China’s Utilities Cut Energy Production, Defying Beijing

Balking at the high price of coal that fuels much of China’s electricity grid, the nation’s state-owned utility companies are defying government economic planners by deliberately holding back the amount of electricity they produce.

The power companies say they face financial ruin if the government continues to tightly limit the prices they can charge customers, even as strong demand is sending coal prices to record levels. The chairwoman of one giant utility, China Power International, recently warned that one-fifth of China’s 436 coal-fired power plants could face bankruptcy if the utilities cannot raise rates.

The utilities’ go-slow tactics include curtailing the planned expansion and construction of power plants, and running plants for fewer hours a day. And in a notable act of passive defiance, the power companies have scheduled an unusually large number of plants to close for maintenance this summer — right when air-conditioning season will reach its peak.

So far there have been no public confrontations between Beijing officials and utility executives. But the dispute indicates that China’s unique marriage of market competition and government oversight may be starting to fray after three decades of phenomenal economic success.

“The Chinese electricity companies are firing a shot across the bow, and essentially saying they’re not going to just sit there and take massive losses,” said Jeremy C. Carl, a Stanford University researcher on Chinese energy issues. “It’s almost the equivalent of a corporate sick-out.”

The official Xinhua news agency reported late Monday that the country’s main electricity distribution company, the State Grid, had warned that power shortages this year could be worse than in 2004, when China had its worst blackouts in decades. That year, the problem involved railroad bottlenecks in getting coal to power plants — an issue largely resolved with the subsequent investments in more rail lines.

This time, the impasse between government and industry is not the only cause of China’s electricity shortages. Surging electricity demand is also a factor.

China’s 700 million rural residents have been on a two-year buying spree of electric devices, purchasing hundreds of millions of air-conditioners and other energy-hungry appliances with government subsidies aimed at narrowing the gap in living standards between cities and rural areas.

In a little-noticed milestone, the latest data from Beijing and Washington shows that China passed the United States last year as the world’s largest consumer of electricity.

Since March, responding to the power shortages, government officials in six provinces have begun rationing electricity, including here in Hunan province. At least five more provinces are preparing to do so, according to official reports.

In Yiyang, a town of 360,000 in south-central China, electricity shortages are so severe this spring that many homes and businesses receive power only one day in three. Even gasoline stations in this region are silent more days than not, because the pumps lack electricity.

Meanwhile, blackouts are starting to slow the nation’s torrid growth of energy-intensive industries like steel, cement and chemicals. Unlike garment makers and other small manufacturers, the big factories cannot easily switch to backyard diesel generators.

To accommodate businesses that do use diesel back-ups, China last week banned exports of diesel fuel to conserve scarce supplies.

The power cuts are a reason the year-on-year growth rate of China’s industrial production dipped last month — to 13.4 percent in April, down from 14.8 percent in March — and seems to be continuing to fall.

The lower productivity of factories, plus high diesel costs for those using generators, is likely to further raise average prices of American imports from China. Prices of Chinese exports are already up 2.8 percent in the last 12 months, after years of gradual decline that helped restrain inflation in the United States.

Michael Wines contributed reporting from Wenzhou, China, and Jonathan Kaiman contributed research from Beijing.

Article source: http://www.nytimes.com/2011/05/25/business/energy-environment/25coal.html?partner=rss&emc=rss