Amid the most intense global heat wave in decades, China experienced another electricity crisis this summer. Ten months after surging coal prices drove widespread curbs on power consumption, parts of central and eastern China had to ration power after months of drought and scorching heat.
Worst off is Sichuan, a central province of 84 million people with a Pennsylvania-sized economy. Parched reservoirs mean little production from hydropower dams that supply about 5 percent of China’s power. And electricity demand in Sichuan and elsewhere skyrocketed as people tried to escape the extreme heat with air conditioners running at full blast.
The climate crisis suggests that disruptions to electricity supply and demand from extreme weather will grow more frequent. How will China respond? The crisis may advance new coal projects. But it could also accelerate key measures for China’s low-carbon transition: expanded interprovincial transmission links, as well as changes to the power system to make electricity exchange between provinces more flexible.
These modifications fit with China’s broader policy environment. The government is pushing to reduce internal barriers across the economy, and China’s deepening centralization of power may have weakened protectionist incentives for local power brokers to resist.
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Drought and heat drove this crisis
This year’s heat wave across central and eastern China ran for more than 70 days, the country’s longest stretch since such record keeping began in 1961. Rainfall dropped more than 45 percent across the Yangtze River basin, which supplies water to more than 400 million people.
These conditions have strained central China’s grid. Severe heat prompted a surge in electricity use for cooling, which can comprise half or more of electricity demand on extremely hot days. Peak power demand in Sichuan is above 60GW, up 25 percent from this time last year. Meanwhile, drought and heat have sapped the province’s main source of electricity, hydropower. Dams generally supply more than 80 percent of Sichuan’s electricity, with one-third of their output exported to other provinces during the midyear rainy season, as energy analyst David Fishman notes. This summer’s weather slashed the generation capacity of Sichuan’s dams in half.
Supply constraints, in turn, forced severe restrictions on power use in Sichuan and other provinces that tap into Sichuan’s power. Sichuan authorities imposed comprehensive restrictions on industrial power consumption starting Aug. 15, while neighboring Chongqing, a provincial-level municipality with a population of 32 million, introduced similar cuts two days later. Additional restrictions for commercial spaces and households meant limited access to cooling, even when daytime highs exceeded 100 degrees Fahrenheit.
Other importers of Sichuan hydropower in eastern China also imposed usage restrictions, though Sichuan’s situation is the most severe. Sichuan relies more heavily upon hydropower than other provinces, and population hubs in Sichuan and Chongqing have faced China’s most extreme temperatures — around 11 degrees Fahrenheit or more above normal.
An added challenge is the inflexible contracting and dispatch protocols that govern much of the interprovincial electricity trade. Even after Sichuan began rationing power locally, the province was still exporting significant volumes of power to meet supply contracts with other provinces. This issue has surfaced before: One day during last fall’s power shortages, northeast China, the worst-hit region, was sending the equivalent of about 50 percent of its own electricity shortfall to other provinces.
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How to prepare for future electricity crises
The heat wave’s end has allowed Sichuan to roll back restrictions on power use, at least for now. But such challenges will recur as climate change makes extreme heat and drought more frequent. What are Sichuan and other hydropower-heavy locales doing to prepare?
Authorities are likely to respond by expanding their alternatives to hydropower. This may well include building more coal-fired power plants, which are responsible for roughly 40 percent of China’s carbon emissions. These plants struggle financially across China, but high transportation costs and plentiful competition from hydropower mean that coal power is particularly unprofitable in central provinces such as Sichuan, as my research with Jeremy Wallace has shown. But we also found that central provinces that faced power shortages in 2020 responded with some of China’s most ambitious coal power expansion plans. The 2021 crisis saw the same response; provincial coal-fired power plant approvals rose almost 50 percent year on year in the first half of 2022 as the central leadership stressed the importance of “energy security.”
The crisis could also boost several key measures for China’s low-carbon transition: expanding grid-level transmission links for trading electricity and updating dispatch and contracting rules for interprovincial power exchanges. After the 2021 power crisis, for instance, energy authorities and utilities released a series of directives to expand the scope and flexibility of interprovincial electricity trading. These include proposals for interprovincial spot (short-term) power market pilots, as well as a national power trade center, which some experts say could manage trade across China’s grid utilities.
Local protectionism has long impeded these policy updates. But deepening interprovincial integration will be invaluable for managing volatility in supply and demand as extreme weather becomes more common and, more importantly, as China’s electricity grid swaps in wind and solar power for coal-fired generation. This year’s crisis should reinforce the importance of these measures.
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China seeks to unify not just the electricity market
Power markets aren’t the only area where China wants to reduce internal barriers to trade. In April, central authorities released guidelines on building a “unified national market” across the economy, outlining a comprehensive policy drive against local protectionism and market fragmentation. Researchers at the National University of Singapore describe these efforts as something like “a move from a free trade arrangement across regions to a common market with unified rules and regulations.” Chinese leaders hope these efforts can strengthen domestic drivers of economic growth as relations with the West fray.
The motives for power market integration are more sector-specific than the unified national market concept. But they align neatly with the broader push to reduce barriers to internal trade. They also fit China’s political environment. Xi Jinping has sought to weaken local governments’ influence as independent bases of political power that might challenge his administration’s authority and effectiveness. These measures may have reduced the protectionist incentives of local authorities to resist power sector adjustments, as they have done with prior marketization pushes in this industry. Against this backdrop, the crisis is just one more factor that can help China better unify its power system.
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Edmund Downie (@ned_downie) is a PhD student at the Princeton School of Public and International Affairs. He works on political economy and the low-carbon transition in China and India.