Demand for thermal power weakens in China as economy slows18 July, 2012, 3:32. Posted by Zarathustra
Last year, we briefly mentioned the electricity shortage in China, one of the worst in many years. Price cap for electricity and rising coal prices meant that power plants were loss-making, so electricity shortage probably more about price control than lack of production capacity. On top of that, drought last year meant that hydroelectric power production was affected, giving more pressure for thermal power stations.
This year, coal prices fell mainly because of slowing economy. Even though lower input prices should help power plants, slowing economy means slowing demand for electricity, while hydroelectric power production is picking up on better weather condition.
According to Yicai, China Southern Power Grid will reduce the procurement of electricity generated from thermal power plants (i.e. coal) both because of the slowdown of the economy and cheaper hydroelectric power. For the first half of the year, China Southern Power Grid has sold less than 3% more electricity compared to a year ago, which was about 5 billion kWh less than originally budgeted.
|By Eynamelop (Own work) [CC-BY-SA-3.0], via Wikimedia Commons|
This is consistent with what we have heard earlier that not only are inventories of coal rising in ports, inventories of coal at power plants in various power grid level have reached unusually high level.
Although production of hydroelectric power picks up this year, it accounts for roughly 12% of total power output so far this year according to figures published by the National Bureau of Statistics, thus it does not look likely that pick up in hydroelectric power production is going to change the overall weak picture of electricity output and consumption. And if electricity consumption is indeed a more reliable indicator for economic activities, this piece of news does not bode well for GDP growth in the near term unless dramatic policy easing is in-place.