Rains May Sink Power Reforms

China's floods raise hydropower output, ease pressure on government over shortages.
By Michael Lelyveld
damrelease-305.jpg Xiaolangdi dam undergoes a sediment cleaning process following heavy rains in Henan province, July 5, 2011.

Heavy rains, which have inflicted damage and devastation on millions in China, have provided only temporary relief from power shortages to millions more, experts say.

On June 28, the National Development and Reform Commission (NDRC) said the rains boosted hydropower output by 12.3 percent during the month, helping to end electricity rationing in many provinces, the official Xinhua news agency reported.

The increase has brought "great relief" to power-squeezed provinces in eastern and central China, the State Grid Corp. said, leaving only Hebei and Shanxi with power rationing in the north, as well as five southern provinces served by a separate power grid.

The NDRC statement suggested there might be an incidental upside to the floods that have caused at least 288 deaths and 43.2 billion yuan (U.S. $6.6 billion) in economic losses, according to state disaster and relief agencies.

Before the rains came, China was suffering from the worst drought in decades, contributing to its most serious power shortage since 2004.

The rains may have taken the edge off the shortage temporarily, since hydropower accounts for 21 percent of China's generating capacity, although Reuters reported that major reservoirs remain 4.6 percent below year-earlier volumes.

Policy problems

Relief may also be short-lived because China has yet to address basic policy problems that have produced power shortages, despite a doubling of generating capacity since the last severe crunch.

"It's a temporary solution, a partial fix for this summer," said Philip Andrews-Speed, a China energy expert based in Edinburgh, Scotland.

"It doesn't make the bigger problem go away. There's almost unconstrained growth of demand, and supply can't keep up," he said.

Under China's fractured system of state controls, the five main power companies have suffered combined losses of over 12 billion yuan (U.S. $1.9 billion) on coal-fired generation in the first five months of the year, the China Electricity Council (CEC) said.

Costs for new coal supplies have been climbing while retail power prices have been virtually unchanged, leaving little incentive either to save electricity or produce more.

The NDRC has been slow to raise rates because inflation has already surged far above the government's annual 4-percent target.

In June, the consumer price index soared to a three-year high of 6.4 percent, the National Bureau of Statistics reported. The CEC has forecast a 12-14 percent jump in power demand this summer, but growing inflation has kept the government from using rate hikes to spur conservation.

Liu Baohua, a deputy director of the State Electricity Regulatory Commission, noted the increase in hydro output but said demand was "unprecedented," The New York Times reported.

"The root cause of the tight power supply was believed to be the unreformed economic structure and over-reliance on energy resources," said Xu Yongsheng, director of the power industry department of the National Energy Administration, according to Xinhua.

No pressure

The recovery of hydropower may only serve to ease pressure on the NDRC to confront the policy problems.

"It means that for two or three months, they can breathe a sigh of relief, and energy and electricity supply are no longer at the top of the agenda," said Andrews-Speed.

"I don't expect this shortage that we've seen in the last two or three months to stimulate any great new approach," he said.

China's power predicament may be symptomatic of the way the government deals with problems that risk social instability, spreading the burdens among sectors and delaying decisions until crises pass.

"You spread the pain so that no one political or social actor has too much, but everybody shares it," said Andrews-Speed. "By the time they're getting too irritated, the rains come and the problem goes away."

Conflicting goals

But the government has also continued to pursue policies that may promote economic growth and social stability, but make power shortages even worse.

An example is the subsidy program for rural sales of appliances like refrigerators, air conditioners and color TVs, which has proved wildly popular although buyers may have trouble finding enough power to turn their new gadgets on.

On July 5, the Ministry of Commerce reported that home appliance sales in rural areas shot up 83.7 percent in the first half from the year-earlier period to nearly 125 billion yuan (U.S. $19.3 billion).

The subsidized sale program was launched in 2009 with the dual purpose of stimulating production during the global downturn and narrowing the social gap between city dwellers and the rural poor.

So far, the government has handed out 42.5 billion yuan (U.S. $6.6 billion) in subsidies to support 366.3 billion yuan (U.S. $56.6 billion) in sales of 165 million appliances, apparently ignoring the implications for increased power demand.

"You've got financial, economic and social goals in complete tension with energy and environmental goals," Andrews-Speed said.


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