China’s power crunch is another reminder to move away from its carbon-intensive growth path

November 04, 2021

Since August, more than 20 Chinese provinces experienced industrial or residential power crunches, including China’s major manufacturing hubs: Guangdong, Zhejiang, and Jiangsu. Traffic lights went dark, air conditioners stopped, and assembly lines paused. Three northeastern provinces in particular became the center of attention on various Chinese social media platforms, because, in addition to factories, nearly a hundred million residents were unexpectedly left without electricity.

Some in the media were quick to attribute these outages to China’s climate goals and energy policies, especially the energy intensity and total energy consumption (“dual control”) targets. This is due, in part, to local governments in provinces like Jiangsu asking heavy industry factories to halt production and cut electricity use, in order to catch up with the annual dual control targets after the National Development and Reform Commission alerted provinces with unsatisfactory performance in June and August. However, it is worth noting that the power crunch happened in provinces that passed the mid-year performance evaluation as well, such as Shandong, Jilin, and Hebei.  

Dual control policy is only part of the story. It led to power rationing instead of electricity shortages. Government restrictions on power consumption are different from a lack of power supply. Dual control targets have been in place since 2016, but only started to capture wide attention outside energy policy circles after this power crunch started. Why? Firstly, more provinces failed the mid-year evaluations because of high emissions in the first half of 2021 than previously. Secondly, the performance alert’s timing coincided with national fuel shortages.

With an energy-intensive economic recovery path from the pandemic, China is struggling to fulfill its 3% energy intensity target in 2021. Rapid growth in heavy industry and construction activities drove the demand for fuels. Guangdong, for example, saw an increase of 18.3% in industrial electricity demand compared to 2020. Therefore, this power crunch shouldn’t be attributed to any tightened climate targets or the overall carbon neutrality pledge, instead, the failed attempt at achieving a green recovery from the pandemic led to the decisions to close factories.

The real culprit behind the nationwide electricity shortage was the combination of skyrocketing coal prices and regulated electricity prices. In China, coal prices are now 1500 Chinese Yuan (approx. $235) per ton -- almost three times the price at the beginning of 2021. And when the cost of raw materials goes up, naturally, so do prices for the final product. In China, this means massive losses for power plants since electricity prices are regulated. Given these pressures, operators shut down power plants, leading to widespread electricity shortages. Notably, analysis shows that the coal stock at power plants started to fall back in November 2020, much earlier than dual control alerts were issued by the government.

A far cry from being the result of China’s climate policies, this power crunch is instead yet another reminder for China to ramp up its climate ambition and accelerate the shift away from coal consumption. On the one hand, China cannot expect to meet its dual control targets with an energy-intensive economic model and periodic power rationing. On the other, the widespread power shortage reveals the vulnerability of China’s coal-reliant, regulated power system when fossil fuel prices fluctuate drastically. As power demand keeps rising in China under widespread electrification, lower reliance on fossil fuels and an energy-efficient economy can help avoid similar crises in the future. With decreasing coal consumption and energy-intensive projects, China can move away from the carbon-intensive growth path.