Drought worsens China power supply crunch

[May 17, 2011]  SHANGHAI (AP) -- Much of central China is enduring its worst energy crisis in years, with factories and residents facing power cuts as supply runs short of demand -- a problem worsening as drought dries rivers, reducing hydroelectric capacity.

Authorities are warning that manufacturers in booming industrial regions west of Shanghai may face even tighter power rationing when demand surges in the peak summer months while electricity generators curb output due to rising costs for coal and oil.

Though summer rains may eventually relieve the drought, with even the powerful Yangtze river running too low for shipping in some stretches, China appears to be hitting limits to its growth in a resource scarce-environment. The power crunch comes at time when worries over inflation make rising energy costs and crop failures less welcome than ever.

Hydroelectricity provides about one-fifth of China's power and with river beds running dry it has fallen by about 20 percent, according to a report by UBS analyst Tom Price.

The industry group China Electricity Council has estimated a power shortfall of 30 million kilowatts in the summer. That is only 3 percent of China's generating capacity, but the shortages are concentrated in key manufacturing regions such as Zhejiang and Jiangsu, near Shanghai.

Last week, the government ordered a suspension of diesel exports to help prevent shortages as factories hit by outages step up use of fuel-powered generators.

According to industry reports, petrochemical and plastics manufacturers and smaller factories are among those most affected. But Shanghai-based Baosteel Group, one of the country's biggest steel makers, is also among companies ordered to prepare for cutbacks, state media reported Tuesday.

Fast-growing China has long experienced periodic power shortages, especially in winter and summer when weather extremes boost demand for heating and cooling. But the problems this year stem mainly from a failure of government-controlled electricity rates to keep pace with the costs paid by utilities for the coal that fuels about three-quarters of the country's electricity generation.

Power companies are reluctant to invest in new projects, while many older, heavily polluting thermal plants are being closed down to help meet environmental targets.

The amount of new installed capacity is due to fall by 10 million kilowatts next year, compared to this year, while demand continues to climb at double-digit rates, Hu Zhaoguang, vice president of State Grid Energy Research Institute, said in comments posted on the Energy Research Observation Net.

The regional power distributor East China Grid Co. estimates that power shortages may reach 19 million kilowatts this summer in Shanghai and four other nearby provinces, the newspaper China Daily reported Tuesday.

The worst will be a shortfall of more than 11 million kilowatts, or 16 percent of total demand, in Jiangsu, upriver from Shanghai along the Yangtze, where drought has sapped water levels to their lowest ever at some points, stalling shipping.

The drought has left nearly 1,400 lakes in Hubei, in central China, so low they are unusable or virtually "dead," the provincial Water Resources Department said.

It said some 315,000 people and 97,300 head of livestock were short of drinking water.

The Yangtze Power Co., which runs the world's largest hydroelectric facility at the Three Gorges Dam, has been releasing extra amounts of water to help raise the water level downstream, but so far there was no real improvement, said Zhan Jianying, director of the Waterway Management department at the Yangtze Waterway Bureau in Hubei's capital, Wuhan.

[Associated Press; By ELAINE KURTENBACH]

Associated Press researcher Fu Ting contributed to this report.

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