Power Rationing Meets Dual Control: Tighter Energy Use and Margin Pressure for Printing Under Dual Carbon Goals

As the dual carbon goals move forward, enforcement of dual control over energy consumption is expected to intensify. Even though dual restrictions may be phased, companies will still face tighter energy-use conditions.

For printing businesses, the Golden September and Silver October window is usually the busiest production period. This year has been far from normal, with printers in many regions affected by power rationing and output limits.

Power rationing and production limits at a glance

Since mid-September, power rationing has spread across multiple provinces. Based on what we know about printing companies, some face two days of restrictions per week, some three, and a few as many as six. The overall pattern: restrictions escalated from mid- to late September, then eased somewhat in October.

Policy intensity varies by location. Measures have ranged from off-peak production to orderly power use, and in certain northeastern cities there were even short-term hard power cuts.

A major reason behind orderly power use and hard cuts is that electricity shortages have spread nationwide. The shortage stems from a mismatch between supply and demand.

On the demand side, continued domestic economic recovery has kept power demand and load growing quickly in many areas. On the supply side, coal shortages and surging coal prices have sharply raised costs for power plants, leaving thermal power, the main source of electricity, short in supply. This imbalance has widened the power gap.

Dual control of energy consumption

Beyond the power shortage, the binding need to meet dual control targets for energy consumption is another key driver of the dual restrictions.

The concept of dual control of energy consumption was first put forward in October 2015 at the Fifth Plenary Session of the 18th CPC Central Committee. Its full name is the action to implement dual control of both the total volume and intensity of energy consumption. It aims to set total energy consumption and intensity targets by province, autonomous region and municipality directly under the central government, and to monitor and assess local governments at all levels. Energy intensity here means energy consumption per unit of GDP.

The development of dual control has in fact been gradual.

In the 11th Five-Year Plan, lowering energy consumption per unit of GDP became a binding indicator.

In the 12th Five-Year Plan, alongside the binding indicator for reducing energy consumption per unit of GDP, the requirement to reasonably control total energy consumption was added.

During the 13th Five-Year Plan, the dual control action on total energy consumption and intensity was implemented. It explicitly required that by 2020 energy consumption per unit of GDP fall 15% from 2015 and total energy consumption stay within 5 billion tonnes of standard coal.

The 14th Five-Year Plan further called for improving the dual control system for total energy consumption and intensity, with a focus on fossil energy consumption. It set targets for 2025: energy consumption per unit of GDP and carbon emissions should fall 13.5% and 18%, respectively, from 2020. The State Council allocated national dual control targets to each region and made comprehensive arrangements.

Under the assessment mechanism, energy intensity has higher priority within dual control. The core is to keep improving energy efficiency and raise the quality and efficiency of development. Following the principles of strictly controlling energy intensity, reasonably controlling total energy consumption and adding appropriate management flexibility, reducing energy intensity is a binding indicator for economic and social development, while total energy consumption serves as a guiding indicator.

On August 12 this year, the National Development and Reform Commission issued the Barometer of the Completion of Regional Dual Control Targets for Energy Consumption in the First Half of 2021. It showed that by mid-year fewer than half of provinces, autonomous regions and municipalities had generally smooth progress in reducing energy intensity. Nine provinces and autonomous regions, including Qinghai, Ningxia, Guangxi and Guangdong, recorded an increase rather than a decrease in energy intensity in the first half, placing them at Level 1 warning, a very severe situation. Another 10 provinces and autonomous regions failed to meet the required pace for reducing energy intensity and were at Level 2 warning, a relatively severe situation. The NDRC required ensuring completion of the annual dual control targets, especially the energy intensity reduction target.

As a result, regions at Level 1 or Level 2 warning in the first half faced even greater energy-saving pressure in the second half. With policy targets pressing, using dual restriction measures to secure the annual dual control goals became a reluctant choice.

Carbon peaking and carbon neutrality

Are dual restrictions and dual control merely short-term measures, or will they become a normalized, long-term reality for business operations?

On September 22 last year, China announced at the United Nations General Assembly that it will strive to peak carbon dioxide emissions before 2030 and work toward carbon neutrality before 2060.

One year later, on October 24 this year, the CPC Central Committee and the State Council issued the Opinions on Fully, Accurately and Comprehensively Implementing the New Development Philosophy and Doing a Good Job in Carbon Peaking and Carbon Neutrality. As the 1 in the 1+N policy framework, the document is a guiding and programmatic blueprint for the dual carbon effort, offering systematic planning and overall deployment.

In its working principles, the Opinions gives priority to conservation, puts energy and resource saving first, implements a comprehensive conservation strategy, continuously lowers energy and resource consumption and carbon emissions per unit of output, and improves input-output efficiency. This principle shows that energy is the main battlefield for achieving dual carbon goals, and energy saving is the primary route.

It follows that as dual carbon goals advance, enforcement of dual control over energy consumption is expected to become stronger. Even if dual restrictions are phased, enterprises will face tighter energy-use conditions.

How dual restrictions and dual control affect the industry

Dual restrictions and dual control have had a certain impact on printing companies' production and operations.

First, full-capacity production is affected. Printing firms facing power rationing and output limits in various places are dealing with reduced output and delayed delivery to different degrees.

Second, electricity costs are rising. During the urgent period of a widening power gap, on October 12 the National Development and Reform Commission issued the Notice on Further Deepening the Market-Oriented Reform of Feed-in Tariffs for Coal-Fired Power Generation. It specified that from October 15, feed-in tariffs for all coal-fired power generation would be released in an orderly way, and the market transaction price floating range for coal-fired power would be expanded to no more than 20% up or down in principle. Market transaction electricity prices for energy-intensive enterprises would not be subject to the 20% upward cap. After the reform began, Jiangsu, Zhejiang, Shandong, Guangxi and other places raised feed-in tariffs, with some regions hitting the ceiling. Some printing companies have already reported that new local electricity prices are in effect, increasing their power costs.

Third, raw and auxiliary material costs are increasing. Besides electricity prices, paper and other raw materials have entered another round of price increases. Since September, several papermaking giants have announced shutdowns and supply cuts, citing power rationing and energy-saving and emission-reduction policies. More recently, they have issued successive price increase notices, pushing paper prices higher again.

Fourth, corporate profits are under pressure. Profit pressure has been a recurring challenge for printing companies this year. Monthly data from the National Bureau of Statistics on industrial enterprises above designated size shows that in January-September, printing enterprises above designated size saw revenue rise 12.7% year on year, but total profits fell 0.6% year on year, with profit growth already in decline. Due to power rationing, production limits, another rise in paper prices and other combined factors, profit growth for these enterprises may fall even faster in the following months.

At present, power companies across China are ramping up production and working to overcome temporary difficulties. For printing enterprises, however, planning ahead and figuring out how to survive and grow under the long-term backdrop of dual control over energy consumption has become an unavoidable strategic question. Improving overall equipment utilization efficiency per unit of time affects equipment investment choices. Squeezing out capacity within limited time affects the direction of lean improvement. High-quality development is no longer a vague goal; it is strength built by solving one challenge after another.

From this perspective, dual restrictions and dual control may prove to be an important driving force. We also hope printing enterprises can turn crisis into opportunity and move forward against the trend.

——This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-378652.html