Exploring facts and outlook of the power shortages in South China

Guangdong—home to the booming cities of Guangzhou and Shenzhen, and at the centre of the Greater Bay Area (GBA)—is renowned for being the economic powerhouse of China. However, in May and June 2021, the province found itself running short on that power, as local governments mandated electricity cuts. Media headlines blamed hot weather and a boost in business for the shortages but, as outlined in a webinar hosted by the European Chamber South China Chapter, the root causes go far deeper than that.

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Webinar moderator Peter M. Drucker, government affairs manager of the South China Chapter, set the scene for attendees, explaining that members of the Manufacturing Forum raised the power shortages issue with the Chamber by describing how their difficulties had been exacerbated by the short notice of the electricity cuts provided by the local government. As staff and board members of the chapter reached out to other member companies based outside Guangzhou, it became apparent that this was an issue across the GBA.

Chamber President Jörg Wuttke gave a brief introduction to the webinar, highlighting the importance of Guangdong to the Chinese economy, demonstrated by articles on the matter in the Financial Times and Bloomberg that quoted Klaus Zenkel, Chamber vice president (VP) and South China Chapter chair. President Wuttke also noted that Chamber members across 21 cities in the region had been affected by the power shortages. He also highlighted the ongoing efforts on transitioning to carbon neutral energy, and the pressure on European companies to source from renewable energies from their headquarters.

Chain of events

The full picture of the Guangdong power shortages was presented by Laura Dong of IHS Markit. She acknowledged that higher business activity coupled with regional weather factors had impacted local power supply. Unexpectedly strong exports saw the demand for power rise by 20 per cent between February and May. Although greater demand than 2020 could be expected, 2021 demand was also higher than 2019 figures. Meanwhile, a drought in South China—precipitation was down 50 per cent on average levels for that time of year—hit Guangdong hard, as the province relies heavily on hydropower. In addition, a heatwave led to higher usage of air conditioning systems, also putting pressure on the power grid.

Guangdong imports a large proportion of its power; its second largest source of electricity is imports from neighbouring, less developed provinces, Yunnan in particular. Yunnan is naturally blessed in hydropower capacity, but the drought and an increase in energy intensity in the province’s own manufacturing industry—the Yunnan provincial government had invested in production of metals such as zinc and silicon to boost the local economy, which are energy-intensive—reduced the surplus available for export. Yunnan started rationing power from early May, with Guangdong following suit in mid-May. Other provinces also import power from Yunnan; Guanxi likewise experienced shortages in May, while Hunan had shortages last winter.

Ms Dong emphasised that, while rainfall and the partial opening of the Baihetan Dam on the border of Sichuan and Yunnan alleviated the current power shortages in the region, such blackouts are very likely to become more regular in the coming years as the transition to renewable energy intensifies to meet decarbonisation targets. On the one hand, Guangdong’s peak power load will continue to increase, while on the other hand, the local authorities have released targets for the reduction of carbon emissions for the next five years, with coal-fired power plants to be strictly curtailed.

However, coal is still the baseload source of the province’s—and most regions’ worldwide—power, with renewables and natural gas-fired power feeding in at times of high demand. To be able to replace coal and guarantee firm capacity availability, wind and solar contributions to the grid will have to increase, as will nuclear and gas production. Such guaranteed capacity with decarbonised energy sources will not be possible in the next few years, which means power shortages at peak demand will occur more often. 

Chamber advocacy actions

VP Zenkel also addressed the webinar, speaking of how almost every industry in Guangdong was affected by the shortages, apart from semi-conductors and automobiles, both very important sectors for China. He added that Shenzhen—considered a high technology manufacturing area—was also spared the power cuts.

He said that while affected companies have been compensating by working at nighttime or weekends, these are workarounds and not solutions to the problem. In addition, adopting schedules at such short notice is not easy. For instance, some companies need to ship abroad, which is already difficult at the moment due to the shortages in containers. If the power cuts prevent a company from finishing production in time to meet the sailing, this could cause severe delays to delivery to customers.

VP Zenkel said that there should be better ways to control energy consumption than through power cuts. However, he added that the current difficulties may actually be an opportunity, triggering ideas that will deliver a system enabling a smooth transition from coal-based to renewable energy. As the GBA has been promoted as a high-tech area to the world, it is in the government’s interest to address the problem. VP Zenkel concluded by saying that as the South China Chapter has been advocating on this issue from the start of the shortages, it will continue to work with  local governments on finding long-term solutions.