Electricity shortages addressed, path taken to greener future

The past month or so has been hectic at the company for which miner Li Xingguo works in Erdos, Inner Mongolia autonomous region, whose business centers on producing, selling and transporting coal.

Li said: "We have two to three shifts a day from 6:30 am to midnight, producing about 1,500 metric tons of coal on a daily basis. The company originally planned to produce more than 5 million tons of the fuel this year, but now production capacity is expected to double."

In late September, the government and mining companies acted to address nationwide power shortages by increasing output, controlling runaway coal prices and optimizing power pricing systems. The signing of mid- and long-term contracts to ease electricity shortages has also been encouraged.

The mine where Li works was among 38 that recently resumed production after experiencing problems resulting from land use applications.

However, according to experts, striking a balance between the demand for coal－the nation's main source of power generation－and the country's commitment to peak carbon emissions by 2030 and achieve carbon neutrality by 2060 poses challenges to the industry. As a result, developing new forms of energy as alternatives and speeding up the coal industry's green transformation are viewed as key solutions.

Since late September, many regions, including cities in Northeast and East China, have experienced power supply problems that have affected factories and livelihoods. These difficulties have also exposed coal shortages and runaway prices for the fuel.

Matthew Boyle, head of coal and Asia power analytics at S&P Global Platts, a provider of information, benchmark prices and analytics for the energy and commodities markets in London, said: "Stronger power demand in the first half of this year from the secondary sector saw higher-than-anticipated coal-fired power generation in China. This resulted in coal-fired power plants consuming more coal than expected, which meant additional restocking demand ahead of the winter heating season."

Lin Boqiang, head of the China Institute for Studies in Energy Policy at Xiamen University in Fujian province, voiced similar comments.

Rapid post-pandemic economic recovery led by the fast-growing secondary sector, including manufacturing, created increased demand for power consumption, while many coal mines were shut down during and after the pandemic due to operational problems or environmental protection requirements, Lin said.

Producer restraint

China is not the only country working on power supply problems.

According to the International Energy Agency, an autonomous energy sector intergovernmental organization based in Paris, demand for coal this year is likely to reach the highest level since 2014, with the electricity sector accounting for 75 percent of the increase, driven by post-pandemic economic recovery.

Boyle said: "However, the global coal market is experiencing a period of producer restraint after the pandemic saw significant coal import demand destruction. Coal producers have been matching output to longer-term contractual volumes, rather than supplying into the spot market.

"In addition, activities to protect climate, along with environmental, social and governance initiatives, have played a part in the retirement of coal-fired power stations and closure of some thermal coal mines for the past couple of years.… The reduction in seaborne thermal coal supply is more a result of a previously oversupplied market in 2019, and a balancing of global seaborne thermal coal market fundamentals," he added.

Since September, the National Development and Reform Commission, or NDRC, China's economic regulator, has allowed 153 coal mines to increase production capacity by 220 million tons per year. Some of these mines have started to raise output, with newly increased production estimated to reach more than 50 million tons in the fourth quarter.

The commission has also stepped up efforts to reduce rocketing coal prices, after the spot price of thermal coal surged from about 810 yuan ($127) per ton in late August to more than 2,500 yuan as of Oct 19, according to Global Times.

The NDRC pledged to take measures to rein in coal prices and return them to a "rational range". It also urged market regulators to strengthen supervision and crack down on illegal activities such as spreading false information, price gauging, hoarding and collusion.

Responding to the government's call, coal mines in areas such as Shanxi and Shaanxi provinces and Inner Mongolia have reduced the price of coal traded at mines.

For example, last month, China National Coal Group Corp provided some 57,000 tons of thermal coal to a power generation plant in Yingkou city, Liaoning province, for 1,200 yuan per ton. In Inner Mongolia, companies such as Mengtai Group and Huineng Group have recently adjusted the price of coal traded at mines to less than 1,000 yuan per ton.

A salesman at a coal mine in Erdos, who wanted to be named only as Ma, has witnessed fluctuations in the price and production of coal.

"The streets near our mine were packed with vehicles last month, with more than 700 of them parked nearby as drivers waited to collect coal during peak times. We had to tell them repeatedly that we were running out of stock," Ma said.

Now, things have changed. "With the government's measures to boost output and manage prices, buyers are far less worried about stocking coal," he said.

While acting to rein in coal prices, the NDRC also took measures to further liberalize coal-fired power pricing to curb irrational consumption by companies and ease power shortages.

Prices fluctuate

Trading prices for coal-fired power can fluctuate from the benchmark rate, with a ceiling and floor of 20 percent－a wider range compared with the former 10 percent ceiling and 15 percent floor. The NDRC said companies consuming high amounts of energy can breach the 20 percent ceiling.

Power prices will remain unchanged for livelihoods and users engaged in agricultural and charity work, the NDRC added.

Lin, from Xiamen University, said, "Action was taken as power stations cut output to avoid losses and faced surging coal prices due to tight supplies－another key reason for the electricity shortages.

"The NDRC's measures will see power prices better reflect the electricity demand and supply situation, and effectively curb the irrational use of power, especially in industries that consume a lot of energy."

On Oct 15, a total of 294 transactions were carried out at Jiangsu Electric Power Trading Center Co, involving about 2 billion kilowatt-hours with an average price of 468.97 yuan per megawatt-hour－19.94 percent above the benchmark.

The trading involved 44 power generation companies, 69 companies that sell electricity, and 72 allowed to buy power directly from generation companies.

Four days later, the NDRC held a meeting to encourage the signing of mid- and long-term contracts between coal companies and energy generation and heating companies.

It also asked such companies to strictly abide by contractual prices.

Wu Lixin, assistant to the general manager of China Coal Technology and Engineering Group's Coal Industry Planning Institute, said the signing of these contracts benefits the market, as it will help coal providers better manage supplies and guarantee stable prices.

The major coal-supplying province of Shaanxi has promoted the signing of mid- and long-term contracts between coal producers and power generation companies, as well as between coal companies and heating suppliers.

Shaanxi Coal and Chemical Industry Group Co recently signed such contracts for coal supplies with Heilongjiang, Jilin and Liaoning provinces in Northeast China, which are among the nation's biggest users of the fuel in winter.

Supplies recover

With the government's efforts taking effect, coal supplies have begun to pick up.

From Nov 1 to 5, daily coal production nationwide peaked at 11.93 million tons, and daily production averaged 11.66 million tons, up by about 1.2 million tons from the end of September. Accumulated coal stocks at power generation plants surpassed 117 million tons on Saturday, up by about 40 million tons from the end of September, according to the NDRC.

With action taken to ease electricity shortages and ensure energy supplies for the winter, the issue for the industry now is striking a balance between coal demand and the nation's long-term green commitment.

Last month, the State Council, China's Cabinet, unveiled an action plan for carbon dioxide emissions to peak before 2030. Measures will also be taken to gradually curb coal consumption in the next decade.

According to the action plan, the country will accelerate the reduction of coal consumption, strictly and rationally limit increases in such consumption during the 14th Five-Year Plan period (2021-25), and reduce consumption in phases during the 15th Five-Year Plan (2026-30).

In addition to carbon dioxide emissions peaking by 2030, the goal is also to reduce such emissions per unit of GDP by 65 percent compared with the level in 2005.

Lin said: "Coal-fired power generation comprises about 65 percent of the power generated nationwide. Reducing the proportion of coal in China's energy mix, while ensuring power supplies for livelihoods and industries, needs long-term efforts.

"During the process of reducing overall coal consumption, it is important to manage the use of power in energy-intensive industries such as steel and aluminum production, and step up development of the tertiary sector, such as the service industry," he added.

Wu said promoting the green transformation of industry is another area of focus. "To reduce carbon emissions, coal companies are taking measures such as phasing out outdated capacity and technology-led production procedures, with the goal of switching to a greener path of development," she added.

The development of new forms of energy is also an integral part of the nation's efforts to cut reliance on coal.

The State Council action plan vows to increase the proportion of non-fossil fuels in the country's energy consumption to around 25 percent. China also plans for more than 30 million kW of new power storage capacity to be installed by 2025, and for about 120 million kW of installed capacity for pumped hydroelectric energy storage stations.

Boyle, from S&P Global Platts, said: "China is probably the global leader in adding renewable generating capacity. In 2020, it added 30 gigawatts of new solar power plant capacity and 70 GW of wind. The addition of renewable generation, as well as nuclear and hydro capacity, has helped China diversify its electricity generating sources and capability."

However, renewable generation still relies heavily on the weather. Without battery storage technology being in place, renewable generation such as wind and solar will continue to fluctuate according to meteorological conditions, he added.