Yangtze/climate change: droughts push China towards coal power

Water levels in the Yangtze hit a record low this week. Southern China is battling a drought with temperatures around the river exceeding 40C since last month. That spells trouble for Chinese hydropower and a tilt towards coal that will raise carbon emissions.

The world’s great rivers have been arteries for commerce and culture for millennia. This summer, some of them are in trouble. Water levels in the Rhine, Danube, Po and Colorado are unusually low.

The effects range from supply route disruption to crop failures. In parts of China, energy supplies are threatened as water used by hydropower plants dwindles. Water available from the main Three Gorges reservoir is already at half average levels.

Japanese automaker Toyota, Taiwan’s Foxconn and Chinese battery maker Contemporary Amperex Technology are among businesses that have closed factories this week due to the resulting power crisis.

Important provinces such as Sichuan, China’s third largest, made the switch to hydropower as a key energy source more than seven years ago. At that time, Beijing was pushing aggressively for more renewables.

Friendly policies and fat subsidies helped utilities such as China Yangtze Power to increase market share rapidly. Operating margins have exceeded 50 per cent for more than a decade. China Three Gorges Renewables, which also has China Three Gorges Corporation as its parent company, has comparable margins.

Despite enviable earnings, shares of Three Gorges Renewables are down 15 per cent this year and trade at 20 times forward earnings, half the level of a year ago. Strict policy mandates to cut coal usage and increase renewable power capacity are weakening as the country’s economic growth falters.

Severe droughts are occurring more frequently in China. Last summer, the hydropower hub of Yunnan province was hit with an extreme drought that led to power cuts and outages that disrupted factories for months.

The current heatwave in Southern China is forecast to last another two weeks — the longest since records began. Rainfall in the area is about two-thirds lower than August averages.

Beijing is prioritising the fight to support economic growth over the push for renewables. Average daily consumption at coal-fired power stations was 15 per cent higher than a year ago in the first two weeks of August at 8.16mn tonnes.

Persistent droughts would damage the status of hydropower as a reliable source of energy. In a painful irony, they would also increase China’s already substantial contribution to climate change.