China leads the world in preparing for extreme weather threats to power supplies, report says

SHANGHAI – It’s not even June, and China is facing sweltering temperatures in Shanghai, and peak power demand from Guangdong to Hainan. 

Extreme weather is already promising a fresh test of the electricity grid just months after heatwaves and drought throttled hydropower and triggered widespread power shortages. The good news is that China is better prepared than many other countries, according to a report from The Lantau Group.

Learning lessons from China will be important for grid operators around the world as a warming planet makes once rare climate events more commonplace – and more necessary to plan for. While the Chinese government has been quick to respond to the threat, it’s not so clear if other countries, including the US, are rising to the challenge.

In summer 2022, the worst drought in decades dried up parts of the Yangtze River, reducing the amount of electricity that China’s mighty dams could produce. At the same time, heatwaves caused power demand from air-conditioners to surge. The combination forced officials to shut down factories for weeks in Sichuan province, and industrial activity has been curtailed for months in Yunnan, both hydropower-reliant areas.

The response has been fast, according to Lantau Group’s Mike Thomas and David Fishman. At the end of 2022, Sichuan announced it would build a fleet of new gas-fired power plants and more transmission lines connecting the province to neighbouring grids. In Guangdong, which relies on imported hydropower from Yunnan, officials unexpectedly approved 17 gigawatts of new coal-fired plants, part of a massive build-up across the country.

“Will China’s approach to future-proofing its grid from future disruptions to generation succeed? We think so,” Mr Thomas and Mr Fishman wrote.

In other parts of the world, not so much. For many operators, having too much excess capacity sitting idle is inefficient and raises costs. The California and Texas grids have suffered shortages in recent years thanks to growing demand and extreme weather, yet neither is making big changes to the way they model future weather risks and the need for more reliable supply, said Mr Thomas and Mr Fishman.

“If the outcome is that more money must be spent on grid resiliency, even at the risk of redundancy, it’s still going to be far less costly than the outages or disruptions caused by next year’s unanticipated 100-year drought that knocks out half of the grid hydro,” they said.

That isn’t to downplay the problems China faces. Hydropower will likely be challenged again this year, according to Citigroup, citing a 90 per cent probability of an El Nino weather pattern between May and July that could bring another round of heatwaves. The bank downgraded China Yangtze Power this week because of weaker hydropower utilisation and assumptions that low rainfall will persist.

Cities in eastern China may face electricity shortages during peak hours this summer, while central and southern areas could also see tight power supplies, according to a report by Shanghai Securities News on Wednesday. BLOOMBERG