Olympics Sap China's Power Supplies

China's energy supplies are under severe strain as the Olympic Games approach. The country's main coal-producing province has run short of coal and power as it struggles to meet Beijing's demand.
By Michael Lelyveld
2008-07-21
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BOSTON--In the latest sign of trouble for China's economy, the country's biggest coal-producing region is suffering from serious shortages of coal and power supplies.

Experts say the problems in northern Shanxi province are symptomatic of shortages affecting many areas of China, but the crisis is especially telling because Shanxi produces more coal than any other place on earth.

Last year, Shanxi mined some 620 million tons of coal, providing about one-fourth of China's total output. Shanxi produces more coal than any country in the world, except for China itself and the United States, according to data from the World Coal Institute. In the first half of this year, the province's production rose 14 percent, state media said.

Yet on July 9, officials disclosed that Shanxi faces a severe power deficit of 5,000 megawatts as over 15 percent of the province's generators have been forced to shut down, the official China Daily reported. The problem: not enough coal.

Some of the shortfall is due to higher coal prices and soaring power demand in other parts of China. Average coal prices in Shanxi have risen 13 percent in the past year, but they remain relatively cheap at 377 yuan ($55.26) per ton. Much of Shanxi's coal is shipped out of the province, leaving it short. Shanxi provides 45 percent of Beijing's coal and 35 percent of its power, China Daily said.

But tight supplies and high demand are pushing China toward its worst power shortage since 2004 as the Summer Olympic Games approach in August, according to Reuters. Despite an 11-percent increase in output in the first half of the year, China still needs another 40 million tons of coal, the China Coal Transport and Distribution Association said.

Over a dozen provinces are rationing power, while the nation's top aluminum smelters have agreed to cut output by 10 percent to save electricity.

Policies 'incomplete,' 'uncoordinated'

Much of the country is being strapped to supply the Olympics, but in interviews with Radio Free Asia, experts said the problems have festered because of bad decisions on energy policy.

"It's indicative of the fact that China's fundamental energy policy and energy supply problems haven't been solved," said Philip Andrews-Speed, a China energy expert at Scotland's University of Dundee in Edinburgh. "What's happened is that they just get moved around."

Policy measures often appear incomplete or uncoordinated. On June 19, for example, the National Development and Reform Commission (NDRC) announced it would raise electricity rates by 4.7 percent along with steeper increases for gasoline, but it decided to keep coal prices capped until the end of the year.

The move added to the scramble for more coal, but power producers continue to complain that their rate hike was not enough to stem losses. Many report that their coal supplies are dangerously low.

"They will ensure that the lights will stay on and there's enough gasoline for the Olympics in the key areas, but that's quite different from making sure that there's enough energy supply across the whole country," Andrews-Speed said.

Shanxi's power deficit could feed on itself if coal mines start to find themselves short of the electricity needed to produce more coal, he said.

Mikkal Herberg, research director for energy security at the Seattle-based National Bureau of Asian Research, said the Olympics are straining resources and aggravating China's problems, but the root causes can be traced to years of unrestrained growth.

"In a broader sense, what this shows is that China's energy demand  is simply beyond supply capabilities for a system running at 10-percent economic growth," Herberg said. "You cannot drill, mine and rail your way out of this problem with demand growing that fast."

Poor decisions on energy policy have set the stage for China's difficulties, said Herberg, but the added demand of the Olympics is much like another crisis, such as last winter's heavy snowstorms.

"Anytime you put pressure on this system, like the surge in energy demand coming from the Beijing Olympics, it begins to break down very predictably," Herberg said.


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