China is set for a tumultuous winter as a nationwide power crunch is eating into Chinese demand for commodities, compelling analysts to revisit their forecasts for its 2021 economic performance. Two-thirds of the nationwide total, 19 provinces have introduced power rationing over September, mandating industry participants in refining and other segments to decrease production.

The ongoing global gas shortage, having already pushed spot Asian LNG prices to some 35 per mmBtu, and simultaneously surging coal prices, have been the prime suspects behind this, although the Communist Party’s ban on electricity generators to increase bills for consumers also played a large part. Chinese authorities seem to be open to relaxing safety rules in the country’s manifold coal mines so as to alleviate the energy crunch before the official winter heating season starts 15 November, OilPrice reports. 

Power crisis signals need to fix structural flaws in power sector. Emphasis on stable energy transition without disruptions. Market-based mechanisms needed for power price to reflect energy costs. Chinese provinces have implemented power rationing and diverted electricity to critical sectors due to coal shortages and to meet energy intensity targets. China’s tight energy supply for winter and its impact on downstream industries are in focus, S&P Global Platts reports.

The ongoing power crisis in China provides key lessons for sector reforms to overhaul the electricity system, build a new grid based on renewables and decarbonization, and ensure stable energy transition amid shifting priorities, Chinese experts said at the launch event of International Energy Agency’s report on a carbon neutrality roadmap for the country’s energy sector.

“I believe this is not only about a technical problem in terms of power system configuration with high proportions of renewables, but also about how we can actually construct a new sectoral ecosystem,” Jiang Liping, Vice President at State Grid’s Energy Research Institute, said. State Grid, China’s largest state-owned power grid that provides power supply to the majority of Chinese provinces, recently organized a seminar with experts from Denmark and Germany to discuss current issues and learn about their energy transition experiences, Jiang said.

“I think the key factor that drives transition in Germany and Denmark, is that they rely heavily on the market and see the role played by the market,” Jiang said, adding that China is still in the process of building an effective market, which hasn’t played its desired role in the energy transition yet. “Besides, there’s also an issue of coordination between the market and the policy. We need to strengthen coordination between the two,” she added.

Several Chinese provinces imposed electricity rationing to critical sectors in recent weeks to conserve fuel stocks ahead of the critical winter heating season due to high coal and gas prices limiting generation capacity, and tight energy consumption targets.

“There are a lot of complicated reasons behind the recent blackouts, but no matter what you say, blackouts shouldn’t happen in our transition…In a modern society, residents cannot bear the issue of blackouts. This is the biggest challenge in front of us,” Jiang said.

“China has already made significant efforts to reform its power market. We hope that there will be a system at the end of the day which meets the golden rule that the price can truly reflect the cost of services,” Fatih Birol, Executive Director with IEA, told S&P Global Platts.