China’s power crisis ‘man-made’, and miscalculations by Beijing serve as ‘a very painful lesson’, coal insiders say
- While conceding that carbon-emission targets will ‘absolutely benefit’ China, critics allege there are problems with how those targets are implemented
- ‘Forced caps on supply’ of coal is not the answer, they say, adding that China must reduce its reliance on fossil fuels by using cleaner energy sources
China does not have a shortage of coal, and the nationwide power cuts were a “man-made crisis” and “a big mistake”, according to domestic coal industry insiders who blame Beijing for its miscalculations in coal-production planning and its antiquated national power pricing system.
Chen Weidong, the former chief energy researcher with the China Institute of Energy Economics at state-owned energy giant China National Offshore Oil Corporation, said at a virtual energy forum in Beijing that there was no basis for the coal-shortage argument.
Chinese authorities also excessively capped the amount of coal that China’s miners have been allowed to dig up, and producing less than full capacity has created a supply gap, Tao Guangyuan, executive director of the Sino-German Renewable Energy Centre, said at the same event.
“This a very painful lesson,” Tao said.
China’s power-supply crisis escalated in September when more than 20 out of the country’s 31 provincial jurisdictions suffered electricity cuts. In some areas, rationing extended beyond industrial users into households.
While the carbon emissions targets will “absolutely benefit” China, the problem has been in the implementation of those targets, Tao said.
Many major coal-production areas, including Shanxi, Inner Mongolia and Shaanxi, imposed administrative caps on coal output this year, resulting in an unnecessary shortage, said Tao, who is also the chief representative of the German Energy Agency in China.
“This was a big mistake,” said Tao. “You should not limit coal production. They can produce as much as they would like, although it is feasible … to limit the usage of coal.
“Energy is in rigid demand, you cannot be without it … Once you limit [coal production], even if there is a tiny gap in supply, the price will soar sky-high.”
While there have been reports that coal inventories at China’s power plants have started to rise, Tao said this was not “new” output – it is the output that was suppressed earlier this year.
He also said coal production was set too low this year, after being benchmarked against unusually lower consumption last year when the pandemic hit.
The problems caused by coal restrictions actually appeared at the beginning of this year … But no one dared to say it
Apart from the production curbs, he also pointed to deeper systemic problems, including China’s state-controlled and fixed electricity rates.
Because the prices have not been fully dictated by supply and demand shifts within the market, a lot of electricity was discarded rather than stored when there was an oversupply, according to Tao. And moreover, he said the country has not invested enough in technologies to store excess power.
“Without institutional incentives, technology will not play its role,” he warned.
Tao was also critical about China’s lack of an effective price-warning system.
“The problems caused by coal restrictions actually appeared at the beginning of this year, since coal prices began to rise at that time … But no one dared to say it,” he said.
Chen, now founder of Beijing-based independent consultancy DFS Energy, said that the power crunch was a “very good test” for Beijing’s energy-transition aspirations.
“We should avoid daydreaming or clinging to only beautiful ideals while ignoring the brutal reality,” he said.
China’s power crunch appears to have eased in recent weeks, after the National Development and Reform Commission, the country’s top economic planning agency, stepped up strong interventions to boost coal supplies and curb the coal price hikes.
