As China surges towards becoming the 21st centuryâs dominant economy, its progress may be hobbled by a growing gap between its electrical production and demand.
According to the China Electricity Council, the countryâs estimated total generation capacity may total about 1,050 gigawatts by the end of this year, a rise of about 8.8 percent from 2010 levels, but the country may still face a total peak deficit of 30-40 gigawatts, raising the specter of rolling brownouts during the winter months.
And Beijingâs leadership is well aware of the populaceâs incipient anger if it is denied a piece of the countryâs economic dream. While the projected shortages total less than three percent of Chinaâs generating capacity, the governmentâs decision earlier this year to increase power tariffs in some provinces to spur power production and restrict demand from energy-guzzling industries is hardly a recipe for social tranquility.
Chinaâs startling economic growth over the past decade has led the country to become the world's largest electricity consumer, but the nationâs rampant economic growth has put increasing stress on the nationâs electrical generation grid.
While China ranks third in coal reserves, behind the United States and Russia, its coal is of low quality containing sulfur, fly ash and dust, which not only reduces power generating plantsâ efficiency, but leave environmentally unfriendly residue. Furthermore, many of its coal-fired electrical power stations are elderly, some dating back to the 1950s, when China began to industrialize under its Communist leadership.
While the winter power projection shortfalls are new, since April Chinese power plants have been battling electric power shortages due to a perfect storm of increasing demand, higher coal prices and a drought in southern China diminishing hydroelectric electrical output, as precipitation was 50 percent below recent annual averages, which in turn caused a 20 percent reduction in projected hydroelectric power generation growth. Since 2006 coal prices have doubled in China, reaching $130 a ton for coal with high heat content and 2010 statistics from the China Electricity Council indicate that electricity demand has risen 12 percent.
Even worse for Beijing authorities is the disconnect between the countryâs coal fields in the north-east in Heilongjiang, Jilin, and Liaoning and northern Shanxi, Shaanxi, and Henan provinces and hydropower resources in southwestern China in Sichuan, Yunnan, and Tibet provinces, which are far removed from the nationâs dynamic industrial eastern and southern coastal regions of Shanghai-Zhejiang, Guangdong and Fujian, and China's power transmission system remains underdeveloped. A Barclays report issued earlier this year estimated China's northern and northwestern regions have generating surpluses of up to 14 gigawatts apiece but they cannot be effectively channeled to power-short coastal areas, a situation that will only worsen in the short term.
Coal electrical power generation represents 73 percent of Chinaâs total generating capacity, and produced 83 percent of its total power generation in 2010.
As for Chinaâs electrical future? Itâs apparently brown, as China is the worldâs largest coal producer and consumer, consuming 3.5 times as much coal as the United States. Energy experts believe that China's coal-fired power generation will increase until at least 2020, and China's installed capacity of coal-fired power generating units will remain at more than 70 percent. Zhang Lizi, principal assistant of North China Electric Power University said simply, "The vicious circle, if left unchecked, will hurt the country's economic development."
So, where to acquire future coal reserves?
U.S. coal producers are looking to sell their coal to Asian markets since U.S. laws and environmental regulations are negatively impacting new growth. A perfect fit of producer and consumer, as during the period January-September China burnt 2.28 billion tons of coal, 10.3 percent over 2010 levels, lading China to become for the first time in its history a net importer of coal importing a 111 million tons since the beginning of the year, and in September alone importing 19.12 million tons of coal, a 25.1 percent increase from the same period last year.
In order to stoke Chinaâs economic prowess, Beijingâs red mandarins are willing in the short term at least to dip into its foreign reserves to buy foreign coal to keep its manufacturing humming and its citizens warm, a situation that delights western coal producers, increasingly bedeviled by pesky environmental regulations. How long this capitalist-Communist economic marriage made in heaven will last is anyoneâs guess, but as China still produces nearly four-fifths of its electricity from coal, the sunny situation will doubtless continue for the foreseeable future, as Chinaâs rulers are understandably loathe to see Tiananmen Square flooded yet again with protesters, this time not seeking political rights, but access to reliable and reasonably priced power to maintain their rising lifestyles.
By. John C.K. Daly of Oilprice.com