Given that this year’s power shortage is different from previous year’s, analysts predict that China’s power outages won’t persist much through the summer.
Due to high coal costs that could not be covered by fixed electricity sales last year, power producing plants reduced production, and provincial governments rationed energy use in an effort to fulfil yearly emissions objectives.
Given that this year’s power shortage is different from previous year’s, analysts predict that China’s power outages won’t persist much through the summer.
Concerns of a repetition of the electricity shortage that crippled many of China’s major manufacturing centres last year have been raised as a result of power rationing in several areas of China, including parts of the Yangtze region.
In order to save energy, Chinese authorities in Shanghai shut out the lights on The Bund, the city’s well-known riverfront area, on Monday and Tuesday.
Analysts claim that things are different this time around.
According to observers, this year’s power issues are weather-related and will go away as the hot subsides, in contrast to last year’s crisis, which was brought on by persistent structural issues with the electricity supply.
According to a note published late last week by Macquarie’s senior China economist Larry Hu, “fear is growing that it might happen again this year since China experienced a statewide power constraint last year.”
“In our opinion, the likelihood is modest because the two power rationings have quite distinct causes and degrees of severity.
A record-breaking heatwave is currently affecting parts of the Yangtze River and China’s Sichuan region, which is also experiencing a severe drought. Heatwave conditions have hampered crop growth and put livestock at danger.
Water levels in hydroelectric power reservoirs have decreased, reducing energy output, as a result of less precipitation entering the Yangtze River, particularly at the Three Gorges Dam.
In Sichuan, electricity consumption by homes has surpassed power supplies to factories, evoking memories of the national crisis in September and October of last year. At that time, public amenities like traffic lights were turned off in order to conserve energy, while homes and businesses were required to reduce or stagger their usage.
Hu argues that there are differences between the two crises.
He continues, citing “abnormally hot weather” and a lack of precipitation as the causes of this year’s catastrophe.
The China Meteorological Administration reports that the heatwave this year lasted 64 days, making it the longest since 1961.
According to a report published by Fitch Ratings on Monday, residential energy use increased by 26.8% in July over the same month last year.
Power plants reduced their output last year as a result of the high cost of coal, which they were unable to offset with fixed electricity sales. Power tariffs for consumers could not be raised by plants because they were regulated by Chinese officials, according to Hu.
Hu noted that provincial governments, who were then on a mission to reduce carbon emissions, rationed power use in an effort to hit yearly targets.
As temperatures will drop, we do not anticipate the regional power restriction to last much longer than the summer, said Diana Xia, associate director at Fitch Ratings, in a report on Monday.
On a national scale, we continue to believe that China’s power consumption will rise in 2022 by a mid- to low single digit percentage, in line with our most recent estimate of 3.7% for China’s GDP growth.
“Over time, we anticipate that the nation will be better able to satisfy its peak-load demand.
Hu projected that this year’s blackouts will have a different effect on the entire Chinese economy than they did last year.
According to China’s National Bureau of Statistics, the power outage last year slowed GDP growth in the third quarter of the year. It claimed that “normal production” had been harmed by power rationing in several areas of China.
The power outages last year had an impact on many of the nation’s key manufacturing hubs, including Guangdong in southern China.
Hu noted that Sichuan Province, which this time around took the brunt of the power disruptions, barely makes just 4% of China’s industrial output.
However, considering that hydropower accounted for 78% of Sichuan’s power capacity and 73% of local demand last year — greater than the national average, according to Fitch Ratings – Sichuan’s production would be under pressure.
Since Sichuan produces about 20% of China’s lithium, 5% of its aluminium, and 13% of its polysilicon, there might also be some temporary disruptions to supply lines for raw materials like lithium, according to Hu.
The impact should be temporary, according to Hu, but it could result in increased prices for electronic products like the batteries used in electric vehicles.
