China’s Electrical Grid Affects the Global Supply Chain

Stephen DeAngelis

October 4, 2021

The world runs on electricity. That’s why, in the aftermath of a natural disaster, most news stories report how many households are without electrical power. When people have reliable access to power grids, they sometimes forget that a world powered by electricity is relatively young. Three centuries ago, very few people knew anything about electricity. Journalists from POWER magazine report, “Many accounts begin power’s story at the demonstration of electric conduction by Englishman Stephen Gray, which led to the 1740 invention of glass friction generators in Leyden, Germany. That development is said to have inspired Benjamin Franklin’s famous experiments, as well as the invention of the battery by Italy’s Alessandro Volta in 1800, Humphry Davy’s first effective ‘arc lamp’ in 1808, and in 1820, Hans Christian Oersted’s demonstration of the relationship between electricity and magnetism. In 1820, in arguably the most pivotal contribution to modern power systems, Michael Faraday and Joseph Henry invented a primitive electric motor, and in 1831, documented that an electric current can be produced in a wire moving near a magnet — demonstrating the principle of the generator.”[1] Other breakthrough milestones they point out include:

 

• 1832 — First rudimentary dynamo (Hippolyte Pixii).
• 1860 — Continuous direct current dynamo (Antonio Pacinotti)
• 1867 — Self-exciting dynamo-electric generator (Werner von Siemens, Charles Wheatstone, and S.A. Varley)
• 1870 — Steady direct current well-suited to powering motors (Zenobe Gramme)
• 1877 — Streets lit by arc lighting
• 1879 — Incandescent light invented (Thomas Edison)
• 1882 — Full-scale central power station with a system of conductors to distribute electricity to end-users in the high-profile business district in New York City completed.

 

Most people are familiar with the famous 1880s competition between Nikola Tesla and Thomas Edison now known as the War of the Currents. Edison favored direct current (DC) while Tesla, the winner, favored alternating current (AC). The U.S. Department of Energy explains why Tesla won: “Direct current is not easily converted to higher or lower voltages. Tesla believed that alternating current (or AC) was the solution to this problem. Alternating current reverses direction a certain number of times per second — 60 in the U.S. — and can be converted to different voltages relatively easily using a transformer.”[2]

 

Once AC current became a standard, the electrification of the developed world occurred quickly. Businesses, especially, came to rely on electricity — making it an essential resource for manufacturing. Generally, power outages are localized, as are the effects of such outages. However, when power problems plague the world’s largest manufacturing country — China — the effects are global.

 

Troubles in China

 

Journalist Laura He (@lauraliuhe) reports, “China is in the middle of a huge power crunch as extreme weather, surging demand for energy and strict limits on coal usage deliver a triple blow to the nation’s electricity grid. It’s a problem that could last for months, straining the country’s economic recovery and weighing on global trade.”[3] With the global supply chain already in disarray, the news out of China is not good. The Wall Street Journal reports, “Local officials have forced factories in China’s Guangdong and Jiangsu provinces to curtail operation hours or shut down temporarily as officials try to rein in energy use, according to company filings and interviews with company officials by The Wall Street Journal.”[4]

 

How serious is the problem? Journalist Eamon Barrett (@Eamonbarrett49) reports, “Ordinarily, Chinese authorities spare household consumers from the shock of power outages, preferring to force industrial users to scale back their energy usage first — which they have.”[5] However, recently, “Blackouts across several of China’s northern provinces switched traffic and street lights off, causing miles-long traffic jams in several cities. Residents of high-rise apartment buildings were forced to take the stairs in some cities where building management suspended elevator services to conserve electricity. The provincial energy administration in China’s southern Guangdong province called for residents to stop using air conditioning and rely on natural light instead of electric bulbs.”

 

Journalist Keith Bradsher (@KeithBradsher) explains, “There are several reasons electricity is suddenly in short supply in much of China. More regions of the world are reopening after pandemic-induced lockdowns, greatly increasing demand for China’s electricity-hungry export factories. Export demand for aluminum, one of the most energy-intensive products, has been strong. Demand has also been robust for steel and cement, central to China’s vast construction programs. As electricity demand has risen, it has also pushed up the price of coal to generate that electricity. But Chinese regulators have not let utilities raise rates enough to cover the rising cost of coal. So the utilities have been slow to operate their power plants for more hours.”[6] The Wall Street Journal reports one reason coal prices are soaring can be traced to a diplomatic dispute China is having with Australia. China has placed a “ban on imports of the commodity from Australia since last year after a diplomatic brawl over Canberra’s call for an independent global inquiry into the origins of Covid-19.”

 

Troubles for the World

 

It has been said that when China sneezes the world catches a cold. Another way of stating that is: When China has troubles so does the world. Bloomberg reports, “China’s energy crisis is shaping up as the latest shock to global supply chains as factories in the world’s biggest exporter are forced to conserve energy by curbing production. The disruption comes as producers and shippers race to meet demand for everything from clothing to toys for the year-end holiday shopping season, grappling with supply lines that have been upended by soaring raw material costs, long delays at ports and shortages of shipping containers. Chinese manufacturers warn that strict measures to cut electricity use will slash output in economic powerhouses like Jiangsu, Zhejiang and Guangdong provinces — which together account for almost a third of the nation’s gross domestic product — and possibly drive up prices.”[7]

 

Is help on the way? Journalists Min Zhang and Shivani Singh report, “Roiled by widening power curbs that have disrupted industrial operations, Chinese commodity producers and manufacturers may finally be getting some relief. Beijing’s top economic planner, the National Development and Reform Commission, said it will work to resolve the power shortages that have plagued production since June and have intensified in recent weeks as ambitious new measures to rein in emissions kicked in.”[8] They add, “While the NDRC’s plan to look into the power shortages is expected to alleviate some of the pain over the near term, market watchers do not anticipate an abrupt reversal in Beijing’s stance on limiting emissions.”

 

In the short-term, there is really very little the NDRC can do except transfer the pain being felt in the industrial sector to the household sector. China’s demand for electricity has outstripped its ability to build new capacity. As Zhang and Singh note, the Chinese government is trying to limit emissions to improve air quality. To do that they have established ambitious goals to produce electricity using alternative methods to coal-fired plants. Energy experts Fredrich Kahrl, Jim Williams, and Ding Jianhua note, however, “If the power sector were to meet its aggressive targets for renewable, hydro and nuclear power, that would provide 7.6 quads of end use energy, but still leave nearly 4 quads of the alternative energy goal to be met by other sectors, which is probably unachievable. On the other hand, if China’s final energy consumption could be reduced by (for example) 15 percent below the 76 quad level, to 65 quads, this would leave only 2 quads of the goal to be met by other sectors. Reducing electricity demand, in short, makes the alternative energy goal easier to achieve.”[9] As current events demonstrate, reducing electricity demands has not been possible.

 

The point is, there is no short-term solution to China’s energy problem, which means China’s troubles will continue to plague global supply chains.

 

Footnotes
[1] Abby Harvey, Aaron Larson, and Sonal Patel, “History of Power: The Evolution of the Electric Generation Industry,” POWER, 22 December 2020.
[2] Staff, “The War of the Currents: AC vs. DC Power,” U.S. Department of Energy, 18 November 2014.
[3] Laura He, “China is facing its worst power shortage in a decade. That’s a problem for the whole world,” CNN, 30 June 2021.
[4] Stella Yifan Xie, Yang Jie and Stephanie Yang, “China Power Outages Pose New Threat to Supplies of Chips and Other Goods,” The Wall Street Journal, 27 September 2021.
[5] Eamon Barrett, “Unlit streets, no AC, and higher bills: China’s energy crisis is finally hitting households where it hurts,” Fortune, 27 September 2021.
[6] Keith Bradsher, “Power Outages Hit China, Threatening the Economy and Christmas,” The New York Times, 27 September 2021.
[7] Bloomberg, “China’s Electricity Crunch Is World’s Latest Supply Chain Threat,” SupplyChainBrain, 28 September 2021.
[8] Min Zhang and Shivani Singh, “China scrambles to fix power crunch, tame runaway raw material markets,” Reuters, 24 September 2021.
[9] Fredrich Kahrl, Jim Williams, and Ding Jianhua, “Four Things You Should Know about China’s Electricity System,” Woodrow Wilson International Center for Scholars.