China’s hydropower shortage pushes up coal prices

Times are tough in the Chinese province of Sichuan. China’s landlocked southwest province is in the midst of an extreme heat wave and resulting drought conditions, ranging from severe to extreme. Extreme drought conditions are characterized by severe crop losses and widespread water shortages. In addition to these desperate conditions, Sichuan was ravaged by a earthquake of magnitude 6.6 Monday, leaving at least 74 dead and 26 missing. The growing humanitarian crisis in Sichuan is not only affecting local residents. As Sichuanese suffer acutely from these complex crises, the dire conditions are expected to have ripple effects across China and the rest of the world.

Due to the drought (and now the earthquake), Sichuan is not only experiencing crop losses, but also an extreme energy shortage. The province gets about three-quarters of its electricity from hydropower, which is now drastically reduced as reservoirs and rivers in the area are to dry. Water levels in Sichuan are currently at half their normal level thanks to an extremely hot summer. As a result, “the people of Sichuan’s electricity suddenly became scarce for large users in August,” according to a report from Nikkei Asia.

These ‘heavy users’ include Toyota Motor, Apple assembler Foxconn Technology Group, among a longer list of big companies that had to shut down their Sichuan and Chongqing factories for more than a week – and that was before the quake earthen. As a result, calls are growing louder for China to build more coal-fired power plants in Sichuan to boost energy security. In addition, the shortage of hydropower in China has sent coal prices skyrocketing around the world. “China’s tight coal supply has started to translate into higher prices internationally as the country accounts for more than half of global consumption,” Reuters reported this week.

Although context-specific, China’s current coal renaissance is far from an anomaly. As the rest of the world faces severe energy shortages due to Russia’s war in Ukraine, many countries have reluctantly returned to coal, a relatively cheap and available fuel source. In times of widespread uncertainty about near-term energy security, world leaders have felt compelled to prioritize the current energy crisis over the longer-term global warming crisis. The trend is a sadly ironic catch-22: China’s current drought woes are almost certainly the result of climate change and are a harbinger of tougher times to come. Changing weather patterns and longer, more extreme heat waves are the new norm, and going back to coal every time there’s a hiccup in the energy supply will only make things worse.

Related: UK caps household energy bills

The common thread between the energy crises in China and Europe is not that renewables are unreliable; rather, it’s a reminder not to put all your eggs in one energy basket. In Sichuan, that basket was hydroelectricity. In Europe it was (mainly Russian) natural gas. The solution and the way forward in Sichuan, Europe and the rest of the world is through the diversification of energy markets.

According to Nikkei Asia, increasing coal production in Sichuan does not make economic sense. Over the past ten years, the province’s existing coal-fired power plants have operated less than 3,000 hours per year on average. “This means they were inactive for about two-thirds of the time due to the abundance of hydropower,” the article reports. “As a high capital investment technology, this low utilization rate cannot justify new coal capacity.”

However, it is also clear that going back to almost total dependence on hydroelectricity would also be a mistake. China should also focus on stepping up resilience efforts, including more robust intra-provincial power transmission, diversifying energy sources with solar and wind, and improving energy storage. hydropower pumped when hydropower supply exceeds demand. And the rest of the world should take notice.

By Haley Zaremba for Oilprice.com

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