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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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China Is Struggling To Keep Up With Electricity Demand

The cold spell that left Asian countries scrambling to buy enough natural gas for heating and electricity generation earlier this month made headlines and spurred a massive rally in spot gas prices on the regional market. It also highlighted a problem with China’s electricity consumption: it grew too much, too fast. Reuters’ John Kemp noted in a recent column on China’s electricity consumption that in November, this increased by 9 percent on an annual basis, according to official data. That’s despite the global pandemic that kept most other economies hobbled in November. China was the exception, with business activity booming, which to a large extent accounted for the surge in power consumption—one of the highest over the last ten years.

This surge in business activity coincided with an increase in household electricity use, too, despite the fact the weather in November was milder than usual. This led to electricity shortages in several regions. Authorities took note, and in December, the State Grid Corporation of China said it would address the problem by boosting power transmission capacity and supply of coal and natural gas. 

Meanwhile, winter came for real, the trade war with Australia continued and China was suddenly facing not just an electricity shortage but also gas and coal shortages.

All this points to something that happened in China’s renewable energy sector in the recent past. The country has been the most generous investor in wind and solar capacity for years, building massive generation capabilities. Transmission networks, however, lagged behind, which led to a lot of what the industry calls curtailment and which is actually a lot of waste electricity that has nowhere to go once generated.

Related: Big Oil Is Buying Into The Solar Boom

Now, the situation with electricity supply is the reverse, but the problem is with too fast growth again: growth in demand. Reuters’ Kemp compared the November annual increase in consumption to the addition of four U.S. states—Texas, Louisiana, Arkansas, and Oklahoma—to the grid within 12 months. That’s quite an addition, and any grid would find it hard to cope with it. And then the cold weather came and drove demand growth to another spike.

China was the only large world economy that reported economic growth for the year of the pandemic, at an unusually modest 2.3 percent but still growth. Others continued to struggle with pandemic containment. In the fourth quarter, however, China’s economy surged by 6.5 percent—this is where the spike in electricity consumption came from.

It was this spike that was to blame, along with the harsh winter weather, for the LNG price spike on Asian spot markets accompanied by a spike in coal prices. It was Reuters’ Kemp again who noted the fact that not just Chinese but also Japanese and Korean LNG buyers signaled they were pretty comfortable with their existing LNG reserves ahead of winter. And then they suddenly weren’t as it became clear they had underestimated electricity consumption among their populations.

A few years ago, China experienced another winter power crisis, which was the result of underestimating the amount of natural gas it would need to heat the millions of households in the northern part of the country that had just been switched from coal to gas for power and heating. Since then, Chinese utilities have been careful to ramp up their gas inventories ahead of winter. Yet this latest crisis shows there is more than one factor you could underestimate, and it may be out of your control.

One other thing this power crisis showed is that renewable power still has a long way to go before it comes anywhere near replacing fossil fuels. China added a record amount of new wind capacity last year, at a massive 72 GW. The country also built 48 GW of new solar capacity last year and 13 GW of hydropower. And these additions could not help it cope with the winter surge in electricity demand.

By Irina Slav for Oilprice.com

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