Most Stringent Power Rationing Order Released! Why Do China Ration Power And Control Energy Consumption?

control of both the total amount and intensity of energy consumption

Table of Contents

Recently, many local authorities have issued policy documents for the control of both the total amount and intensity of energy consumption. Various energy and pollution-intensive sectors have suspended production and work successively. The production limitation and upgrading news in places such as Jiangsu, Yunnan, and Zhejiang have become popular on moments. With production suspension and limitation of thousands of companies and endless rise in raw material prices, Why does China ration power and suspend production? What impact will it bring to the industry?

Power rationing in multiple provinces to limit production

Recently, Yunnan, Jiangsu, Qinghai, Ningxia, Guangxi, Guangdong, Sichuan, Chongqing, Inner Mongolia, Henan and other places have begun to take power rationing and energy consumption control measures to achieve the goals of the control of both the total amount and intensity of energy consumption.

  • Guangdong: On September 16, Guangdong Power Grid stated that a “Two-day Production & Five-day Production Suspension” power consumption scheme will be implemented from September 16 to achieve staggered rotating shifts on every Sunday, Monday, Tuesday, Wednesday and Thursday, while only protective load, which is below 15% of the total load, will be reserved on staggered days.
  • Shandong: Power rationing measures have been initiated due to insufficient coal supply and power shortage in the whole province.
  • Jiangsu: At the beginning of September, the meeting of Industry and Information Technology Department of Jiangsu instructed to carry out special energy-saving supervision of enterprises with an annual comprehensive energy consumption of more than 50,000 tons of standard coal. A special energy-saving supervision action that covers 323 enterprises with an annual comprehensive energy consumption of more than 50,000 tons and 29 ones with “energy and pollution-intensive” projects across the province has been launched in all aspects. A production suspension notice has been issued in the printing and dyeing cluster, and more than 1,000 enterprises have been subject to “Two-day Production and Two-day Production Suspension”.
  • Zhejiang: The power sector will take measures for key energy-intensive enterprises that have not shut down before 11:00 on September 21. As many as 161 enterprises in Keqiao District, Shaoxing, and all enterprises in printing, dyeing and chemical fiber industries are involved.
  • Qinghai: The power rationing warning has been issued, and the scope of power rationing has continued to expand.
  • Ningxia: Energy-intensive enterprises are required to suspend and limit production for one month.
  • Guangxi: Guangxi has introduced new measures for the control of both the total amount and intensity of energy consumption, requiring that production suspension and limitation should be carried out to energy-intensive enterprises involved in electrolytic aluminum, alumina, steel, and cement, and setting clear production reduction standards.
  • Sichuan: Non-essential production, lighting, and office loads are required to be suspended.
  • Henan: Some processing enterprises are subject to power rationing for more than three weeks.
  • Chongqing: Some factories were subject to power rationing and production suspension in early August.
  • Yunnan: Two rounds of power rationing have been carried out and will be intensified continuously in the future. The average monthly output of industrial silicon enterprises from September to December shall not be higher than 10% of that in August (i.e., a 90% reduction in output); the average monthly output of the yellow phosphorus production lines from September to December shall not exceed 10% of that in August 2021 (i.e., a 90% reduction in output).
  • Inner Mongolia: The time of power rationing is strictly controlled for enterprises, and the electricity price rise does not exceed 10%. From 2021, Inner Mongolia will no longer review and approve new production capacity projects such as coke (semi coke), calcium carbide, polyvinyl chloride (PVC), synthetic ammonia (urea), methanol, ethylene glycol, caustic soda, soda, ammonium phosphate, and yellow phosphorus, and polycrystalline silicon and monocrystalline silicon without downstream transformation.
  • Shaanxi: It is required that from September to December, the newly built “energy and pollution-intensive” projects should not be put into production. The newly built “energy and pollution-intensive” projects that have been put into production this year will be subject to a production limitation of 60% of that in the previous month, while measures such as the reduction of operating load of the production lines, shutdown of submerged arc furnaces, and production limitation are taken for other “energy and pollution-intensive” enterprises to ensure the production limitation by 50% in September.
electricity

Multiple Listed Companies Announced Suspension of Production

Before the Mid-Autumn Festival, a group of listed companies announced power rationing and production suspension. On the evening of September 22, another group of listed companies disclosed the impact of production limitation.

On the evening of the 22nd, Yingfeng Technology announced that in order to alleviate the coal stocks and ensure the safe and orderly production of enterprises that supply and use heat, the company will temporarily suspend production from September 22 to September 23.

On the evening of September 22, Chenhua New Materials (300610) announced that affected by the shortage of power supply in Jiangsu, Huai’an Chenhua New Materials Co., Ltd., a wholly owned subsidiary of the company, was forced to temporarily suspend all production lines.

Xidamen New Material (605155) announced on the evening of the 22nd that due to the shortage of power supply, Zhejiang Province has implemented load reduction for key energy-using enterprises within its jurisdiction recently. For key energy-using enterprises, production suspension will be implemented under the premise of ensuring safety. It is expected that the suspension of production will continue until September 30.

On the same day, Tianyuan Group (002386) also announced that the company’s calcium carbide base in the Yunnan – Shuifu Jinming Chemical Co., Ltd., has phased out production periodically according to the relevant requirements of the notice, while Daguan Tianda Chemical Co., Ltd. and Yunnan Tianli Coal Chemical Co., Ltd. arrange production according to one production line respectively. If the policy is implemented constantly, it will lead to a calcium carbide production reduction of about 25,000 tons per month of the company.

Affected by production limitation and other factors in Jiangsu and Yunnan, almost all production capacity of *ST ChengXing (600078) is restricted. The company announced that the production plant in Jiangyin (hereinafter referred to as the “Jiangyin Plant”) has decided to suspend production from September 23, 2021 due to the need of equipment maintenance and the prevention and control of the risk of yellow phosphorus price fluctuations, and it is expected to resume production around October 12, 2021.

What are the reasons for power rationing and production limitation and shutdown?

1. Coal-fired power shortage

The essence of power rationing is coal-fired power shortage. The national coal production has hardly increased compared with that in 2019, while power generation is rising. Beigang stocks and coal stocks in various power plants have dropped significantly in a visible manner. The reasons for coal shortage are as follows:

(1) A group of small coal mines and open mines with safety issues were closed in the early stage of the coal supply-side reform. However, no large-scale coal mines have been established. Under the background of improving coal demand this year, a coal supply crunch has appeared;

(2) With a good export situation this year, the power consumption of light industrial enterprises and low-end manufacturing industries has increased. Power plants are large coal consumers, but they have poor motivation to increase production due to the increased production costs caused by high coal prices;

(3) This year, coal imports have changed from Australia to other countries. The price of imported coal has risen sharply, and the price of coal in the world has also remained high.

figure 2 output of raw coal in china, 2017 2020

2. Why does China ration power instead of expanding coal supply?

In fact, the total amount of power generation in 2021 is not low. In 2021H1, China’s power generation totaled 3.8717 trillion kilowatt-hours, twice that of the United States. At the same time, Chinas foreign trade has grown extremely fast this year.

According to the data recently released by the General Administration of Customs, P.R. China, in August, the country’s total foreign trade imports and exports was 3.43 trillion yuan, up 18.9 percent year-over-year, achieving positive growths year-over-year for 15 consecutive months, further showing a sustained growth momentum. In the first eight months of the year, the country’s total foreign trade imports and exports expanded 23.7 percent year-over-year to 24.78 trillion yuan, marking a 22.8 percent increase compared with the level registered during the same period in 2019.

Affected by the epidemic, foreign countries cannot produce normally, thereby increasing China’s production tasks. It can be said that China has almost guaranteed the global supply of goods with its own effort throughout 2020 and even 2021H1. Therefore, instead of being affected by the epidemic, the country’s foreign trade is much better than the import and export data in 2019.

The increase in exports has increased the demand for raw materials, and the demand for bulk commodity imports soars. The sharp increase in the steel price since the end of 2020 has been caused by the increase in the prices of iron ore and iron fine powder. One of the main means of production in the manufacturing industry is raw materials and the other is power. With the increasing of production tasks, the country’s power demand continues to increase.

Then again, why does China ration power instead of expanding coal supply?

On the one hand, the demand for power generation is large, but the cost of power generation is also increasing.

Since the beginning of this year, the domestic coal supply and demand have continued to be tight; the steam coal prices have not been weak in the slack season, and the coal prices have risen significantly and remained high. Since the coal price is high and difficult to fall, coal-fired power enterprises have turned their production and sales costs seriously “upside-down”, with prominent operating pressure. According to the data from China Electricity Council, the unit price of standard coal for large-scale power generation groups has risen by 50.5% year-over-year, while electricity prices have remain basically unchanged. The loss of coal-fired power enterprises has expanded significantly, and the coal-fired power sector has suffered a loss as a whole.

It is calculated that the loss will exceed 0.1 yuan for every 1 kWh of electricity generated by the power plant, and a loss of 10 million yuan will be suffered for the generation of 100 million kWh of electricity. For those large power generation enterprises, their loss will exceed 100 million yuan each month. On the one hand, the coal price remains high; on the other hand, the floating price of electricity is under control. It is difficult for power plants to balance costs by raising the on-grid electricity price. Therefore, some power plants would rather generate less or even no electricity.

control of both the total amount and intensity of energy consumption

In addition, the high demand brought by incremental orders due to the epidemic overseas is unsustainable. The increased domestic production capacity due to the settlement of incremental orders will become the last straw to crush lots of small and medium-sized enterprises in the future. Only by restricting production capacity from the source and preventing some downstream enterprises from expanding blindly can the downstream be truly protected when the order crisis comes in the future.

On the other hand, it is urgent to realize the requirements of industrial transformation.

In addition to achieving the carbon emission peaking and carbon neutrality goals, and meeting the environmental protection requirements, an important purpose of China’s elimination of backward production capacity and supply-side reforms is to achieve industrial transformation, namely, shifting from traditional energy production to emerging energy-saving production. Over the years, the country has been moving towards this goal. However, since last year, due to the epidemic, the task of producing energy-intensive products in China has increased under high demand.

The country will need high-efficiency production capacity for a long time in the future, and the non-profitable production capacity should be phased out. The increase in the added value of products is the dominant trend in the future. At present, many enterprises in the traditional fields in China have a high probability to survive by lowering prices mutually, which is bad for the overall competitiveness of the country. New projects are all formed by replacing outdated production capacity in a certain proportion. From the perspective of technology, the significant reduction of energy consumption and carbon emissions of traditional industries requires large-scale technological innovation and device transformation. In the short term, in order to complete the goals set by the country’s industrial transformation, China cannot simply expand coal supply, while power cuts and production limitations are the main path for traditional industries to achieve the control of both the total amount and intensity of energy consumption.

3. Assessment of the “control of both the total amount and intensity of energy consumption”

Since the beginning of this year, in order to achieve the goal of the control of both the total amount and intensity of energy consumption, the assessment of the “control of both the total amount and intensity of energy consumption” and the “energy and pollution-intensive” management and control has been relatively strict, and the assessment results will be used as the basis for the evaluation of the work of the local leadership team.

The so-called “the control of both the total amount and intensity of energy consumption” policy refers to policies related to the intensity and the total amount of energy consumption. The “energy and pollution-intensive” projects refer to projects with high energy consumption and emissions. According to the classification of the Ministry of Ecology and Environment, the scope of the “energy and pollution-intensive” projects are the six industry categories of coal-fired power, petrochemical engineering, chemical engineering, steel, non-ferrous metal smelting, and building materials.

In 2021Q1 and 2021H1, the National Development and Reform Commission also issued the energy consumption intensity reduction progress target alert levels and the total energy consumption amount control target alert levels. The local governments of regions that are listed as red will manage and control the energy-intensive enterprises in their regions in a relatively intensified manner.

barometer of the completion of the targets of controlling both the total amount and intensity of energy consumption in various regions in 2021h1

The Barometer of the Completion of the Targets of Controlling both the Total Amount and Intensity of Energy Consumption in Various Regions in 2021H1 issued by the National Development and Reform Commission shows that in terms of energy consumption intensity reduction, the 9 provinces (autonomous regions) of Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Xinjiang, Yunnan, Shaanxi, and Jiangsu had increased energy consumption intensity rather than decreased one, and are classified into the red first-level alert; in terms of the control of the total energy consumption amount, the 8 provinces (autonomous regions) of Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Yunnan, Jiangsu, and Hubei are classified into the red first-level alert.

There are still problems such as the blind expansion of the “energy and pollution-intensive” projects and the increase in the total amount of energy consumption. In the first three quarters, energy consumption indicators were overused. For example, due to the epidemic in 2020, local governments reported shortages to the superior level and obtained many energy-intensive projects, such as chemical fiber and data centers. As of 2021H2, many projects have been put into production, resulting in an increase in the total amount of energy consumption. Almost all indicators of the control of both the total amount and intensity of energy consumption failed to meet the requirements.

Entering the fourth quarter, less than four months before the year-end “major test”, the regions “name-checked” by the Ministry of Industry and Information Technology have successively taken measures to strive to improve energy consumption as soon as possible and avoid exceeding energy consumption quotas. Major chemical provinces such as Jiangsu, Guangdong, and Zhejiang have even stepped up efforts to take measures such as production suspension and power cut on thousands of enterprises, making local enterprises be caught unprepared.

Impact on Traditional Industries

The limitation of production has become the most direct and effective way for local authorities to control energy consumption. However, for many industries, the changes in the economic situation this year, the repeated overseas epidemic, and the complicated trends of bulk commodities have caused all industries to face various problems, and the production limitation caused by the control of both the total amount and intensity of energy consumption has once again triggered fluctuations.

For the plastics sector in the chemical industry, although there had been power rationing in the peak periods of power consumption in previous years, the situation of “Two-day Production & Five-day Production Suspension”, “90% limitation of production”, and “production suspension and limitation of thousands of enterprises” is unprecedented. If power rationing is long-term, the production capacity will definitely not keep up with the demand, where the orders have to be further reduced, making the demand side supply more tightened.

For the plastics sector in the chemical industry with relatively high energy consumption, the traditional peak season of “Golden September, Silver October” is already in short supply; superimposed with the vigorous control of both the total amount and intensity of energy consumption, a reduction in the supply of energy-intensive chemical products will be caused. Moreover, with the continuous rising of the raw material coal and natural gas prices, it is expected that the overall chemical product prices will rise constantly in the fourth quarter and hit the high point, and enterprises will also face the pressure of price hike and short supply. The acute situation will continue!

According to statistics, since September, the prices of 67 kinds of chemical products and 48 kinds of products have increased year-over-year, and those of sodium hydroxide, epichlorohydrin, ethyl acetate, formic acid, acrylic acid, etc. have increased by over 20 percent.

china's raw material growth rate in september 2021

For the cement industry, it currently faces problems such as excessively high coal prices, increased coal consumption for heating in winter, and difficult alleviation of straining coal and power.

Since August this year, due to the continuous recovery in demand and the support of rising prices of coal and other raw materials, cement prices have been rising all the way; entering September, the recovery of cement demand in many places is not obvious. However, due to the power rationing and production limitation driven by the control of both the total amount and intensity of energy consumption policies in Guangxi, Yunnan and other places, the output of cement enterprises in many places has reduced dramatically, and prices have risen sharply, showing a situation of weak supply and demand.

A corner overtaking appears in the price this week, which is about 452 yuan/ton, much higher than the level of the same period in 2018-2020.

For the steel industry, considering the high output in 2021H1 together with the year-over year decline requirement of the output of crude steel in the whole year, the sharp reduction in crude steel output in 2021H2 is not unexpected; nowadays, the policy of control of both the total amount and intensity of energy consumption has once again imposed further limitation of production on steel enterprises. The Beijing-Tianjin-Hebei region and the neighboring area have also ushered in the staggered production suspension and production limitation of the steel industry due to the advent of the heating season.

According to the inspection, at present, all steel plants in Jiangsu have received the indicators for the control of both the total amount and intensity of energy consumption. Although the energy control indicators formulated according to the energy consumption of each enterprise in the previous eight months are different, the overall strength is relatively great. The current round of limitation of production in Jiangsu Province is expected to last for about one month until October 15 or so. It is estimated that the output affected will be about 2.3 million tons, having a relatively great impact on the construction steel market in the province.

State Control

Are there any “inapposite” phenomena in the large-scale power rationing and production reduction?

The impact of power rationing on the industrial chain will undoubtedly continue to be spread to more links and more regions, which will also drive enterprises to further improve efficiency and reduce emissions. This is conducive to promoting the development of Chinas green economy, but are there any one-size-fits-all and inapposite phenomena in the process of power rationing and production reduction?

A few days ago, a worker at a chemical plant in Ordos, Inner Mongolia Autonomous Region asked for help on the Internet: the Ordos Electric Power Bureau often cuts off electricity recently, even several times a day, at most 9 times a day. The power failure causes the calcium carbide furnace to stop, which will cause the frequent start-stop of the lime kiln due to insufficient gas supply, and increase the safety hazards in links such as ignition operations. Due to repeated power failures, sometimes the calcium carbide furnace can only be controlled manually. Previously, due to the unstable temperature of a calcium carbide furnace, the calcium carbide spattered and burned the robot. If it was manual operation then, the consequences could be tragic.

For the chemical industry, if there is a sudden power outage and furnace shutdown, there is a great safety risk in low-load operation. A person in charge of Inner Mongolia Chlor-Alkali Association said: it is difficult for the calcium carbide furnace shut down to resume production and it is easy to cause safety hazards under the situation of repeated power outages In addition, the PVC production process supporting the calcium carbide enterprises belongs to the first order load. Repeated power outages may induce chlorine leakage accidents, and the entire production system and personal safety accidents that may be caused by the chlorine leakage accidents cannot be assessed. As the above-mentioned chemical plant worker said, “Not to mention the job that cannot be done, our safety is not guaranteed” due to frequent power cuts.

Facing the inevitable new round of raw material fluctuation, power slump, and possible “inapposite” phenomena, the state has also taken measures to ensure supply and stabilize prices.

The National Development and Reform Commission and the National Energy Administration

Jointly carry out the inspection of energy supply and price stabilization

Giving priority to on-site inspections, the implementation of policies for increasing coal production and supply in relevant provinces, autonomous regions and enterprises, the audited increase and release of advanced production capacity, the construction and commissioning procedure handling of relevant projects, the implementation of full coverage of medium- and long-term contracts of coal for power generation and heating, the implementation of medium- and long-term contracts, the implementation of price policies in coal production, transportation, trading, and sales, and the implementation of the market-based price mechanism of coal-fired power generation “benchmark price + fluctuation” are mainly inspected.

With respect to the difficulties and problems encountered by enterprises in the release of advanced production capacity, the inspection will go deep into the enterprises and relevant departments to promote the implementation of the requirements of “streamlining administration and delegating power, improving regulation, and upgrading services”, and help enterprises coordinate and solve the pressing issues affecting the release of production capacity, and strive to increase coal supply by taking parallel processing of relevant procedures and other measures to ensure people’s demand for coal for production and living.

most stringent power rationing order released

National Development and Reform Commission:

A 100% medium- and long-term contract price will be implemented in Northeast China for coal for heating

In the near future, the National Development and Reform Commission will organize the economic operation departments of relevant provinces and autonomous, major coal production companies for Northeast China, supply ensured coal mines, and key power generation and heating companies in Northeast China to sign medium- and long-term coal contracts in the heating season intensively, increasing the proportion of coal occupied by medium- and long-term contracts of power generation and heating enterprises to 100 percent.

In addition, in order to effectively ensure the implementation and effectiveness of a series of ensured energy supply and price stabilization measures introduced by the state, recently, the National Development and Reform Commission and the National Energy Administration have jointly sent inspection teams to mainly inspect the implementation of the policy for     increasing coal production and supply, the audited increase and release of advanced production capacity, the project construction and commissioning procedure handling, as well as the implementation of price policies in coal production, transportation, trading, and sales, and so on and strive to increase coal supply and ensure people’s demand for coal for production and living.

National Development and Reform Commission:

Firmly uphold the 7-day coal storage red line

It is learned from the National Development and Reform Commission that in order to ensure coal supply and price stabilization, and to ensure the safe and stable supply of coal and coal-fired power, relevant departments require that the safe coal storage systems of coal-fired power plants should be improved, the coal storage standard for power plants in peak seasons should be lowered, and the 7-day cola storage red line should be firmly upheld.

At present, the National Development and Reform Commission and the National Energy Administration have set up a special task force for ensured supply of thermal coal to include power plants that implement differentiated coal storage systems in the off-peak and peak seasons and ensure that the 7-day safe coal storage red line will be firmly upheld. When the available days of thermal coal inventory during the operation of a power plant are less than 7 days, the key supply guarantee mechanism will be activated immediately, and relevant departments and key enterprises will provide key coordination and guarantee in terms of coal sources, transportation capacity, etc.

This manufacturing “earthquake” is inevitable. However, as the bubbles pass, the upstream will gradually cool, and the prices of bulk commodities will also decline. It is inevitable that export data will fall (it is extremely dangerous if export data soars wildly). As of the balance herein, only a country like China with the best economic recovery can take it or leave it well. Haste makes waste. This is the subtext of the country to the manufacturing industry. The control of energy consumption is not only a requirement for carbon neutrality, but also the country’s good intentions to protect the manufacturing industry.

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