Power crisis for Guangdong
industry By Olivia Chung
HONG KONG - Guangdong province, one of
China's economic power engines, this year will
suffer its worst electricity shortage in three
decades. And despite China's power supply and
demand nationwide expected to reach a balance this
year, power supply in the coastal regions will
remain tight.
Economists and analysts said
the power crisis, combined with the induced
shortage of fuel, is likely to have a negative
impact on economic activities and aggravate
inflation pressures in the country.
Despite the downturn in the global economy
affected by the US subprime crisis, China's demand
for electricity this year will rise 11%-13% to
between 3.60 billion and 3.67 billion
megawatt-hours (MWh), fueled by the estimated
gross domestic product (GDP) growth this year of
9.5% to 10%, a news report by the
China
Electric Power News, a
publication under State Electric Regulatory
Commission (SERC), said on March 26.
The
report said, quoting unnamed analysts of the State
Grid Corp's State Power Economic Research
Institute, that power supply and demand nationwide
could be in balance this year, without giving any
reasons.
The analysts forecast power
supply could meet demand balance in north and
central China, while east and south costal
provinces, including Zhejiang and Guangdong, and
southwest China's Tibet Autonomous Region, would
face power shortages due to bad weather, unstable
coal supply, seasonal low waters and unstable
installed power generating capacity.
Fueled by economic growth of more than 10%
annually, China's demand for electricity has been
on steady rise. But construction of grid networks
and power plants has lagged behind the growing
demand. As a result, the country has suffered
power shortages in recent years.
In 2004,
the country suffered its most serious shortages,
with 24 provinces and regions affected despite
power generation rising 14.9% over the previous
year.
Guangdong, China's richest province,
has been among the worst-hit provinces in years of
shortages. But the worst has yet to come, with
electricity shortfall hitting a record high of
about 12 million kilowatts this month (March),
after the country's worst snowstorms in early
February damaged inter-provincial transmission
lines, interrupting energy supply.
The
Guangdong Provincial Economic and Trade Commission
earlier said at a press conference that the
province this year faces the worst power shortage
in three decades. In March, the electricity
shortage was between 11 million and 12 million
kilowatts, twice its electricity load gap in last
year's peak seasons. And according to the
commission, the shortage in summer will well
exceed 10 million kilowatts. By comparison, the
worst power shortage so far was in 2005 - 6.26
million kilowatts.
According to the
commission's estimates, electricity demand in
Guangdong will hit 49.5 million kW this month,
well above the province's generating capacity of
38 million kW.
Li Xiangming, deputy
director of the commission, attributed the
province's power crisis to the devastating
snowstorms that hit eastern and southern parts of
country before the Lunar Chinese New Year,
damaging transmission lines carrying power from
Hunan, Sichuan and Guizhou provinces in the west
to Guangdong. That's why some 10 million kW could
not be sent to Guangdong in March.
"Besides, 8,922 small hydroelectric power
stations in Guangdong have stopped generating
electricity because of seasonal low water levels,"
he said.
The province's highest
electricity shortfall would be more than 6.3
million kW in the first half of this year, Li
said.
He said though capacity in the
west-east power lines would be fully repaired in
the second half, the province's electricity
shortfall would remain more than 6.5 million kW in
the second half due to increased demand. Its
highest loads for power generation would reach 63
million kW, up 16.4% from the same period last
year.
Dick Chen, chairman of Guangzhou
Taiwan Businessmen Association, told Asia Times
Online the power problems have begun almost six
months earlier than usual this year.
"The
power shortages in Guangdong this year are worse
than last year as enterprises have been asked to
shut operations for three days a week after the
Lunar New Year holidays," he added. "Last year,
the situation did not become that severe until
August."
Chen said some of his member
companies closed operations for three days a week
under the power rationing rules, some shifted to
nighttime operations during the days and some
resorting to back-up electricity generators.
"However, diesel oil could erode profit
margins at the enterprises as the prices of diesel
oil was three times those of electricity sent by
power plants," he said. The city's current average
on-grid price is 0.6 yuan (8.5 US cents) per kWh
while the cost of diesel is about two yuan per
kWh.
Chen, who has a window company in the
economic and development zone of Guangzhou,
Guangdong's provincial capital, employing about
800 people, said to avoid the increasing prices of
fuel, it did not buy diesel generators; instead it
asked its customer to postpone delivery of goods.
"With a severe labor shortage in
Guangdong, manufacturers could not force the
workers, who are fully aware of their rights now,
to work at night during the power rationing days,"
he said.
The power crisis threatens one of
the country's key manufacturing areas. Guangdong's
gross domestic product (GDP) reached 3.06 trillion
yuan in 2007, ranking it first among China's 31
provinces and municipalities and accounting for
12.4% of the country's total GDP of 24.66 trillion
yuan. Because of its strong re-export-oriented
industries, Guangdong has led the country in
foreign trade for the past 22 years, with exports
and imports totaling US$630 billion in 2007, or
nearly one third of the country's total.
Chen said the serious shortage of power is
just an additional disaster for manufacturers in
Guangdong, who have been plagued by the increasing
costs of land and labor as well as the steady
appreciation of the yuan. The monthly salary of
general workers at Chen's plant on average is more
than 1,000 yuan, besides catering and
accommodations.
A new minimum wage will be
raised at 860 yuan in Guangzhou, effective April
1, which is among the highest wage standards in
Chinese cities. By comparison, minimal monthly
wage of 530 yuan could be found in the province's
underdeveloped areas.
With the increasing
demand for diesel oil as factories resorted to
diesel-powered generators, fuel shortages began to
hit Guangzhou and Shenzhen from the middle of this
month.
Long lines of vehicles formed
outside gas stations to compete for the fuel in
rural areas in Guangzhou and Shenzhen's Yantian
and Longgang districts as some gas stations
rationed diesel.
Analysts said inflation
will continue to remain high in the coming months
because of the shortages of electricity and fuel,
which have disrupted transport and affected supply
of food and fuel while demand is picking up.
"These nature-led and policy-induced
energy shortages and transportation bottlenecks
are likely to aggravate inflation pressures in
[mainland] China in the short term, as well as to
have a negative impact on economic activities,'
Hong Liang, chief economist of Goldman Sachs
(Asia) in Hong Kong, said in a report.
To
solve the power shortages, Guangdong Development
and Reform Commission deputy director Li Miaojuan
said on March 6 that about 10 types of
energy-consuming industries, smaller steel mills,
electroplating factories and dyeing plants for
example, would be ordered to disconnect from the
power grid.
Without revealing when the
power suspensions would take place, she said
manufacturers would be informed a day in advance.
However, an economist said the power shortages
could not be solved until a change of state policy
stating that the price of electricity cannot be
raised.
Ivan Png, professor of information
systems, business policy and economics at the
National University of Singapore, attributed the
years of shortages to government price controls
amid rising oil prices on the international
market.
Coal remains the major fuel for
power generation. However, in Guangdong, because
of power shortages, some places and enterprises
have to generate electricity with oil to help ease
the shortage. This increases demand for oil
products, diesel in particularly, which are
already in short of supply.
"Having freed
the price of coal, price-control policy has
prevented refineries in the country from passing
the surging cost of crude oil on to consumers. To
avoid losses, some of power plants simply cut
production," he said.
Png said Beijing
plans to peg the price of electricity to the cost
of coal, but he expected the process of
implementation to take long. Olivia Chung is
a senior Asia times Online reporter.
(Copyright 2008 Asia Times Online Ltd. All
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