Energy Takes Back Seat

Electricity shortages in China are spreading as price pressures grow.
By Michael Lelyveld
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Chinese workers fix power cables in central China's Hubei province, July 1, 2008.
AFP China Xtra

As China's government struggles with economic challenges, signs are growing that energy efficiency may be taking a back seat to inflation concerns.

On April 22, the National Energy Administration (NEA) raised its growth forecast for electricity consumption this year to between 10 and 12 percent from a previous estimate of 9 percent in January, the official Xinhua news agency reported.

The increase follows a 12.7-percent surge in first-quarter power use and a jump of 13.4 percent from a year earlier in March, the NEA said.

All the figures have outpaced the 9.7-percent GDP growth rate in the first quarter, suggesting that China is using more energy to produce each unit of economic output.

That is just the opposite of the government's goal to improve energy efficiency by 3.5 percent in 2011 under the 12th Five-Year Plan announced in March, which calls for 8 percent GDP growth this year.

Xue Jing, the China Electricity Council's statistics director, acknowledged the trends will make it hard to meet efficiency and emissions targets.

The consumption figures "suggested the economy was still mainly driven by heavy industries, which indicates a great challenge for China's economic restructuring and emissions reduction pledge," said Xue, according to state media.

The industrial sector has accounted for 73.5 percent of China's power use so far this year, the NEA said.


Philip Andrews-Speed, a China energy expert in Edinburgh, Scotland said energy saving was high on the agenda when the government was straining to meet its previous five-year efficiency target by the end of 2010.

But growing inflation has made the government skittish about raising rates to encourage conservation and reflect real energy costs.

"Now, just as energy could be coming back to the top, it is replaced by inflation," said Andrews-Speed. "As is the case in most countries, governments have usually more important things on their agenda than saving energy."

Consumer price inflation (CPI) of 5.4 percent in March easily topped the government's 4-percent goal for the year, making increases in controlled power prices less likely, despite plunging profits at generating companies.

"It will make it consistently more difficult and they'll have to be very selective," said Andrews-Speed.

The National Development and Reform Commission (NDRC) has "no current plans" for a nationwide rate increase, although it may consider charges in some regions, an unidentified official told Caixin Online.

Power problems

But the collision of contradictory policies has produced a series of power problems, shortages and social pressures.

In January 2008, the government froze most energy prices to fight a previous bout of inflation. Since then, China's five major power companies have complained that they lost over 60 billion yuan ($9.2 billion) on generation due to fluctuating coal costs.

In November 2009, the NDRC raised rates by about 3 percent but exempted household consumers. Other increases have provided partial relief to producers through "on-grid" price hikes that have not been passed on to end users.

But without further rate hikes, power consumption could grow faster this year. Governments in eastern Jiangsu and Zhejiang have already ordered power rationing to big energy consumers in March, months before the usual summer squeeze, Xinhua reported on April 22.

Zhejiang has been buying up electricity from neighboring provinces and forcing 500,000 enterprises to operate on a rotating schedule of supplies. Other provinces facing shortages include Guangdong, Jiangxi, Jiangsu and Hunan, the official English-language China Daily reported.

Power to small businesses in Zhejiang has been shut off every other day, the paper's website said.

In cases where the NDRC has raised energy prices on consumers, it has run the risk of unrest.

Shanghai strike

Starting on April 19, some 2,000 truckers at Shanghai's port facilities staged a three-day strike to protest higher fuel costs, tolls and fees, The New York Times reported, citing China's Economic Observer. Some workers smashed windows and scuffled with police, the papers said.

The stoppage was initially unreported by state media, but Xinhua later noted a decision to reduce the fees.

The NDRC last raised retail fuel prices by 5.8 percent on April 7, marking the second such increase since February. But the government's formula for allowing price hikes lags far behind the runup in international crude oil prices, causing losses to refiners and periodic shortages.

The government faces a "tough choice" in considering whether to raise fuel prices further because of effects on inflation and the economy, said Carmen Reinhart, senior fellow at the Peterson Institute for International Economics in Washington.

"If we continue to see the behavior in oil markets that we've been seeing and the more persistent that becomes, the greater the odds that they will have to do some readjustment, even if partial," Reinhart said.

But higher electricity rates could ripple further through the population and the economy than fuel costs, which mainly affect car owners and commercial transport.

"Electricity hits everybody," said Andrews-Speed.

Analysts are concerned the conditions may set the stage for diesel shortages as industries switch to generators for electricity supplies. Similar power cuts led to a run on diesel fuel last year.


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