Power shortages strike China

By Malini Hariharan

The problems for Chinese manufacturers are multiplying. Besides having to worry about rising input costs, inflationary pressures and tightening of credit, companies now have to contend with unexpected power cuts.

This is usually the low season for power consumption in the country but supply to industrial units is being rationed in some provinces as power production has been affected by a dip in coal supplies. Affected provinces include Zhejiang, Hunan, Jiangxi and Chongqing with Zhejiang said to be experiencing its worst shortage in seven years.

Small and medium-sized enterprises have been hit the most. For instance, in Zhejiang province’s Taizhou city, small enterprises that have an annual output value of less than Yuan 5m are not allowed to use electricity between 7 am and 5:30 pm, while medium-sized enterprises that have an annual output value of more than Yuan 5m are being asked to cut their use of power every two days.

Companies are turning to generators but this is an expensive option.

Besides supply side issues, the power situation is also being aggravated by increased demand from projects that were stopped last year to enable China to meet its carbon emissions reduction target for the 11th Five Year Plan.

It is not clear if things will improve before summer. The
National Development and Reform Commission (NDRC) has already warned that power supply will not be adequate in most places in 2011, and especially in eastern China, northern China and the southern regions of China.

The China Southern Power Grid has said that the country’s five southern provinces will face power shortages of up to six gigawatts in the second quarter. And a power supply shortfall of 11.7 gigawatts, or 6% of peak power demand, is also being forecast in eastern China this summer.

Power costs could also go up as coal prices are projected to remain high. Demand for coal has been growing faster than supply which has been constrained by consolidation in the coal industry as provincial governments have been closing small and unsafe mines.

Some analysts expect the government to step in with measures to ease the situation. If that does not happen soon power shortages could be another factor depressing the region’s petrochemicals market.

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