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Cablegate: Shanghai Blackouts, a Thing of the Past?

VZCZCXRO4394
RR RUEHCN RUEHGH
DE RUEHGH #0440/01 1980717
ZNR UUUUU ZZH
R 170717Z JUL 07
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 6026
INFO RUEHBJ/AMEMBASSY BEIJING 1255
RUEHSH/AMCONSUL SHENYANG 0772
RUEHCN/AMCONSUL CHENGDU 0770
RUEHGZ/AMCONSUL GUANGZHOU 0750
RUEHHK/AMCONSUL HONG KONG 0890
RUEHIN/AIT TAIPEI 0627
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 6462

UNCLAS SECTION 01 OF 03 SHANGHAI 000440

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/CM, EB/ESC AND OES/PCI
TREASURY FOR AMB. HOLMER, WRIGHT, TSMITH, AND OASIA - DOHNER, HAARSAGER, CUSHMAN
USDOC FOR ITA MAC DAS KASOFF, MELCHER, MCQUEEN
NSC FOR WILDER AND TONG

E.O. 12958: N/A
TAGS: ENRG EINV EIND CH
SUBJECT: SHANGHAI BLACKOUTS, A THING OF THE PAST?

REF: 05 Shanghai 2171

1. (SBU) Summary: During a July 16 meeting with Congenoffs,
Shanghai Municipal Electric Power Company (SMEPC)
representatives were optimistic about Shanghai's power situation
and predicted that there would be few blackouts this summer.
The city has secured power from other provinces to meet energy
demands and was upgrading its power grid infrastructure to get
power to users. It has also encouraged energy conservation by,
among other things, setting limits on air-conditioning usage in
public places. A U.S. business contact reported that U.S.
businesses were not concerned about the potential blackouts
because many had experienced similar blackouts in the past and
had contingency plans in place. End Summary.

Supply And Demand In Balance, Finally
-------------------------------------

2. (SBU) For the past few years, Shanghai has experienced
periodic blackouts and power shortages during the peak summer
season (mid June to mid September). See Reftel. During a July
16th meeting, Shanghai Municipal Electric Power Company (SMEPC)
Vice General Manager Ruan Qiantu estimated that Shanghai
currently had the capacity to generate 13.5 million kilowatts,
well below the estimated summer peak demand of 21 to 21.5
million kilowatts. According to Mr. Ruan, SMEPC had already
purchased 8 to 8.5 million kilowatts from other provinces to
meet demands. SMEPC bought energy from the Anhui, Jiangsu,
Fujian, and the Three Gorges Dam project in Sichuan.

3. (SBU) Ruan said that 2007 would be the first year that
supply and demand for power would finally be in balance.
Shanghai had suffered from inadequate power supply since 2003
because it competed with rapidly-developing Jiangsu and Zhejiang
provinces over limited energy supplies. As Jiangsu began to
generate more power, it no longer competed with Shanghai and has
even begun to provide Shanghai with excess power. Zhejiang had
also increased its power supplies and would be providing
Shanghai with excess power in 2008. In addition, construction
has begun on an Ultra High Voltage Direct Current power
transmission project, which would bring hydro-electric power
from the Three Gorges Dam to Shanghai by 2010. Ruan believed
that the increase availability of "out-of-town" power supply
would help Shanghai to meet the growing demand for energy for at
least the next 3 to 5 years.

Upgrading Shanghai's Power Grid
-------------------------------

4. (U) Ruan noted that SMEPC was now focused on upgrading
Shanghai's power grid infrastructure to transport power from
other provinces to Shanghai users. Under the Shanghai
government's 11th Five Year Plan, Shanghai would build six 500
kilovolts substations, forty 220 kilovolts substations, and a
500 kilovolts outer semi-ring grid. In 2007 alone, Shanghai
planned to complete 65 power transmission projects at or over 35
kilovolts, and add 825 kilometers of network and 6.66 million
kilovolt-amps of substation capacity. Among these, 25
transmission projects as well as 2.46 million kilovolt-amps of
substation capacity were scheduled to be completed before the
arrival of summer peak demand season.

Potential For Blackouts Still Exists
------------------------------------

5. (SBU) Even though various efforts have been taken to meet
Shanghai's power demand this summer, some parts of the city may
still face blackouts, if the local network becomes severely
overloaded. According to a report in Shanghai Daily on June
1st, a blackout already occurred this summer on May 29th in the
Pudong area because of this reason. Mr. Ruan confirmed the
incident, and explained that SMEPC had to pull the plug and stop
power from going to parts of Pudong in order to avoid a
large-scale blackout and to secure the safety of Shanghai's
power grid. Mr. Ruan also confirmed that the system became
overloaded because there was a severe backlog in power grid
construction in the area. Before construction could begin, the
city needed to relocate residents in the area. There was strong
local opposition to the city's relocation plans and construction

SHANGHAI 00000440 002 OF 003


could not begin until the issue was settled. After prolonged
yet fruitless negotiations with local residents, SMEPC sought
and received government assistance in resolving the dispute. It
has been able to complete grid construction in that area and the
system should be stable for the near future.

6. (SBU) According to Mr. Ruan, the Pudong area in Shanghai now
has sufficient power supply and was less likely to experience
blackouts this summer. However, the power situation in
Shanghai's downtown area of Puxi was rather "tense." Power
substations serving the area were quite old and it was extremely
difficult to implement construction projects to upgrade the
substations. The area was densely populated and moving
residents from the construction areas would require intense
negotiations. He said that for these reasons Puxi residents
could experience some blackouts this summer.

Prevention, Rescue, And Remedy
------------------------------

7. (U) According to a May 28th article in Wenhui Newspaper, to
prepare for potential power blackouts this summer, Shanghai
authorities have spent tens of millions of RMB in three areas:
prevention, rescue, and remedy. Prevention was targeted at
boosting the city's resistance against natural or man-made
damages by improving power grid safety. Rescue was to provide
the fastest service and the best technology if a blackout
occurred. Finally, remedy was to develop quick measures to get
power back online in case of a major blackout or network
paralysis.

8. (SBU) Both the central and local governments were also
encouraging residents and businesses to take steps to improve
energy conservation. At the national level, the State Council
issued guidelines that said all air-conditioned public rooms in
China should not be cooler than 26 degrees centigrade. Mr. Ruan
added, however, this was more of a recommendation rather than
regulation, and the government did not strictly monitor
buildings to ensure that the limit was followed. He believed
that many businesses were following the regulations, noting that
some businesses welcomed such guidelines because it helped them
to save energy costs. On the other hand, hotels were more
likely to ignore the regulation in order not to anger guests.

9. (SBU) In addition, the Shanghai government also issued
guidelines that ordered businesses to shorten business hours
when the temperature becomes higher than 35 degrees. If the
temperature surpassed 38 degrees, the guidelines specified that
certain businesses should close non-essential operations,
especially those businesses that caused a lot of pollution and
consumed large amounts of energy but produced lower-value
outputs. SMEPC confirmed that the Shanghai Economic Commission
had already compiled a list of such businesses.

10. (SBU) A flexible pricing mechanism, in which a higher price
will be charged for peak demand hours, was also introduced to
curb demand during peak summer hours. Mr. Ruan noted that it
was very inefficient to build a power system to meet the peak
load, which may be only 2 hours out of 365 days. As a result,
SMEPC tried to control the peak load as much as possible. It
encouraged businesses to change their normal working hours,
and/or reduce working hours to avoid using electricity during
peak hours. SMEPC also signed agreements with major power users
(whose machinery could be temporarily shut off) to cut their
power supply upon short notice for a short time when necessary.
Under these agreements, SMEPC promised to compensate the
companies for any losses.

11. (U) According to the article, the government had also begun
to install energy-saving lights at major scenic areas in
Shanghai, which should reduce energy consumption by 30 percent.
For example, in 2004, the lights lining Shanghai's most famous
tourist area, the Bund, were turned off completely to save
energy. This year, the lights were being replaced by energy
saving lights. The city was also installing optimized control
circuits to control illumination levels and flash frequency.

Impact on U.S. Businesses Minimal

SHANGHAI 00000440 003 OF 003


----------------------------------

12. (SBU) During a meeting on July 5th, CITIC Capital Operating
Managing Director T.T. Chen said the overall impact of potential
power shortages this summer on U.S. businesses in Shanghai
should be minimal. Most U.S. businesses in Shanghai were not
energy intensive, e.g. service industry and high value-added
industries, so the impact of blackouts should not be too
serious. Moreover, these companies were already used to summer
blackouts, and had learned to cope with them. Some businesses
made changes to working hours to avoid rolling blackouts, and
many businesses also included the potential loss from blackouts
in their financial forecasts.

13. (SBU) According to Mr. Chen, manufacturing companies,
especially those that run 24/7, would be hit the hardest by the
blackouts. However, many manufacturing businesses had already
set up plants in smaller cities, in part, because of power
stability issues. These companies often looked at the history
of blackouts and forecasts of power stability of a particular
location before deciding to establish a plant in the area. In
their negotiations with local governments, some companies also
were able to secure preferential treatment in case of power
blackouts.

Comment
-------

14. (SBU) Even though minor blackouts seem inevitable this
summer, the Shanghai government appears to be taking proactive
steps to deal with this problem and dampen the damage caused by
blackouts. Shanghai's emphasis on energy conservation and power
grid development is encouraging and should, hopefully, lead to
fewer blackouts in the future.
SCHUCHAT

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