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Business

China power crunch slams factories as coal lobby warns woes could stay until winter

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SHENYANG, China, Sept 30 (Reuters) – Small firms caught in China’s prolonged energy crunch are turning to diesel generators, or simply shutting shop, as coal industry officials voiced fears about stockpiles ahead of winter and manufacturing shrank in the world’s no. 2 economy.

Beijing is scrambling to deliver more coal to utilities to restore supply as the northeast grapples with its worst power outages in years, particularly the three provinces of Liaoning, Heilongjiang and Jilin, home to nearly 100 million people.

Gao Lai, who runs an industrial laundry service in Shenyang, the capital of Liaoning, said he was losing money after the power crunch forced him to hire a diesel generator.

“We can afford it for just four days, but if it’s for longer, then the costs are too much, so we can’t survive,” he told Reuters.

“We are willing to make it work because the country needs it, but if (power curbs continue) in the long run, we have to think of a way out.”

The curbs were triggered by shortages of coal, which fuels about two-thirds of China’s power generation.

Thermal coal futures closed Thursday up 4.2% on the Zhengzhou Commodity Exchange after hitting an all-time high of 1,408 yuan ($218) per tonne.

The contract surged 96% in the July to September period on tight supplies and strong demand, its biggest quarterly jump since the first quarter of 2017, spurring the exchange to adopt trading limits.

Official data separately showed China’s factory activity contracted in September for the first time since February 2020. read more

Since last week, more than 100 companies from electronic component manufacturers to gold miners have notified stock markets of production suspensions. Some have said they resumed production in the last two days, however.

The strain comes as the China Coal Industry Association warned it was “not optimistic” about supplies ahead of winter, the peak season for demand, and added that power plant inventories were now “obviously low”.

It urged companies to “spare no effort” to boost supply and focus on sales to smaller, high-energy consumers who have not signed long-term supply contracts.

Although coal production hit a record in August, analysts with Chinese investment bank CICC said a recent spate of mine accidents had made regulators more cautious about approving expansions in output.

They said imports, down 10.3% on the year in the January to August period, were unlikely to rise significantly over the rest of 2021 and more local production had to be “freed”.

SWITCH TO DIESEL

In Shenyang, staff at a steel parts factory that has been shut for the last few days said they had not yet rented a generator but might do so if rationing continued.

Zhai Junwang, manager of a company that rents standalone diesel-fired generators, said brisk business in recent days had led to a doubling in rates.

“There’s very limited stock,” he said, but added that he did not expect the situation to last, as most small factories using his generators were losing money.

The government has said its priority will be to guarantee household power and heating supplies over the winter, as state-run energy firm Sinopec pledged to boost imports of liquefied natural gas. read more

But Citi analysts said in a note they expected power shortages to persist in the peak winter season for heating, most of it coal-fired.

Experts are pressing for fundamental reforms to China’s energy system.

The crisis was caused not by supply shortages but an inflexible grid system, said Zhang Boting of industry research group the China Society for Hydropower Engineering.

“The solution … isn’t simply relying on increasing power generating capacity, but boosting the ability of the grid to adjust peaks and solve the serious mismatches between energy loads and energy supplies,” he said on the group’s website.

($1=6.46107 Chinese yuan renminbi)

Reporting by Gabriel Crossley in Shenyang and Shivani Singh in Beijing; Additional reporting by Min Zhang in Beijing, Brenda Goh and David Stanway in Shanghai, Aizhu Chen in Singapore and Tom Daly; Editing by Clarence Fernandez

Our Standards: The Thomson Reuters Trust Principles.

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Business

China seeks to quell power crunch fears, as coal prices soar, winter nears

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A coal-fired heating complex is seen behind the ground covered by snow in Harbin, Heilongjiang province, China November 15, 2019. Picture taken November 15, 2019. REUTERS/Muyu Xu//File Photo

  • State planner orders rail firms, local govts to ensure coal supplies
  • ‘With kid, elderly person at home, no heat is a problem’ -Shenyang resident
  • China thermal coal prices hit lifetime high amid tight supplies
  • Beijing reassures on power, coal ahead of winter heating season
  • Considering raising industrial power prices -media report

SHENYANG, China, Sept 29 (Reuters) – China on Wednesday demanded railway companies and local authorities raise their game in shipping vital coal supplies to utilities, as regions key to the world’s no. 2 economy grapple with power cuts that have crippled industrial output.

The order, handed down from China’s powerful state planner, comes after a collision of tight coal supplies, tougher emissions standards and strong manufacturing demand has pushed the price of coal, the biggest source of China’s electricity, to eye-watering records – just as winter approaches. read more

Thermal coal futures in China hit an all-time high of 1,376.8 yuan ($212.92) per tonne earlier on Wednesday – adding yet more pressure on power utilities unable to recoup added fuel costs. Curbs have been imposed on power use in large swathes of the country, especially three northeastern provinces that are home to nearly 100 million people.

“If there’s a power cut in the winter then the heat stops too,” said Fang Xuedong, 32, a delivery driver in Shenyang, the capital of Liaoning province, about a 90-minute flight northeast of Beijing.

“I have a kid and an elderly person at home, if there’s no heat then that’s a problem.”

Growing alarm among residents at the power crunch, now in its second week, comes as the state planner – the National Development and Reform Commission (NDRC) – formally urged local economic planners, energy administrations and railway companies to beef up coal transportation to meet citizens’ heating demand during the winter season.

“Each railway company should strengthen coal transportation to power houses (utilities) with inventory of less than seven days and launch the emergency supply mechanism in a timely manner,” said the NDRC. read more

Officials this week have repeatedly sought to assure residents that there will be power for household use and for heating as winter approaches. China is considering hiking industrial power prices to ease the supply crunch, Bloomberg news reported on Wednesday, citing unidentified sources. nL1N2QU0P1][

But power rationing has been implemented during peak hours in many parts of northeastern China since last week, with news reports and social media posts signalling outages of traffic lights and 3G communications networks in the region.

China provinces power rationing map

On Wednesday, the official People’s Daily reported that coal for heating and power in the northeastern provinces of Jilin, Heilongjiang and Liaoning had been ensured as some suppliers and producers signed medium and long-term coal contracts recently.

China has called for ramping up domestic production of coal and the governor of Jilin province this week proposed an increase in coal imports. Top coal producing province Shanxi, located in the north, has signed medium and long-term coal supply contracts with 14 provinces, the official news agency Xinhua reported on Wednesday. read more

China, the world’s top coal consumer imported a total of 197.69 million tonnes of coal in the first eight months of the year, down 10% year-on-year. But August coal imports rose by more than a third on tight domestic supplies.

Li Shuo, a senior policy adviser for Greenpeace East Asia, called on China to reform its power sector to help it absorb price fluctuations and ensure stability.

“This power shortage will carry huge economic and political implications. But let’s set the record straight, the root cause is high coal price, NOT climate policies,” Li wrote in a Twitter post this week.

“If anything, the power shortage demonstrates the importance of moving away from coal, that a fuel that has been code word for energy security is not secure at all.”

($1 = 6.4662 Chinese yuan renminbi)

Reporting by Gabriel Crossley in Shenyang and Shivani Singh in Beijing; Additional reporting by Min Zhang in Beijing, David Stanway in Shanghai and Beijing newsroom; Editing by Kenneth Maxwell

Our Standards: The Thomson Reuters Trust Principles.

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World

‘Death sentence’: low-lying nations implore faster action on climate at U.N.

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UNITED NATIONS, Sept 23 (Reuters) – Faced with what they see as an existential threat, leaders from low-lying and island nations implored rich countries at the United Nations General Assembly this week to act more forcefully against a warming planet.

The failure by developed economies to effectively curb their greenhouse gas emissions contributes to rising sea levels and especially imperils island and low-lying nations at the mercy of water.

“We simply have no higher ground to cede,” Marshall Islands President David Kabua told leaders in a pre-recorded speech at the high-level gathering on Wednesday. “The world simply cannot delay climate ambition any further.”

Countries agreed under the 2015 Paris Agreement on climate change mitigation to attempt to limit the rise in global temperatures to 1.5 degrees Celsius (2.7 degrees Fahrenheit), the threshold scientists say would head off the worst impacts of warming. To do that, scientists say, the world needs to cut global emissions in half by 2030, and to net-zero by 2050.

“The difference between 1.5 degrees and 2 degrees is a death sentence for the Maldives,” President Ibrahim Mohamed Solih told world leaders on Tuesday.

Guyana President Irfaan Ali criticized large polluters for not delivering on promises to curb emissions, accusing them of “deception” and “failure” and warning that climate change will kill far more people than the COVID-19 pandemic.

“We hold out similar hope that the world’s worst emitters of greenhouse gases that are affecting the welfare of all mankind will also come to the realization that, in the end, it will profit them little to emerge king over a world of dust,” Ali told world leaders on Thursday.

He said small island states and countries with low-lying coastlines, like Guyana, will bear the full brunt of the impending disaster despite being among the lowest emitters of greenhouse gases.

“This is not only unfair, it is unjust,” he said.

Richard Gowan, U.N. director at the International Crisis Group, said there had been a “sense of existential crisis” running through the annual gathering at the United Nations.

“Both Beijing and Washington want to show they are leading the fight against global warming. If the small islands’ leaders can’t get people to listen at this General Assembly, they never will,” Gowan said.

U.S. President Joe Biden said on Tuesday he would work with Congress to double funds by 2024 to $11.4 billion per year to help developing nations deal with climate change.

Palau’s President Surangel Whipps addresses the 76th Session of the United Nations General Assembly at the U.N. headquarters in New York, U.S., September 21, 2021. Mary Altaffer/Pool via REUTERS

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The funding would help achieve a global goal set more than a decade ago of $100 billion per year to support climate action in vulnerable countries by 2020.

Chinese President Xi Jinping pledged to stop building coal-fired power plants overseas, a move widely welcomed.

‘WE MUST ACT NOW’

Biden and Xi made their commitments less than six weeks before the Oct. 31-Nov. 12 COP26 U.N. Climate Change Conference in Glasgow, Scotland, which U.N. Secretary-General Antonio Guterres said runs the risk of failure over mistrust between rich and poor countries.

President Chan Santokhi of Suriname, where much of the coastal area is low-lying, called for “ambitious and actionable commitments” to be made at COP26, urging developed countries to recommit to the $100 billion per year.

Santokhi said that ideals and political commitments do not mean much if not supported by new financial resources.

“In the case of my country, Suriname, and the countries with low-lying coastal areas, we are committed to fighting climate change because we are particularly vulnerable even though we have contributed the least to this problem,” he told the General Assembly.

The Pacific archipelago nation of Palau warned the world is running out of time.

“Simply put, we must act now to ensure our children inherit a healthy and reliable future. We need to act now before further irreparable damage is made to our planet,” Palau President Surangel Whipps Jr., said at the gathering.

U.K. Prime Minister Boris Johnson, who is preparing to host COP26, on Wednesday called on world leaders to make the necessary commitments and a collective pledge to achieve carbon neutrality by 2050.

He warned that, on the current track, temperatures will go up by 2.7 degrees Celsius or more by the end of the century.

“Nevermind what that will do to the ice floes, dissolving like ice in your martini here in New York,” Johnson said. “We will see desertification, drought, crop failure and mass movements of humanity on a scale not seen before, not because of some unforeseen natural event or disaster, but because of us, because of what we are doing now.”

Reporting by Daphne Psaledakis and Michelle Nichols; Additional reporting by Valerie Volcovici; Editing by Mary Milliken and Grant McCool

Our Standards: The Thomson Reuters Trust Principles.

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Business

EXCLUSIVE Citi, HSBC, Prudential hatch plan for Asian coal-fired closures -sources

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  • Prudential, Citi, HSBC, BlackRock devising coal plan
  • Initiative aims to secure funding at COP26 summit
  • ADB preparing feasibility study on early closures

LONDON/MELBOURNE, Aug 3 (Reuters) – Financial firms including British insurer Prudential, lenders Citi and HSBC and BlackRock Real Assets are devising plans to speed the closure of Asia’s coal-fired power plants in order to lower the biggest source of carbon emissions, five people with knowledge of the initiative said.

The novel proposal, which includes the Asian Development Bank (ADB), offers a potentially workable model and early talks with Asian governments and multilateral banks are promising, the sources told Reuters.

The group plans to create public-private partnerships to buy out the plants and wind them down within 15 years, far sooner than their usual life, giving workers time to retire or find new jobs and allowing countries to shift to renewable energy sources.

It aims to have a model ready for the COP26 climate conference which is being held in Glasgow, Scotland in November.

The initiative comes as commercial and development banks, under pressure from large investors, pull back from financing new power plants in order to meet climate targets.

An ADB executive told Reuters that a first purchase under the proposed scheme, which will comprise a mix of equity, debt and concessional finance, could come as soon as next year.

“If you can come up with an orderly way to replace those plants sooner and retire them sooner, but not overnight, that opens up a more predictable, massively bigger space for renewables,” Donald Kanak, chairman of Prudential’s (PRU.L) Insurance Growth Markets, told Reuters.

Coal-fired power accounts for about a fifth of the world’s greenhouse gas emissions, making it the biggest polluter.

The proposed mechanism entails raising low cost, blended finance which would be used for a carbon reduction facility, while a separate facility would fund renewable incentives.

HSBC (HSBA.L) declined to comment on the plan.

Finding a way for developing nations in Asia, which has the world’s newest fleet of coal plants and more under construction, to make the most of the billions already spent and switch to renewables has proved a major challenge.

The International Energy Agency expects global coal demand to rise 4.5% in 2021, with Asia making up 80% of that growth.

Meanwhile, the International Panel on Climate Change (IPCC) is calling for a drop in coal-fired electricity from 38% to 9% of global generation by 2030 and to 0.6% by 2050.

MAKING IT VIABLE

The proposed carbon reduction facility would buy and operate coal-fired power plants, at a lower cost of capital than is available to commercial plants, allowing them to run at a wider margin but for less time in order to generate similar returns.

The cash flow would repay debt and investors.

Reuters Image

The other facility would be used to jump start investments in renewables and storage to take over the energy load from the plants as it grows, attracting finance on its own.

The model is already familiar to infrastructure investors who rely on blended finance in so-called public-private deals, backed by government-financed institutions.

In this case, development banks would take the biggest risk by agreeing to take first loss as holders of junior debt as well as accepting a lower return, according to the proposal.

“To make this viable on more than one or two plants, you’ve got to get private investors,” Michael Paulus, head of Citi’s Asia-Pacific public sector group, who is involved in the initiative, told Reuters.

“There are some who are interested but they are not going to do it for free. They may not need a normal return of 10-12%, they may do it for less. But they are not going to accept 1 or 2%. We are trying to figure out some way to make this work.”

The framework has already been presented to ASEAN finance ministers, the European Commission and European development officials, Kanak, who co-chairs the ASEAN Hub of the Sustainable Development Investment Partnership, said.

Details still to be finalised include ways to encourage coal plant owners to sell, what to do with the plants once they are retired, any rehabilitation requirements, and what role if any carbon credits may play.

The firms aim to attract finance and other commitments at COP26, when governments will be asked to commit to more ambitious emissions targets and increase financing for countries most vulnerable to climate change.

U.S. President Joe Biden’s administration has re-entered the Paris climate accord and is pushing for ambitious reductions of carbon emissions, while in July, U.S. Treasury Secretary Janet Yellen told the heads of major development banks, including ADB and the World Bank, to devise plans to mobilize more capital to fight climate change and support emission cuts. read more

A Treasury official told Reuters that the plans for coal plant retirement are among the types of projects that Yellen wants banks to pursue, adding the administration is “interested in accelerating coal transitions” to tackle the climate crisis.

ASIA STEPS

As part of the group’s proposal, the ADB has allocated around $1.7 million for feasibility studies covering Indonesia, Philippines and Vietnam, to estimate the costs of early closure, which assets could be acquired, and engage with governments and other stakeholders.

“We would like to do the first (coal plant) acquisition in 2022,” ADB Vice President Ahmed M. Saeed told Reuters, adding the mechanism could be scaled up and used as a template for other regions, if successful. It is already in discussions about extending this work to other countries in Asia, he added.

To retire 50% of a country’s capacity early at $1 million-$1.8 million per megawatt suggests Indonesia would require a total facility of roughly $16-$29 billion, while Philippines would be about $5-$9 billion and Vietnam around $9-$17 billion, according to estimates by Prudential’s Kanak.

One challenge that needs to be tackled is the potential risk of moral hazard, said Nick Robins, a London School of Economics sustainable finance professor.

“There’s a longstanding principle that the polluter should pay. We need to make absolutely sure that we are not paying the polluter, but rather paying for accelerated transition,” he said.

Additional reporting by David Lawder in Washington; Editing by Amran Abocar and Alexander Smith

Our Standards: The Thomson Reuters Trust Principles.

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