Clampdown on illegal coal mining, rapid economic growth and subsidized prices have result in power shortages, surprised?
While the media attention will be focused on the Beijing Olympic games, Chinese authorities are distracted by looming electricity shortages now affecting half of the country’s provinces. The problem – expected to exceed serious shortages experienced in 2004 – is blamed on rapid economic growth and a government clampdown on illegal coal mining by small operators with notoriously poor safety records. These operators, however, account for roughly a third of the coal production in a country that relies on coal for 80+% of its electricity generation.
Source: BP Statistical Review of World Energy 2007
More fundamentally, China’s chronic power shortages are the result of inappropriate government pricing policies – the sort of stuff taught in Economics 101. If the price is set too low, below its true cost and relative value, too much will be consumed. China, like many other rapidly developing countries, has traditionally subsidized energy consumption to encourage economic growth and as a way of supporting its vast underclass population. These are laudable goals, but as any economist will point out, low prices result in over-consumption.
Aware of the un-sustainability of the situation, officials recently raised electricity prices by roughly 5% – but experts believe that prices are still 30% or more below what they need to be. Coal prices in China have doubled since the start of the year and that has not yet been incorporated into the price regime. In the mean time, China’s economy continues to grow at 10% or better, straining the government’s resources to keep pace. Electricity demand has doubled over the past 5 years alone, and there is little sign of relief, unless there is not enough power to feed the factories
This post is extracted from EEnergy Informer, August 2008 issue.