BEIJING—China is in the grip of a power crunch as coal supply shortages combined with strong power demand from manufacturers, industry, and households push coal prices to record highs and trigger widespread curbs on usage.
China’s heavily controlled power pricing system prevents its generators from passing on their soaring coal costs to consumers, leaving them with no choice but to suffer losses or reduce output.
How Long Has There Been a Power Supply Problem in China?
China has often struggled to balance supply and demand, with central planners often underestimating demand growth, leaving many provinces at risk of power cuts during the summer and winter peak consumption seasons.
This year, a perfect storm of factors—including some coal supply disruptions and surging demand from industries and households—have caused power shortages throughout the country. However, the country’s rigid pricing system is seen as the major culprit.
Why Is China’s Pricing System Being Blamed?
One of China’s worst power supply crises took place in the winter of 2010–2011, when fierce snowstorms disrupted coal supplies and damaged power transmission infrastructure.
However, power plants—concerned about their profitability—made the shortages worse by running down their stockpiles in order to prolong price negotiations with coal suppliers.
Though China has since allowed power tariffs to fluctuate if coal costs reach a certain level, struggling generators are still not at liberty to raise prices in a timely manner in order to avoid losses.
Some policymakers warned in 2019 that China needed to build more coal-fired power plants in order to head off power shortage risks over the 2021–2025 period, but existing generation capacity has remained heavily underutilized, suggesting that many plants lack the economic incentives to go all out to boost output.
What Happened to China’s Plans to Curb Industrial Power Use?
The recent shortages have come about despite Beijing’s efforts to curb heavy industrial power usage.