This is the second round of production cuts in six months. Starting Sept 10, the provincial government told businesses to lower their use of electricity by 10% over five days after a record heat wave disrupted production and economic activity across the region. Companies were then told to reduce electricity use by an additional 15% to 30% starting Sept 15.

Authorities didn’t say how much aluminium producers should reduce power consumption. But industry researchers estimated the second round would lower aluminium production by 650,000 to 800,000 tonnes, bringing the total loss of output over the two rounds of power rationing to 1.9 million tonnes. That much production would equal a third of the province’s capacity, several industry researchers told Caixin.

Aluminium refining consumes vast amounts of electricity. China is the world’s largest producer of primary aluminium, a significant metal for industrial use. Aluminium Corporation of China, the largest state-owned aluminium enterprise in the country, and its unit Yunnan Aluminium as well as Henan Shenhuo Coal & Power and Qiya Group have reduced output in Yunnan by more than 40%.

Production restrictions in Yunnan have become normal policy, said Shi Fuliang, co-founder of the aluminium research institute Aladdiny.

When companies will be able to resume full production will depend on the supply and demand for power. Hydropower plants in the province are in the middle of the traditional dry season running from December to April. But during the usual rainy season last summer, the province experienced low levels of rainfall, drying up reservoirs and sapping generating capacity. Power producers expect a shortage of electricity again this year, Caixin has learned.

Yunnan relies on hydroelectric plants to generate nearly 80% of the province’s electricity. Previously, Yunnan had more power than it consumed.

Starting in 2018, the province began inviting energy-intensive businesses, including aluminium smelters, to set up plants, offering preferential electricity prices that were 16% to 22% lower than average industrial rates. As electricity accounts for 40% to 50% of an electrolytic aluminium enterprise’s costs, that was a powerful lure. Now aluminium smelters account for around 30% of the province’s electricity consumption.

In 2022, electricity generated by Yunnan’s power plants, including hydropower and coal, increased 7% from the previous year, while consumption rose 11.8%.

Yunnan also supplies electricity to other provinces as part of China’s west-east electricity transfer project. The goal of the project is to bring investment and development to China’s economically lagging western regions while providing power to the electricity-hungry eastern provinces. Last year, a severe heat wave and resulting drought dried up reservoirs and crippled hydropower stations, leaving Yunnan and neighbouring Sichuan province without enough electricity for their own needs.

In 2022, Yunnan’s power supply to other provinces declined by 2.48%. This year, the province plans to increase out-of-province sales by 1%.

In a report issued Feb 17, Yunnan Kunming Power Trading Center said the province still faces shortages of power generation with significant uncertainties. New clean energy projects are slow to come online while, thermal power is limited by the supply of coal, the report said.