China’s power system was plunged into crisis in mid-July as nearly half of the country’s provinces introduced electricity rationing.
The problems first emerged in June when the State Electricity Regulatory Commission said that State Grid Corp, the top grid operator, would face a shortfall of 10 million kilowatts this summer.
Come early July, State Grid’s announced that coal inventories stood at 11 days. Fifty-eight power plants with a total capacity of 14.02 gigawatts were closed due to insufficient coal supplies.
The coal shortages are the result of mine closures and domestic price caps on thermal coal that had traders rushing to sell Chinese coal overseas. China’s coal exports soared 84% in June. The coal that stayed within China stubbornly resisted the effects of price caps as transportation and other costs remained high.
The power crunch was widely felt. Aluminum producers agreed to cut output by up to 10% to ease the strain on power supplies, prompting global aluminum prices to soar. In Shanghai, officials warned of potential blackouts as backup systems struggled to keep up with demand.
Little is likely to change while price controls continue to discourage investment in new capacity. Fan Gang, an advisor to the People’s Bank of China, said as much at a recent energy forum, when he argued that Beijing should quickly eliminate price caps.
The 4.7% increase in average retail power tariffs announced on June 20, along with the 17% and 18% rises in gasoline and diesel, will do little to take the heat off China’s power system this summer.