Snow, at the moment, is the heart of the power problem. But in the longer term, the rolling cuts are the product of a clash between the power and coal industries over price and profits.

The state power companies have complained in recent years at the rising cost of the coal they buy to fire their generators. While coal prices have been largely deregulated, and become increasingly tied to global markets, power prices are still set by the government.

Added to this already volatile mix are two other issues: inflation, which hit an 11-year high in November; and a rise in global coal prices due to the flooding of mines in Australia and supply problems in South Africa.

Beijing has ordered price controls in recent months, including on power, in an effort to ensure that inflation, now confined largely to food, does not spread to the rest of the economy.

Global coal prices, in the meantime, have soared in recent months, by 50-60%, with the largest rise occurring in recent weeks because of the Australian floods.

As a result, many generators are short of coal, or had their power inventory cut to about four days, dangerously below the Chinese industry standard of two weeks to 20 days.

Beijing has now ordered coal companies to stop haggling over price and deliver the coal, which they are struggling to do via the country’s snow-clogged transport system.

But Beijing appears equally furious at the brinkmanship of the power companies. The suggestion is that the power companies’ tactics have backfired.
Source: Financial Times