Why China Can't Keep The Lights On

china has been the world's single largest energy consumer since 2011. their energy use demand has grown by an average of four percent a year since 1980 and that is not expected to change every country wants to have a lot of stable reliable electricity but china in particular needs a lot of it and most of that electricity comes from coal it has been coal for a while now and is going to still be coal for a long time thereafter in this video i want to look at the role of coal in china's energy ecosystem why the country remains so reliant on non-renewable energy sources and what might be done about it in the future but first i want to talk about the asian geometry newsletter if you subscribe to the channel you should also sign up for the newsletter read the full scripts to older videos with extra commentary after the fact you can find the link to the newsletter in the video description below or you can just go to asianometry.com as of right now you can expect a new newsletter every thursday at 1 am taiwan time alright back to the show china has had to deal with power shortages throughout its modern existence despite the frenzied headlines what is happening right now has happened before during the socialist development era the country saw electricity has an entitlement a simple means towards an end a single utility slash department handled everything related to power and prices at this time were simply an accounting metric held at below cost it was at this time that coal euphemistically called thermal power began dominating china's power mix since prices were so low electricity was often wasted but at the same time demand was quite low the nation's economy had ground to a halt with political movements like the great leap forward and the cultural revolution the economic reform era would spark a rise in demand and with that a bunch of power shortages prioritizing industrial demand the government limited residential usage of electricity but everyone knew such a solution cannot be permanent starting in the mid-1980s the country resolved to scale up its power supply capacity to deal with the chronic blackouts in 1985 the government broke the state utilities absolute monopoly decentralizing authority to localities they allowed foreign investors and domestic companies to invest in building power generation units and provided a guaranteed return subsidy has encouragement this effort by and large worked but with unintended consequences the country's power capacity went from 166.5 gigawatts in 1992 to 351.6 gigawatts in 2002. however the subsidies did not give thought to the power mix and over 70 percent of these newly built units relied on coal it sort of put the country onto a coal laden path then china's entry into the wto turned the country into an export powerhouse that export machine needs energy but it was about that time that the consequences of such extensive coal usage became apparent i don't need to belabor the point that climate change and air pollution is a real thing the government has since been trying to mix in more renewable energy like wind and solar for instance newly installed power capacity in recent years is now 70 percent new energy rather than the other way around that is great but there is still a problem cole's share in the chinese power mix declined from 76 in 2010 to 62 in 2019 this is good of course but the overall industry has grown so fast that the absolute amount of total generation capacity from coal has actually gone up over that same time period up by 41 percent or 1 terawatts from 2010 to 2019. china has the largest installation of renewable energy in the world if china one solar has the most hydropower dams in the world and is building offshore wind like no tomorrow then why is it still so reliant on coal the answer is not all that surprising first there is a matter of technical competency china's renewable energy technology lags that of developed countries their energy efficiency is about 31 percent 10 percent lower than elsewhere second renewable energy is not as reliable as coal you will get days when the rivers run low the wind dies down a little and the sun always sets at the end of the day these require installing energy storage solutions like batteries those cost extra third renewable energy sources are rarely close to where they are used new transmission systems are needed to get that electricity to their final destination china is building a billion dollar super grid of high voltage direct current or hvdc cables to handle that but that costs extra too these extra costs add to the marginal break-even cost of renewable energy placing it at a disadvantage to coal and the economics of coal power are quite good estimates from 2015 find that internal rates of return or irrs for building another 600 megawatt coal-fired power plant are far above financial benchmarks reaching nearly 18 percent in guangdong 18 is really good i'd want that for my portfolio this now leads into the fourth and probably most significant reason government and economic inertia energy providers in china are very local they have decades of experience in building coal power plants and right now the incentives are still not compelling enough to change how they've been doing things for 30 plus years now furthermore central government agencies are still trying to deal with a lack of transparency around generation costs the coal mining industry has swung from periods of over and under capacity for this reason the actual costs are obscured by subsidies and bad data overcoming all of these will be necessary to move away from coal they're making progress but it's going to take a while so now that we know why that coal is so hard to dislodge from china's power grid it is time to look at where that coal comes from and why it matters almost all of china's coal reserves and the country has almost nothing else in terms of fossil fuels are concentrated in the country's relatively unpopulated north and west regions nearly 70 percent of production hails from three provinces the two biggest inner mongolia and sanshi regularly trade off as the coal production leader these areas are far from china's industrial and economic heartlands regions in the pearl river delta the yangtze river regions and shanghai so all that coal has to be shipped over there they ship it on a train to a port usually chinh huang dao then it gets put onto a boat for its final destination this is pretty expensive it makes up fifty to sixty percent of the price of coal delivered to guangzhou since some seventy percent of the coal plants costs are tied to the price of coal itself coal prices matter as a result this opened up the window for competition from imported coal prior to 2009 the price differences between domestic and imported coal were not significant enough to influence behavior but starting around then the cost of qinghuang dao cole domestic coal began to lag that of coal from australia usually newcastle and indonesia this is partly due to the global financial crisis and the plunging costs of international freight but in the case of australian coal the stuff also burns a whole lot better 6700 kilocalories per kilogram to the 5 800 kilocalories of domestic coal shortly thereafter the chinese government embarked on a number of mine consolidation and reform policies smaller mines were closed and larger mines started to see stricter safety and environmental regulations this was pretty necessary safety remains an issue for china's coal miners especially the smaller ones the government has resolved to get the death rate per million tons mined to be around 0.1 or so still higher than the 0.02 in other developed countries but back in 2008 the rate was as high as 1.1 these measures include more safety devices advanced mining technologies and better educating workers for instance before 2006 most chinese coal miners had just a middle school education there's no doubt that domestic coal should be bloodless but the undeniable impact from this as well as other emissions policies is that domestic coal now cost more domestic suppliers are getting squeezed between higher operating costs at home as well as competitive pressures from abroad the low cost of imported coal from places like indonesia so now we have a situation where the chinese nation is heavily reliant on burning coal to provide power for its people and industry most of that coal comes from domestic sources but a significant amount of it from abroad too an unusual situation for a country very concerned about guaranteeing its own supplies of things in the autumn of 2021 the country found itself running short of coal inventories the economic rebound and a global need for more manufactured goods abroad caused electricity demand to grow very quickly on the supply side a running trade dispute with australia a need for domestic miners up north to reserve supplies for the coming winter and higher demand in indonesia have all contributed to higher coal prices as coal prices rose utilities their costs dependent on the cost of their major input fell into the red thus they found themselves less willing to scale up their utilization hours reducing the overall energy supply as bloomberg points out the country's power markets do not give a lot of flexibility for these companies to raise their prices this is changing but the vast bureaucracy and complex fiefdoms make it hard to implement such reforms quickly as you might expect power shortages hamper the economy china's powerful manufacturing sector is a dominant electricity consumer and is extremely sensitive to outages when faced with electrical shortages these companies have a number of options they might invest in efficiency improvements self-sufficiency options like generators outsource their manufacturing somewhere else or simply ration their output how much do outages or rationing cost the companies these are some older data points but it correlates the later findings in 2004 blackouts in the zajang province were estimated by provincial officials to cost about a billion rmb or nine percent of total gross product in 2005 industrial firms in a survey estimated the marginal cost of an hour of power outage based on their willingness to pay and the cost of running generators to be about 10 000 usd these numbers will have undoubtedly gotten higher since but the key point is that having reliable sources of power is critical to making sure the export machine continues to turn out goods to send abroad and that people in those industries can continue to stay employed with all that being said talk of economic collapse aren't really warranted economies are more resilient than that meanwhile at home reliable electricity has started to become a critical matter this is due to the effects of global climate change some sixty percent of the country's population live in an urban area hundreds of millions live in urban areas where it gets really hot in the summer like in china's powerhouse province guangdong in the past decade china's consumption of energy for cooling in other words air conditioning has risen exponentially in 1990 the country used seven terawatt hours for cooling by 2016 that is now terawatt hours most notably that number has increased tenfold since 2000 from 45 to 450. increasing urbanization concrete jungles and wealthier households mean more people need and can get air conditioners over half of households in guangdong own more than two ac units and they all tend to turn those machines on at the same time as the temperature rises past 25 degrees celsius the percentage of people using air conditioner starts to drastically rise studies of utility data in shanghai find that for every one degree celsius increase in the temperature the annual electricity usage rises by nearly 10 percent that is just the annual overall number peak consumption rises by far more by some 57 percent which requires utilities to invest in building capacity that only gets used during those peak consumption hours and in case you are thinking it it's no longer the case that people can just gut out the heat air conditioning is a critical measure in keeping the vulnerable protected mostly seniors but others too heat waves around the world have killed thousands of people for instance europe in 2019 india in 2019 and the united states in 2021 the entire world relies on a single country to produce pretty much everything for them china and china in turn relies on million years old dead plant rocks to power this magnificent industrial machine link to a renewable dominant energy grid will require further central government involvement for instance increased communication between many local fifteenths who aren't really used to it like coordination between provinces to create nationwide wholesale markets or building up energy imports in addition a push to leave behind coal risks stranding valuable coal generation assets that are still relatively young the average chinese coal-fired plant is just 12 years old by 2040 many of them will still not have fully depreciated the government has to implement policy to ameliorate losses china's energy industry is pretty traditional one might argue sunk costs until the cows come home but the reality is that there's a lot of benefit money and jobs still tied to coal and getting the country's energy industry to change that is going to be as hard as getting the united states to wean off oil alright everyone that's it for tonight thanks for watching if you enjoyed the video consider subscribing the feed will show you a bunch of other videos from the channel that might fit your interest want to send me an email drop me a line at john asionometry.com i love reading your emails introduce yourself suggest a topic or more until next time i'll see you guys later

Channel: Asianometry

Views: 151,240

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Id: HS7fdG925UA

Length: 14min 26sec (866 seconds)

Published: Thu Oct 14 2021