Beijing -China's energy crisis deepened on Friday as cold weather swept into much of the country and power plants scrambled to stock up on coal, sending prices of the fuel to record highs.
The demand of electricity to heat homes and offices is expected to soar this week as strong cold winds move down from northern China. Forecasters predict average temperatures in some Central and Eastern Regions could fall by as much as 16 degrees Celsius in the next 2 - 3 days.
Shortages of coal, high fuel prices and booming post-pandemic industrial demand have sparked widespread power shortages in the world's second largest economy. Since September, Rationing has been already in place in at least 17 of mainland China's more than 30 regions, forcing some factories to disrupt production and forcing supply chains to be suspended.
The most active January Zhengzhou thermal coal futures hit a record high of 1,669. 40 yuan $259.42 per tonne early on Friday will be $39.42. The contract has risen more than 200% year to date.
The three northern Chinese provinces of Jilin, Heilongjiang and Liaoning - among the worst hit by the power shortages last month - and several regions in northeastern China including Inner Mongolia and Gansu have started winter heating which is primarily fuelled by coal to cope with the colder-than-normal weather.
China has taken a slew of measures to control coal price rises including raising domestic coal output and cutting power to some industries and some factories during peak demand. It has repeatedly assured users that energy supplies will be secured for the winter heating season. The power shortage is expected to continue into early next year, with analysts and traders forecasting a 12% decline in residential power consumption in the fourth quarter as coal supplies fall short and industrial governments give priority to industrial users.
Earlier this week, China said in its boldest step in a decades-long power sector reform that it would permit coal-fired power prices to fluctuate by up to 20% from base levels from Oct. 15, enabling power plants to pass more of the high cost of generation to commercial and industrial end-users.
Steel, Aluminium, cement and chemical producers are expected to face higher and more volatile power costs under new policy, pressuring profit margins. Data since Thursday shows factory-gate inflation in September hit a record high.
China aims to be carbon neutral by 2060 and Beijing has been trying to reduce its dependence on power coming from dirty coal in favour of cleaner wind, solar and hydro. But coal could provide the bulk of its electricity needs for some time.
China is not the only nation dealing with black outs of power supplies, which has led to fuel shortages and fuel shortage in some countries. The crisis has highlighted the difficulty in reducing dependence on fossil fuels as world leaders seek to revive efforts to tackle climate change at talks next month in Glasgow.
China will strive to achieve carbon peaks by 2030, Vice Premier Han Zheng said in an interview at the Russian Energy Week International Forum, according to state-run news agency Xinhua late on Thursday.
He also said China and Russia are important forces leading the energy transition and they should cooperate to ensure smooth progress of major oil and gas pipelines and nuclear power projects.