'Worst Strategic Crisis' in China, Major Overhaul of Energy Policy Expected?

"Vulnerabilities in President Xi Jinping's Energy Policy Revealed"
Various Measures Expected, Including Electricity Market Privatization and Investment in Eco-Friendly Energy

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] Recently, as China is experiencing a severe power shortage, there is an assessment that President Xi Jinping's energy security policies have come under scrutiny. Accordingly, it is expected that the authorities will employ various policy measures such as deregulating the electricity market, expanding investment in eco-friendly energy, and increasing coal reserves.

On the 3rd, Bloomberg reported, "China's power shortage has exposed vulnerabilities in President Xi's top priority policy of energy security," adding, "It is expected to have significant ripple effects on China's power system over the coming years."

Experts have raised the view that the Chinese government will utilize various means to resolve the power shortage.

First, it is anticipated that the government will significantly ease price regulations on the energy industry.

Currently, the Chinese government enforces strict price control policies on all domestic energy companies. However, recent sharp increases in prices of key raw materials such as coal have caused the operating profit margins of energy companies to plummet. Experts analyze that these companies reduced power supply to minimize losses, which worsened the power shortage.

Earlier, the South China Morning Post (SCMP) reported that the price of Chinese coal for power generation at the Zhengzhou Commodity Exchange has nearly doubled from January to this month.

Bloomberg analyst Kou Nanan said, "If China privatizes the power market and drastically removes regulations, energy supply could increase," but added, "However, power costs would also rise, which could burden the Chinese economy."

Additionally, there is discussion about the government integrating power grids within China to enable power transfer from other regions.

Currently, two major companies manage power grids in China: the State Grid Corporation of China, which manages grids covering about 80% of the regions, and China Southern Power Grid Corporation, responsible for the southern region's power grid.

David Fishman, manager at economic consulting firm Lantau Group, said, "There is a significant scale of network disconnection between these power grid companies," adding, "There is almost no power sharing between regions."

He continued, "Because of this, some regions have surplus power while others face near power shortages," and added, "The more the (power grid) integration improves, the more efficiently supply can be distributed."

Furthermore, the recent global surge in power demand has intensified coal bidding competition between countries, leading to reduced coal supply, which is identified as one of the factors behind the power shortage.

[Image source=Reuters Yonhap News]

Experts emphasize that it is also important for China to expand investment in eco-friendly energy markets such as wind, solar, and hydropower to resolve volatility and uncertainty in the existing fossil fuel energy market.

Lori Millivirta, senior analyst at the Clean Energy Research Institute (CREA), said, "The situation over the past few months has highlighted vulnerabilities due to soaring fossil fuel prices," adding, "It further emphasizes the need to seek carbon-zero energy sources."

Although the eco-friendly energy market is rapidly growing, there are also arguments that fossil fuels must still be relied upon for the time being, so the government should sufficiently secure existing fossil fuel stocks.

Manager Fishman pointed out, "Coal will not suddenly disappear," and said, "Last month's power shortage in China revealed problems with government policies related to coal supply and reserves."

Experts stress that a key method to resolve the coal supply shortage is to significantly increase coal storage facilities owned by state-owned enterprises.

In fact, after experiencing a power shortage last winter, the Chinese government announced in its five-year economic development plan that it would greatly expand coal storage facilities. In June, the government also announced plans to raise coal reserves to 600 million tons, equivalent to 15% of the annual coal consumption.

[Image source=Reuters Yonhap News]

This content was produced with the assistance of AI translation services.