China’s renewable energy plans: shaken, not stirred

The slow decline

China's Go West Campaign is designed to lure college graduates and businesses to western parts of the country, thereby spurring the economy in China's less affluent interior.

The bait most frequently used by the central government is in the form of Major Economic and Technological Development Zones, Special Economic Zones and City Industry Zones, which confer tax-free status along with preferential transportation and wage agreements. This is great when there is a continuous power supply, but now in the western region that is anything but assured. China’s State Power Grid announced Sichuan’s electricity grid is running at 76 per cent of pre-earthquake levels. Notice how they conveniently leave out the surrounding provinces, which also sustained damage.

A recent article appearing in the China Daily - “China expects power shortages amid surging demand” - quotes the State Electricity Regulatory Commission general office as saying “Guangdong Province would be short of 5.5GW, Guizhou 1GW, and Yunnan 1.5GW.” Yet again they left out shortages in Sichuan, Gansu, Inner Mongolia, Zhejiang, Jiangsu and Shanxi provinces to get a reliable total. This will be the fifth consecutive year of power shortages countrywide. Now consider this: the last four years were short with all of the country’s hydropower up and running.

This year, power is likely to be 10GW short, so keep an eye on the power ratings - “normal shortage”, “severe shortage” and “power crisis” - to see how your favourite town or industrial zone is getting along.

It seems there is a masking of the real numbers. What business would want to set up in a country with consistent electricity shortfalls?

Combine electrical shortages with the amount of factories that need to be relocated now that fewer enterprises will want to rebuild on an active fault line and the veil begins to lift on what they are hiding. Labourers are refusing to return to work until government inspectors sign off on the integrity of the buildings, despite the fact that it might take months or years before they get around to every company. The psychology of danger for the worker and investor is the overlooked factor X in the Chinese equation. Now, how appealing are the Regional Development Zones in western China?

As for those of us living outside China, outsourcing heavy industry to China is the norm. Even the worldwide renewable energy sector has many of its wind turbines and solar panels produced in China. Unfortunately, Deyang - a town about an hour and a half north of Chengdu - had wind turbine operations including majors from Europe, Australia and North America carrying out some of their production at Dong Fang Turbine. In the same area there were also carbon fibre blade, wind tower and ball bearing operations supplying parts to Dong Fang. Buildings in the surrounding area from Deyang to Mianyang were heavily damaged or flattened.

Business Week sums it up in an article titled “Dongfang Turbine Badly Hit”. The operations of Dongfang Turbine, China’s largest steam turbine producer and third largest domestic manufacturer of wind turbines were virtually wiped out. Dongfang, which produces 30 per cent of China’s locally made turbines estimates direct losses from the earthquake will reach US$1 billion. Its parent company, Dongfang Electric Corp., has seen its stock price plummet as the steam turbine business accounted for 20 per cent of its operating revenues in 2007.

Although Chinese media reports suggest that facilities for its wind turbine business was unaffected, sources inside the company said that most of their wind business’ senior engineers have unfortunately perished and one of their wind components factory was badly damaged.

The electricity shortage, earthquake triangle

Where does this leave us? Peak Oil is apparent and can no longer be denied. We, as a world, need to begin a transition to renewable power and these circumstances will set the wind industry production in China back a year or two. China’s answer to the electrical shortage will be to build more coal-fired power plants. As outsourced production is now being limited by fault lines and electrical shortages, what will our answer be?

The electricity shortage, earthquake triangle, from Kunming in the west to Chongqing in the east and Lanzhou to the north with Chengdu in the centre is all sketchy territory from now on. The central government was funnelling new business to this exact area because there is very little space along the east coast. That’s why there is a massive push to send the economy west. If you have been to coastal China you have seen how densely packed a society can be.

Price is the main reason we buy Chinese goods and have our industries there. However, when something is in short supply it costs more. Electricity is no different. There are now daily diesel shortages along the east coast, electric shortages in the west and along the coast. Add in the recently appreciating yuan and China is no longer the utopia for business it once was. Until the damage in western China is repaired, increased usage of oil, natural gas and coal will replace hydropower to an extent. This in turn creates higher prices in China’s manufacturing sector. You will pay at the checkout counter.

Please understand: the rest of the world is far less dependent on China's exports than China is dependent on the rest of the world. We need to prepare to take care of ourselves again. As oil prices continue to rise and the global economy declines, I believe we will see a resurgence of light industry returning to our home countries. China’s electricity problems could be partially solved if light industry moved elsewhere and left heavy industries in China. Unemployment is going to become more and more ferocious over the next few years as our fossil fuel based economy declines.

What a great way to put millions of people to work: bring companies back home. This will take one link out of the globalisation dependency chain, and save energy along the way.