BusinessWeek’s Dexter Roberts examines the tangle of natural disasters, infrastructure failures, commercial pressures and political wrangling which undermines the electricity supply to parts of China.
Companies are starting to feel the pain. Shane Lou, a small factory operator in Zhejiang province, now has to suspend operations every Thursday and Friday. He says he may have to shutter his plant for good.
Things are dire because coal prices in China are at a more than two-year high, in part because of flooding in Queensland, Australia, a top supplier. (Coal still generates about 80 percent of power in China.) Repairs on the railway from coal-rich Shanxi province in central China are not complete, and demand for electricity rose 13 percent in the first quarter. Worst of all, power-generating plants are running at only about half of capacity because of financial pressures, estimates Xizhou Zhou, the head of China energy at the Beijing office of IHS Cambridge Energy Research Associates (IHS). “It’s not as if these plants are maxed out,” he says.
China’s half-liberalized energy market is responsible for the mess. While power-generating companies have to buy coal at market rates, they still must sell power to utilities at regulated prices that don’t cover costs. Losses among China’s five big state-controlled power producers, including China Huaneng, China Datang, and China Guodian, totaled 13 billion yuan ($2 billion) last year, says Nate Taplin, an energy analyst at economic consultants GaveKal Dragonomics in Beijing. Not surprisingly, the power companies won’t produce more, since that will just increase losses. Neither the electricity council nor the five big power companies responded to faxed questions.
For more on this issue, see ‘China’s Looming Power Shortages: Blackouts, or Blackmail?’ on CDT.
