China is the largest consumer of primary energy in the world, with approximately 3,200 Mtoe (million tons of oil equivalent). Coal still accounts for around 57% of the Chinese energy mix, followed by oil at around 20%, natural gas at 8%, hydroelectric around 3% and renewables (wind, solar, biomass) under 3. %. Furthermore, the production of electricity is around 7,500 TWh, with coal accounting for around 62% of the total, hydroelectric power 17%, other renewables (wind, solar, geothermal) 11%, natural gas around. 2.5%, and nuclear power on values close to 4.5%.
From these data it emerges that although China is the country with the highest production in the world of renewable electricity and the growth of new plants (especially wind and solar) is the highest in the world, the share of renewables is still modest, excluding hydroelectric.
Despite the great efforts made by Beijing in recent decades to increase energy efficiency, China's energy intensity (i.e. the amount of primary energy needed to produce a point of GDP) is about 1.7 times that of the European average and about twice as many as the most efficient manufacturing countries (for example Italy). Furthermore, the People's Republic is the country that generates the highest greenhouse emissions (CO2, CH4, etc.) with approximately 10,000 MT Co2 equivalent per year and the emission intensity (quantity of emissions to produce a point of GDP), which it follows the trend in energy intensity, placing it at about double the European average and 2.3 times compared to greener countries.
In this energy context of enormous dimensions, with strong imbalances in industrial, economic and social development - think of the diversity of levels of development and industrial density between North, East and West - China still suffers from the centralized model of electricity production which sees large plants (especially coal) located throughout the country and an inefficient and inflexible electricity grid due to this system centered on coal and other inflexible sources (hydroelectric, nuclear), unlike the distributed models adopted by the more advanced countries. The very low presence of cogeneration plants (heat and electricity) and the modest share of natural gas plants which determine greater flexibility in the system, as well as the lack of energy storage systems (heat), are added to the systemic rigidity.
The development of renewable sources (wind and solar), despite having been impressive in recent years for its growth, takes place in this context of systemic rigidity that often involves the detachment of the plants from the grid (curtailment) with a loss of efficiency even from one point of capital allocation view.
The efforts made to make the entire Chinese electricity system more flexible through long-distance electricity transport technologies (Ultra High Voltage) have not brought the expected benefits, due to the extreme complexity of the technology and to problems of a different technical nature. in the context of the rigid Chinese system. Therefore, China found itself having to face the profound industrial transformation that has been going on for several years - also for reasons of environmental protection - and the discontinuity of the economic dynamics brought about by the pandemic, in a context of an inflexible, rigid energy system that is no longer adapted to the industrial development prospects of the People's Republic.
The commitments made by President Xi to reach the peak of emissions in 2030 and reach carbon neutrality by 2060 occurred at an already complex time for the Chinese energy system, not ready to face the prospective challenges of decarbonisation. The Fourteenth Five-Year Plan (2021-2026) already sets targets for reducing energy intensity (-18%) and emissions (-14%) over the five-year period. Although more ambitious and articulated targets were expected (for example, in the energy mix), these objectives have already introduced enormous pressures to national and local government bodies which have seen annual emission reduction and energy intensity thresholds assigned as early as 2021.
In the already complex context of rigidity and supply / demand imbalance of the electricity production / transmission / consumption system and acceleration of the energy transition, the closure of several coal plants, the closure of coal mines in the face of stricter environmental regulations , dynamics of market prices of coal and natural gas that have grown intermittently, post-pandemic Chinese economic recovery and discontinuity in naval transport systems and port dynamics, increased attention to national security regarding energy sources, have led the electricity system to a level of stress never recorded before.
Stress of the electrical system began to give its first signals in June 2021, then returned in July, resumed in August and exploded at the end of September. In recent weeks, “forced” and unannounced interruptions have in fact affected all Chinese provinces and almost all industrial sectors, including those critical to guaranteeing essential basic services (including the production of medical gases). This is apparently occurring in an unplanned manner, leading to disconnections from the electricity network without warning or with warnings of a few hours, limitations in the available power, limitations on the energy that can be absorbed over different time slots, and other problems. The lack of planning of the disconnections introduces enormous inefficiencies in the production systems that are forced to install alternative electricity generation systems (mostly fueled by diesel) that increase emissions, increase waste, reduce productivity, revise the plans of production, and more. In some cases, sudden interruptions have generated Health & Safety problems in critical plants with repercussions on worker safety.
Elsewhere the interruptions occur in small segments of the logistics chain but which then reverberate their effect in an uncontrolled way (for example automotive, rare earths, etc.) leading to enormous inefficiencies, backlogs, out of stocks, often also requiring substitutions of untested supplies.
Despite the reassurances on the temporary nature of the phenomenon of power outages, it is difficult to make reliable predictions both for the general context of the energy system and for the local industrial policy conditions. In any case, the current crisis is a very strong signal that hopefully can be grasped by the Chinese central government to initiate a profound reform of the entire electricity system and model that requires a profound modernization in terms of supply / demand balancing, greater flexibility, greater transparency, adjustment of tariffs to real costs, strengthening of regulatory systems, strengthening and transparency of exchanges between provinces.
The complexity of the problem and the urgent solutions allow us to imagine structural reforms only in the medium / long term, while in the short term we hope for more careful planning of electricity supplies and an acceleration of the transformation of the electricity market with a view to openness, transparency and efficiency.
Article by Guido Giacconi, Coordinator of the Energy and Environment Working Group of the Italy China Foundation, published in Global Watch ISPI - extract from Speciale Geoeconomics number 73
