This power restriction involving many parts of China did not come out of nowhere, and there are two major reasons.
Large increase in demand, coal production restriction
As early as three months ago it was already noticed that Soochow Securities had mentioned in a securities research report that there would be a shortage of power supply in China.
In fact, the deep-seated reason is: we are expected to have a growth rate of electricity consumption here this year of about 8% for the whole year.
Demand is growing, which leads to a real shortage of electricity.
The general background is because of carbon neutrality and emission peak.
The Chinese government is trying to curb address climate change.
This requires us to be more environmentally friendly in our normal production life and reduce the pollution to the environment. So, the government proposed a double control of energy consumption, i.e., control of total energy consumption and consumption intensity.
In the long run, this is a good thing for the whole planet. In the short term, large energy consumers like coal companies will have to limit their production capacity.
Coal prices have surged along with demand.
Thermal coal price has soared this year, more than doubling from around 600 RMB per ton at the beginning of the year to a record high of 1,300 RMB per ton.
What’s more, during the epidemic, our country resumed work and production at the soonest, and this year’s global manufacturing orders basically flowed back to China, which led to a surge in electricity consumption.
A conflict between supply and demand was formed.
70% coal-fired electricity, unstable wind power & solar power supply
Surely we all know 70% of our electricity comes from burning coal.
In the past eight years, the capital market investment in traditional energy enterprises in 2012 was more than 300 billion RMB, but in 2018 it plummeted to only 180 billion RMB, although the latter two years of the small increase, the overall trend is a decline.
Does capital have a new love for energy?
The new love is wind power and solar power such new clean energy companies, large investments are going to those new clean energy companies.
But if the new clean energy can completely take over the coal-fired power, that’s fine.
The problem is that the current installed capacity of coal-fired power from the past 70% to 56.6%, but they need to supply electricity reached 71.8%. Simply put, people eat less, but the work done is heavier.
And the installed share of wind power and solar power have pulled up to 24%, but the current output accounts for about 10% of power generation.
What is this situation ah?
The main reason is that wind power and solar power are not stable enough.
The wind is too big to run, no wind can not run, no sun can not run, that is to say, this new clean energy business requirements for the environment is still relatively picky, so at least for the time being, the top pillar of the family still has to be coal-fired power.
Some securities predict that the gap in power supply will continue to exist in the next 5 years, especially in the winter this gap will come bigger, so there will now be many places of power restrictions.
And if the growth rate of electricity supply continues to be lower than the growth rate of electricity demand, power restrictions are likely to become the norm in some areas.
Electricity price rise.
Limited power is, after all, a short time within the helplessness of the move, the follow-up solution more likely to be what?
Currently, Inner Mongolia and Shanghai have explored this. In foreign countries, with the development of clean energy, like the United States, the European Union, these countries have also had a shortage of electricity, the solution is to raise the price of electricity, which is why?
Let the market decide who can use more to engage in production.
Longer lead time, higher manufacturing cost
On September 28, 2021, The State Grid Corporation of China (SGCC) held an emergency teleconference on securing power supply, stating that we should avoid pulling the plug on the power supply to the maximum extent possible and resolutely keep the bottom line of people’s livelihood development and safety.
Although the current power restrictions are a desperate measure, and it is a situation that will certainly be experienced in the energy transition process. It is not surprising that our factory has recently received a notice of power restriction.
A notice of power restriction for toothpaste factories.
This is an SMS from China Southern Power Grid Co., Ltd to restrict the production of electricity for toothpaste factories in the Guangzhou area.
Electricity is really an urgent issue for our export-oriented company, as we now have a lot of Christmas orders to finish and deliver in a hurry.
In addition, the expected increase in electricity prices of China will push up our manufacturing costs, which in turn will increase our foreign customers’ purchasing costs.
Therefore, when foreign customers are planning their orders, they may have to advance their orders and increase their purchasing budgets.
