will begin building this year, thus leading to a surge in electricity demand from industries.

China's existing electricity-generating structure also adds to the pressure of energy supply, as about 85 percent of its electricity comes from thermal power plants in the first quarter, according to the National Energy Administration.

China Energy Net's Chief Information Officer Han Xiaoping said China's electricity shortfall is structural since provinces like Guangdong, Jiangsu and Zhejiang rely too much on energy-intensive industries for economic growth.

"The gross domestic product (GDP) per capita in these province is almost 10,000 U.S. dollars; they should have restructured their economy and burnt less coal," Han said, adding that he hopes the current power shortage can accelerate the transformation of the economic growth pattern.

PRICING GAP

Some observers say power plants are discouraged to generate electricity by the fact that grid companies earn huge profits while they suffer losses.

In China, electricity can reach consumers only after power-generating plants sell electricity to grid companies through an "in-grid" process. Then the grids resell them to consumers for industrial and residential use.

According to the power plants, the cost of generating one kwh of electricity has already exceeded the price they sell to grid companies, so the more electricity they generate, the more money they lose.

Grid companies bought electricity from power plants at an average price of 383.89 yuan (59.1 U.S. dollars) for every 1,000 kwh last year, where it was then sold to consumers at an average price of 571.44 yuan, according to data from the State Electricity Regulatory Commission (SERC).

China's top five state-owned power generating giants -- China Huaneng Group, China Datang Corp., China Huadian Corp., China Guodian Corp. and China Power Investment Corp. -- lost some 60 billion yuan in their thermal power generating business during the past three years, according to SERC.

In contrast, SGCC posted a 40-billion yuan profit last year.

Yun Gongmin, general manager of Huadian, said the company is under great pressure to control costs as coal prices rise. Although the company has increased its investment in hydropower and windpower to diversify energy sources, it still depends heavily on thermal power in the short run, Yun said, predicting that Huadian's demand for coal this year will exceed 70 million tonnes.

Deputy General Manager of SGCC, Shu Yinbiao, insists that the current electricity supply-demand tension has nothing to do with grid's profits.

"Comparing 40 billion yuan of profit with 2 trillion yuan of asset value, SGCC's profit margin last year was not high," Shu says.

The difference of pricing coal and electricity draws the attention from academics, too.

Professor Lin Boqiang, director of China Energy Economy Research Center with Xiamen University, says the power shortage a few years ago was caused by insufficient installed capacity, but the electricity crunch this year is because of the pricing system.

"The market now fully decides thermal coal's price, but the state still strictly controls electricity prices in China," Lin said.

HIKE TO BITE?

In 2004, the Chinese government introduced a scheme that links electricity prices with the fluctuation of coal costs in order to improve the electricity price formation system.

Under the scheme, if coal prices rise 5 percent or above during a linkage cycle of six months, electricity prices will be adjusted accordingly.

The scheme was effective, however, only twice since its introduction because it was not widely implemented, and thermal coal prices has almost doubled from the 2004 level to about 820 yuan per tonne now.

So the current electricity inadequacy in many regions might prove to be a strategy by some power plants pushing for price hikes, at least for in-grid prices they sell to grid companies, analysts say.

"Speaking from a national perspective, we have a balanced supply-and-demand situation because installed power generating capacity remains higher than the normal demand level," said Shan Baoguo, a researcher at the Energy Institute with SGCC.

"Coal producers and power plants are gaming now, playing for their own stake," Shan says.

To fill the pricing gap between thermal coal and electricity, the government can hike electricity price to balance the interests of power plants and grid companies, suggests a manager working for a power plant, who declines to be named.

Such a strategy may backfire, however, amid efforts to battle inflation, as such increases will probably be passed on to the public, who have already been plagued by soaring prices.

The Consumer Price Index (CPI), a main gauge of inflation, rose 5.3 percent year-on-year in April, well above the government's annual inflation control target of 4 percent.

While power generating giants still worry about coal prices, smaller power-generating companies like China Resources Power Holdings Co., Ltd. believe they have found a way out of the plight.

"We have two cents of profit for every kwh of electricity we produce," says Wang Xuehua, deputy manager of the Jiangsu Provincial Branch of China Resources Power Holdings Co., Ltd..

The secret is simple.

"Our confidence comes from the acquisitions last year of three coal mines with total coal reserves of 457 million tonnes in Shanxi Province," she says.

Editor: Wang Yan
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