China is struggling with a severe shortage of electricity which has left millions of homes and businesses hit by power cuts.
Blackouts are not uncommon in the country, but this year a number of factors have conspired to create a perfect storm for electricity providers.
As winter approaches, the problem is particularly acute in China’s north-eastern industrial hubs, and it may have global ramifications.
Why has China been hit by power shortages?
Historically, the country has struggled to balance electricity supply and demand, putting many of China’s provinces at risk of power outages.
The problem is exacerbated during peak power consumption periods in the summer and winter.
This year, however, a number of factors have conspired to make the problem even more serious.
As the world begins to reopen following the pandemic, demand for Chinese goods is increasing, and the factories producing them require significantly more power.
Beijing-imposed rules aimed at making the country carbon neutral by 2060 have slowed coal production, despite the fact that the country still relies on coal for more than half of its power.
And as demand for electricity has increased, so has the price of coal.
However, because the government strictly controls electricity prices, coal-fired power plants are unwilling to operate at a loss, and many have drastically reduced their output instead.
Who is being affected by the blackouts?
Power outages have impacted homes and businesses across several provinces and regions, as electricity has been rationed in several provinces and regions.
According to the state-run Global Times newspaper, outages occurred in four provinces: Guangdong in the south and Heilongjiang, Jilin, and Liaoning in the north east. Power outages have also been reported in other parts of the country.
Companies in major manufacturing areas have been asked to reduce energy consumption during peak demand periods or to limit the number of days they operate.
Steel production, aluminium smelting, cement manufacturing, and fertiliser production are among the industries hardest hit by the outages.
What has the impact been on China’s economy?
According to official data, Chinese factory activity fell to its lowest level since February 2020, when coronavirus lockdowns crippled the economy.
Concerns about the power outages have led global investment banks to lower their forecasts for the country’s economic growth.
According to Goldman Sachs, power outages have impacted up to 44 percent of the country’s industrial activity. It now expects the world’s second largest economy to grow by 7.8 percent this year, down from 8.2 percent previously.
Globally, the outages could disrupt supply chains, especially as the holiday shopping season approaches.
Since the world’s economies reopened, retailers around the world have already faced widespread disruption due to an increase in demand for imports.
What is China doing to resolve the problem?
The National Development and Reform Commission (NDRC) of China has proposed a number of solutions to the problem, with energy supplies in the country’s northeast being the top priority this winter.
Working closely with generating companies to increase output, ensuring full coal supplies, and promoting electricity rationing are among the measures.
According to the China Electricity Council, which represents generating companies, coal-fired power companies are now “expanding their procurement channels at any cost” in order to ensure winter heat and electricity supplies.
Finding new sources of coal imports, on the other hand, may be difficult.
Russia is already focused on its European customers, Indonesian output has been hampered by heavy rains, and neighbouring Mongolia is experiencing a shortage of road haulage capacity.
Are energy shortages around the world connected?
Power outages in China, petrol stations running out of fuel in the UK, rising energy bills in Europe, and soaring crude oil, natural gas, and coal prices on wholesale markets – it’s easy to believe the world is suddenly in the grip of a global energy drought.
However, it is not quite that simple; there are some very different issues all over the world.
For example, in the United Kingdom, petrol stations have run dry as motorists rushed to fill up their vehicles amid fears that a shortage of tanker drivers would lead to a shortage of fuel.
Meanwhile, rising energy bills in mainland Europe are the result of a variety of local factors, including low natural gas stockpiles, low output from the region’s windmills and solar farms, and maintenance work that has rendered generating operations inoperable.