Since at least March, China’s sprawling industrial sector has been grappling with sporadic jumps in power prices and usage restrictions. However, the power crunch has begun spilling over millions of households in the country. As a result, economists downgraded the growth outlook of the world’s second-largest economy. Widespread power usage curbs came after coal prices skyrocketed due to several factors such as strong demand, a supply shortage, and stricter emissions standards.
In late 2020, President Xi Jinping announced China’s target to cut its CO2 emissions per unit of GDP, or carbon intensity, by over 65% by 2030 from 2005 levels. Under this target, provincial governments are responsible for following guidelines for emissions reduction. However, China’s National Development and Reform Commission (NDRC) said only ten of 30 mainland Chinese regions achieved the objective in the first half of 2021.
Provinces failing to meet their targets are ordered to limit their absolute energy demand. Zhejiang, Guangdong, Jiangsu, and Yunnan provinces asked factories to cut power usage or curb output. Some power providers also asked heavy users to cut usage during peak hours (7-11 AM) or suspend operations entirely for two to three days every week. Some users were even asked to shut operations for an indefinite period.
The steel-making, aluminium smelting, cement manufacturing, and fertiliser production are among sectors that suffer the most severe impact from the power curbs. Morgan Stanley reported that 7% of aluminium production capacity and 29% of cement production in China were impacted by the policy. Residential users, especially in northeast China, have also been affected. Authorities in some parts of the region have told households to limit the use of microwaves and water heaters to conserve power.
