China is facing its worst electricity shortages since 2004. The electricity supply shortage this summer is projected to be 30 million kilowatts.
The cause of the shortage is both growing demand and diminished supply. Electricity consumption by industrial customers is 12% higher than last year. At the same time, the worst drought in more than 50 years has prevented hydropower plants from operating at full capacity. Hydropower provides about 20% of total electricity supply.
The coal-fired power plants that supply 70% or more of China's electricity are also operating at less than full capacity because they are losing money. Prices for thermal coal have risen 20% in the past year, but China has only allowed electricity prices to rise by 2%. China hopes that higher prices for electricity will encourage thermal coal plants to increase utilization rates.
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