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Pearl River Delta

China studies shore power to supplement new emissions rules

Shore power units, like the one pictured, can help ports bring down their emissions, which they are under increasing pressure to do around the globe.

China’s Ministry of Transport is investigating the widespread use of shore power to help address pollution in the country’s port areas as part of a wider push to reduce maritime emissions, but the haphazard nature of that push has created headaches for container lines and shipowners.

The use of shore power is being studied to supplement the set-up of emission control areas at the main commercial shipping centers of the Yangtze and Pearl River Deltas and the northeastern Bohai Rim. Details of the ECAs, including specific requirements and timelines for enforcement, were announced in a directive and follow-up notifications issued by the ministry from the end of last year.

Shore power projects, which the International Council on Clean Transportation says are a highly effective alternative to fuel switching for emissions reduction, were launched at five major ports across the country together with two ship-shore power conversion projects.

“It (shore power) nearly eliminates NOX (nitrogen oxide), PM (particulate matter), and SOX (sulfur oxide) emissions in port areas due to a cleaner electricity generation mix,” the ICCT found in a recent study on the use of shore power at the Port of Shenzhen. However, it also noted that shore power is a much less cost-effective way of reducing emissions.

“Only if a low-sulfur fuel supply cannot be guaranteed or NOX emissions are dominant concerns should onshore power be prioritized.”

The shore power trials are being run at container terminals in Lianyungang, Guangzhou, Shenzhen Yantian, Shanghai and Ningbo-Zhoushan. The ship-shore power conversion projects involve seven China Cosco Shipping container ships with capacities of 10,000 twenty-foot-equivalent units, and four 250,000 deadweight tonnage bulk carriers from Shangdong Shipping.

The new ECA regulations require ships berthing at key ports in the Yangtze River Delta ECA to use fuel with a sulfur content not exceeding 0.5 percent since April 1 of this year. The requirement is extended to ships berthing at key Pearl River Delta and Bohai Rim ports from January of 2017.

From Jan. 1, 2019, ships operating anywhere in the ECAs, not just at berth, must use fuel with a sulfur content of no more than 0.5 percent.

The regulation excludes Hong Kong and Macau, but Hong Kong’s Environmental Protection Department said it will also implement the requirement.

Analysts said the support of China’s national oil companies, which dominate oil and gas upstream and downstream sectors, and the availability of low-sulfur fuel for vessels would be critical to ensure the success of the regulation.

“Because of strong SOE (state-owned enterprise) ownership in energy supplies it is important to have them fully on board. If they aren’t, or if this regulation will reduce their margins, there is a greater risk that business continues as usual,” Richard Brubaker, adjunct professor of management, sustainability and responsible leadership at the China Europe International Business School told

Ships that don’t comply with the new ECA regulation are liable for fines of between $1,500 and $15,000 under the Law of the People’s Republic of China on the Prevention and Control of Air Pollution.

The China Maritime Safety Administration has issued guidelines on the implementation and supervision of ECAs that state how compliance will be verified.

For ships using low-sulfur fuel, verification will be made by a check of bunker delivery notes, fuel changeover procedures, engine room logbook records and fuel oil quality and samples. For ships using alternative measures to reduce emissions, such as shore power, liquefied natural gas or exhaust gas scrubbers, checks will center on International Air Pollution Prevention certification and engine room log books.

China’s Regulation of Prevention and Control of Marine Pollution Act requires ships to keep bunker delivery documents on board for three years and a sample of fuel for one year. Fines of up to $1,500 can be imposed on owners that fail to meet the fuel record keeping requirements.

Huatai Insurance Agency, a mainland-based company that specializes in helping the private sector navigate China’s maritime environment, said the ECA requirements are already being enforced in the Yangtze River Delta.

“There have already been a few cases where [the Shanghai Maritime Safety Administration] has issued penalty notice to ships for failing to keep fuel sample and fuel supply documents onboard as required,” Huatai said in a circular to customers published on its website.

Because of challenges that vessel operators may encounter seeking to comply with the new regulation, the Shanghai MSA launched an exemption scheme that allows shipping companies or agencies to apply for an exemption if using low-sulfur fuel is unsafe for the vessel.

With China home to seven of the world’s 10 largest ports, and given the density of population in its port cities and their surroundings, the lack of central direction on emissions control for ports and shipping is a huge concern both globally and domestically.

Hong Kong led the way when public pressure over pollution levels in the Special Administrative Region led it to launch a scheme for voluntary switching to low-sulfur fuel.

This was made mandatory for all ocean-going vessels at berth in the port in July of last year.

The Shenzhen port complex has a voluntary low-sulfur fuel switching scheme in place, and several other Chinese ports — including Qingdao in Shandong province, Waigaoqiao in Shanghai and Shekou in Shenzhen — have also installed shore power infrastructure as well as electrified vehicles and port equipment to reduce emissions.

Power cuts run deep for HK firms

South China Morning Post — 23 May 2011

Hong Kong manufacturers in the Pearl River Delta are battling to maintain operations in the face of power shortages which are disrupting production and pushing up costs.

Some have complained of power cuts of up to three days a week in Shenzhen and of two days in Dongguan, a production hub, forcing them to resort to dirtier and more expensive diesel generators, and disrupting production schedules.

Key industry bodies have predicted that increasing difficulties in the delta, dubbed the world’s workshop, will force more factories out of business.

Sources close to the Hong Kong Economic Trade Office in Guangdong said the number of Hong Kong factories dwindled to about 35,000 at the end of last year from 39,000 at the beginning of the year and from the 2007 peak of 80,000.

Hong Kong Small and Medium Enterprises Association chairman Danny Lau Tat-pong said manufacturers “had their backs to the wall” because of a series of challenges, including power shortages, rising wages and raw material costs, a state policy of upgrading industries, a rising yuan and Middle East political turmoil.

“It is not just difficult,” Lau said. “It is extremely, extremely difficult.”

A manufacturer producing high-fidelity equipment and amplifiers in Shenzhen queried the situation on one social networking site, saying: “How can we survive with suspension of electricity two days a week!”

Ricky Yeung, a manufacturer of high-end cooking utensils under the “Siliconezone” brand, said electricity at his factory in the Boan district of Shenzhen had been suspended every Tuesday, Thursday and Saturday since the start of this month.

The mainland looks set for its worst power shortages since 2004 owing to limited coal supplies. Yeung said the power cuts were also caused by maintenance work at some power plants, and the Shenzhen municipal government had ordered factories and power plants to cut emissions to clear the air before a sports gala for university students in August.

However, these initiatives would not work, because manufacturers, including Yeung, would use diesel-fuelled generators.

“I have no choice but to turn them on,” Yeung said. “I don’t want to because it costs about 1.5 times more than electricity from the power plant.”

Yeung said the power situation was worrying, with the peak production season looming next month.

Lau, who runs a factory near Dongguan producing curtain walls for skyscrapers, said he was faring better, with power cuts only a once a week.

The cuts come as manufacturers are already reeling from a rising yuan. Spot yuan strengthened against the US dollar at 6.4926 on Friday from Thursday’s 6.5039. The yuan has now appreciated 5.14 per cent since it was de-pegged from the greenback in June 2010, and 1.47 per cent since the beginning of this year.

Economists with brokerages such as Morgan Stanley, UBS, Deutsche Bank and Goldman Sachs have predicted that the currency will rise by 5 per cent to 6 per cent this year.

Another blow for manufacturers has been the government’s policy of boosting minimum wages, which are expected to grow by at least 13 per cent annually in the next five years, to drive domestic consumption as the mainland shifts away from exports.

Mainland dams accused of carbon credit scams

smokestackLast updated: April 7, 2010

Source: South China Morning Post

Environmental lobby group International Rivers has condemned the emergence of trade in fake carbon credits and says the biggest source is hydroelectric power projects on the mainland.

Under what is known as the Clean Development Mechanism (CDM) of the Kyoto Protocol, industrialised countries can support projects that decrease emissions in developing countries and then use the resulting emission reduction credits towards their own reduction targets.

But International Rivers says the CDM is “failing miserably and is undermining the effectiveness of the Kyoto Protocol” because most of the emission reduction credits are fake and come from projects that do not reduce emissions.

It says hydropower projects constitute a quarter of all projects in the CDM pipeline, and 67 per cent of these, or about 700 projects, are on the mainland.

However, International Rivers says there has been no substantial jump in hydropower development to match the large number of supposedly new projects applying to generate CDM credits.

The CDM recently withheld approval of carbon credits from numerous mainland dams and wind farms.

Controversy over the Chinese dams recently led the European Climate Exchange (ECX), the world’s leading market for trading carbon credits, to renew its ban on large hydropower Certified Emission Reductions (CERs), which are carbon credits issued by the CDM executive board.

The European Union is the biggest buyer of CERs, while China sells 70 per cent of the world’s CERs.

Dams built before applications are made for carbon credits are deemed not to contribute to reducing carbon emissions and thus should not qualify to sell carbon credits. Such dams are called “business-as-usual” in the industry jargon.

“There are blatant cases of hydro plants being business-as-usual, whereas other hydro projects seem to really require CDM credits,” Axel Michaelowa, a founding partner of the CDM consultancy Perspectives and a researcher at the University of Zurich, Switzerland, said.

The accuracy of assessments of the eligibility of mainland dams for carbon credits is distorted by questionable data, Michaelowa said.

“Many hydro plants in China use an artificially low utilisation rate for the calculation of their profitability. The regulators have also discovered some hydro projects reported a very low electricity tariff, lower than coal power plants and other hydro projects in the same province.

“Such projects are now increasingly being rejected.”

At a meeting of the CDM executive board in February, 38 mainland dams failed to get carbon credits. The board also decided to review 36 wind projects in China, Katy Yan, a campaign assistant with International Rivers, wrote in her blog.

“These 74 projects hope to produce almost 38 million carbon credits by 2013,” worth about US$600 million, she said.

“The problem is very serious,” Patrick McCully, executive director of International Rivers, said. “Dams are the largest single project type in the CDM. Almost all are likely projects that would have been built anyway regardless of receiving credits, meaning that any credits they generate are fake.”

A World Commission on Dams report has set guidelines that determine whether a dam qualifies to sell carbon credits.

By March 6, 16.32 million CERs had been issued for 132 dams, and China accounted for 71.52 per cent of the 653 large hydropower projects in the world that have been registered or are seeking registration under the CDM to sell CERs, according to International Rivers. A large hydropower project is defined as one with a capacity of more than 15 megawatts.

On March 24, ECX announced it would renew its ban, imposed in 2008, on contracts with large hydro CERs, ECX market development director Sara Stahl said. “We have always excluded large hydro because it’s a grey area,” she said.

Two types of carbon credits are traded on the exchange: CERs and EU allowances, which are carbon credits issued under the EU Emissions Trading Scheme. Since trading at ECX began in 2005, trading of carbon credits and related instruments has soared.

Last year, the value of ECX’s trades surged 82 per cent year on year to €68 billion (HK$708.4 billion).

ECX’s renewal of its ban on large hydro CERs came about after discussions with its members, which include more than 100 large multinational companies, this year, Stahl said. “We felt there were some legitimate criticisms,” she said. “Companies are nervous about it.”

Michaelowa said there was concern that some Chinese dams had required the resettlement of the local population without proper compensation and about whether large hydro plants are sustainable.

In December 2008, an International Rivers press release alleged that German utility RWE, one of the biggest carbon dioxide emitters in Europe, planned to buy carbon credits from the Xiaoxi dam in Hunan – which failed to meet World Commission on Dams guidelines – and that would be a breach of EU law.

On a site visit, International Rivers found 7,500 people had been evicted to make way for the Xiaoxi dam without proper compensation, which violated the World Commission on Dams guidelines. Xiaoxi is one of at least 11 Chinese large hydropower projects from which RWE was buying credits. TUV SUD of Germany was auditor for the project.

At a CDM executive board meeting in March, the board suspended TUV SUD from auditing hydro projects, as it had approved dams that were later found to have problems. Another carbon credit auditor, Korea Energy Management Corp, was partly suspended.

“The fact that only a few of the projects validated by TUV SUD have been rejected is proof of the quality of TUV SUD’s activities,” Heidi Atzler, a TUV SUD spokeswoman, said.

An RWE spokeswoman, Julia Scharlemann, said every CDM project in which RWE was involved was “thoroughly reviewed” by an independent auditor, and RWE adhered to German Emissions Trading Authority rules, which were more rigorous than CDM processes and the standards of other EU nations.

RWE bought carbon credits only from projects approved by the United Nations Framework Convention on Climate Change, she added.

Michaelowa admitted CDM’s process of approving dams was imperfect, with room for improvement, while McCully said the best solution would be to scrap the CDM and the whole concept of international carbon offsetting entirely.

“If that is not possible, then ban hydropower from CDM,” he said.

Blackout woes for plants in Dongguan

city-in-blackoutLast updated: April 7, 2010

Source: South China Morning Post

Severe drought results in power rationing

The devastating drought in the southwest is forcing once-a-week blackouts at Dongguan factories due to power shortages from the nation’s hydroelectric dams.

Since April 1, Hong Kong manufacturers say power supplies have been suspended one day each week in Dongguan, and some expect the mandatory rationing will spread to industrial towns in Shenzhen.

Several factory owners said they were left with little choice but to generate their own electricity through diesel-powered generators, a dirtier and more expensive alternative.

Some warned that the supply crunch could balloon into a crisis next month, when the peak-production season begins. This would exacerbate recent challenges such as labour shortages, soaring raw material costs and wages, a possible appreciation in the yuan and weak demand in the United States and Europe.

“The export sector improved obviously in the first quarter, but new challenges come from all fronts now,” Toys Manufacturers’ Association of Hong Kong vice-president Yeung Chi-kong said yesterday. “Some costs such as electricity are rising so fast and are beyond our control that it will be lucky if a factory doesn’t lose money.”

To keep production lines moving, Yeung, who is also vice-chairman of toy exporter Blue Box Holdings, said the company’s factory in Dongguan was forced to produce its own electricity, which cost 30 per cent more than power from the state supplier.

He estimated that higher fuel costs, together with about a 21 per cent rise in the minimum monthly wage in Dongguan to 920 yuan (HK$1,046.70) and at least a 20 per cent jump in prices of plastics and paper-packaging materials, would in turn jack up overall operating costs by 5 per cent.

This would erode the factory’s wafer-thin profit margin, he said. “We are trying to pass the extra costs on to customers, but so far they are bargaining extremely hard,” Yeung said.

The once-in-a-century drought ravaging Yunnan, Guangxi and Sichuan provinces has hobbled hydropower plants, which have reduced electricity supplies to Guangdong by about 23 per cent in the first three months of this year.

Electricity from the western provinces supplies about one-third of Guangdong’s power needs.

The Guangdong provincial government placed priority on supply to residential users, and discouraged consumption by energy-consuming industries such as electroplating and cement and steel production. The province signed agreements last month with Hong Kong supplier CLP Power (SEHK: 0002), which will export more power across the border, particularly in summer.

Wilson Shea Kai-chuen, a premium product manufacturer in Dalong in Shenzhen and vice-chairman of the Hong Kong Small and Medium Enterprises Association, said he expected compulsory power blackouts would begin in a few weeks, when the busy season begins.

He said that on April 1, state supplier China Southern Grid recommended factories in Dalong suspend operations a day every week or minimise power consumption.

Dennis Ng Wang-pun, the managing director of exporter Polaris Jewellery, said electricity supply in Panyu in Guangdong remained normal but warned that the electricity crunch would come on top of labour shortages.

His factory in Panyu, which has about 400 workers processing jewellery, was still short of about 100 workers, Ng said. He said new orders improved in the first quarter from the same period last year, at the height of the global financial crisis, but shoppers’ appetite remained weak.

“I don’t see a marked improvement in demand in the US until the second half,” he added.

Companies Look For Short Payback Period When Investing In Green Projects

Eric Ng – SCMP | Updated on Oct 27, 2008

Energy conservation and pollution reduction are industries that have been around for decades, but their fastest growth could well lie ahead given the mainland’s status as the world’s factory and rising pressure for it to get its act together on sustainable development.

Manufacturers can either install the necessary equipment on their own or outsource the job to so-called energy services companies (Escos). Escos typically examine a firm’s energy consumption efficiency and provide solutions to achieve desired targets. They usually share the financial reward from the energy-saving effort with their customers at a pre-agreed formula over multiple years.

Eric Jiang Haibo, South China sales manager of US-based industry major Honeywell, says the company generally does not require its clients to modify their production processes, and its solutions can achieve 15 per cent to 30 per cent of energy savings. “On the mainland, clients tend to be interested if an energy-saving project can pay itself back in two to four years,” he said. “Those with payback periods of more than five years tend to have a hard time moving factory owners into action.”

Honeywell entered the mainland market in 2005. Mr Jiang said its first project was for a brewery in Shenzhen, which contracted Honeywell to save 5.4 million yuan (HK$6.13 million) a year, or 17 per cent of its energy bill.

He said a major obstacle in pushing energy conservation was management’s preoccupation with production or other issues. “I had a customer who kept delaying signing a contract with us as his firm underwent production adjustments, although he knew the payback period was less than two years.”

Focus Energy, a Hong Kong start-up established in 2006, is also pitching projects to help firms save money by revamping their air-conditioning, boiler and water systems.

Managing director Simon Cheung said a new policy in Guangdong requiring all factories to cut sewage discharge by at least half from between 2006 and 2010 and Beijing’s recent rule requiring all cement plants to install waste-heat recovery systems had proved to be a boon.

He said a chrome-plating plant consuming 700 cubic metres of water a day could save some 29 million yuan over 10 years by investing 7 million yuan in a three-year period.

A typical cement plant with daily output of 2,500 tonnes could achieve breakeven in 2.4 years after investing 60 million yuan in equipment that would allow it to capture heat from the production process to generate 25 million yuan worth of electricity, he said.

Gains From Natural Gas Power Will Be Lost If Consumption Soars

Updated on Oct 03, 2008 – SCMP

I refer to the article by Secretary for the Environment Edward Yau Tang-wah (“A cleaner, cheaper energy future for Hong Kong“, September 23).

Replacing coal with natural gas for electricity generation is no doubt a great step towards controlling the sulfur dioxide (SO{-2}) emissions that are a significant source of damage to the air quality in Hong Kong. It is also good news for consumers in Hong Kong to hear that the excessive capital outlay and direct environmental impact will be minimised with the change of plan to build the liquefied natural gas terminal on the mainland instead of on the Soko Islands.

While this plan seems to echo our government’s commitment to tackle the air pollution problem, it has unfortunately also shown the administration’s political myopia.

Excessive SO{-2} emissions are a direct consequence of excess energy demand.

If the government does not seek to reduce energy use in tandem with switching to cleaner fuel, no sustainable change is going to happen.

In a way, the removal of the HK$10 billion capital outlay for the Soko Islands plant (hence the cost of power is likely to remain at the present level) almost encourages consumption.

It gives consumers a false sense that “it is okay to use power now because it is clean”.

Nevertheless, CLP Power and Hongkong Electric are for-profit organisations. They would be shooting themselves in the foot if they endorsed plans that reduced consumption.

Finally, another closely related problem is that nearly half of our air pollution comes from north of the border.

It is of no use if only Hong Kong regulates the use of coal for fuel and the desulfurisation requirements. The same standards must be applied in cities in the Pearl River Delta in order to achieve the intended results.

Pollution is a difficult problem. The lobbying will get ugly and some aspects of the economy will be compromised, but we must trust that the Hong Kong government is aware of what needs to be done and will endeavour to achieve what is best for us.

Michelle M. Lee, Mid-Levels

CLP Targets “World’s Factory” With Energy Efficiency Business Written by James Ockenden – Aug 18, 2008

Hong Kong utility CLP Group has launched an energy efficiency and conservation consultancy targeting steel, cement, plastics, electronics, garment and toy factories in the Pearl River Delta, Guangdong Province.

Based on CLP’s active Hong Kong energy audit service, which typically cuts customers’ energy consumption by 10-20%, CLP Energy Services & Technology (Shenzhen) Company Limited will offer all-around energy efficiency and conservation services ranging from energy audits and energy saving solutions to project management and supplier matchmaking.

More than 70,000 Hong Kong businesses own factory operations in Guangdong. Faced with ever-increasing operating costs and new energy efficiency and environmental regulations, many of them have expressed an interest in the new energy service, according to CLP.

Speaking at a Hong Kong General Chamber of Commerce event in Hong Kong earlier this year, CLP planning director S.H. Chan dispelled the myth that energy supply firms do not want to promote energy efficiency, citing the economic theory that increased energy efficiency actually increases energy consumption. “We have been looking at energy audits [of our customers] for a long time,” he said. “We look for long term development, sustainable development. If every unit our customers] consume is value for money, we can convince them that using electricity is good for their business.”

On the other hand, he said, inefficient or wasteful electricity consumption would ultimately be bad for the utility business. “If [electricity consumption] is wasteful, and the economy [declines] we will lose customers,” said Chan.

Speaking at the new company opening ceremony in the border city of Shenzhen, new chairman Chow Tang-fai said energy efficiency and conservation remains one of CLP’s key strategies.

“This new initiative reaffirms CLP’s commitment to promoting energy efficiency as one of its key climate strategies outlined in the Group’s Climate Vision 2050. This is set against the backdrop of increasing needs in energy efficiency and conservation in the Pearl River Delta,” said Chow.

Energy Demands Too Big For State Control

Wang Xiangwei – Updated on Jun 09, 2008 – SCMP

As the mainland focuses its attention and resources on providing disaster relief and planning the massive reconstruction effort in the aftermath of the deadly earthquake, another crisis looms on the horizon.

While last month’s disaster in Sichuan and the crippling snowstorms in February were natural disasters, the next one is likely to be man-made.

With the summer peak season for energy consumption upon us, the mainland is bracing for massive blackouts in major cities, serious disruptions of industrial production, long queues at petrol stations, and, possibly, frustrated drivers and others taking to the streets to protest at fuel shortages.

This is not alarmist talk. Worrying signs have already emerged nationwide. Officials have warned of an acute shortage of electricity during the summer as rising coal prices have forced many coal-fired power plants to stop operation.

The State Grid – the nation’s power distribution monopoly – warned last week of a shortage of 10 million kW this summer. Many provinces have inadequate coal stocks for power supply, with the reserves running below the crucial seven-day level in Hebei , Anhui , Hunan and Hainan provinces.

While there have been no reports of widespread blackouts yet, Guangdong has already suffered brownouts – dips in voltage – and factories in many cities have been forced to stop production because of the compulsory electricity rationing.

As oil prices soar, there has also been an extensive shortage of diesel across the mainland with petrol stations rationing supplies amid long queues of trucks. The need to ensure energy supplies in the quake-hit regions to support relief efforts and reconstruction has also further strained the situation.

In response, a clearly worried mainland leadership has been taking forceful measures to ensure energy supplies in the final stretch of its preparations for the Olympics in August.

The State Council has ordered coal-producing provinces to run at full capacity and even asked small mines, shut down for safety reasons, to resume production. It has also ordered the power companies to ensure a reliable supply “regardless of costs”, Xinhua reported yesterday.

Some provinces have taken more extreme measures by imposing price controls. Both Shandong and Shaanxi have ordered that the price of coal for power generation should not be raised until September, prompting concern that other provinces would follow suit soon.

Ironically, it is the administrative energy price controls that have led to the acute shortage of energy supplies every summer in the first place.

It is time that the leadership bites the bullet and undertakes much-needed energy reforms by ending the massive subsidies and liberalising energy prices. The mainland has liberalised coal prices but imposed price controls on electricity, which means that as the coal prices soar, the power firms suffer huge losses. In the first quarter, all mainland power firms reported losses with some already short of cash to buy coal.

Shandong and Shaanxi officials may believe they made a smart move by putting price controls on the price of coal but this would encourage coal producers, many of them privately owned, to produce less, which can further exacerbate the situation.

Mainland officials may have an easier time in controlling oil prices as both producers and refineries are mostly state owned. While China has become the world’s second largest consumer of oil and imports massive amounts each year, it imposes strict controls over oil prices by providing government subsidies and forcing refineries to sell finished products under the market price. As it stands now, the mainland’s domestic fuel prices are only about half of the international benchmark levels.

According to the latest research report from Morgan Stanley’s China economist Wang Qing, the total costs of the mainland’s implicit oil subsidies – including both direct financial support from the state budget and the losses incurred by the state-owned oil companies – could reach US$100 billion, or 2.2 per cent of national GDP, this year if global crude prices stay at US$130 per barrel and domestic refined product prices remain unchanged at their current levels.

The mainland may, for now, be able to afford its ridiculously low fuel prices for the sake of social stability because of its bulging state coffers. But such price distortions will have a detrimental effect on the quality of economic growth. First, the below-market prices of fuel have contributed to the explosive growth in car ownership, leading to endless traffic congestion and worsening air pollution in cities, to say nothing about energy consumption.

Second, by forcing power and oil companies to bleed losses, the government has removed the motivation and the opportunity of those companies to invest in future growth as the subsidies are not enough to cover the losses. This will sow the seeds for more trouble down the road.

In the past two weeks, several Asian economies, including Malaysia, India, Taiwan and Indonesia, have raised retail fuel prices despite strong domestic opposition.

What has prevented Beijing from following suit is its concern about the impact on the consumer price index, which stood at 8.5 per cent in April. But the increase in inflation has been mainly driven by food prices. However, food prices have already shown signs of easing.

If inflation begins its downtrend trend as expected in the coming months, the leadership should waste no time in gradually increasing the price of oil in the 10 per cent range each time as well as raising electricity prices.

Coal Supply Woes Force Early Power Rationing

Pollution threat to Olympics as factories shift to costly diesel

Denise Tsang – Updated on Jun 09, 2008 – SCMP

Coal supply disruptions intensified by China’s recent earthquake have brought forward scheduled peak-power rationing in industrialised Guangdong province and raised power costs, according to manufacturers.

In local production hubs such as Dongguan, a three-day-a-week compulsory rationing system began last month, about two months before a traditional scaling down of power supplies in July and August, some Hong Kong factory owners said.

The early introduction of rationing also came as the countdown to the Beijing Olympic Games, which starts on August 8, got under way against a background of mounting concerns that air pollution could jeopardise the event.

Manufacturers said the early start of the rationing system, had forced many factories to resort to costlier diesel-fuelled power generators, which they said increased electricity costs 10 per cent to 15 per cent.

Although the Guangdong provincial government warned of severe power shortages earlier this year, massive snowstorms in February and last month’s earthquake in Sichuan worsened the supply problem.

“The peak season power rationing was brought forward by two months in some parts of Dongguan and is spreading to other manufacturing towns,” Federation of Hong Kong Industries general committee member Jimmy Kwok Chun-wah said last week.

The magnitude 8 earthquake disrupted coal mining in Sichuan and Shanxi and delayed deliveries. The State Electricity Regulatory Commission revealed last week that five mainland provinces had less than the alarm-level seven-day stockpiles of coal.

Analysts blamed the situation on high coal prices and a two-year electricity tariff freeze, which they said had discouraged small miners from keeping normal levels of coal inventories.

“We now have no choice but to generate our own electricity, which is far more expensive,” Mr Kwok said. “This is a very unfortunate time for every manufacturer in China.”

To keep production on track, many factory owners have installed diesel-fired generators, which produce power at costs that are about up to 15 per cent higher than electricity supplied by power plants, he said.

Green Manufacturing Alliance chairman Sunny Chai Ngai-chiu warned that manufacturers should meet emission requirements when consuming diesel-fuelled electricity, as the Guangdong provincial government had tightened environmental controls.

“They should follow emission requirements even though their costs have increased,” Mr Chai said.

Mainland manufacturing costs, meanwhile, remained close to four-year highs, a monthly survey by CLSA showed. The CLSA index of input prices for May was 78.6, fractionally below March’s four-year peak.

“With demand exceeding supply for a wide range of commodities, average input prices faced by Chinese manufacturers continued to rise at a rapid rate in May,” CLSA said.

Power Shortfall To Hit 10GW

Reuters in Beijing – Updated on Apr 22, 2008

The mainland’s power demand this year could outpace supply by as much as 10 gigawatts (GW), with temporary brownouts hitting parts of the south during the summer, State Electricity Regulatory Commission vice-chairman Wang Yeping said on Tuesday.

Mainland power firms were building new power stations each year but coal-burning generators were struggling with soaring fuel costs, an over-stretched domestic transport system and strong competition for supplies.

Mr Wang told a news conference that fuel stocks at key power plants had slipped to levels that covered 12 days of generation, from 15 days early last month.

At plants in Hebei province bordering Beijing, Anhui province in the east, and the western municipality of Chongqing, stores had collapsed even further, to less than 7 days’ use.

“Since [last month], the country’s thermal coal supply has again shown some tightness. Coal stocks fell again. At some power plants, thermal coal supply is already quite tight,” he said.

Coal prices shot up to record highs during power and coal shortages in early February, when freak winter weather cut off roads, railways and power lines and left some plants with coal to cover just two days of production.

Prices have eased as winter heating demand ebbs and mines resume production. Benchmark spot prices at Qinhuangdao, the mainland’s main coal port, for top-grade coal, were at 640 yuan (HK$713) to 650 yuan per tonne on Tuesday.

This was below 670 yuan to 680 yuan in early February but still 37 per cent higher than a year earlier, according to, a coal market information website operated by a business venture.

Despite these high prices, the central government is reluctant to take one measure analysts say could bolster coal supplies, increase investment in new plants and ensure existing ones run at full steam – raise state set power prices.

Inflation is currently running close to the highest level in more than a decade, and Mr Wang said authorities had to consider many factors, including the impact on inflation, when weighing up whether to increase power prices.

But prices are currently so low they leave an increasing number of plants in the red, and could exacerbate shortages.

And Mr Wang’s forecast may be conservative, as booming Guangdong had warned last month that it alone could face shortfalls of 10GW.

Although Guangdong is expected to face some of the worst problems, other rich coastal provinces are likely to strain to meet demand as well over peak summer months.