Coal-fired power generation in China plummeted in early May to its lowest level in four years but might be bottoming out, show data from Kayrros.
The drop, which extended April’s steep decline, came as dozens of cities and hundreds of millions of people were placed under severe restrictions to counter an outbreak of the Omicron variant of the coronavirus.
Coal-fired power generation showed signs of picking up after city authorities moved to relax some restrictions last weekend, however. Their stated aim is to return to normality by late June.
Daily coal-fired power output dropped below average (scaled to 1.0 in the chart) in early April and continued to decline to about 0.7 of average output by the end of the first week of May. China generates around two-thirds of its electricity from coal.
While the drop coincides with a seasonal dip in power output as temperatures rise, the latest plunge took power generation almost 10% below the previous low point, which was reached in May 2020 when the country was combating the first wave of Covid-19.
Figure: China 7-day rolling coal-fired power generation (index)
Why does this matter?
The continued fall in coal-fired power production in May provides the most up-to-date assessment of the full impact of the latest lockdowns on economic activity. China’s figures for April 2022 were mixed. While retail sales slumped by 11% year-on-year, which was its worse decline since 2020, industrial production fell by just 3%, according to April data released earlier this month by China’s National Bureau of Statistics.
On the bright side, the decline in coal combustion is positive for the country’s carbon emissions targets and may also point to the growing importance of other sources of generation. For instance, Bloomberg News ascribes at least some of the 12% decline in thermal power generation in April – the biggest drop since 2008 – to an increase in renewables.
Implications for recovery
China is the world’s biggest energy importer. The fall in coal use comes as coal prices reach record highs. Coal shipped from the Australian port of Newcastle reached an all-time high of almost $400 a ton on May 16, on the back of weak supplies from Australia and demand from the region’s biggest buyers.
Russia’s invasion of Ukraine sent gas prices higher in Europe, which has had a knock-on effect on coal as some power companies have switched to the fuel as a cheaper alternative to gas.
Nevertheless, there is a nervousness in China about sufficient coal supplies when demand picks up again. At the end of April 2022, the finance ministry cut import tariffs for all types of coal to zero from May 1, 2022, until March 31, 2023. China imported 323.33 million tonnes of coal in 2021, about 8% of its total coal consumption.
Bloomberg News also reported that the economic powerhouse of Guangdong asked its utilities in May to add another 5% to inventories, while neighboring Guizhou has set aside more money for coal purchases.