China’s power crisis: Long-term goals meet short-term realities
Power outages in China were widely expected this year after the country experienced some rationing in December 2020 and then again over the summer. In early September a handful of localities were seeing shortages, but by October over 20 Chinese provinces were curbing or rationing power supplies, not only for industrial, but also residential users, a rare occurrence for a country aiming to prioritise household energy supply.
The reasons for these outages are widely covered but also highly debated: is it high coal prices or the “dual control” policies — the cap on provincial energy consumption and the energy intensity reduction target set by the central government? While there are a number of factors contributing to the power outages, the mixed signals from the central government combined with pricing distortions in China’s power market are at the heart of this crisis. This comment briefly reviews the causes of the power outages, their near-term market impact on oil and gas as well as the outlook for power pricing reform and the extent to which they are changing the thinking in China about the 2030-2060 goals.