[A-List] China Aims to Curb Power Shortages

["Yoshie Furuhashi" <critical.montages@xxxxxxxxx>]

<http://online.wsj.com/article/SB120111370804910481.html?mod=googlenews_wsj>
China Aims to Curb Power Shortages
By SHAI OSTER and DAVID WINNING
January 24, 2008; Page A8

BEIJING -- China is facing widespread, temporary power shortages that
could affect global energy markets if they aren't resolved soon. The
shortages stem from a number of factors, but at their core is a
pricing and distribution system that is having trouble keeping up with
the country's rising demand for electricity.

Regulators said yesterday that 13 provinces and major regions,
including the industrial-and-export hub of Guangdong in the south,
will experience a total shortfall of about 70 gigawatts of
electricity-generating capacity -- roughly one-tenth of China's total
and nearly the entire capacity of the United Kingdom -- and are facing
electricity rationing. Coal stockpiles have fallen to less than half
typical levels, analysts said.

The National Development and Reform Commission, China's top
economic-policy planner, announced yesterday the formation of a task
force to handle the mounting problem and urged power producers and
coal distributors to try to ease the shortages, without specifying
how. China gets the majority of its electricity from coal-fired power
plants.

[Chart]
<http://s.wsj.net/public/resources/images/NA-AP193_COAL_20080123202423.gif>

China has been racing to feed its surging demand for power, last year
adding 100 gigawatts of generating capacity, a pace of roughly one new
power station each week. But it still needs hundreds more, according
to projections.

Analysts and industry insiders say the electricity shortages will ease
once cold winter temperatures rise and thermostats are lowered. But
the summer will bring another jump in demand when China's emerging
middle class crank up air conditioners. Unless the broader, systemic
problems are resolved, that could strain China's power grid again.

A sustained power crunch in China may affect global energy markets. In
2004, China's appetite for oil rose nearly 16%, startling global
markets and helping to fuel a huge rise in international oil prices.
The surge in demand was caused in large part by widespread
electrical-power shortages, which forced many factories to use diesel
generators to keep operating.

With the world struggling with the widening impact of a U.S. credit
crunch and oil prices backing off their highs of $100 a barrel, a big
jump in China's oil demand could push oil prices back to uncomfortable
levels.

It is unclear how bad this year's power shortages will be. But this
time there is an additional worry: China is becoming a big coal
importer. The world's biggest consumer and producer of coal, China
relies on coal for 78% of its electricity. After years of mining
enough coal to have a surplus, China now needs to import it --
especially for consumers in the south, which are far away from the
coal-producing centers in the north. Economic growth has outpaced
China's transportation infrastructure: It lacks trains, ports or
power-transmission lines to evenly distribute power to where it is
needed most.

That could drive up coal prices from exporters such as Australia,
Indonesia and South Africa and could affect energy costs -- and
possibly exacerbate inflationary pressure -- among customers as far
away as Europe.

The worst snows in 15 years in Central China have toppled major
transmission lines, and a drought has lowered electricity output at
China's thousands of dams, which account for 16% of China's
electricity.

Analysts largely blame the power shortages on price controls. The
government has begun to overhaul the state-owned power grid and
supply. Starting in 2006, coal prices were liberalized, allowing them
to rise 10% each year after. But at the same time, electricity tariffs
have been kept flat or lowered by government officials worried about
inflation and social unrest if prices rise too high.

That has squeezed the profit margins of power producers and distributors.

<http://www.nytimes.com/2008/01/24/business/worldbusiness/24power.html>
January 24, 2008
Pinched by Price Controls, Power Plants in China Scale Back
By KEITH BRADSHER

HONG KONG — The Chinese government issued an "urgent notice" on
Wednesday to the country's power generators, coal companies and
railways to address an electricity shortage that has led to rationing
in more than a third of China's provinces in recent weeks.

The rationing, mostly achieved by telling factories that their power
will be shut off for a day or two each week, coincides with the annual
frenzy of factory production to meet orders before shutting down for
the Chinese New Year holidays, which fall in early February this year.

Factories have kept going during past electricity rationing, usually
during the summer air-conditioning season, by running diesel
generators. But that is proving expensive this winter because of high
fuel prices.

Power executives and government statements attributed the electricity
shortfall this winter to a confluence of problems. Many of the
problems appear to have their roots in the government's imposition of
a long list of price controls in recent months in an attempt to tamp
down inflation, which reached 6.9 percent at the consumer level in
November.

Trucks did not deliver adequate coal stockpiles to power plants before
winter snows arrived in northern China, partly because of nationwide
diesel shortages. Refiners had cut back on the production of diesel
because price controls were forcing them to sell the diesel for
slightly less than the cost of the crude oil needed to make it.

Recent modest declines in world oil prices, together with government
subsidies for refiners, have restored diesel supplies. Zhang Yanchao,
a long-haul trucker who travels large areas of eastern China, said in
a telephone interview on Wednesday that after waiting up to 10 hours
at a time for diesel in November, he now finds that he can drive up to
service stations and refuel immediately.

But the alleviation of diesel shortages has come too late for many
power plants because heavy snows have blocked roads and rail lines in
recent weeks. The official Xinhua news agency said that coal reserves
at power plants were perilously low, with just 17.7 million tons in
the reserves and power plants burning two million tons a day.

The snow has also felled some crucial high-power transmission lines,
officials at two power companies said in telephone interviews.

The downed lines have made it harder for the operators of China's
electricity grid — really a series of poorly connected regional grids
— to redistribute power to areas that need it most.

Frigid weather has also increased demand for coal for heat, driving up
prices for immediate coal deliveries. That has made coal mines more
reluctant to fulfill their long-term, low-cost contracts to deliver
coal to power companies.

"Coal enterprises must produce and sell coal based on the law, and
deliver on their responsibility to society," the government's powerful
National Development and Reform Commission in Beijing warned in an
"urgent notice" to various industries, posted on its Web site on
Wednesday. Low water levels in lakes have also limited the
availability of hydroelectric power, the notice said.

Low electricity tariffs, particularly for residential users, have been
another problem.

The central government issued an official "suggestion" to provincial
governments last fall that they not allow increases in electricity
tariffs charged to customers, as part of national price controls.

Provincial governments have responded by freezing tariffs, and even
reducing them in the case of Guangdong Province in southeastern China,
the home of much of the country's export-oriented light industry.

The low tariffs have made it uneconomical for oil-fired plants to
operate, and many have stopped doing so.

"It makes absolutely no sense for anyone to run a diesel- or oil-fired
plant. They're all shut down," said a power company executive in China
who asked not to be identified because of the sensitivity of
commenting on regulatory policies.

The executive added that even when ordered by the government to resume
operating at a loss, many state-owned oil-fired plants had not done
so, scheduling maintenance and repairs instead.

Oil-fired power plants account for up to 15 percent of the power
generation capacity in parts of southeastern China but very little
elsewhere in China, where coal remains the primary source of
electricity.

The rationing this winter is particularly embarrassing for China
because the country's power failures are usually limited to the
summer, when ever-growing use of air-conditioning strains the power
grid to its limits. Blackouts were more limited than usual last
summer, as capacity finally seemed to be catching up with demand,
which has been growing 13 percent a year.


--
Yoshie
<http://montages.blogspot.com/>