Drought hits hydro-power

Water levels of Hunan's lakes and rivers have hit a record low as the province's rainfall has dropped by more than 50 percent from previous years.

The drought has disrupted drinking water supplies to 320,000 people and 260,000 livestock in Hunan, according to the drought relief office of Hunan's water resources department.

With the dropping water levels, hydro-power output also shrank rapidly. The province's hydro-power units are generating only 2.2 million KWH per day, while their designed capacity is 9.4 million KWB per day, according to statistics from the Hunan branch of the State Grid.

This is a common problem among regions along the Yangtze River in central and eastern China as the river's water level has dropped sharply since February. It's middle reaches has reached the lowest level in 50 years.

High coal prices, low electricity prices

Analysts say another cause of the power shortages is that coal prices are surging while electricity prices are not increasing accordingly. Coal prices, which account for 70 percent of thermal power plants' costs, have more than doubled since 2005.

"The more a coal-fire power plant generates, the more money it loses. Hence even the state-run power plants lack motivation," says Lin Boqiang, head of the China Center for Energy Economics Research at Xiamen University.

The coal-fire power operations of China's top five energy companies have lost more than 60 billion yuan (9.24 billion U.S. dollars) from 2008 to 2010, with each of them losing more than 8.5 billion yuan, according to a 2010 report from the State Electricity Regulatory Commission (SERC).

Energy sector analysts are calling for reforms in electricity pricing. But Zhang Lizi, professor at North China Electric Power University, says raising electricity prices will worsen China's already runaway inflation.

Curbing coal prices will discourage coal production leading to even more shortages of supply. The best solution is to promote energy-saving to reduce demand and use the surplus power from other regions to remedy the shortages, Zhang says.

Demand for power is expected to grow rapidly as China's economy continues to grow rapidly. Shu Yinbiao, deputy general manager of the State Grid said China's demand for power will rise from the current 4.2 trillion KWH to 7.8 trillion KWH in 2020.

Extensive power cuts are likely in China during the summer peak if the drought worsens and coal-fire plants continue to suffer heavy losses, says Yu Yanshan, deputy head of the general administrative office of the SERC.