VZCZCXRO5613
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0175/01 0870230
ZNR UUUUU ZZH
R 270230Z MAR 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6998
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 03 GUANGZHOU 000175 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
EMB BEIJING FOR DOE 
USDOE FOR OFFICE OF THE SECRETARY 
USDOE FOR INTERNATIONAL AFFAIRS 
USDOE FOR FOSSIL POLICY AND ENERGY 
STATE FOR EAP/CM, EB/TRA, AND EB 
STATE ALSO PASS USTR FOR CHINA OFFICE 
 
E.O. 12958: N/A 
TAGS: ENRG ECON EMIN SENV PGOV TRGY CH
SUBJECT: Guangdong's Power Crunch - a Widening Gap between Supply 
and Demand 
 
¶1. (U) Summary. South China is experiencing its worst power 
shortages in thirty years. An annual problem, the situation in the 
region intensified due to January's winter storms as Guangdong 
imports almost all of its power from other provinces whose power 
generation capabilities were affected. The combination of damage 
caused by severe weather, competition between market and retail 
prices, and growing demand levels, is likely to remain an obstacle 
to solving an ever-growing power crisis. One official pointed out 
that national regulations requiring the simultaneous elimination of 
small, inefficient plants before new construction exacerbate the 
shortages.  In the wake of these pressures and supply constraints, 
the peak summer period is predicted to be riddled with widespread 
"brownouts."  End Summary. 
 
----------------------------------- 
Supply Not Keeping Pace with Demand 
----------------------------------- 
 
¶2. (SBU) Guangdong officials warn that the province is facing its 
worse energy shortages in thirty years. The Guangdong Economic and 
Trade Commission (ETC) conservatively estimated the supply shortfall 
to be 7 million kilowatts, while the China Southern Power Grid 
estimated a gap of between 9.5 and 10.5 million kilowatts. Official 
media reports citing provincial officials predict that the gap could 
reach 12 million kilowatts during periods of peak demand. 
 
¶3. (SBU) Guangdong's power generating capacity has not grown quickly 
enough to keep up with demand.  According to Rao Subo, Deputy 
Engineering Chief of the Yudean Group, Guangdong province's leading 
supplier of power, since 2000, Guangdong's power consumption has 
grown at an annual rate of 13%. At the end of 2007, Guangdong had an 
installed capacity of 60 million kilowatts, which is expected to 
grow by only 7-8 million kilowatts over the next two years, a pace 
far slower than growth in consumption. 
 
¶4. (U) Guangdong's power supply is primarily composed of three 
parts.  The province's "official capacity" consists mainly of 1) 
power generated by large-scale state-owned power plants, which are 
mostly located in other provinces and 2) the West-to-East power 
transmission project, which includes power supplied from the Three 
Gorges Dam, Guizhou, Guangxi, and Yunnan. The third source is power 
generated by small hydro-power plants or diesel power plants located 
in rural areas, and commonly referred to as "backyard generators." 
These are highly sensitive to weather conditions and are therefore 
less reliable. Many of these small-scale and inefficient power 
plants are in the process of being phased out. 
 
¶5. (SBU) Over the long-term, Guangdong expects to add 16 million 
kilowatts to its annual installed capacity, but this will not be 
enough.  Critics of the Central Government's current regulation 
regarding the construction of new power facilities, including Rao, 
argue that the central government, which authorizes all new power 
projects through the National Development and Reform Commission 
(NDRC), should increase the approval rate for proposed plants in 
Guangdong. Mo Jianbin, Deputy Director of Guangdong's Economic and 
Trade Commission's Electric Power and Energy Section (GD ETC), 
commented that national regulations exacerbate the shortages, 
requiring that new construction cannot occur without simultaneous 
elimination of smaller, less-efficient facilities. While this policy 
may be beneficial in the long run by increasing the use of 
energy-efficient, clean technologies; in the short-term, it does 
little to alleviate supply constraints. 
 
------------- 
Winter's Toll 
------------- 
 
¶6. (U) January's severe winter storms exhausted power supplies and 
caused outages across China. Since Guangdong imports most of its 
power from other provinces, the results of the storm's aftermath 
continue to affect its power supply even though it was spared the 
most severe weather.  Snowstorms in western provinces cut the 
capacity of the West-to-East project to transmit electricity to 
Guangdong from 15 million kilowatts to 2.5 million kilowatts, 
according to Yuedan's Rao. In addition, severe conditions in 
Guizhou, Hubei, and Hunan provinces reduced Guangdong's supply by 
 
GUANGZHOU 00000175  002 OF 003 
 
 
another 6.3 million kilowatts of power. 
 
¶7. (U) In response to the winter supply constraints, the Yudean 
Group, which is responsible for one third of power generation in 
Guangdong and maintains a capacity of approximately 21 million 
kilowatts spread across several provinces, implemented an emergency 
action plan to counter wide-scale shortages.  Their plan included: 
-- utilization of all spare power generating units, 
-- suspension of all scheduled maintenance on generators, and 
-- close coordination with coalmines in northern China to ensure 
continued supply. 
In addition, local government instituted an action plan focused on 
coal transportation, which helped increase coal reserves in the 
province above "safe reserve" levels. 
 
------------------------- 
The Pending Summer Crisis 
------------------------- 
 
¶8. (SBU) Going forward, anxiety looms as south China prepares to 
enter the summer months, a peak season usually plagued by increased 
"brown-outs." Rao estimates that Guangdong's power shortage will 
reach 8 - 10 million kilowatts during this year's summer months. 
While the summer season presents its own set of problems under 
regular operating conditions, the aftermath of January's storms adds 
additional pressure. Construction to repair the damage to 
transmission lines feeding into Guangdong province continues. The GD 
ETC estimates that the damage won't be fully repaired until the 
second half of the year. In addition to weather damage, increased 
residential-level consumption of power as more homes acquire air 
conditioners is expected to amplify the problem. 
 
----------------------------------------- 
Price Controls - The Elephant in the Room 
----------------------------------------- 
 
¶9. (SBU) In addition to weather-related challenges, the issue of 
price continues to be the 'elephant-in-the-room' for policy-makers 
sorting through possible solutions for the growing crisis, according 
to Mo. While market prices of coal and other fuels increase, the 
government continues to cap domestic electricity prices in order to 
check inflation. The growing gap in market versus retail prices has 
forced some power generating companies to cut supply, sometimes 
rationing output to counter dwindling profit margins. Continued 
public pressure means low power costs will likely remain a policy 
priority. However, Guangdong ETC's Mo told us that his agency will 
work with the pricing officials to raise the price of electricity 
generated by liquefied natural gas (LNG) to address the gap between 
output prices and production costs. 
 
--------------------------------------------- ----- 
Taking Action: Plans to counter increasing outages 
--------------------------------------------- ----- 
 
¶10. (SBU) The Guangdong provincial government has implemented a 
variety of new policies to reduce outages, focused primarily on 
limiting power consumption by energy inefficient, polluting 
enterprises. During peak consumption hours, many of these 
enterprises are cut from the power grid.  Others are only allowed to 
operate four days a week, a practice known as "peak-load shifting." 
Mo emphasized that this practice is based on national policy 
directives. In the past many of these corporations have also been 
charged more for electricity, essentially creating an informal tax 
for inefficiency. 
 
¶11. (SBU) The GD ETC claims that enterprises do not object to this 
practice.  Mo said one possible reason may be the use by some 
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