China is in the midst of a power supply crisis. In recent days this energy crisis has turned critical, with at least 20 out of the 31 provincial jurisdictions facing frequent power cuts. These provincial jurisdictions have rolled out electricity rationing measures, a move that was recommended since June 2021.

The situation has significantly worsened over the past several weeks and has plunged the country’s industrial sector into chaos. China is used to seeing regular power cuts in various provinces. However, the frequency of power cuts has increased in the second quarter of this year, creating a heightened sense of urgency.

The reason behind the crisis

Analysts believe there are two primary causes for the crisis: Beijing’s long-term renewable energy and carbon neutrality goal and the ongoing coal shortages in China. China’s energy system drives over 70% of the country’s primary requirement from coal. China is also the largest producer of carbon monoxide with an emission amount of 7.2 tonnes per person and accounted for over 30% of global emissions last year.

China’s long-term renewable energy goal is a 14-year plan to reduce carbon emissions by 30 to 60% and make the country carbon neutral by 2060. This process means the energy industry has seen diversification. The country plans to no longer depend only upon coal but plans to use other sources of energy including solar and wind energy.

The ban on Australian coal in October and November 2020 has shortened the coal supply in the country. China depended on Australia for 47% of its coking coal. China expected to meet the gap in coal shortage produced by the ban by importing coal from Colombia and South Africa. While China produces coal, its year-on-year (YOY) increase is only 4.4%, whereas the power dependence on coal increases by 11.3% YOY.

China has been facing power cuts since June 2021. Companies manufacturing coal-powered electricity are using various reasons including “maintenance” to delay, lower and cancel their power output units. However, a decrease in wind power between September 23rd and 25th further increased the energy gap. Some sources claim that unexpected and irregular power cuts will continue until March 2022.

Impact of the power crisis

On the account of power rationing in the Chinese provinces of Jiangsu, Zhejiang and Guangdong, the prices of textiles are likely to increase by 30 to 40%.

The Chinese steel industry is also facing a widespread power disruption which has caused the change in the prices of steel. Chinese steel industries are located in 12 of the provinces facing power rationing. It is expected that steel manufacturing will drop by at least 120,000 mt per day according to S&P Global.

Polysilicon prices have jumped by 8.6% this week as a result of the power rationing in China. Polysilicon, a key component in the manufacturing of solar products, affects the prices of all solar products in the industry – national and international.

Several other industries will face an increase in prices as the power rationing in China continues.

How does the power crisis relate to the Indian coal crisis?

A similar situation has arisen in Europe where power outages are being faced as a result of slow natural gas supply. The unpredictable power outages of wind-powered energy generators have led to higher reliance on coal in both Europe and China. The soaring prices of fuels in these regions is affecting India.

As demands of fuel in China and Europe rise, the price of fuel on the international market has increased. The increase in the price of natural gas does not significantly affect the average Indian population. Only 5% of India’s power generation is dependent on natural gas. Instead, natural gas is used in households for cooking.

On the other hand, the increase in the prices of coal will affect India. India derives 70% of its power from coal. Therefore, the increase in international demand means the local prices of coal will increase.

Coal India, the largest producer of coal in the country, has announced that the state-run company will step up to meet the growing national demand. This announcement was followed by the company announcing a 10 to 11% increase in the price of coal.

Analysts state that the 101 coal-powered plants in India have less than 8 days’ worth of coal stockpiles. These plants generate 125GW of energy, approximately 76% of the total capacity. While the Centre has encouraged imports of international coal, the prices have also increased.

Indonesia, India’s major coal provider, saw an increase in demand for coal. However, the prices of imported coals rose from $60 per tonne in March 2021 to $200 per tonne in September 2021. This has significantly discouraged the import of coal from international suppliers.

Regardless of the price, India will have to increase its power supply to meet the demand. Importing coal and stockpiling are two options left. If not, the Indian population may face frequent power cuts in the upcoming weeks as the power suppliers are forced to ration power.