More Manufacturing Slowdowns as Chinese Factories Face Power Plant Shutdowns, Electricity Rationing

Chinese factories have been working hard to keep up with global demand as they recover from complete COVID-related shutdowns in China’s manufacturing sector, both earlier in the pandemic and more recently.

As factories ramped up production, Chinese regulators eased restrictions on those that used high amounts of electricity and coal. That has caused thermal coal to triple in price, and mining volumes in some of China’s northern provinces have dropped by as high as 17.7%. Since electricity rates are capped, some Chinese power plants have been operating at a loss for months.

These plants have petitioned China’s National Development and Reform Commission to raise electricity prices, but there hasn’t been much of a resolution yet.

As a result, coal-fired power plants in China are shutting down—and with them the factories that depend on them for energy. It's just the latest in a seemingly nonstop stream of factors causing havoc in the the global supply chain.

“Now we have a situation where in some provinces up to 50% of coal-fired power plants are pretending to be out of order or have run so low on coal that they can’t generate,” Lauri Myllyvirta, lead analyst at the Centre for the Research on Energy and Clean Air in Helsinki, told NPR.

China is facing a severe energy crisis that threatens to compound supply chain woes and derail the global recovery.

Here’s a simple breakdown of the situation: pic.twitter.com/qO46fGFeqp

— Sahil Bloom (@SahilBloom) October 3, 2021

As you can imagine, electrical power plants shutting down creates some difficulties in day-to-day life, let alone in keeping the global supply chain moving. Northern Chinese towns have been experiencing flickering traffic lights causing traffic jams. Elevators have been shut off. People are ending up in the hospital with carbon monoxide poison from burning coal or gas inside.

In manufacturing, factories in the country’s industrial Southern region have been forced to ration their electricity use. NPR reported that the “lucky ones” get three to seven days of power at a time.

Apparel and plastics are two of the hardest-hit sectors. NPR writes:

Energy intensive sectors like textiles and plastics face the strictest power rationing, a measure meant to ameliorate both the current shortages but also work toward long-term emissions reduction goals. China's latest five-year economic plan targets a 13.5% reduction in the amount of energy used to produce each unit of gross domestic product by 2025.

A sales director at a Zhejiang cotton texting printing firm told NPR that her company ordinarily has a 15-day turnaround time to fulfill orders. That window is now 30 to 40 days.

China is currently working on its energy grid and giving power plants flexibility in pricing, which means that higher costs of resources will be passed from the factories to global customers.

As winter approaches, though, China is anticipating high coal use for heating, since 80% of the country’s heating is coal-fired. As NPR points out, those power plants might not want to continue operating at a loss throughout the winter.