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24 August 2022

China power shortage likely to ease in one week

Two-thirds of China’s provinces have now seen their grids reach record high demand thanks to the ongoing heatwave. The Sichuan Basin and much of China’s flatlands are generally up to 3 degrees hotter than this time last year, with some areas setting temperature records alongside demand records. Sichuan Province itself has reached peak demand of 65 GW, which is 25% higher than last year.

Officials predict that the power supply situation will not get much worse and will soon ease, perhaps even a single week from now, as temperatures decline. Even so, various industries have already been interrupted. The polysilicon price rose several times more swiftly than usual this week, to $45.4. Downstream within solar, the likes of JinkoSolar and Shunfeng have stated their Sichuan factories and had come under power rationing measures after the provincial government urged most cities to shut down industrial production for a week. The same is true for lithium battery companies such as Tianqi Lithium and Yahua Lithium, and now the lithium carbonate price is creeping back up, having been on a plateau since March, and may inch past $75,000 per tonne. It is these new industries that are most affected, as while Sichuan has many exports, few are as globally concentrated in this location.

This situation may remind the reader of the coal and power shortage which China underwent almost exactly a year ago – but the government reacted very thoroughly to that crisis. This time around China’s coal inventory is at a historically high level of 170 million tons, more than double the figure for 12 months ago, and coal production is up 11.5% so far this year to 2.56 billion tons. Sichuan is digging into its local coal reserve to run almost 13 GW of coal plants at full pelt.

As we covered last week, this time it’s hydropower which is the weak link, with Sichuan, a national center of hydroelectric capacity, seeing half the usual rainfall since the start of July. Sichuan has attracted more than its fair share of industry precisely because of its abundance of cheap electricity, and is usually relied upon as a power exporter. Now it instead imports 132 GWh a day, more than half of California’s typical daily power imports from its own neighboring states.

While Sichuan Province is hardest hit, other provinces are looking to tighten the belt as well, as the country faces the triple combination of a V-shaped recovery from brief coronavirus lockdowns earlier in the year, low rainfall, and the heatwave. In Guangdong, July alone saw a 13.3% increase in power consumption over the previous month.

One controversial incident last week was the leaking of a letter from Shanghai authorities requesting power transmission from Sichuan for Tesla, SAIC Motor and other automobile factories – which was criticized as “selling the sweat of Sichuan people for Tesla’s money.” Since then the Shanghai authorities have protested that they never intended to put industrial demand over domestic, and that they merely hope such industries will receive priority as the shortage eases.

Now Shanghai is suspending parts of its public lighting and municipal authorities in Guangdong are releasing emergency blackout plans. Other provinces such as Anhui and Jiangsu are also facing power shortages, On the other hand desert periphery provinces like Shaanxi and Xinjiang have been contributors to Sichuan’s grid, thanks to their rapid development of wind, coal, and solar capacity in recent years. Sichuan itself has urged residents to charge their electric vehicles in the early hours via the use of automated apps, while implementing special low rates discounted by $15 per MWh for low-demand periods.