China's energy crisis: From power cuts to manufacturing slump, how bad is the situation?

China's looming energy crisis has highlighted the nation's dependency on its coal consumption. With the current situation turning from bad to worse, China needs to bolster supply sources to avoid an economic slowdown already hampered by the COVID pandemic. Local media and channels in China have been buzzing with reports of long and frequent power outages across several provinces in the country.

An Indian-origin teacher currently working and living in Beijing spoke to Republic TV, explaining the current situation in the nation's capital. Pockets of busy streets had no functioning street lights, inoperational traffic lights, factories being asked to shut down temporarily or reduce work timings and government-controlled usage of air conditioners and water heaters appear to be the dark reality of today's China. Naturally, this has affected the livelihood of millions of people all over China.

How bad is the power crisis in China?

China, which is the world's most populous country has for decades battled energy supply issues amid constantly rising demand. However, in recent times, the mismatch of supply and requirement has aggravated to alarming levels. Notably, this crisis has been observed in several parts of the world as well this year.

According to a Goldman Sachs report published in September, China's industrial output has now reached its lowest point since the pandemic hit the world in February 2020. The report claims that the global auditing firm was even forced to cut its predicted growth from 8.2%-7.8% for the fourth quarter of 2021.

Breaking down China's energy crisis - a victim of its own doing?

China, largely considered an industrial hub by experts is a prime exporter to several countries. It recently saw a rise in international demand for its manufactured goods, despite the general distrust towards Beijing brought on by the Wuhan virus. This uptick in demand led to its factories running overtime causing a surge in power consumption. 

China now needs additional coal to meet the enhanced power requirements, as it accounts for more than three-fourths of its overall electricity needs, despite best efforts to turn towards renewable energy sources.

Why is China not able to produce more coal?

The reason power generating companies are refusing to purchase additional coal is three-fold. Strict regulations, Xi Jinping's green ambitions, under-stress industries.

Strict regulations

Increased demand has led to a steep rise in coal prices. Operators are facing difficult times processing the hike in price as the Chinese government does not allow companies to increase the price for consumers. This has pushed operating costs at an all-time high, forcing energy producers to refuse to keep their companies running at a loss, thereby creating a wide wedge in demand and supply.

Xi Jinping's aim to turn China Carbon neutral

The Chinese President's ambitious mission to reduce the country's reliance on fossil fuel and channel its focus on renewable energy sources has led to further anguish among companies. Xi Jinping hopes the country can be carbon neutral by 2060 and is aggressively pushing growth strategies in that regard while some experts argue that he is willfully ignoring the oil and gas companies. Xi has also mandated cutting down supply for energy companies to ensure his actions are taken seriously on global platforms after constantly receiving flak for not compliance in climate summits.

Industries severely hit by China's new regulations

China's northeastern provinces which are home to several industrial hubs that deal with products such as aluminium, textile, cement, steel and fertilizer producers are the worst-hit regions. The crisis has already seeped into residential areas with households now facing frequent power cuts and inconvenient rules that restrict usage of electronics in order to conserve electricity. Global supply chains for several brands such as Apple and Tesla remain shut indefinitely.

What can China do next to ease power crisis?

China appears to be in a bind and out of options to explore in the short term. Switching to renewable sources is expensive and time-consuming. Delayed monsoon season means a lack of enough water to rely on hydropower to meet the needs. Importing more coal is the most reasonable option but doing that would increase the country's resilience on fossil fuels, the exact thing Xi Jinping, along with the ruling dispensation's vision is built to overcome.

Are other countries facing power supply shortages?

The energy crisis is not restricted to China alone. Other major economies such as the UK, France and India are all struggling with rising prices and adequate supply of gas and coal. Oil and the natural gas price has increased at an alarming rate in India. However, Union Power Minister RK Singh has dismissed the reports and denied any claims of a shortage of coal in the country. He assured that the rise in demand can be easily catered to by India’s coal reserves and called it a positive indication for India's COVID-battered economy.