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Coal no solution for China's drought-driven factory shutdowns

Liutong Zhang, September 5, 2022 05:00 JST

Original article is published as an opinion piece in Nikkei Asia (https://asia.nikkei.com/Opinion/Coal-no-solution-for-China-s-drought-driven-factory-shutdowns)


Sichuan province has long been known as China's furnace, but this year's summer heat has been extraordinary in its intensity and impact.


As Sichuan gets about three-quarters of its electricity from hydropower and water levels in the provinces' reservoirs and rivers have fallen to less than half of normal levels, power suddenly became scarce for big users in August.

Toyota Motor, Apple assembler Foxconn Technology Group and other companies were forced to shut factories in Sichuan and Chongqing for at least 10 days.


The widespread closures have sparked calls for Sichuan to build more coal-fired power plants on the notion they would be more reliable even in drought. This, however, would be shortsighted and uneconomical.

Sichuan's existing coal plants ran on an average fewer than 3,000 hours a year over the past decade. This means they were idle for about two-thirds of the time due to plentiful hydropower. As a technology requiring high capital investment, this low utilization rate cannot justify new coal capacity.

Furthermore, coal-fired power plants rely heavily on water for cooling, so a drought year would also likely put them at risk of forced outages. Still, it has been reported that Sichuan's 67 coal-fired units -- capable of generating 18 gigawatts -- ran above their rated capacity at times last month, but that was insufficient to meet the province's shortfall.


While climate change is likely to bring more frequent droughts, hydro generation will remain a key resource for helping move the Chinese power sector toward a net carbon-zero system, a goal set last year by President Xi Jinping.

Moreover, there is room to improve the flexibility of the complicated reservoir hydropower generation plants along important rivers. Plus the country has a plan to rapidly expand what is known as pumped storage hydropower, which would allow operators to build up electricity supplies much like a giant battery would.


Sichuan typically generates surplus hydropower in July and August in a normal year. But 2022 is not a normal year, with the province registering the highest temperatures and lowest rainfall in some 60 years. With heightened demand for air conditioning, peak power loads spiked even as many hydro plants had too little water to operate.

Last year was also unusually dry in Sichuan, so it was widely expected that this year would be wet. Provincial power grid operators in central China failed to plan for the possibility of more extra-dry conditions.

This was particularly a problem because Sichuan has a daily commitment to export around 300 GWh of hydropower to Shanghai and the coastal provinces of Zhejiang and Jiangsu via ultrahigh-voltage direct current lines. There is little way legally or practically for Sichuan to divert this energy for its own use.

Average power consumption in Sichuan has grown about 10% a year since 2018 as manufacturers of polysilicon, batteries and auto parts set up large factories in the province, attracted especially by its ample, carbon-free hydro generation.


Clearly, however, Sichuan now needs to diversify its energy generation sources to mitigate the potential impact of severe drought.


One viable option would be to push for faster construction of local solar and wind capacity.

Solar and wind generation has an additional benefit of having a negative correlation with hydro generation. That is, solar generation is typically low when it is raining and wind generation tends to be much higher in winter, which is usually dry in China.

However, rapid expansion of local solar and wind capacity in Sichuan will be constrained by the availability of land and other resources due to the province's dense population and relatively limited solar and wind resource endowment. Solar and wind can be a plausible mitigating solution but cannot fully resolve Sichuan's drought risk.


There has been discussion about building transmission infrastructure to connect Sichuan with northwest China, where there has been a strong push to build huge wind and solar projects in the desert for exporting electricity.

This could help but the potential issue of low utilization of the transmission infrastructure during wet months and wet years needs to be considered.

Cross-provincial power trading should be also further facilitated to enable flexible commercial arrangements. Officials should consider alternatives for setting power tariff rates to incentivize investment and provision of efficient solutions for flexible generation and transmission infrastructure.

One possibility could be a capacity charge that would pay operators simply for making capacity available, rather than just for actually supplying power, to allow recovery of the bulk of their upfront capital investment.


To address dry months and the occasional drought year, gas-fired power capacity could be a good fit for Sichuan as it is considered a flexible generation technology that allows power to be dispatched readily as needed. Given that Sichuan is one of the biggest producers of gas in China, availability of supplies for gas-fired plants should not be an issue.


The return of rains to Sichuan last week has allowed the province to begin gradually restoring power supplies to industrial users to normal levels. But this year's drought and heat wave have exposed the vulnerability of the power system in central China. Well-planned solutions to improve resilience could align nicely with the country's long-term decarbonization strategy.


Accelerating the pace of local solar and wind capacity expansion in central China, improving cross-provincial power transmission infrastructure and power flows, and increasing the share of flexible capacity like gas in the grid system can all be part of the solution to increasing power supply reliability and resilience for future droughts and heat waves.


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