Energy crisis threatens ‘world’s factory’

China is often called “the world’s factory” because of its prodigious manufacturing and industrial capacity and gargantuan output, and because of its hot – some would say overheated – economy, that factory is running hard. But it is not running efficiently. Its appetite for energy far outstrips its production, and it may well be slowing down. In short, China is confronted by an energy crisis that can undermine its economic gains and threaten its future.

It is famished for fuel. Solving its energy crisis is a major challenge to political, industry and business leaders, and the rest of the world is watching closely.

In order to keep the world’s factory humming – and to realize its Great Power aspirations, China needs energy security and a coherent, long-term energy strategy covering hydroelectric power, coal and oil. It needs to put in place durable arrangements for oil imports to meet its own production shortfalls, to develop Central Asian and East Asian pipelines, to undertake drastic energy conservation and develop alternative, efficient technologies and sources of fuel, such as solar, wind and hydrogen power.

As yet, however, China has no energy strategy, even as all sectors of the economy are urged to produce more, faster and better in order to get rich and realize the Middle Kingdom’s economic miracle.

China has big problems with coal: it burns more than a billion tons a year and gets 75 percent of its energy from highly polluting coal-burning plants. And it doesn’t have enough coal. Beijing has ordered an increase in coal output, despite one of the highest rates of mining accidents in the world. As of December 21, 1,035 people had died in 50 “major” coal mining disasters in 2003, and no one knows how many died in “minor” accidents; China has thousands of small coal mines and pits that account for a large part of its total output.

The government, appalled by the death tolls and bad international publicity, ordered a coal-mine “rectification campaign” in order to improve mine safety. That meant shutting some mines and slowing or halting production in others until safety could be improved. But when the price of the safety campaign was a big drop in coal output, the campaign went by the boards.

China does have a policy to wean itself from over-reliance on coal, but that will take a long time.

Only one week’s oil reserves
The nation is also shockingly short of oil. It cannot meet rising demand and has no strategic reserves. Though the fifth-largest oil producer in the world, China has fallen from a net oil exporter in 1993 to the world’s fastest-growing importer. Its maximum exploitable oil reserve is estimated at only 13 billion to 16 billion barrels, about the size of a middle-sized oilfield in Iran. That will last about one week.

Last autumn the State Council received a research report on energy security. One of the recommendations was establishment of a domestic petroleum futures market and a related legal and supervision framework. This would allow China to bridge its gap with the international energy market, have a greater say in petroleum pricing, better resist price fluctuations and secure an oil supply into the future.

That recommendation and others are under consideration.

A nation of abundant but unevenly distributed water resources, China historically has been ravaged by floods and drought. So now it is harnessing the water for hydroelectric power and flood control, as in the case of the Three Gorges Dam on the Yangtze River. The project is in its third phase.

But hydroelectric power depends on seasonal water supply, and in China the sun and rain gods can be capricious, as Hunan province in the south has learned to its profound pain and dismay. Lacking a coherent flood plan, fearful and overzealous engineers and bureaucrats – important national actors in China’s unfolding energy drama – lowered reservoirs too much during unexpected torrential rains. And during an unexpected drought last autumn, they ran out of energy. The lights went out – well, they flickered – and severe rationing and power cuts have been imposed.

The story of Hunan, the first in this series, is a case study in what can happen when bad weather and bad judgment combine. Throughout China, there are similar cases of poor or non-existent energy planning at a time when all sectors of the economy are driven to produce.

To a large degree, China’s economic future depends on how – and if – it solves its energy crisis. In a globalized international economy, Asia and the rest of the world have a stake in China’s vision, pragmatism and leadership in keeping the world’s factory running. – ATol

Part 1: Hydropower, wave of the future?
By Qu Xin

Rejoicing over its burgeoning economy during 2003, China found itself struggling with a severe power shortage at the end of the year, with regions along the middle and lower reaches of the Yangtze River bearing the brunt of the devastating national energy shortfall.

Seeking to wean itself from reliance on polluting coal-burning power plants – China gets more than 75 percent of its energy from coal – Beijing has pumped huge investments into harnessing its abundant water resources, building non-polluting hydroelectric plants. The Three Gorges Dam, still in the third phase of construction, is part of this mammoth effort to further tap the nation’s hydroelectric power capacity.

Hydroelectric plants, however, are subject to seasonal water supply. Southern China’s Hunan province, with 57 million people, is highly dependent on hydropower and it has borne the brunt of China’s devastating energy shortfall. It is a case study of bad weather compounded by bad judgment, and what can go wrong without a coherent, long-term energy policy. Hunan has none, and neither does China – yet.

Last summer, a succession of unexpected torrential rains panicked the local authorities into adopting a rash, ill-considered flood drainage project. They lowered reservoir levels to prevent flooding of cities, towns, villages and croplands. But this huge drain-off later created a provincewide water shortage leading to the current power famine. When unexpected drought descended, the lights went out. Now as the last resort, the province has been rationing electricity since November 4.

With the region requiring an extra 20 million kilowatt-hours (kW-h) in electricity supply every day, the severe power shortage plaguing Hunan province will persist at least until the spring of 2004, according to estimates of the official Hunan Electric Power Co (HEPC) and the provincial Economic and Trade Commission.

“The power shortage has become a bottleneck in provincial political and economic development,” Zheng Maoquing, vice governor of Hunan, declared last August.

But the gap is far wider than what officials acknowledged, according to Qin Hongsan, chief engineer of the HEPC. Qin was quoted by the China Youth Daily as saying that Hunan province needed an extra 30 million kW-h in electricity supply every day, and he said the situation would get worse as falling temperatures increased the need for heat.

Authorities impose rationing
Confronted with the power shortage, the provincial government has not yet found an effective solution. Last July 22, in an effort to ensure smooth operation of the local power network, provincial officials ordered some industries to avoid electricity consumption during peak hours, and the next day they ordered local governments to control their power use by rationing electricity.

On August 2, the provincial government issued an emergency rationing circular throughout Hunan. It extended rationing to big power consumers such as enterprises and public facilities in order to guarantee the supply for civil life, anti-drought and flood relief works and public security. Short of electricity, various workshops or factories, small or large, were temporarily shut down.

In Changsha, the provincial capital, department stores and recreation places were ordered to close after 7pm to ensure civilian power consumption. Meanwhile, only half of street lamps went on.

Some observers say the power shortage can be attributed in part to the provincial authority’s imprudent plan last summer to reduce the level in reservoirs for flood control.

In July, the province was drenched by heavy rain, especially in its northwestern part. Hit by the once-in-a-thousand-year rainstorm, Both Shidi and Zhangjiajie hydrological stations registered rainfall of 408 centimeters and 379cm respectively.

The provincial hydrological units predicted that floodwater would exceed the warning level for Chenglingji city near Dongting Lake on July 12, and then rise to 32.5 meters. Explosives were placed at the dam and would be detonated to protect the city in case of emergency.

The explosion was not necessary, though no detailed coverage of emergency measures and flood discharge was seen in the domestic media. One glimpse was given by the July 16 edition of Science and Technology Guide, a weekly affiliated to the Hunan Daily. It said, “Under the leadership of the Party and the State Council, local authorities scored another resounding triumph over the flood by promptly relocating people from risky areas, effectively channeling floodwaters into nine floodwater-storage areas, and finally releasing it into the Yangtze River by river-to-sea channels, as per its flood-control plan.”

Flood control took highest priority
Some officials pointed out that discharging so much floodwater could result in stalling the power generation in a drought, but they emphasized that flood-control work had to take the highest priority.

Then an unexpected drought plagued the unfortunate land from summer to autumn, an extraordinary duration in China. The hope for an autumn flood or October rainfall evaporated, as the sun blazed down for more than a month.

Since the summer, declining rainfall along the Xiang River basin eventually reduced the water level of the Changsha section of Xiang River to 25.24m at 8pm on November 1, breaking the record low of 25.25m in 1999. After the summer drainage for flood control, the level in various reservoirs dropped dramatically, resulting in a major reduction in power-generating capacity, and the current severe power shortage in Hunan.

For better – and sometimes, as in this case, for worse – Hunan relies heavily on hydroelectric power. According to the Hunan Department of Water Resources, one power grid, covering 97 cities and counties, is composed largely of hydroelectric plants with a cumulative installed capacity and annual output of 2.44 million kW and 8.13 billion kW-h, accounting for 45 percent and 40 percent of the provincial total respectively.

The severe flooding in summer and the outbreak of severe acute respiratory syndrome (SARS) last year has dealt a powerful blow to Hunan’s economy. That prompted the Hunan provincial committee of the Chinese Communist Party and the provincial government to put forward a new strategy of development: the industrial sector should try to exceed its pre-set target and make up the loss in what is called the “third industry”, the service sector, which had been hit hard by the disaster and epidemic.

However, Hunan is still plagued by power shortages despite the government’s pledges to boost the economy. In December, authorities activated a new rationing plan: a 24-hour power cut every three days for factories, which might soon be shortened to every two days. Municipal officers say the rationing probably will remain unchanged in the short term. Presumably, the underpowered industrial sector is unlikely to achieve substantial growth this year, reducing the possibility of a higher overall economic growth rate for the province.

It would be unfair to place all the blame for the current power shortage on the officials who ordered the emergency draining of reservoirs last summer. The torrential rains precipitated a crisis that called for urgent, quick-win disaster-relief tactics.

However, long-term policies and strategies should be developed, taking into consideration the pros and cons of different approaches and tactics. As Chinese President Hu Jintao said in a national symposium last March, “The work of water conservancy should be carried out on the basis of unified planning with due consideration for all prospects.”

Hunan has already paid a heavy price for its power shortage. So that history does not repeat itself, other provinces should draw a lesson from Hunan’s suffering.

  • Next: Coal tradeoff – safety for output

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