July 28, 2022
BEIJING – Many places in China have issued a yellow alert for high temperature in the past weeks, with some areas struggling with temperatures as high as 40 degrees Celsius.
The rising temperatures, combined with resumption of economic activity after the sporadic Omicron outbreaks, have significantly raised the demand for energy, especially electricity. For example, Shanghai’s electricity consumption recovered to near normal in the first three weeks of June-92.48 percent of what it was in the same period last year.
On the global front, countries such as Germany, the United Kingdom and France have been using more and more coal to make up for the shortage of gas supply from Russia due to the Ukraine crisis. This has greatly raised global coal consumption and raised energy prices in the international market. As a result, China faces several challenges in maintaining normal supply of electricity this summer.
To deal with the problem, relevant departments in China have strengthened overall coordination and called for increasing energy production and supply to meet the demand. For instance, billions of yuan of credit refund have been made to power companies. About 392 billion yuan ($58.07 billion) was refunded to 522,000 enterprises in six major industries including those involved in electricity, heating, gas and water production and supply in April alone.
While the authorities have improved the price formation and supervision mechanism for energy, the National Development and Reform Commission has set a reasonable range for medium- and long-term transaction prices for coal (domestic steam coal). And with the curbing of price gouging activities in the coal sector, coal prices are likely to remain within a reasonable range.
Moreover, the supply of coal, the dominant source of energy in China, is stable with record high production of 12 million tons a day. As electricity supply capacity continues to be diversified, the installed capacity of renewable energy has been increasing steadily.
In fact, China has the highest installed capacity of power generation in the world: 2.42 billion kilowatts. On the other hand, clean energy power generation achieved double-digit growth in May, which will help ensure undisrupted power supply across the country.
And while power grid coordination capacity has been largely strengthened, power transmission from west to east has improved. As of June 30, the “from west to east power transmission” from Yunnan province reached 75.8 billion kWh with a year-on-year increase of 52 percent. Actually, Yunnan has become the backbone of power supply in the Guangdong-Hong Kong-Macao Greater Bay Area.
At present, coal storage in power plants under unified regulation across the country is at an all-time high, strengthening power security in summer. So China should now increase fuel supply by boosting thermal coal production and supply, and signing and implementing medium- and long-term contracts for coal and natural gas.
Besides, power generation companies should run at full capacity with the optimum number of employees to ensure thermal power generation is higher than in normal years, while the authorities need to generate more hydropower, wind power and solar power in order to reduce coal consumption, and optimize the operation and supply capacity of the power grids to ensure orderly electricity supply.
To ensure smooth power supply, power grids in major energy-consuming provinces, in cooperation with local governments, should establish a power supply coordination mechanism, stabilize the supply of thermal coal and gas, and strengthen the operation and management of power generation units. They could also consider carrying out cross-regional and cross-provincial power transactions as a means to ensure smooth electricity during peak hours.
Yet in the long run, the document on accelerating the construction of a unified national electricity market system should be implemented to safeguard energy security, boost the energy economy, promote the sustainable development of new energy, and maintain operational safety. There is also a need for the authorities to prevent the disorderly increase in energy prices, as energy security is essential to maintain reliable supply of energy.
More important, China should establish a power market mechanism to allocate resources on a larger scale and improve efficiency by letting the market play its due role, so as to transition to a low-carbon economy at lower cost.