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Oct 21, 2021
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About China’s “Strategy for the Revolution in Energy Production and Consumption (2016-2030)”

The energy crisis, which has spread to a number of countries, has its own characteristics in each country. The crisis situation in the Chinese energy sector is interesting.

The height of the crisis in the PRC with the planned power outage of economic facilities fell on September-October, but the first restrictions on the supply of electricity occurred in many provinces of the PRC back in December 2020. Then the energy saving regime was applied in the provinces of Hunan, Jiangxi, and Zhejiang. A new stage of blackouts occurred in May 2021. Then, from July, they spread throughout China and at the beginning of October covered 20 provinces, autonomous regions and cities of central government.

The immediate reason that caused the energy crisis in the PRC was the acceleration of industrial recovery after all the lockdowns. The recovery began in late 2020 and accelerated in the first half of the year in 2021, pushing up electricity demand. The rate of increase in demand and its scale can be seen from the following data: in 2019, electricity generation in China reached 7142.2 billion kWh, an increase of 3.5% year-on-year. In 2020, electricity generation in China increased by another 2.7% (7.417 billion kWh) compared to 2019.From January to August 2021, that is, in just 8 months, total electricity consumption increased by 13. 8% compared to the same period in 2020

Russian experts V. Kashin and E. Prokhin cite data according to which electricity consumption for eight months of 2021 in Liaoning province (one of the provinces where restrictions on electricity consumption are the most stringent) exceeded 171.1 billion kWh. For the same eight months of 2020, electricity consumption amounted to 134.1 billion kWh.

This explosive growth was driven primarily by coal. Its share in the energy sector of the PRC in 2020 was 56.8% in the structure of electricity production. This circumstance turned risk factors into crisis factors.

First, it was a “double control” policy. Provinces quickly depleted government-set energy and greenhouse gas standards and came under tight “dual control” measures. Second, the rapidly growing demand for electricity has driven up the price of coal as the main energy source in the PRC (and not only).

“Dual control” is a policy of strict adherence to energy efficiency that is implemented by local governments (first control) under the supervision of the central government (second control). In the event that the thresholds for the use of coal and oil are exceeded, the provinces are obliged to reduce their electricity consumption, which they did in August-October.

The document defining the goals, objectives and ways of implementing this policy was the “Strategy for the revolution in the field of energy production and consumption (2016-2030)”. The document defined a strategic orientation “towards environmental priority and low carbon content” as a national policy for energy development, linking it with two factors: urgent domestic demand and global trends. The strategy focuses on reducing the share of coal and oil in electricity production and increasing the share of non-fossil sources, in particular sun and wind.

It is planned to keep the total energy consumption within 5-6 billion tons of equivalent coal by 2030, while the share of non-fossil energy in the energy balance should be 15%, and emissions should be reduced by 18% compared to 2015. From 2021 to 2030, the share of coal and oil in electricity production will decrease in relative terms, but in absolute terms it will grow with a slowdown in growth rates.

On September 16, 2021, the State Committee for Reforms and Development (NKRD) tightened electricity consumption standards for local authorities. In particular, the Center’s control over industries with a volume of electricity consumption exceeding 50 thousand tons of equivalent coal per year has been strengthened.

With regard to the rapid rise in coal prices, then Shanghai electric power reported that the unit price of discounted standard coal from July to September exceeded 1,200 yuan per ton (tax included), more than 70% more than in the same period last year.

According to Chinese industry analysts, the price of coal accounts for up to 70% of the cost of generating electricity. In the conditions of the PRC, when the selling price for electricity is fixed, and the purchase prices for coal are determined by the market, thermal power plants are on the brink of profitability. And thermal power companies were forced to reduce their coal purchases and power generation.

One of the consequences of the strategy of switching the electric power industry in China to non-carbon sources was the slowdown in the growth rate of coal production, which led to the planned closure of mines. This circumstance makes it difficult to overcome the energy crisis, since it is coal that should play a decisive role here.

The NKRD has developed a set of measures, including the conclusion of medium and long-term contracts for the purchase of coal for the production of electricity, as well as an increase in its production capacity. Announced “Deepening the reform on the market regulation of the input tariff for coal electricity”, which apparently means an increase in the role of market mechanisms in the pricing of this type of electricity. This will solve the problem of profitability of heat and power companies. The NDRC decisions also speak of the unacceptability of production restrictions or “sporty-style” carbon cuts as an end in itself.

The fundamental prerequisite for the current energy crisis in many countries is the transition to “green” energy and the policy of excluding coal from the energy balance. In China, such a transition is overdue for internal reasons: solving the environmental problems that have arisen as a result of prolonged industrial growth are no longer urgent. This is not yet reflected in the economic growth of the PRC as a whole, but it makes it uneven. From January to September, China’s GDP grew by a significant 9.8% year on year to 82.31 trillion yuan ($ 12.8 trillion). In the third quarter, GDP grew 4.9% year on year, up from 7.9% in the second quarter.

A radical restructuring of carbon-free electricity generation is deeply rooted in the economy and is itself a risk factor. In China, it is not yet possible to flexibly maneuver production capacities depending on the decline or growth in demand for electricity without coal. And here is the lesson for Russia: it is that one should not rush to abandon fossil fuels for the sake of “sporting” rates of reducing the carbon footprint, no matter how prompted by the external environment.

Photo: REUTERS / Tingshu Wang

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