Background:

1. China has started to control and reduce energy consumption emission intensity since the 13th Five-Year Plan. Specific goals and index breakdowns are assigned to all provinces accordingly. In August 2021, the National Development and Reform Commission (NDRC) flagged nine provinces for increasing intensity. 

2. Since May of 2021, some provinces in China have started power cuts/limitations. The last round of such actions was in the end of 2020.

3. Historically high consumption: the national power peak load and total power consumption have hit a maximum record in the first 8 months of 2021. 

Current Status and Analysis:

1. As of September 2021, eleven provinces have become involved in power rationing. All of these provinces are regions dependent on thermal power.

2. Based on press coverage and an official statement of power rationing and cutting regions, direct causes are mentioned as below:

    a) The risk of failing the annual quota of energy consumption emission intensity forces some provinces take early actions.

    b) Record high coal prices are making it unprofitable for many power plants to operate, creating supply gaps in some provinces

    c) Necessary extra equipment maintenance needed after a power overloading summer (with heat waves).

    d) Prepare for the winter power consumption peak (for heating).

3. Essential reasons of the situation in a bigger picture:

    a) The pace of manufacturing activities growing rapidly in China due to the COVID-19 pandemic.

    b) Thermal power still takes up the dominant proportion in China’s electricity power structure.

4. New governmental measures on energy consumption control: a green power trading policy to accelerate China’s carbon peak and carbon neutral process from September 2021.

Possible Impact and Suggestions:

1. The power consumption of high-energy-consuming sectors is likely to be limited.

2. Relevant supply chain of such products like steelmaking, nonferrous industries, chemical engineering etc. could suffer an impact on short of supply or price increase. Manufacturers of these sectors or enterprises in need of such materials should be aware of the possible consequences.

3. Stock price change of mentioned high-energy-consuming sectors may also have a big impact on MNCs.

4. Green power generating facilities/equipment manufactures along with new energy related enterprises in China might be a good investment direction.  

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