Wasteful China

Electrical Inefficiency A Dark Spot for China By Peter S. Goodman

...austerity side by side with state-mandated extravagance -- reveals another reason this country now scours the globe for energy: China has become among the world's most wasteful users of power, its growth in demand exacerbated by its striking inefficiency, say energy analysts and economists.

"A lot of China's energy security problem could be solved if you improved our domestic efficiency," said Yan Maosong, an industrial engineering expert at Shanghai University who advises the central government. "From generation to transmission to power usage, in every link of the chain, our energy industry is not very efficient. Top government leaders have not paid enough attention."

By the government's own reckoning, China's economic growth is absorbing energy at a higher rate than many large economies. To produce $1 million in gross domestic product, China needs 2 1/2 times as much energy as the United States, five times that of the European Union, and nearly nine times that of Japan, according to the state Energy Research Institute.

Making steel in China in 2003 consumed 10 percent more energy per unit than in the United States, according to state statistics. China's electrical generators consume one-fifth more energy per unit of output than American plants, said Long Weiding, an expert at Tongji University in Shanghai. Chinese air conditioners -- now the fastest-growing draw on power -- are roughly one-fifth less efficient than the world average, Long said.

High and inefficient energy use may seem normal for poor nations going through industrialization and rapid economic growth. According to state statistics, China is more energy-efficient than fast-growing India. But much of China's wastefulness stems from the hybrid nature of its economy, which is caught between its communist roots and a free-market future, experts say. More and more of the demand for energy comes from companies that operate on market principles, but the majority of the supply is generated by state-owned monopolies forged in the time of central planning and with little incentive to increase efficiency.

...progress lands on top of a wasteful legacy -- an industrial base that includes power plants and factories built in the 1950s, when the Communist Party government pursued national development at any cost. The smog blanketing most Chinese cities and the black smoke spewing from factory stacks testifies to the continued role of low-grade coal and antiquated technology in powering China's industry.

The addition of power-conserving lights at office buildings could cut consumption needed for lighting by as much as 80 percent, said Shi Mingrong, a former official at the Shanghai Power Bureau who now serves as a consultant to the local government. Modern machinery at factories could cut energy demand by one-fifth, he said. But Chinese companies -- grappling with fierce competition and tiny profit margins -- tend to view new technology more as a cost today than savings tomorrow.

"Most companies are shortsighted," said Hu Zhaoguang, chief economist at the State Power Economic Research Center in Beijing, a government think tank. "They are reluctant to upgrade their equipment to improve energy efficiency."

Waste also continues to plague the generation and transmission of power, experts say. Power plants operated by municipal and provincial governments face pressures to buy coal from local mines -- even when costs are higher than other sources -- to support jobs and local taxes. Provinces and cities have sunk billions of dollars into new power plants to help alleviate shortages, leaving governments or even individual officials on the hook to pay off loans to state banks.

Guangdong province, a booming industrial territory near Hong Kong, now absorbs roughly one-sixth of China's overall electricity supply. State-owned factories and electricity distributors have been buying from local plants, paying triple the price of electricity that could be brought in from Guizhou and Yunnan provinces, where hydropower is plentiful.

The involvement of provincial governments has also deterred the creation of rational generation and transmission grids, experts say. State officials have erected one white elephant after another -- huge power plants that absorb great quantities of coal -- while neglecting to develop smaller, gas-fired plants that could adjust loads to meet demand more precisely. That has forced the big plants to stay on line even when their full capacity is not needed.

"Everybody goes for the big plants," said Yan, the Shanghai University expert, who reckons that this problem accounts for one-tenth of the energy wasted in eastern China.

The transmission grid is poorly coordinated and saddled with old technology, with as much as one-tenth of the load disappearing along the way, experts say. While the state has allowed private and foreign investors into the power generation business, the grid remains controlled by two giant state firms.

The worst waste is found in the state-owned distribution companies that carry power to homes and businesses. They have traditionally kept a percentage of their revenues and handed the rest to the local government, limiting their incentive to upgrade.

For the past three summers, this outdated system has lagged behind China's growing needs, forcing local governments to ration power in 24 of 32 provinces. This summer, in Shanghai's industrial suburbs, officials have ordered factories to cease operations for a full week at a time.

"Of course it hurts our business," said Dai Hongdi, the general manager at the Honghua garment factory. "It's impossible for our factory to just stop a whole week, so what we do is work at night and hope the officials don't notice."

Across the river in the Lujiazui district, landlords seethed over the opposite problem: Since 2001, the city government has decreed that 40 skyscrapers in four districts must keep their lights on until 11 o'clock during the summer.

"It's about building Shanghai's image as an international city," said Guo Hua, director of the city's Appearance and Environmental Sanitation Administrative Bureau.

Lighting the skyscrapers along the Bund from 7 to 11 p.m. during the summer months consumes enough energy to power 30,000 home air conditioners during the same period, according to experts. The city pays about one-third the cost of this extra lighting, but landlords complain that is inadequate.

"We have no choice," said an official at Jin Mao Group Co., which owns and manages Shanghai's tallest building, the 88-story Jin Mao Tower, estimating that the cost of the extra lighting runs more than $3,000 a month. "It is a government regulation."