Perfect Storm of Circumstances Decimates China’s Energy Grid

Extreme weather, an increased demand for energy and strict limits imposed by the government on coal usage are leading to rolling blackouts throughout Northeast China and the rest of the country.

The timing is inauspicious for a global supply chain already stretched dangerously thin, especially as we enter the peak shipping season and year-end holidays for European and American markets.

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Why Is There A Power Crunch?

Over the summer, factories in ten Chinese provinces have cut output or closed temporarily, following government-imposed power cuts to curb carbon emissions. Those provinces affected include Jiangsu, Guangdong and Zheijang, which are home to plants that produce steel, plastics, chemicals and textiles. These provinces are also the location of the busiest ports in the world, such as Ningbo and Guangzhou, which had already suffered backlogs related to Covid-19 within the past few months.

Also, due to the efforts to curb carbon emissions, mines have been instructed to harvest less coal, which as led to a nearly doubling in the price of coal since this time only one year ago. Coal accounts for 60% of China’s total energy output, but even efforts to utilize green energy have been thwarted by nature. Droughts have crippled the potential to offset the high coal prices with hydropower.

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What Does This Mean for China and the World?

The most immediate issue faced by the power shortage is in the homes of the billions of Chinese citizens. Traffic lights, failure of heating systems and the shutdown of elevators in high-rise buildings have brought many people to seek medical care; in the Liaoning province, 23 workers where sent to the hospital with carbon monoxide poisoning when ventilators unexpectedly and suddenly shut off.

American companies Apple and Tesla have been warned th

at production lines have been and will continue to be negatively affected. Some economists are projecting China’s GDP to decrease by nearly 1.5% in the fourth quarter of this year. Industrial output growth In September decreased 4.5% adding to the short-term global concern of rising ocean freight rates.

How Long Will the Power Crunch Last?

Unfortunately, there is little hope that the energy crunch and intermittent power outages will vanish overnight. Nationwide safety checks in coal mines that have recently seen a concerning uptick in deadly incidents have resulted in massive suspensions of operations across all of China, leading to a further rise in the price of coal. Forecasts are predicting the situation will continue until at least the end of the year, possibly even into the spring of 2022 as a demand for heat during the winter months will continue to stretch the power grid.

Business owners are frustrated with the power crunch, which has been exacerbated by President Xi Jinping’s goal of a carbon neutral China by 2060. China, as it currently stands, is massively dependent on coal power and it will take time to fully transition to a grid supported by hydro, wind and other sustainable forms of energy generation.

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