Economy

Sichuan’s energy crisis

Heatwave and loss of hydropower cause big disruptions across China

Beach-w

Evidence of the drought in the low water levels of the Yangtze

As part of a press conference this month to showcase Sichuan’s contribution to the economy, the province’s senior officials proudly proclaimed Sichuan as the largest base for clean energy in China. That was helped by the fact that the Baihetan Hydropower Station, the world’s second largest hydropower project with 16 million kilowatts of installed capacity, had just commenced operations. Indeed, infrastructure like this has reinforced Sichuan’s status in the sector, where it now accounts for 28% of the country’s hydropower generation.

While the press conference was taking place, the temperature in some parts of the province, as well across the neighbouring municipality of Chongqing (which is under the direct administration of the central government) touched nearly 45 degrees Celsius. That was the highest on record, even for Chongqing, which is known colloquially as one of the “big four furnaces” (joining the cities of Wuhan, Nanjing and Changsha) for its unbearably hot summers.

In late June the national observatory had already issued yellow alerts for high temperatures as heatwaves swept across vast regions of the country, especially in the southwest. The warning was subsequently raised to red at one point this month in areas such as Chongqing.

The sustained hot weather and low rainfall going into the second half of the year has seen Sichuan’s hydropower facilities disrupted by drought conditions. Earlier this month the State Grid warned that average rainfall since July was 51% down on the same period in previous years. With some of the largest reservoirs already drying up, the provincial government went into power preservation mode, making efforts to protect household electricity supply at the expense of industrial and commercial usage.

According to Huxiu.com, residential communities have still been hit with sporadic power outages. The current greeting between Sichuanese in recent weeks has been “Did you have electricity last night?”, the news portal added.

In a further bid to ease the electricity shortage, the Sichuan government and the State Grid’s provincial branch then issued a statement requesting higher-energy consuming companies and factories to go on “high temperature vacation” between August 15 to 20 as an emergency measure to prioritise residential power use. Industrial production was stopped in 19 of the largest cities in Sichuan and the “high temperature vacation” was later extended to August 25.

The decision astonished factory owners and their clients in sectors like polysilicon production, where Sichuan is the third biggest producer of upstream materials after Xinjiang and Yunnan. Chinese companies produced about 500,000 tonnes of polysilicon or 70% of the global output last year, CBN reports, and Sichuan accounted for about 13% of the total.

Many PV (photovoltaic) firms have opted to base themselves in Sichuan because the electricity is relatively cheap there, CBN noted, with power fees typically accounting for as much as 30% of PV production cost.

As the restrictions on electricity supply took effect, leading PV firms such as JinkoSolar also put out warnings about disruption to supply of silicon wafers, cells and modules, as well as volatility in the prices of these midstream products.

The PV industry isn’t the only sector to suffer from the energy crunch. Other industrial powerhouses that have set up in Sichuan including well-known names like Foxconn, CATL and BYD are all facing the prospect of having to throttle back on production thanks to the unexpected power outages. Toyota, which has a factory in Chengdu that produces 30,000 vehicles every year, also suspended production for a week.

The new threat of disruption across parts of China’s industrial sector comes at a time when the global supply chain is already straining under the measures that Beijing has taken to contain the spread of Covid-19. But another question is whether Sichuan’s hydropower could be under longer-term threat from changes in climactic conditions, triggering more frequent interruptions in electricity supply.

The persistent heatwaves and droughts of the summer have been labelled as a once-in-decades disaster by the Chinese state media. More regular repeats of the same conditions would make it impossible for Sichuan to meet its commitments under the West-East Electricity Transfer Project, however, in which the province transfers energy to eastern regions such as Shanghai. According to CBN, Sichuan exports more than 130 billion kilowatt-hours of electricity to other provinces every year.

As the energy transfer out of the province continues, it also means that the Sichuan government is sacrificing some of its own economic wellbeing to keep the power flowing to other places. In a gesture to acknowledge the shortages, the Shanghai government turned off the decorative lights on the Bund for two nights this week. Sichuanese factory bosses could be forgiven for feeling that Shanghai’s sacrifice was rather less significant than their own, perhaps.

For economic planners, the power outages in Sichuan have also pointed to underinvestment in some areas of the country’s electricity infrastructure. In recent summers, headlines about Sichuan’s hydropower projects were often guided by debate about the surplus hydropower the province was forced to abandon during peak production season. And according to Jiemian, the problem of power wastage needs to be addressed, primarily with more investment in a ‘smart grid’ that supports more flexible energy storage and transmission.

The crisis this summer has also seen Sichuan and other nearby provinces fall back on emergency sources of power, largely from coal-fired generation. “Sichuan’s coal-fired plants have been firing on all cylinders and generating power in excess of their design capacity,” the Sichuan Daily admitted this week. Of course, many of these plants are destined to be phased out as part of China’s drive for net-zero carbon emissions, which would make the same fallback strategy more difficult to implement in the years ahead. Perhaps a rump of coal-fired generation will be left in place for emergencies, in cases when conditions like this year’s recur. But coal-fired power has also been blamed as a key contributor to changes in the weather over the longer term, posing a further conundrum for China’s energy bosses.


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