GUANGZHOU -- Scarce rain, rising coal prices and rapid inland industrialization have together left the southern Chinese manufacturing hub of Guangdong Province in the throes of an electricity shortage that casts uncertainty over about 10% of the country's economic output.
The effects are being felt on factory floors and in managers' offices, with one Japanese-owned metal parts supplier sent scrambling to rearrange work schedules after local authorities ordered power cuts.
For manufacturers on the ground in the province -- Procter & Gamble, Canon, Volkswagen and Japan's top three automakers, just to name a few -- the biggest question is how long the electricity shortage will last. A Honda Motor spokesperson said there was no impact on production at this time. But if the power constraints become chronic, they would risk rattling global supply chains.
"With two power cuts a week, we can still ensure enough output," an executive at the parts maker said. "Anything more than that and there will be delivery delays."
A spokesperson for the National Development and Reform Commission, China's economic planning body, acknowledged in a news conference Thursday that Guangdong and other southern provinces face power shortages. Separately, state-owned China Southern Power Grid said usage in its service area jumped 23.2% for January to May compared with a year earlier. This growth was 5.5 percentage points faster than the nationwide average, the company said.
During the mandated power cuts, companies can use only enough electricity for essential operations, such as security. Going over the limit results in a penalty in the form of extended hours of restrictions.
Home to 115.21 million people as of the end of 2019, Guangdong accounts for 8% of China's population. Major cities include tech hub Shenzhen and Guangdong. Some of the Chinese biggest companies, such as Huawei Technologies, electric-vehicle builder BYD, appliance group Midea and Tencent Holdings, are headquartered in the province.
Guangdong's economic importance makes a dependable power supply essential. That made it all the more unusual when power authorities in May announced plans to adjust supplies of electricity to different industries and companies in response to a shortage.
Authorities attributed the shortage to a drought and elevated summer demand. Guangdong received about only about 40% as much precipitation from January to early April as in the same period last year, while the average temperature was 2.2 C higher, local media report. This combination reduced hydropower output while stoking demand for air conditioning and refrigeration.
Low coal inventories -- an effect of rising prices -- are also taking a toll. Domestic coal prices stood at 878 yuan ($136) per ton in early June, up roughly 70% on the year, based on 5,500 kilocalories of heat per kilogram, official data show.
Environmental restrictions and a probe into coal-mining corruption have squeezed output of the fuel, prompting some suppliers to raise prices.
Coal accounted for around 60% of China's electricity output in 2020, according to the International Energy Agency, with hydropower making up around 20%. A report by China's Citic Securities says high fuel prices have created a disincentive for utilities to push their fossil-fuel-burning power plants harder.
Wider factors in the regional economy are also at work. About 30% of the power used in Guangdong comes long-distance from Yunnan and other provinces. Yunnan has seen an influx of investment in aluminum production and other energy-intensive industries in recent years. According to China Southern Power Grid, power usage in Yunnan in January to April was about 30% higher than a year earlier. This cut into the availability of power for Guangdong.
China is working to relieve structural bottlenecks to its energy supply by building more nuclear and other capacity. Nuclear energy accounts for less than 5% of China's power now.
One of its nuclear plants, in the Guangdong city of Taishan, appeared at risk of releasing radioactive materials into the environment, CNN reported last week. Chinese authorities said Wednesday that there had been fuel rod damage at the plant but have provided few details on the situation.