China’s energy crisis will affect industries around the world


A villain is emerging in China’s efforts to curb its energy prices: an inefficient and energy-intensive industry.

With flooding in Shanxi Province’s coal hub pushing prices up to 1,508 yuan ($ 234) per metric ton even as the government tries to kick-start additional production, more measures are clearly needed to prevent more generators from shutting down their turbines and causing power outages due to the cold. winter of northern China. This means a crackdown on factories that still consume the lion’s share of electricity.

Industry only accounts for 25% of network demand in the United States, but in China it accounts for 59% of the total – more than all homes, offices and retail stores in the country combined. Cheap electricity has been a vital tool of development, and the government has traditionally encouraged large users with electricity rates that get cheaper the more you use. With about two-thirds of the grid fueled by coal, the cost of digging up black stuff has determined how much industrial users pay for their electricity.

The problem is, coal is not cheaper. After an extended period of deflation before 2016, when a glut of dangerous, unregulated mines was shut down, annualized costs jumped 40% in 2017. They didn’t really drop until Covid-19 hit. , and they have since rebounded with a 57% increase from 12 months ago in August.

Such increases might be tolerable if end users turned that power into high-value goods – but all too often this is not the case. China now consumes more electricity per capita than the UK and Italy, but does not come close in terms of economic output. Determined to achieve President Xi Jinping’s goals of peaking emissions by 2030 and reaching net zero by 2060, Beijing’s policymakers have blamed the so-called “double-high” sectors – those with both high energy consumption and carbon emissions. are several of the fastest growing industries in recent decades, such as cement, steel, base metals, petroleum refining, chemicals and glass. Together, they account for more than half of China’s emissions.

Under revised rules released by economic planners at the National Development and Reform Commission this week, residential and agricultural consumers will still buy electricity at fixed tariffs and small users will see electricity costs fluctuate. in a fork. Dual high sectors, on the other hand, will not see any safeguards on the prices they pay. As a result, all utility book balancing costs will fall on their shoulders. This will reduce demand pressure on the network and encourage inefficient users to upgrade to add more value, NDRC pricing director Wan Jinsong said at a press conference on Tuesday.

It sounds like an interesting solution, but we shouldn’t underestimate how the ripples will propagate. Over the past decades, the world has become addicted to cheap Chinese energy to manufacture a multitude of its products. About half of all the metal is produced in China and nearly a fifth of all oil is refined there. Energy-hungry products, from aluminum to solar panels to Bitcoin, depend on the country’s low industrial electricity tariffs to keep their own prices low. With the rising cost of electricity for high-level dual industries, we may not have seen the end of inflationary pressures in the global economy from the flooded mines in Shanxi.

If Beijing is to manage this transition without crippling the economy, it is going to have to ease the pressure on the supply side of the energy system while taking measures to reduce the growth in demand.

This is where renewable energies come in. At the same time, price restrictions are removed in high dual level industries, so that capacity restrictions are lifted for zero carbon power generation. Provinces previously faced absolute limits on the amount of electricity they were allowed to consume, a factor that may have contributed to the most recent reductions. In the future, these barriers will be removed for the production of renewable energy, providing a strong incentive for governors to switch from limited and inflationary coal-fired power to unlimited, fixed-cost wind and solar power.

With carbon-free electricity already cheaper than most operating coal-fired power plants, these changes may just be the incentive to wean China off its dependence on solid fuels. Most of the production will be able to switch to wind power, solar power, hydroelectricity and nuclear power. Thermal power plants will increasingly move up and down to capture daily peaks in demand, with differential pricing throughout the day giving them the opportunity to make profits after the sun goes down and when the wind drops.

All it takes for this system to work more efficiently is for Beijing to unleash the formidable investment appetites of its provincial governments on the banquet of cheap zero-carbon energy now available. So far, China has avoided the kind of rapid transition it and the global climate need. The faltering state of its coal-fired power system should only be the catalyst to accelerate this change.

This story was posted from an agency feed with no text editing. Only the title has been changed.

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