China’s energy crisis highlights weaknesses in Xi’s power plans

Liberalising the power market still poses risks to consumers; more storage needed to manage intermittency of renewables

China’s energy crisis has highlighted weaknesses in one of President Xi Jinping’s top priorities — energy security — that could have ramifications for the power system for years to come.

To avoid repeats of the chaos ravaging the world’s second-biggest economy, the country will probably have to take major steps toward reshaping its grid and power market, building fuel reserves, and adding more renewable and flexible energy sources.

Here are some options that Beijing may explore.

Set them free

A trigger for the current crisis was power plants shutting down because of heavy losses on buying expensive coal and selling into a highly regulated electricity market. Today’s pricing regime dates only to 2019, when fixed electricity benchmarks were replaced with a hybrid model offering some flexibility, but far short of the freefloating rates seen in parts of Europe and the US.

Hunan province is planning to trial a pricing system linked to coal costs from October. But a major obstacle to more liberalisation is the potential hit to downstream users including manufacturers.

Get connected

More connectivity between power grids in different regions could ease localised shortages. China’s two main grid operators — State Grid Corporation of China oversees more than 80 per cent of the country, while China Southern Grid Corporation handles five southern provinces — have rapidly built out longdistance power lines across the country, but there’s still more work to do.

So there is a case for more investment in ultra-high voltage lines and more local lines.”

Go green

The global energy crunch has exposed the pitfalls of moving away from fossil fuels before renewable energy is mature.

But the current situation —where China’s being forced to hunt for gas and coal in a global bidding war — highlights the security benefits of domestic wind, solar and hydropower. What’s needed is investments in flexible storage such as pumped hydro or large-scale batteries to manage the ups and downs of renewable flows.

Stocking up

Even with China’s renewables binge, coal isn’t going away any time soon, and September’s debacle has exposed serious problems in the management of the fuel’s supply and reserves, experts said. One way to cushion such shortages would be to copy the success of its strategic oil reserves by building and filling state-owned coal storage facilities throughout the country.