Shivani Singh

BEIJING, (Reuters) – China’s energy crisis grew on Friday after cold weather ravaged much of the country. Power plants scrambled for coal to keep their fuel stocks stocked up and prices soared.

As strong cold winds from north China bring down temperatures, electricity demand for heating homes and offices will rise. In the coming days, forecasters expect that average temperatures could drop by up to 16° Celsius in certain eastern and central regions.

Worldwide power shortages have been caused by high fuel prices, shortages coal, and boom post-pandemic industry demand. Since September, rationing has been implemented in at least 17 out of the more than 30 areas in mainland China. This forced some factories to stop production and disrupted supply chains.

On Friday, January Zhengzhou’s most-active thermal coal futures reached an all time high of 1,669.40yuan ($259.42/tonne) early in the morning. This contract has increased more than 2000% in the past year.

Jilin and Heilongjiang in the northeast were the hardest hit. Many regions, such as Inner Mongolia or Gansu in north China, are now using winter heating to combat the chillier-than-normal conditions.

Beijing took a variety of steps to limit rising coal prices, including increasing domestic coal production and cutting power to energy-hungry industrial and factories that are operating during peak periods. The government has repeated its assurances to users that there will be sufficient energy supply for winter heating. [B9N2QE019]

Power shortages could continue well into next year. However, traders and analysts expect an expected 12% decline in industrial power consumption during the fourth quarter. As coal supplies drop and local governments prioritize residential customers, this will lead to lower power usage.

Graphic: China power rationing map – https://graphics.reuters.com/CHINA-POWER/jnvweyzazvw/chart.png

China made the boldest move in decades of reforming its power sector, announcing earlier this week it would let coal-fired prices fluctuate up to 20% relative to base values starting on Oct. 15. It will also allow power plants to transmit more of high-cost generation costs to end-users commercially and industrially.

The new policy will likely result in higher power prices for steel, aluminum, cement, and other chemical producers. This could impact profit margins. According to data released Thursday, factory-gate inflation for September was at an all time high.

Graphic: Temperatures in northern China dip below normal, boosting heating demand amid power pinch – https://fingfx.thomsonreuters.com/gfx/ce/lbpgnobnyvq/BeijingTempsOct132021.png

China has set a goal to become “carbon neutral” in 2060. Beijing is trying to shift its dependence on dirty coal-powered power to cleaner renewables, such as solar and hydro. For some time, coal will still be the main source of electricity.

China isn’t the only country struggling to find power, as have other countries. This has caused fuel shortages and blackouts across some nations. As world leaders attempt to revive their efforts to combat climate change, the crisis highlights the difficulties in cutting down the dependence of the global economy on fossil fuels.

China is determined to attain carbon peaks before 2030, Vice Premier Han Zheng stated in a video message to the Russian Energy Week International Forum. This was according to state-run news agency Xinhua on Thursday night.

He stated that Russia, China, and Russia were important players in energy transition. They should work together to facilitate the smooth development of key oil and natural gas pipelines as well as nuclear power projects.

($1 = 6.4351 renminbi)

Reporting Shivani Singh’s Beijing incident; Additional reporting by Aizhu, MuyuXu, and Beijing newsroom. Editing by Kim Coghill