China’s Energy Shortages Start to Bite

New reports say the effects are starting to ripple across society

The magnitude of China’s enormous need for new sources of power is starting to come clear, with rationing expected in as many as 10 major areas between now and September, according to a number of reports issued recently.

“This time, the emergency will last longer, with widespread ramifications across industry sectors,” according to a report by Energy Shortage, a website dedicated to keeping tabs on the global energy situation. “As for the market, the power crisis – on top of ever-tightening monetary police pressure – is threatening a near-term growth scare.

The effects are rippling across the society as the country’s worst energy crisis since 2004 begins to bite and could result in large-scale layoffs of workers in energy-intensive industries. Layoffs in 2009 because of the global financial crisis were partly responsible for worker unrest in Guangdong and other industrial centers.

Chinese state-owned media have reported that as many as 24,000 industrial businesses in the Shanghai area have been told that they face mandatory power cuts. In Zhejiang province, some factories have switched to diesel powered generators, despite the fact that diesel power costs are double those of the commercial grid, adding to production costs and to pollution.

Despite intensive efforts to diversify into everything from hydropower to wind to solar to nuclear, 70 percent of China’s energy needs are still supplied by coal, according to Pacific Strategies & Investments, a country risk analysis firm headquartered in Manila, in a subscription only report.

Imported coal prices have been soaring upwards -- partly because China is buying so much of it. China now uses 46 percent of the world’s coal, according to the PSA report. Prices have doubled over the last five years and have played a major role in China’s stubbornly rising inflation, at 6.7 percent in mid-July and which could go as high as 7.2 percent before the year is out. Despite attempts by the National Development and Reform Commission to attempt to jawbone down prices by ordering major domestic coal companies to keep prices stable, they are continuing to rise as bad weather in Australia, Colombia and Indonesia hindered output, the PSA report continued.

The rising international price has forced manufacturers to rely on local mining operations despite government attempts to close smaller coal operations because of safety problems and corruption. Scores of coal miners have died in accidents and explosions underground, with four large-scale accidents in just 10 days in July.

The need to transport domestic coal has shown up deficiencies in the infrastructure system despite the much-vaunted construction of the world’s biggest high-speed rail system – which hauls only passengers. Any indication that rail construction will slow – for conventional rail rather than high-speed rail – is probably wrong because of the overwhelming need for transport.

Consequently, because the country’s railroads are at capacity in hauling coal, millions of trucks have been pressed into service, causing traffic jams across the country and, because the trucks are so heavy, breaking down the highways.

News agencies reported that one traffic jam last year on the highway between Beijing and Zhangjiakou was 70 kilometers long and lasted 20 days as an estimated 7,000 vehicles, most of them overloaded with coal, were stuck in a line. In another in August was 120 km. long and lasted 11 days on a freeway linking Beijing and Inner Mongolia. At its worst, some 10.000 vehicles were backed up on the freeway.

Many areas of China already have some of the world’s worst pollution. The vast amount of coal being burned – with coal consumption rising annually by 12 percent since 2000 -- is releasing hydrocarbons into the air at an unprecedented level,

As the country faces increasing temperatures brought on by global warming, demand for electricity is expected to continue to rise, particularly in the eastern manufacturing hubs around Shanghai and Beijing and the southern ones in Guangdong.

“The country is gradually weaning the country off its dependence on coal as air pollution and the accompanying health risks continue to worsen,” the PSA report said, with the NDRC* once again seeking to close mines that produce less than 30,000 tons. However, large numbers of these smaller mines historically have been owned by Chinese state government officials, who have kept them open despite all efforts by the NDRC to close them down.

It is these mines that to a large extent are the source of the accidents that take the lives of hundreds of miners every year despite all government efforts to force them out of the business. In 2010, according to a spokesman for the State Administration of Work Safety, 2,422 people died in coal mine accidents – 198 fewer than in 2009 and probably more than the rest of the world combined. At that, the figure is down sharply from nearly 4,750 in 2006.

The country’s attempts to diversify out of coal energy production have been problematical. Only 2 percent of its energy is supplied by its 14 operating nuclear reactors although an additional 28 reactors are under construction. The breakneck speed with which the country built its high-speed rail lines – which proved just last month to be tragically flawed – raises concerns about the speed with which the additional reactors are being added.

China has become the leader in the manufacture of solar panels and by 2007 was producing 1.7 gigawatts of them for sale, but, according to the PSA report, fewer than 100 megawatts, or less than 0.01 percent of China’s power, was being supplied by solar. The country is also the world’s biggest wind power user, surpassing the United States in 2010, with capacity now 40.18 megawatts – providing less than 1 percent of the country’s energy.

Hydropower now accounts for 20 percent of energy production, with 22,000 large dams built and plans to build more, many of them on the Brahmaputra and Mekong Rivers at their headwaters in China the subject of substantial controversy. However, according to the PSA report, the severe drought in central and southern China reduced the effectiveness of the dams because they need to be full for maximum energy production.

So any forecast that China’s energy crisis will end soon appear to be optimistic. The only unknown factor might be that there is rising public concern about the breakneck pace of development in China since the high-speed rail collision last month. It’s possible that the public would not mind having things slow down.

*Typo corrected 03/08/11

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