China, preparing for the holiday, took up energy efficiency | Latest news The Moscow Post
17 October 2021

China, preparing for the holiday, took up energy efficiency

Russian President Vladimir Putin sent a congratulatory telegram to President of the People's Republic of China Xi Jinping on the occasion of the 72nd anniversary of the formation of the PRC.

The Chinese met the holiday not entirely in a festive mood, faced with problems of reliability of electricity supply, the correspondent of The Moscow Post reports.

During peak demand, the authorities asked not to use boilers and microwaves. The vast majority of people, especially in big cities, are accustomed to elevators in multi-storey buildings and other amenities, including a TV, computer and water supply. The Chinese, for granted, take air-conditioned air in an apartment or office space, well-lit streets and much more. And the northern and northeastern provinces are already entering the heating season.

Foreign media show increased interest in the problem of "electricity shortages," which hurts the Chinese. But the problem is that demand for electricity in China from January to August rose sharply, especially in the industrial and construction sectors, in the residential sector.

In September, the authorities were forced to go on restrictions. At least two dozen provinces had fan blackouts. In Jiangsu province, authorities proposed reducing electricity consumption by 10-30% of the usual level until the end of September. The festive "golden week" began on October 1.

Causes of the crisis

In the most populated provinces, producing up to two-thirds of GDP, electricity rationing was introduced. The scale of the savings was unprecedented. Electricity consumption associated with mining gave reason to limit the circulation of cryptocurrencies. The Bitcoin exchange rate has declined. Domestic and international chains of communication are at risk. Estimates for GDP growth are reduced by a percentage to 7.2%.

In sharpness, the overheated real estate market and the problems of Evergrande holding gave way to a crisis in electricity supply. This, despite the fact that coal generation capacities increased to 1100 GW in 2020, and by 2025 will increase by another 90 GW. The situation was aggravated by the fact that the share of coal in the energy sector is still very high. Coal is also used as raw materials by numerous coal companies.

Problems began in the summer. From the beginning of the year to August, electricity consumption increased by 13.8% to 5.5 trillion kWh. For comparison, in Russia, annual consumption reaches 1 trillion kWh. In China's central and eastern provinces, electricity consumption surged due to summer heat. But growth is natural when the global economy recovers, and Chinese enterprises receive orders, including export ones. GDP growth in the first six months exceeded 10%.

All this happened at a time when many coal mines were already closed. Coal reserves at the disposal of the six leading energy companies were almost a third lower compared to last year and the lowest since 2017. Coal prices are rising, thermal power plants are selling electricity at government-mandated rates, losing about $25 for every thousand kilowatt-hours of generation. At current coal prices, they have no desire to buy additional volumes of fuel at market prices. In the domestic spot market, a ton of coal at the end of September cost more than $260.

Coal imports from Australia were halted for political reasons. At the end of 2019, Australia accounted for 37% of China's coal imports. Australia produces about 500 million tons of energy and coking coal per year, 75% is exported. Almost a quarter of coal exports came from China. As Bloomberg reported, Chinese enterprises "were ordered to stop using Australian coal." But not China started all this. Back in 2018, Canberra, following the example of the United States, banned the use of telecommunications products by Huawei and ZTE, made provocative statements about the COVID-19, linking China to the pandemic.

The economy is losing confidence

China's export-dependent economy continues to grow, but loses momentum and confidence. According to Goldman Sachs, 44% of all industrial enterprises affected power outages. The production of electronic units and devices, chips, textiles and thousands of other goods intended for export is declining. Losses are borne by international companies such as Tesla and Apple. Production was reduced by aluminum plants, aluminum prices went up. Manufacturers of aluminum parts began to work intermittently. Unidicron Technology, a supplier of boards for Apple products, suspended three plants for a week.

The most industrially advanced provinces of Guangzhou, Jiangsu and Zhejiang began to delay export supplies. In Zhejiang province, more than 160 energy-intensive industries were stopped. According to Bloomberg, energy-intensive enterprises were the first to show signs of problems. Austerity measures affected soybean oil producers, large-scale chemistry enterprises. In Jiangsu province, steel smelting electric furnaces were stopped. Petrochemical companies have reduced the production of polypropylene and polyethylene by hundreds of thousands of tons. Prices for these raw materials have risen markedly. But coal chemistry enterprises suffered the most, for which coal prices turned out to be unbearable.

Glasgow Conference not far off

Multilateral negotiations in Glasgow on climate issues are approaching. Beijing has committed to reducing SO2 emissions. The Winter Olympics are nearing and the task is to prepare for clean air in northeast China, especially around Beijing. At least ten years later, the government set about improving the air basin of the capital and other cities, headed for the closure of mines and reducing the share of coal in the energy balance. The state and private companies have invested hundreds of billions of dollars in green energy projects. The capital of China was transferred to gas generation, the adjacent territories were heavily gasified.

The economic bloc of the government unwittingly found itself in a position of extreme, responsible for a package of measures to support the economy after the pandemic, directing the actions of planning bodies tasked with monitoring CO2 emissions in the provinces.

Beijing is concerned about public discontent, but argues that regions need to reduce energy consumption in order not to exceed SO2 emissions. Power outages also occurred against the backdrop of efforts to reduce SO2 emissions, reduce coal production and seek to develop green energy.

In August, the National Development and Reform Commission (NDRC) summed up the results of the first half of the year, found that half of all provinces exceeded the targets for electricity consumption. In the long term, saving electricity, reducing its consumption per unit of GDP is necessary. After 2030, China plans to enter the trajectory of reducing emissions, by 2060 it intends to become carbon-neutral. Maybe the economy can be sacrificed for the sake of ecology?

Winter cold and Russia

The alarming results of the year for China's energy well-being are that the largest coal-fired power plants are provided with coal for 15 days at the standard for the winter season for two months. Electricity consumption in the country jumped by 13.8%, coal production increased by only 5%. In Heilongjiang, energy consumption increased by 9%. Lack of electricity affected Liaoning and Jilin provinces. The northeast is distinguished by cold winters. There, earlier than in other areas, the heating season begins.

The government cannot encourage companies to quickly increase coal production for CHPs, especially natural gas, which China physically lacks. Prime Minister Li Keqiang said that China should provide itself with energy resources at all costs in the coming winter. Bloomberg reports that the Chinese government ordered all state-owned enterprises to buy energy without saving.

China imported 83.57 million tons of oil from Russia in 2020, 5 million tons of LNG from the Yamal LNG and Sakhalin-2 projects, as well as 4 billion cubic meters of pipeline gas. Based on the situation, Russian companies could increase coal exports, but the capacity of railways and ports of the Far East is limited, their terminals are already loaded with export coal. Transportation by rail in January-August fell by 20%, to 4.2 million tons, while the total shipments of coal to China over the same period increased by more than 30%, to 20.6 million tons.

China reportedly asked Russia to increase electricity supplies and Inter RAO from October 1 increases exports by buying electricity from RusHydro. Compared to October 2020, exports will double. Inter RAO entered into a "take or pay" contract with a Chinese importer in 2012 for a period of 25 years and a volume of 100 billion kWh.

From 2018 to 2020, the annual supply amounted to about 3 billion kWh with a technical opportunity to sell 6-7 billion kWh. According to the Central Television of China, deliveries on the Amur-Heihe power line will triple. But the capabilities of Inter RAO are higher, the capacity of all power plants of the holding at the end of 2020 was estimated at 31.1 GW.

The PRC government and oil and gas state-owned companies spent more than ten years negotiating with PJSC Gazprom, discussing plans for the construction of a gas pipeline from Eastern Siberia to China. While negotiations were under way, China managed to build and design for the future the most powerful LNG receiving terminals in the world, part of which is purchased at downloading and often the most "expensive" spot prices.

The Power of Siberia gas pipeline was commissioned less than two years ago and passes through the territory of Heilongjiang province in transit, without hitting the local market. The population of all three north-eastern provinces of China bordering the Russian Federation, including Liaoning, Jilin and Heilongjiang, is approaching 100 million people. Opportunities to fully exploit Russia's potential in the interests of energy security are still ahead and the main direction is related to China's import of Russian pipeline gas.

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