energy hot topics in china

Research and Analysis on Energy Hot Topics in China - Simplified VersionR&D, Arup East Asia2012

Contact Information

Dr. Shuwei WuResearch analyst, R&D, Arup East AsiaTel: +852 2268 3462Email: [email protected]

Dr. Ricky TsuiLeader, R&D, Arup East AsiaTel: +852 2268 3980E-mail: [email protected]

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Objectives • Develop an insight into the China energy industry

• Understand the China energy situation and status, and analyze selected hot energy topics in China

• Further explore the development trend of China energy sector, especially the impact of China energy 12th “ Five Year Plan”

• Based on the research and analysis on energy hot topics, propose questions from different perspectives to facilitate the discussion of possible solutions

• Lay the foundation for future energy-related research and development in China, while identify the research direction and seek for potential academic partners

• Seek for appropriate business opportunities in China energy industry through research collaboration

Energy Demand Side

Research and Analysis on China Energy Hot Topics

Energy Supply Side

Conventional fossil energy

Coal

Oil

Natural gas

Shale oil

Shale gas

Coalbed methane

Flammable ice

Smart grid

UHV power transmission

Flexible DC power transmission

Smart meter

Hydro power

Nuclear power

Solar power

Wind power

Biomass

Geothermal energy

Tidal energy

Unconventional fossil energy

Power transmission

Non-fossil energy Overall demand

Overall energy consumption

Green urban energy system

Power storage Shortage of electricity

Coal-electricity price linkage

Distributed power generation

Combined heat and power

Central heating /cooling

Light-emitting diode (LED)

Energy saving services

Off-peak electricity consumption

Green building

Green transport from oil to gas

Green transport : green vehicle

Energy security

Demonstration county/city

Renewableenergy policy

Green initiatives Energy demand side management

Mismatch of electricity supply and demand

Research and Analysis on Energy Hot Topics in China -

Energy Supply Side

1 2

Clean CoalCoal is the major energy source in China, accounting for about 70% of total primary energy consumption.

As clean coal technologies can realize high-efficiency along with clean utilization of coal under the existing energy supply structure, these are considered as the future processes to be adopted for the usage of coal. There are more than 20 related technologies, including many fundamental ones such as coal washing, multi-purpose generation technology (e.g. applied simultaneously to both chemical and power-generation industries), carbon capture and storage (CCS) technology, supercritical power generation technology and post-combustion flue gas desulphurization technology. Before 2001, these technologies were generally at the lab research stage. From 2001 to 2005 (the 10th Five-Year Plan), their development was mostly at the scaling-up engineering verification stage. However, from 2006 to 2010, during the period of the 11th Five-Year Plan, industrial-scale demonstrations of these technologies were essentially complete. Currently, the “washing ratio” of raw coal in China is 50%. Shenhua Group has completed the demonstration project on coal direct liquefaction. A feasibility report on coal-to-synthetic natural gas project with a capacity of 4 billion m3/yr in Gansu Province has been released. The CO2 capture and storage project with a capacity of 120,000 tons/yr has been put into operation in Shanghai. The construction of 265 MW integrated gasification combined cycle (IGCC) demonstration unit under Green Coal Program in Tianjin was basically completed and is currently at the final testing stage. In Sichuan Province, the research on a 600 MW ultra-supercritical circulating fluidized bed boiler has been completed and the demonstration thermal power station with circulating fluidized bed is under construction.

Is “clean coal” really clean?

During the “12th Five-year Plan” period, China will continue to promote the research & application of clean coal technologies, including the ultra-supercritical power generation technology operating at more than 700℃; 400 MW integrated gasification combined cycle technology; carbon capture, storage and sequestration technologies, etc. China will also improve the coal utilization efficiency through combining coal chemical industry with power generation, especially controlling the coal consumption, water consumption and carbon emission per unit of chemical product produced. At the same time, China will aim at increasing the proportion of non-coal energy in the primary energy supply mix. The proportion of coal is expected to drop below 63% by the end of 2015.

Question for discussion:

Energy supply side

Conventional fossil energy Coal

3 4

Coal Mine AccidentMining accidents are common in the China coal industry. The statistics show there were 188 very serious accidents with more than 10 people died in each case from 2001 to 2004. And for the past, on average, there was one accident per 4~7 days. China had a coal output of 1.67 billion tons in 2003, accounting for 35% of the world. However, the death toll caused by coal mine accidents accounted for 80% of the world. The government has adopted many policies to improve coal mine safety, and the accident rate of the large and medium state-owned coal mines has decreased significantly in recent years with the death toll per million tons in 2010 dropping to 0.749. But the local small coal mines still ignore safety, focusing in chasing their own interests and safety continues to be a serious challenge.

What else can be done to eliminate coal mine accidents?

During the “12th Five-year Plan” period, in addition to ensuring the safe operation of large and medium coal mines and the further improvement of safety productivity rate, the local small coal mines should be subject to more stringent verification, monitoring or disqualification.


Year Death Toll Year Death Toll

1990 10,315 1997 7,083 1991 9,777 - -

1992 9,683 1999-2009 54160

- - - -

1995 10,572 2011-05-22 13

1996 9,974 -

Incomplete statistics (for illustration purpose)

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Energy supply side


5 6

Mining Subsidence AreaOnly ruins are left when the mining ends leaving the inhabitants to solve the subsidence problem. Perhaps the following two examples can give us some food for thought:

1: Huinong district, Shizuishan City, has launched a program “Managing coal mining subsidence area combined with the forestry economic development”. This project involved some ground levelling and planting an ecological energy forest (the fruits from the crown trees can be refined as biodiesel).

2: Taiyuan Dongshan Coal Mine Co., Ltd. Is the first to apply dry tunnel filling technology where the processed coal slag is directly filled into the mine shafts. This avoids both the land occupation and environmental pollution from slag heaps and also eliminates the geological disasters of slag. At the same time, displacement of coal resources improves the coal recovery rate. An alternative wet-fill approach (filling in paste form), the coal slag is crushed into a powder, made into a paste, which is then transferred through a pipeline to various

What impact the large mining areas have on groundwater and our environment?

filling points underground. This can fill up each mined-out area, achieving a recovery ratio of up to 100%. With this technology, urban construction waste can also be used as filling material and is also a new method for treating construction waste.

These methods will be applied as demonstration projects and then promoted after evaluation.


Energy supply side


7 8

High Oil PriceMost people in China probably did not expect oil prices to rise continuously. Every time the prices went up, the reason given was alignment with international prices. Eventually, people who were more concerned about the trend of international oil prices “suddenly” realized that domestic oil prices had already been higher than the United States. In this case, have our oil prices been aligned with the international prices? It was strange that the international oil prices went up and down, but the domestic oil prices rarely fell. After one or two nominal drops, the prices always soared. Accompanying the requirement to align with international standards and continuously rising oil prices, another discussion is on the high international oil prices leading to the overall loss in oil refining sector. But it was strange that the 2010 financial reports from the three oil giants in China showed that the net profit of CNPC was 140 billion Yuan, Sinopec was 70.7 billion Yuan and CNOOC was 54.4 billion Yuan, with the net profit growth rate of 35.6%, 12.8% and 84.5% respectively. With substantial profits indicated in the financial reports, the claim of oil giants on “so-called overall loss in oil refining sector” obviously has no ground.

Is the oil price going to drop in the future?

With further expansion of the three oil giants in China, monopoly of the oil industry will be quickly intensified, which further squeezes those private oil enterprises. This gradually drives them to extreme poverty and bankruptcy.


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中国油价美国油价

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  油价会降�？

China oil price United States oil price

Who is higher?

Energy supply side

Conventional fossil energy Oil

9 10

Offshore Oil SpillOffshore oil spills cause tremendous harm to the marine ecological environment. The most serious accident was undoubtedly the explosion of the “Deepwater Horizon” rig in the Gulf of Mexico in June 2010. 11 workers were killed in the first explosion and the support vessels failed to put out the fire after the evacuation of the remaining staff. The “Deepwater Horizon” sank 400m north of the well after burning for 36 hours. The explosion led to a large amount of oil spill, which is considered to be the most serious ecological disaster in the United States in the past few decades, affecting the safety of the country, this is known as “Eco-9 • 11”. In fact, some of the chemical materials used to clean up the oil spill were more harmful to the environment than the spill itself. According to the data from the Ministry of Land and Resources, during the “11th Five-year Plan” period, there were 41 oil spill accidents in the offshore oil exploration process, of which 19 were in the Bohai Sea and 22 were in the South China Sea. The most serious one was the “Conoco Phillips oil spill incident”. In June 2011, one of the operations of Conoco Phillips (China), Peng Lai 19-3 oilfield in Bohai Bay had leakage of crude oil, this polluted an area of 840km2, resulted in long term impact of the ecosystem of the Bohai Sea.

Which is more important, offshore oil or marine environment?

It is reported that during the “12th Five-year Plan” period, CNOOC will change their development strategy to significantly reduce the emission of pollutants and further improve the safety of offshore oil exploration and production.


Energy supply side

Conventional fossil energy Oil

1211

Natural GasAs a clean, efficient and relatively cheap fossil energy, natural gas is rapidly developing into the world’s third largest energy supply after oil and coal. Domestic demand of natural gas in China has exceeded the supply since 2008, and the gap between supply and demand gradually expands with the rapid growth of consumption of natural gas (with the biggest growth in city gas). In 2010, the consumption of natural gas in China was 100 billion m3, accounting for 3.9% of primary energy consumption in China, well below the average level of 8.8% in Asia and 24% globally. To narrow the gap between the supply and the demand of natural gas in China, apart from further increasing the gas production & imports and accelerating new projects to increase supply, the solution proposed by CNPC, Sinopec, CNOOC, etc. is to rise the price. The experts stress that this cannot solve the fundamental problem and believe the most effective way is to reform the natural gas market, open up the market, break the monopoly and involve more enterprises to participate in the competition.

Which resource will fill the gap of natural gas: shale gas or coalbed methane?

According to the “12th Five-year Plan”, the natural gas consumption will increase to 260 billion m3/yr by 2015, accounting for 8.3% of the national primary energy consumption, which will further exacerbate the gap between supply and demand of natural gas. According to the estimation, the domestic gap between supply and demand of natural gas in 2011 was about 30 billion m3, and will be further expanded to about 40 billion m3 in 2015.


Energy supply side

Conventionalfossil energy

1413

Shale OilShale oil, as artificial oil, can be extracted by heating and dry-distilling the oil shale, and may be further processed to gasoline, diesel and other downstream petrochemical products or used directly as boiler fuel to generate electricity. China has rich oil shale resources, 4th largest in the world, but the resources have not been exploited at large scale due to the costs. With the gradual rise of oil prices, the development of oil shale enters into the public domain. In the development and utilization of oil shale, special attention will be needed to understand its consequent effect on groundwater, related emission and wastewater & shale ashes generated during the dry distillation process. China’s first pilot project for dry distillation refining of oil shale invested by CNPC Group was begun to build in Mudanjiang City, Heilongjiang Province on August 12, 2008. At the same time, Jilin Guangzheng Mining Group Co., Ltd. (Jilin Guangzheng) and Shell signed a cooperation contract to jointly establish a joint venture (cooperative company) for the exploitation and development of oil shale resources in Jilin Province.

Is it time to exploit shale oil?

According to Shell (China), the joint venture company will first investigate and study the commercial usability for the oil shale resources in Jilin Province, and if successful, they will start the actual mining between 2012 and 2020.


Energy supply side


1615

Shale GasIt has a long exploitation life-time and production cycle, usually ranging from 30 to 50 years or even longer. China has about 15 trillion to 30 trillion m3 of shale gas resources, roughly equivalent to United States (28.3 trillion m3). The shale gas industry in China is still in its infancy stage and the major difficulties faced include the unclear distribution of resources, lack of core technology and policy support, sole investor and lack of pipe network facilities, of which the lack of core technology is the most critical.

In terms of resource exploration, CNPC, Sinopec, CNOOC, etc. have launched the exploration for shale gas in Sichuan Weiyuan, Hubei and other places with good initial results. The Ministry of Land and Resources held the first open tender for the oil and gas exploration rights on June 27, 2011, mainly for Guizhou and Chongqing with a total area of about 11,000 km2.

This tender focused mainly on 4 exploitation areas for shale gas and a total of six enterprises participated, including CNPC, Sinopec, CNOOC, Yanchang Oil, China Coalbed Methane Co., Ltd. and Henan Coalbed Methane Co., Ltd. Tender results showed that Sinopec planned to invest 0.59 billion Yuan in exploration with 11 parametric and preparatory boreholes and Henan Coalbed Methane Co., Ltd. planned to invest 0.25 billion Yuan with 10 parametric and preparatory boreholes.

Will commercialization of shale gas in China go smoothly?

According to the shale gas “12th Five-year Plan”, China will initially establish the resource, technology and industry basis for the development of shale gas and choose 30~50 prospective areas and 50~80 favorable target areas. The production of shale gas will reach 6.5 billion m3 in 2015, which will create conditions suitable for rapid development in the “13th Five-year Plan” period. The production in 2020 will reach 60~100 billion m3.


Energy supply side


1817

Coalbed Methane Coalbed methane, commonly known as firedamp, is prone to kill people and is primarily treated as a harmful gas causing mine accidents. Since 1996, the government began to encourage the development of coalbed methane as a new energy source. Following that, the government launched many policies to support the industry, but, until now, the coalbed methane industry struggles to survive. By the end of 2010, the accumulated volume of coalbed methane in the country reached 8.53 billion m3, with the utilization of 3.406 billion m3; which were quite different from the proposed targets in the “11th Five-year Plan” of 10 billion m3 and the utilization of 8 billion m3. There are several key reasons: sole investor, lack of perfect competition mechanism, serious shortage of gas pipelines and other infrastructure, non-market institutional arrangements stifling the vitality of the industry such as strict access restrictions and the separation of gas and mining exploitation rights. The separation of rights is especially a crucial factor, i.e. gas exploitation right is vested in CNPC, but the mining exploitation right is local, so two rights overlap in the same mines causing a large number of conflicts of interest.

Will the proposed development target for coalbed methane be achieved a few years later?

According to the coalbed methane “12th Five-year Plan”, the overall target on accumulated volume will be of 30 billion m3 in 2015, with (a) ground extraction reaching 16 billion m3 with a utilization rate of 100% and (b) coal mine extraction reaching 14 billion m3 with a utilization rate over 60%. However, according to the status of coalbed methane in the “11th Five-year Plan” period, the scheduled ground volume was 5 billion m3, but only 1.4 billion ~1.5 billion m3 of coalbed methane was actually achieved. The realization of the target in the “12th Five-year Plan” period is therefore questionable.


Energy supply side


2019

Flammable Ice Flammable ice, with the scientific name of natural gas hydrate, is a solid mix of water and natural gas at high pressures and low temperatures and mainly contains methane, ethane, propane, a small amount of carbon dioxide and sulfur. It has a high combustion value and is clean and pollution-free.1m3 of flammable ice can release 164m3 of natural gas and 0.8m3 of fresh water at room temperature and atmospheric pressure. Under the same conditions, the energy generated is more than ten times that of coal, oil or natural gas. Recognized as an untapped resource, it is considered as the strategic resource most likely to replace oil and coal. It is the ideal energy for a low-carbon society and is able to meet the energy needs of humanity for 1,000 years according to preliminary estimates. However, the exploitation process and technical requirements of flammable ice are very strict. The improper exploitation will have devastating impact on the environment. The amount of carbon contained in flammable ices is equivalent to twice that of coal, crude oil and natural gas reserves known. The carbon exists in the form of methane, which has a greenhouse effect many times higher than that of carbon dioxide. The worst aspect is that a vast amount of methane would be released immediately, if improper exploitation is carried out, and would destroy the stable equilibrium in the crust, leading to consequent instability in the continental shelf potentially causing submarine landslides & collapse, tsunami and other geological disasters.

Is flammable ice able to brighten our future?

Flammable ice has been found in the South China Sea and Qinghai Tundra. According to data released in early 2011, the estimated reserves are about 19.4 billion m3. In the energy “12th Five-year Plan”, the flammable ice, as a new resource, is included. At present, the flammable ice development in China is still at the investigation stage, and the evaluation, exploration, exploitation and other related research of flammable ice will be completed in the next 10 to 15 years. At least 1 billion Yuan will be invested by 2015 to accelerate the development of this alternative energy and the trial exploration for flammable ice in the ocean may be achieved around 2020 with commercial production realized as early as 2030.


Energy supply side


2221

HydropowerHydropower is the most important non-fossil energy and its development plays an important role in optimizing the energy structure of China. According to the resources available under the current technology, it can be concluded that developing hydropower one year earlier may save 1.24 billion tons of raw coal or 0.62 billion tons of crude oil annually in theory. Under the designated carbon emission reduction goal and considering the fact that the development of nuclear energy is seriously influenced by the “3.11” violent earthquake in Japan, hydropower needs to take a major role in energy conservation and emission reduction during the “12th Five-year Plan”. By the end of 2011, the total installed capacity of hydropower in China exceeded 200 million kW, ranking first in the world. It is emphasized by experts that “hydropower is not only the most abundant non-fossil and renewable resource in China with the most mature technology, most economical cost and most flexible power delivery, but also the most practical and preferred low-carbon energy to combat climate change with a mass development potential”. However, local governments are competing to initiate hydropower projects, building dams and reservoirs on different sections of rivers, leading to hydropower development disorder with a lack of long-term comprehensive planning which will ultimately deteriorate the natural river environment and break the natural rivers into canals. Breaking the rivers into artificial reservoirs will also seriously damage the river environment of wild fish and the biological diversity. In addition, the hydropower development will be accompanied by large-scale relocation. Worse still, the construction of dams and reservoirs would also lead to various geological disasters.

Will developing hydropower bring wealth or woe?

During the “12th Five-year Plan” period, most attention will be paid to Sichuan, Yunnan, Tibet and other western provinces as these areas account for 80% of hydropower in China. It is predicted by the State Grid Corporation that the total hydropower put into operation in southwest China will exceed 100 million kW during the period from 2011 to 2020, and the predicted total installed capacity will be approximately 284 million kW by 2015 and 330 million kW by 2020.


Energy supply side Non-fossil energy

2423

Nuclear PowerNuclear power is an important means to combat climate change and control carbon emissions for many countries. While nuclear power provides clean energy, it has substantial risks. The Fukushima Nuclear Crisis in 2011 had a major influence on the energy policies of many countries including China. For instance, Germany declared that they would completely give up nuclear power by 2022 and Switzerland planned to take the same action by 2034. The State Council of China convened an executive meeting and determined to initiate the “Four National Regulations” on nuclear power: i.e. (a) immediately organizing the comprehensive safety inspection of nuclear facilities in China, (b) enhancing the management of in-service nuclear facilities, (c) fully examining the in-construction nuclear power plants and (d) strictly examining and approving the newly-initiated nuclear power projects. At the same time, the original nuclear power development policy of “vigorous development” has been changed to “high-efficiency development”. The industry predicts that the nuclear crisis in Japan will slow down the nuclear power development in China but will not affect its development trend and will not change its medium/long-term development strategies. Under the restrictive goal to improve the proportion of non-fossil energy in primary energy consumption, the nuclear power development is critical; however, the safety criteria on nuclear power will be substantially enhanced and publicized in order to avoid public concern.

Shall we give up nuclear power?

Currently, the installed capacity of nuclear power in China is about 10 million kW. To ensure the achievement of emission reduction goal, by the end of 2015, the installed capacity of nuclear power in China will surpass 40 million kW and is expected to reach 70 million kW by 2020, 200 million kW by 2030 and 400 million kW by 2050; as such by that time, the nuclear power will account for 22~24% of the gross national electricity generation.



25 26

Photovoltaic Power GenerationAfter several years of rapid development, China was the largest solar cell manufacturer in the world in 2007 and continues to lead the world in cell production. In 2010, the annual production of solar cells hit 13 million kW and the production of solar cell modules increased to 10 million kW, accounting for 45% of the whole world yield. Along with this rapid development, the industry has encountered a number of problems, for instance, the relatively low technology level, the large difference in technology level among different enterprises and the persisted long-term development pattern that approximately 80% of raw materials are imported from overseas and more than 90% of photovoltaic modules are exported. Contrary to the rapid development of photovoltaic cell manufacturing, the local installation of photovoltaic power is still relatively slow due to its high cost. The photovoltaic market of China has not been boosted up until China launched the “Solar Photovoltaic Construction Application Pilot Project” and “Golden Sun Pilot Project” in 2009 to clarify that the government would provide subsidies for the photovoltaic power generation system. The domestic installed capacity of photovoltaic power in 2010 hit 500,000 kW and accumulatively reached 900,000 kW by the end of 2010, ranking it in the top ten globally.

How does a big PV manufacturing country transform into a powerful PV utilizing country?

The government plans for domestic capacity of photovoltaic power to be up to 10 million kW by 2015 (including 5 million kW of large-scale photovoltaic plants and 3 million kW of roof-mounted PV power systems) and at least 50 million kW by 2020 (including 20 million kW of large-scale photovoltaic plants and 25 million kW of roof-mounted PV power systems), which will bring development opportunities to the domestic PV enterprises and contribute to a turnaround from the embarrassment that the domestic PV usage is less than that exported.


Energy supply side Non-fossil energy Solar power

27 28

Solar Thermal Power GenerationThere are commonly 3 solar thermal power generation systems: (a) dish, (b) trough and (c) tower-type, among which the trough-type is the most mature but consumes substantial quantity of water during power generation. The tower-type consumes similar quantity of water as the trough-type. Only the dish-type is applicable to desert areas due to its low water consumption; 1.4 L water to generate 1 kWh electricity, and also has the highest conversion efficiency. On July 1st, 2010, the construction of the first tower-type solar thermal power plant in Asia was launched in Yanqing, Beijing; and in April, 2011, the Datang New Energy Co., Ltd won the bid for the 50,000 kW trough-type solar power project in Inner Mongolia. As the solar thermal power generation follows the rule of “larger the scale and lower the cost”, the electricity price of localized solar thermal power generation, based on the current scale, still exceeds 2 Yuan per kWh, which therefore has no economical advantage over the average grid-connected photovoltaic based electricity price. Although the solar thermal power generation benefits more to the stability of power grid and has advantages such as high conversion efficiency and high capability in peak power mediation, the chance that it dominates the future power generation market over photovoltaic power generation will still depend strongly on its prospective price decrease in the future.

What’s the biggest difficulty that we will encounter when developing solar thermal power generation?

The solar thermal power generation may not challenge the dominance of PV power generation in near future, but it may embrace a brighter prospect in the long run, especially it is placed with high priority in the encouraged and newly-added energy category in the “Catalog to guide Industry Re-structuring (2011)” by the Chinese government. This would imply that the government will vigorously promote solar thermal power generation and its related equipment manufacturing during the “12th Five-year Plan” period, thus creating the “Double Confrontation” era of both PV and solar thermal power generation.



29 30

Building Integrated PVBuilding Integrated PV (BIPV) represents the combination of green energy and new building concept and can create a low-carbon-emission living environment, making home life more environment-friendly. China has made great progress in adopting PV system on buildings. During the “9th Five-year Plan” period, China successfully established 170 kW and 7 kW solar PV on buildings in Shenzhen and Beijing respectively and realized grid-connected power generation. During the 10th and 11th Five-year plans, China completed several PV projects on buildings in Beijing, Shanghai, Shenzhen and other cities, including Beijing Railway South Station, Capital Museum, Shenzhen International Garden, Shanghai Chongming County PV Power Plant, Qingdao Railway Station, luxurious villas of Phoenix City in Guangzhou and Ruiya International Residence in Sanya, Hainan. However, the biggest movement to facilitate the large-scale take-up of using PV system on buildings in China was the issue of “Provisional Methods for the Management of Subsidy Fund for the Application of Solar PV on Buildings” by the Chinese government on March 23, 2009. This illustrates that the Ministry of Finance will allocate special funds for renewable energy development to support the demonstration and adoption of solar PV power generation on urban and rural buildings. In September of the same year, the Solar Roof Plan was launched with a budget of 1.27 billion Yuan granted by the Ministry of Finance. In this plan, 111 projects with a total capacity of 91,000 kW were first listed as the national pilot projects of application of PV system on buildings with a subsidy of 15~20 Yuan/W (peak). However, it is required that the generated electricity is for the use in related buildings only and the surplus shall be connected to the grid with the same price as generated by the de-sulfurized coal power plant.

Will BIPV have a bright prospect?

In the Golden Sun Pilot Project initiated by China, the total capacity of the listed 222 grid-connected building projects is 291,000 kW. It is under a long-term plan that the grid-connected solar PV systems on buildings will generate 3~4 million kW by 2015 and 20~30 million kW by 2020. It is expected that more PV systems will be truly integrated into building structures in addition to those independent externally mounted PV systems on buildings. However, the high cost and shortage of professional talent may seriously impede its future development.



31 32

Onshore Wind PowerAccording to the statistics of the China Wind Power Association, as at end of Year 2010, the newly-added wind power generation capacity over the year reached 18.928 million kW and the total installed capacity reached 44.733 million kW. The accumulated installed capacity of China has surpassed that of America for the first time and ranked the first in the world. Until now, China has successfully established the following 8 wind power bases: Jiuquan (Gansu), Eastern Inner Mongolia, Western Inner Mongolia, Dongbei, Hebei, Xinjiang, Jiangsu and Shandong. Along with the prosperous development of onshore wind power, problems such as overheated investment, excessive capacity, quality issues and difficulty in grid connection have impeded its further development. In particular, since the power grid construction lags far behind the development of wind power, it may not be possible to connect to the grid or the connection may be subject to serious problems.

Is wind power really useful?

In the national plan, wind power capacity will hit 100 million kW by 2015 and 200 million kW by 2020. Other than overcoming a series of technical issues like difficult grid connection, the development direction of wind power will be switched to “developing the low-wind-speed wind farm and advocating the distributed development”. The development of low-wind-speed wind power has been incorporated into the “12th Five-year Plan” with the target of installing 20 million kW. Developing the small-scale distributed wind power demands relatively low requirements on wind strength and power grid. Correspondingly, the generated power is relatively small, which can be consumed locally and that it also exerts less pressure on the grid than large-scale wind farms. Among the proposed 100 million kW installed capacity of wind power, the distributed wind power will hit an installed capacity of 30 million kW by 2015. The more scientific and advanced development of onshore wind power will exert higher requirement on wind farm management, for example, optimizing the design and arrangement to predict the generating capacity continuously to yield 24-hour forecast as such to facilitate better grid distribution.


Energy supply side Non-fossil energy Wind power

33 34

Wind Turbine Off-grid and Low Voltage Ride-throughSeveral wind turbine off-grid accidents in 2011 showed that the current power grid connection fails to keep pace with the rapid development of wind power and demonstrated again that “grid connection and operation of wind power” is the core issue for its future development. According to the explanation of State Electricity Regulatory Commission, the occurrence of these accidents was mainly due to some currently in-service wind turbines being incapable of performing low voltage ride-through (meaning that the ability of the wind turbine system to operate continuously, with the grid connected, within a certain voltage-decrease range to gain required time for grid self-regulation until the voltage returns back to normal, thus maintaining grid stability when the voltage at the grid connection point on the wind farm drops due to grid failure or other disturbance). Since the “low voltage ride-through” has been incorporated into the new grid connection standard, the wind turbines used in the previously-built wind farm shall need to be upgraded. The key issue is who should take the responsibility and bear the cost. The State Grid Corporation believes that it should be the wind power developers. However, the developers argued that it would be difficult to upgrade most wind farms established before 2008 and to absorb all the expenses. They suggested that ability to achieve the new technical standard should be related to the electricity price, i.e. implementing 2 different prices for wind power systems according to whether they can satisfy the technical standard. Besides, they believed that those old wind farms should not be forced to implement the new standard.

To upgrade the standard of low voltage ride-through, who should bear the cost?

The experts pointed out that the low voltage ride-through standard of China had made reference to the European and American standards. However, it is worth to note that wind power generation of these countries is mostly for local consumption, while China has many large-scale wind power generation bases and requires long-distance transmission. China shall need to consider which one is more economical and practical: either requiring each wind turbine to perform “ride-through” or realizing the overall comprehensive planning and compensation for wind farms.



35 36

Offshore Wind PowerAbundant resource, high utilization of generating equipment, no land occupation and suitability for large-scale development are the distinctive advantages of offshore wind power. It is regarded as the main development direction of renewable energy with the highest potential. There are abundant offshore wind power resources in China. The capacity of wind power can reach about 200 million kW within 5~25 m fathom line of the coastal areas and about 500 million kW at the turbine height of 70 m above sea level within 5~50 m fathom line. All these resources are distributed along the well developed coastal areas and therefore close to the main electricity consumption areas. Thus, the development of offshore wind power can save the necessity of long-distance power transmission and effectively mitigate the energy shortfall in the economically well-developed coastal areas. The problems encountered during the development of offshore wind power in China are: (a) 70% of the seabed in coastal areas are soft with low bearing capacity so that they are vulnerable to be weakened or washed out because they are mainly made of soft clay, silt and other soft materials; (b) difficulty in making grid connection; (c) cost and maintenance expense of large-scale off-shore wind farms are high; (d) the technical requirement is higher, for example, able to withstand typhoons and corrosion; and (e) the natural environment is typically severe and complicated. On July 6, 2010, the first offshore wind farm in China with a total investment of 2.365 billion Yuan, the Shanghai Donghai Bridge 100,000 kW Offshore Wind Farm Pilot Project, began to generate power with grid connected, signifying that China has the ability to construct offshore wind farms. In the same year, China initiated the bidding of the first batch of offshore concession projects, with a capacity of 1 million kW, in Jiangsu.

Can offshore wind power copy the development miracle of onshore wind power?

In the national plan, the installed capacity of offshore wind power will be up to 5 million kW by 2015 and 30 million kW by 2020. At the same time, a complete set of offshore wind power technology and a complete industry chain will be established by 2015. After 2015, the offshore wind power in China will enter into the large scale development period and reach the international advanced technical level.



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Building Integrated Wind EnergyThe application of wind energy to buildings can be classified into two categories: (a) passive application based on adaptation to the local environment, i.e. natural ventilation and exhaust and (b) active application, i.e. wind power generation. Passive application has been fully utilized in the design of modern buildings while active application is receiving much attention now and is referred to “Building Integrated Wind Energy”, i.e. integrating the wind power generating components into buildings. The application of BIWE demands low operation cost and may substantially alleviate the burden and the loss during the long-distance power transmission. It is regarded as an environment-friendly and energy-efficient method that can help realizing the ecological living concept. There are many BIWE engineering cases abroad such as (a) the Bahrain World Trade Center completed at the end of 2008, which is the first large building integrated with wind turbines able to satisfy 11%~15% of annual power consumption of such building, and (b) the Dubai Rotating Tower. There are also many successful cases in China such as (a) the Guangzhou Zhujiang Tower (a zero energy consumption building) and (b) the Qingdao Ecological Tower. The application of BIWE may lead to some environmental problems such as noise, endangering birds, communication interference, safety issues and visual impact. Among these, the visual impact has been the biggest issue during the actual planning stage, especially for those areas with beautiful scenery, prosperous economies and high-dense population. As such, the industry holds a relatively prudent attitude towards the development of BIWE.

Is the roof-mounted windmill an visual pollution or a scenic attribute?



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Biomass pelletsBiomass pellets are a form of solid fuel with certain shape and density made from smashing and dehydrating the residual biomass materials from agriculture and forestry, such as straw, processing residues of subsidiary agricultural products (rice hull, peanut shell, etc.) and wood processing residues (tree branches, etc.), and then processing by special biomass molding machines into pellets. Majority of biomass pellets in China is made from straw. The molding step to form pellets can improve the situation that the original straw has a low energy density and is difficult to collect, transport and store. Due to the simple production process and direct utilization of the product, the technology has a widespread application with high economical efficiency. Currently, some technical problems in the molding process shall need to be resolved to promote its wider application, for example (a) rapid wear of the straw molding machine; (b) corrosion of the machine caused by combustion residues; and (c) the wet storage of raw materials. It was proposed in the “11th Five-year Plan” that the annual utilization of biomass pellets would reach 1 million tons by 2010 but the actual usage was only about 0.5 million tons. There exists a subsidy policy, but its help has been limited because of strict limitation on production scale (150 Yuan/ton subsidy eligible only for those companies with an annual production capacity over 10,000 tons and a registered capital over 10 million Yuan). Meanwhile, the market chaos due to the absence of proper industrial standards, lack of complete industry chain and severe competition among enterprises cause substantial waste of resources.

Where is the biomass pellet market?

The government has further planned to achieve the goal of annual utilization of 20 million tons by the end of “12th Five-year Plan”, and to make biomass pellets become a kind of commonly-used high-quality fuel with the ultimate annual utilization reaching 50 million tons by 2020.


Energy supply side Non-fossil energy Biomass

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Biomass Power GenerationBiomass power generation includes generation of electricity using (a) direct combustion or (b) gasification of agricultural and forestry waste, (c) waste incineration, (d) landfill gas, (e) biogas, etc. By the end of 2010, the installed capacity of biomass power reached about 5.5 million kW and satisfied fully with the planned target of 5.0 million kW under the “11th Five-year Plan”. Power generation using direct straw combustion, landfill gas and biogas are most common currently, followed by waste incineration. Power generation using gasification of agricultural and forestry waste is still at the demonstration stage and all methods encounter different problems in their development. (1) Direct straw combustion: With the current grid-connected electricity price, only a small number of power generation enterprises can make a profit in their business. Major problems arise from (a) poor quality, (b) high cost and (c) insufficient supply of raw material. Under the current condition of scattered small-scale farming in China, the collection cost of material is too high. In addition, the high target on upcoming installed capacity and other potential uses of straw will surely aggravate the situation. (2) Waste incineration: The emission control of dioxin remains as an unsettled issue, in particular the real-time monitoring of its concentration. (3) Biogas and landfill gas: The biogas production and conversion efficiency shall need to be improved and the combined heat, power and fertilizer production shall need to be explored. The absence of detailed fermentation theory has led to unclear and ineffective fermentation process. The considerably high initial start-up cost and the maintenance cost during operation limit the participation of small and medium-sized enterprises in this business. (4) Straw gasification: immature gasification technology and high operation cost have hindered its development.

• How will direct straw combustion power generation make profit in the future?

• Who is willing to live near a waste incineration power generation plant?

According to the national plan, the total installed capacity of biomass power will reach 13 million kW by 2015 and 30 million kW by 2020, of which the power generated from agricultural and forestry biomass will reach 24 million kW and that from biogas and waste will both reach 3 million kW.



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Biomass GasBiomass gas generally includes biogas (from anaerobic digestion), landfill gas (similar to biogas in composition) and syngas generated from biomass gasification. Large-scale biogas projects in China follow two development modes: (a) the ecology mode and (b) the environmental protection mode. The former requires the biogas plant to be built near organic farms, fish ponds, etc. to facilitate the direct handling of slurries and residues while the latter requires the plant to further process the residues and slurries into commercial fertilizer to avoid environmental pollution due to direct dumping. Biogas can be used for regional centralized gas supply or be utilized through the natural gas grid after further purification. Also, it can be used as gas fuel for vehicles or for power generation. The landfill gas is generated from waste landfill through fermentation. Its calorific value is half that of the natural gas. The landfill gas can be used for domestic or industrial heat supply and power generation through the steam generated by its direct combustion or as piped natural gas through further purification. In Shenzhen, Hangzhou, Nanyang (Henan Province) in China, large-scale deployment of landfill gas has already been started. Straw gasification involves burning the chopped straws incompletely under anaerobic condition to generate large amount of combustible gases such as hydrogen, methane and carbon monoxide. These gases are further purified, together with the removal of tar, and filled in the gas storage cabinet for transportation through pipes to users or for power generation. In spite of support and subsidies from the government, there are still many unsolved technical and operation problems that prevent its further commercialization.

• Are people willing to invest in biogas?

• How long can landfill remain as the key treatment method for solid waste in the future?

• Is straw gasification practical?

If biogas purification and liquefaction technologies can be mastered, its commercialization can be further enhanced. By the end of 2010, the annual utilization of biogas was about 13 billion m3 while the planned target was 19 billion m3 under the “11th Five-year Plan”. By 2020, the annual biogas utilization will reach 44 billion m3. The medium and long-term renewable energy development plan in China indicates that power generation from waste incineration and landfill gas shall reach 3 million kW by 2020.



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Biofuel Bio-ethanol

The development of bio-ethanol in China was originally an intent to eliminate excess corn from overstock. With the decrease in stale corn, rising price and food security issues, the focus has been put on the production of non-food related bio-ethanol. The “11th Five-year Plan” proposed that the annual utilization of non-food bio-ethanol could reach 2 million tons, together with the 1 million tons of food produced bio-ethanol, making up the total planned target of 3 million tons. Such target, however, could not be reached. The annual overall use of bio-ethanol only hit 1.8 million tons (only about 0.2 million tons were non-food ethanol) in 2010. Biodiesel

Currently, the main raw material for biodiesel in China is waste cooking oil. Others include some oil crops (pistacia chinensis, sorbifolia and jatropha seeds) and microalgae. The “11th Five-year Plan” proposed that the annual utilization of biodiesel could reach 0.2 million tons, while the actual annual utilization was 0.5 million tons in 2010, exceeding such target.

• Considering the entire life cycle, what is the impact of bio-ethanol on reducing carbon emission?

• How will biodiesel enterprises overcome the difficult situation from both production and sales?

It is proposed in the “12th Five-year Plan” that the annual utilization of bioethanol will reach 5 million tons by 2015, of which non-food bioethanol will be the majority (i.e. sweet potato, sweet sorghum, etc. as raw materials for 1.5-generation ethanol), and 10 million tons by 2020. The realization of these targets mostly depends on the development of non-food ethanol technology, in particular, the development of cellulosic ethanol; or butanol technology. The targets proposed by the “12th Five-year Plan” for biodiesel are the annual utilization of 1 million tons by 2015 and 2 million tons by 2020. However, the industry is currently facing problems on getting sufficient raw material supply and adequate demand on biodiesel. The proposed targets will be difficult to achieve without further support from the government.



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Shallow Geothermal Energy Utilization Shallow geothermal energy refers to the geothermal energy stored in soil, stone and groundwater inside the constant temperature layer within hundreds of meter below the earth-crust surface. The energy mainly derives from solar radiation and heat from the earth’s core and is subject to relatively small seasonal climate influence, hence the temperature is relatively constant. The heat pump technology is the main means of technology used for shallow geothermal energy utilization. Based on the type of heat sources, it can be divided into air source, water source and ground source heat pump. According to the statistics, 58% of the as-built projects employ water source, 37% of ground source and only 5% of air source heat pumps in China. The latest ground source heat pump examples include the “Shanghai Expo Axis” (the first large-scale combination of river water source heat pump and ground source heat pump) and the soil source heat pump of Lian Yungang Customs Office Building. In spite of the leading position of China in the world on shallow geothermal energy utilization, there exist many problems: (a) inadequate government support, (b) incomplete laws and regulations; (c) few product models and related specifications available and these are mainly assembled products with components imported from overseas; (d) insufficient research and development effort; (e) lack of technical support. A comprehensive geological environment evaluation method for the suitability of using different types of ground source heat pump shall need further development. Moreover, there is a lack of optimal economical design of the ground source heat pump in China.

According to exploitation results, the geothermal resources in China are mainly of low to medium temperature range. Utilization of shallow geothermal energy will surely be beneficial to different provinces and cities. For example, Shanghai will further develop and utilize shallow geothermal energy and the planned application area will reach 4 million m2 by 2015. More schools, hospitals, hotels, shopping malls and residential houses will utilize shallow geothermal energy for heat supply or refrigeration in Tianjin and the area of shallow geothermal energy utilization for heat supply (refrigeration) will reach 20 million m2 by 2015.


Energy supply side Non-fossil energy Geothermal energy

How to promote heat pump technology for geothermal energy harvesting?

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Deep Geothermal Energy Utilization-Steam Power Generation Deep geothermal energy, compared to shallow one, is more difficult to harvest due to the depth involved. Thus there are not many existing examples and it is mainly used for power generation. Tangkeng Geothermal Power Station, which was constructed and put into operation at the end of 1970, was the first geothermal power station in China. Later in 1975, the second geothermal power station was constructed in Yangbajing in Tibet but since then, there has been no significant development, which is undoubtedly a huge loss to Tibet which has the most abundant geothermal resources in China. The stagnation of geothermal power generation development comes from various reasons. Firstly, the exploration of geothermal resources is not extensive and no detailed survey has been carried out so far. Secondly, the key technology for harvesting deep geothermal energy has not been completely mastered and there is a lack of technical professionals. And most important of all, relevant supportive policies are missing. Although the Renewable Energy Law has identified geothermal energy as important renewable energy, the government has not established clear supportive policies like those for wind power or solar power.

What is the impact of deep geothermal energy development on the geological environment?

According to the exploration, the high-temperature geothermal resources applicable to power generation are relatively rare and mainly distributed in southern Tibet, western Sichuan and western Yunnan with the potential installed capacity reaching about 6 million kW. According to preliminary estimates, the exploitable geothermal resource reserve in China is about 3.3 billion tons of standard coal equivalent. According to the medium to long-term plan of the government, the annual geothermal energy utilization will reach 12 million tons of standard coal equivalent by 2020. However, with the increasing need on protecting groundwater resources, the direct utilization of geothermal water will be increasingly restricted, which may result in the restriction to the deep geothermal energy harvesting. In such case, the ground source heat pump will be the only main development direction of geothermal energy utilization in the future.


Energy supply side Non-fossil energy Geothermal energy

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Tidal Energy Ocean energy refers to renewable energy from seawater, including tidal energy, wave energy, ocean current energy, energy generated from the difference in seawater temperature and salt concentration, etc. Although the reserve is abundant, its harvesting is difficult as the construction risk and development cost are high, and there is no consensus regarding the best way to harvest ocean energy. The total ocean energy reserve is up to 1 billion kW in China, of which more than 20 million kW are from near-shore tidal energy and more than 10 million kW are from wave energy. The history of ocean energy harvesting went back almost 40 years ago with the tidal power generation being the most widely used method in China. So far, eight tidal power stations have been constructed, from which much experience has been accumulated. The overall scale and unit volume of existing tidal power stations are very small. The construction cost per kilowatt is higher than that of conventional hydropower stations. The construction skill level on related hydraulic structures is low and the production and performance requirement of water turbine sets have not been standardized. The critical issues will be to achieve a technical breakthrough on the manufacturing of water turbine sets for medium-sized tidal power stations and to lower the related construction cost. The largest existing tidal power station in China is Jiangxia Pilot Tidal Power Station with a capacity of 3,200 kW in Wenling City of Zhejiang Province and was built in May, 1980. It is also one of the biggest two-way tidal power stations in the world. Based on its current operation experience, the tidal power station does not cause either serious sedimentation near the harbor or have significant negative impact on ecology. However, a more comprehensive and long-term study is needed.

What is the impact of tidal power harvesting on the ecology of the harbor?

During the “12th Five-year Plan” period, Zhejiang Province will build a 10,000 kW pilot tidal power station in Sanmenwan of Taizhou City. Experts suggested that ocean energy harvesting should be strategically developed in China through active promotion with strong technical support and good control on the standard of each station. The priority shall be placed on building tidal power station of at least 10,000 kW with backing up from other complementary energy supplies. According to the medium to long-term plan on renewable energy in China, 100,000 kW tidal power station will be built by 2020.



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Smart Grid Smart grid is the integration of electricity grid with Information Technology (IT). Interaction between the grid and the users through sensors set at various locations allows timely response of the grid to meet customers’ needs, enabling the grid to make more intelligent actions to reduce cost, improve efficiency and save electricity. There are two different opinions on smart grid development in China: (1) The smart grid will be used throughout the entire chain of power transmission, distribution and consumption; and (2) the smart grid will be better developed to satisfy the requirement of incorporating electricity generated from new energy sources, such as wind energy, into the grid and thus will be mainly used for the distribution network. However, currently, the power transmission network of China is developing rapidly while the distribution network is severely behind. Under the long-term planning, the State Grid will invest 3,450 billion Yuan during the period 2009-2020, of which 384.1 billion Yuan will be for transforming existing grids into intelligent ones, accounting for 11.1% of the total investment. From 2009 to 2010, the focuses were on (1) comprehensive planning on smart grid development, (2) establishment of technical and management standards; and (3) initiation of research and development on key technologies, equipment development and various pilot works. The “12th Five-year Plan” period focuses on the overall construction and the State Grid will invest about 2,550 billion Yuan, which have been greatly increased comparing with the investment of 1,500 billion Yuan during the “11th Five-year Plan” period. The investment will be used to establish the smart grid operation, control and interaction service system, of which 500 billion Yuan will be invested on the development of UHV grid network and 500 billion Yuan for the distribution network. Also, 1,550 billion Yuan will be used for grid networks of other voltage levels, and of which 190 billion Yuan will be for transforming existing grids into intelligent ones.

What emphasis should be placed on smart grid development in China?

The “13th Five-year Plan” period will be the leading and upgrading stage and a unified strong smart grid will be fully completed with the technology and equipment reaching an advanced international level.


Energy supply side Power transmission

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UHV Power Transmission In the transmission of electricity, high voltage is usually employed to reduce loss. 220 kV is considered as high voltage, 350 kV to 750 kV as extra-high voltage (EHV), and more than 1000 kV as ultra-high voltage (UHV). Direct Current (DC) ±800 KV is classified as UHV in power transmission according to the definition from the State Grid in China. For UHV power transmission, the UHV DC has distinctive advantages in long-distance transmission. Many experts have suggested that UHV DC, which is technologically mature, can be used for power transmission beyond the range of 600 km and for the range within 600 km, the existing 500 KV lines can be utilized. Thus, UHV AC seems to be unnecessary. Selection of UHV or EHV was the key arguing issue between the State Grid and the Western Inner Mongolia Grid on the construction of the additional third outward power transmission line. The Inner Mongolia Grid proposed the construction of EHV transmission line since an EHV project can easily get approval and conform to the existing technological levels. UHV DC would also be a good alternative. However, the State Grid insisted on the construction of an UHV AC transmission line. Neither party wanted to compromise, resulting in large amount of generated electricity in western Inner Mongolia not able to transmit out.

For UHV AC and UHV DC, which is the correct choice?

The State Grid will continue to promote the construction of UHV AC power transmission lines because the UHV DC lines can only be beneficial for long-term power transmission and that they cannot form a completely unified power grid with existing AC lines. During the “12th Five-year Plan” period, the State Grid will invest about 2,550 billion Yuan for power grid construction, of which 500 billion Yuan will be used for UHV grid lines and the investment for UHV AC lines will reach 270 billion Yuan. Northern China, Central China and Eastern China (three Hua) will be regarded as the 3 main load centers. A synchronous power grid structure will be formed, based on UHV power transmission of “three north-south lines and three west-east lines”, supplemented by 13 DC transmission lines. As such, the unified “national grid”, with UHV AC as its core, will be formed to consolidate the leading position of the State Grid.



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Flexible DC Power TransmissionIn addition to low voltage ride-through, flexible DC transmission is considered to be another important technical solution to settle wind turbine off-grid problem and improve grid connection performance. The utilization of a flexible DC transmission system in the existing power grid is equivalent to the connection of a valve and a power supply to the power grid, which can not only effectively control the electricity transmitted through the grid and isolate the spread of grid failure, but also release or absorb energy in a rapid, flexible and adjustable way according to the grid demand. This technology can provide good dynamic reactive support to the wind farm to avoid the investment on the reactive power compensation equipment. In addition, an excellent grid connection performance is provided to minimize the impact on the AC system due to voltage fluctuation of the wind farm while improve the anti-interference capability of wind farm against system fluctuation. As it can also act against voltage drop, it can enhance the capability of low voltage ride-through of a wind farm in case of AC system failure. Moreover, the technology is not limited by distance, it has become the only choice for the large-scale long-distance grid connection for offshore wind farms. This technology has become the internationally recognized optimal technical solution for wind farms. Currently, China has built its first flexible DC transmission project, i.e. the Shanghai Nanhui Wind-Farm Flexible DC Transmission Pilot Project.

Do you think “flexible DC transmission” will be accepted by the market within the “12th Five-year Plan” period?

It is believed that China will have a strong market demand for flexible DC transmission technology with the market size for the next few years reaching about 40 billion Yuan owing to the rapid development of new alternative energies.



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Smart MeterSmart meters are the measuring equipment as well as terminals of the smart grid, which will play an important role in the coming multi-step price reform in China. Its advantages include (1) convenience, (2) improvement to reading accuracy and work efficiency, (3) effectively avoiding errors of manual meter reading; and (4) facilitating the establishment of electricity consumption plan based on individual needs. It is reported by users who have installed smart meters in Shanghai and other cities that the electricity charge soared upon installation and thus they blamed the quality of the meter and challenged the integrity of related power companies. In fact, the installation of a smart meter does not necessarily lead to a drop in electricity charge as it is still not intelligent enough for pro-active electricity conservation. But, undoubtedly, it is more sensitive than the previous one such that it can pick up small electricity usage, like those gadgets on stand-by mode. This is therefore important to change habit after installing a smart meter, for example by turning off gadgets when they are not in use and unplugging them, which otherwise will cause an increase in electricity charge. In order to deploy the full potential of smart meter, promotion of behavioral change is necessary. According to the statistics, in December 2009, the State Grid purchased 2,943,400 smart meters in its first call for tenders and in 2010, it completed four other calls with the accumulated purchase equal to 45,370,000 smart meters. In 2011, the State Grid, through five calls, purchased over 50 million smart meters, increased by about 11% when comparing to 2010.

How can we use a smart meter effectively?

According to the plan from the State Grid, during the period of 2010-2014, a total of 0.3 billion smart meters will be installed. The total purchase reached about 0.1 billion by the end of 2011 and thus there will be about 0.2 billion pieces to be purchased for the next few years. With an average price of 180~200 Yuan/piece, the related market size will be between 36 billion Yuan and 40 billion Yuan.



Research and Analysis on Energy Hot Topics in China -

Energy Demand Side

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Overall Energy ConsumptionAt present, the energy consumption intensity in China is high, with the energy consumption per unit of GDP 5 times that of Japan. However, the energy consumption per capita is low, 2.5 tons of standard coal equivalent, and is well below the international level. If the energy efficiency cannot be improved, 80% of the world energy will be consumed by China when China’s energy consumption per capita is raised to similar level of the US or Japan. Energy saving and efficiency improvement are the key issues. (1) Effective energy saving shall have to be achieved by government push for its promotion and education to increase public awareness and to encourage adoption of good habits. (2) Efficiency improvement shall require efforts on improving energy transmission methods, adopting advanced energy efficiency technologies and formulating suitable energy pricing strategy. According to the data issued by the National Bureau of Statistics, the overall energy consumption in 2010 reached 3.25 billion tons of standard coal equivalent, with annual growth of 6%, making China the world’s largest energy consuming country. Coal still occupies the main position in China’s energy consumption structure.

To improve energy efficiency in China, what shall we do?

The latest “Report on China’s Energy Development” predicts energy demand during the period of the12th Five-Year Plan. According to the low and high demand scenarios, overall energy consumption in 2015 will be at maximum 4.1 billion tons and 4.25 billion tons of standard coal equivalent respectively. Experts predict that the “zero growth” of China’ energy consumption will come in the period of 2030-2035, when the overall energy consumption will reach 6.23 billion tons of standard coal equivalent. Confronted by this, high pressure shall exist on energy production and supply in the near future. It is of course undesirable to meet the needs through unsustainable methods to increase the supply, but instead, unreasonable energy demand shall be eliminated and high energy consumption shall be restrained.


Energy demand side Overall demand

1995 1997 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2030

70

60

50

40

30

20

10

0

32.5

62.3

30.6628.5

24.6 26.5622.220.3

16.814.813.51313.913.1

Actual and Predicted China’s Overall Energy Consumption Over the Years (unit: 100 million tons of standard coal equivalent)

6.46%0.62%

0.92%16.22%

4.9%70.9%

6.83%

2.2%2.44%

17.32%

7.56%

63.66%

Coal

Natural gas

Petroleum

Hydro power

Nuclear power

Renewables

Structure of China’s Overall Energy Consumption in 2010

In 2015 (based on low demand scenario)

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Energy SecurityIn recent years, China is facing a rapid growth on energy demand and is in a severe situation regarding energy security. Four risks on national energy security are: 1) increasing continuously the dependence on imports; expected to reach 75% in 2030 for petroleum, 40% for natural gas and approximately 10% for coal; 2) intensifying competition on energy resources among different countries; 3) current international monopoly on supply of energy resources making China to encounter great difficulty in obtaining imports; 4) great uncertainties in future international energy market because of energy market mechanism being dominated by developed countries, causing China to bear higher energy and development costs. A frequently mentioned index related to these risks called “the extent of crude oil dependency on import” reached 55.2% and 54.8% in the first half of 2011 and exceeded US (53.5%) for the first time, according to data from the Ministry of Industry and Information Technology and the National Development and Reform Commission respectively. Suggested by the “Blue Book on Energy Development” as issued by the Chinese Academy of Social Science in 2010, this index will reach 64.5% in ten years and, as predicted by the International Energy Agency, the dependency on imported crude oil of China may rise to 80% if its rate of increasing remains unchanged.

What is the biggest threat to energy security in China?

To decrease the crude oil dependence on imports and to improve energy security, experts believe that energy saving shall be the key. Economic growth based on high energy consumption shall have to be reformed to reduce the overall energy demand. Secondly, the structure of energy supply shall have to be changed such as more natural gas, unconventional fossil energies and non-fossil energies will be used. Thirdly, the sources of crude oil shall be expanded, for example, to support domestic enterprises to expand overseas and to change the current situations in which (1) crude oil imports are over-dependent on the turbulent Middle East and (2) transportation is over-dependent on the Malacca Strait. In addition, more land routes for import of energy shall be constructed to accelerate greater diversification of importing channels. Finally, the crude oil reserve system shall be immediately established to stabilize the market supply and respond to extreme situations.



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Demonstration County/CityGreen energy demonstration county/city in China refers to the specific county/city having demonstration value in utilizing renewable resources, including wind energy, hydro power, solar energy, bio-energy, etc. The basic requirements are: the percentage of renewable resources in overall domestic energy consumption is over 50% and energy resources from waste are rationally utilized. For examples, (1) urban gas grid can be constructed allowing for large-scale utilization of biogas in the areas with sufficient biogas supply; (2) demonstration heating projects can be conducted in areas with adequate solar energy and geothermal energy resources; (3) electric heating projects can be carried out by taking advantage of extra supply of renewable energies at the low demand period; and (4) solar energy and biomass energy can be combined to construct demonstration areas for encouraging the use of new energy resources. The government has set up special fund to support the establishment of green energy demonstration counties. The fund is under the government’s financial budget to ensure subsidy of not exceeding 25 million Yuan can be allocated to each green energy demonstration county. The fund is mainly used for projects, for examples, on centralized biogas supply, biomass gasification, biomass pellet manufacturing, deployment of other renewable energies and provision of rural energy services. These projects need to achieve the anticipated energy consumption targets in total. At the end of 2010, a list of the first 108 green energy demonstration counties was issued. These included Yanqing County at Beijing, Zhangbei County at Heibei, Yilan County at Heilongjiang. For green energy demonstration cities, Dunhuang City at Gansu and Dezhou City at Shandong, for examples, have already made some good progress.

Will the energy demonstration county/city serve as a good model for others?

According to the requirement of the 12th Five-Year Plan in China, by the end of 2015, 100 new cities, 200 counties, 1,000 areas and 10,000 towns for green energy demonstration will be established.



  按照“十二五”�划的要求，到2015年底，全国将建成100座新能源城市、200个�色能源示范�、1000 座新能源示范区和10000个新能源示范�。

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Renewable Energy PolicyEnergy policy is an effective means for the government to regulate, standardize and support its energy industry. In China, energy planning policies at national level set the tone and indicate the directions for development. Launched policies included, for examples, (a) the 11th Five-Year Plan on Energy Development, (b) the 11th Five-Year Plan on Renewable Energy Development; (c) the Medium and Long Term Plan on Renewable Energy and (d) the Renewable Energy Resource Act. The later Act effectively facilitated the exploitation and utilization of renewable energies and provided a strong framework for their rapid development. As an example, the enforcement of full purchase by power grids on all electricity generated by renewable energies helped removing the concern from most renewable power generation companies. With strong support from the Chinese government, wind energy, solar energy and biomass energy have made significant progress, in which preferential policies and government subsidies deserved much credit, especially for the their early development. The open bidding policy for operation concession of wind farms and solar power stations attracted large amount of investment, introduced fair competition and adjusted the investment cost to give a market oriented grid-connected price. Based on experience from open bidding of concession projects, the grid-connected price of wind power finally came out in July, 2009 and that for photovoltaic was published on 1 Aug, 2011. The National Development and Reform Commission published a unified grid-connected price of 0.75 Yuan/kWh (including tax) on July 18, 2010 for electricity generated from biomass of agriculture and forestry in conjunction with the release of a notice on construction management of biomass electricity generation project in 2011. These timely policies saved the enterprises of biomass electricity generation from business loss and changed the whole biomass electricity generation industry, allowing some enterprises to make small profits.

Which part of the current energy policy will need to be improved?

During the period of 12th Five-year Plan, the central financial authority will further inject a subsidy of 4.75 billion Yuan for biomass energy to promote its development. At the same time, the 12th Five-Year Plan of Energy Development and the 12th Five-Year Plan of National Energy Technology will enhance the future development of the entire industry.



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Green Urban Energy SystemWith the expanding scale of cities in China, provision of energy becomes a complicated issue. On one hand, the complexity of city operation creates a wide variety of energy demand; and on the other hand, the utilization of city energy is related to its desired environmental quality. As such, energy is an important part of sustainable city development. To perform “green-upgrade” of the urban energy system, efforts can be made from both the consumption and supply sides. The major energy-consuming sectors are construction and transport. The promotion of green/energy efficiency buildings and building retrofitting in construction industry will allow better control on energy consumption and carbon emission. For transport, the policy of using gas to replace oil for vehicles will save fuel cost and will greatly reduce the emission of pollutants as exhaust. The adoption of new green vehicles will allow the realization of low-carbon transport. Bioethanol and/or biodiesel will play an important transitional role. On the supply side, the rapid development of wind power, solar energy and biomass energy brings more choices for the urban power grid. The solid biomass, biogas and waste landfill gas can be used for direct electricity generation. This will allow the full use of resources for the generation of clean electricity, as well as provide as separate distributed power supply systems acting as essential complements to the urban power grid. The combined heat and power generation will increase the utilization ratio of fuel and effectively meet the users’ demand for heat and power. The biomass pellets will provide the urban coal-fired boilers with an alternative option.

How can a low-carbon city be realized in China?

In addition to “green upgrading” of the existing urban energy system, the Chinese government has been continuously promoting the planning of new urban district/city. For example, the idea of eco-city (eco-region) planning will entirely rely on renewable energies to realize the self-sufficiency of power and heat. The Shanghai Dongtan Eco City and Heibei Wanzhuang Eco City are the two excellent cases. Despite with a good planning, actual implementation has been on hold. With too many reasons, no eco-city in a meaningful sense has yet entered a substantial construction phase.


Energy demand side Green demand

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Green BuildingAccording to the Ministry of Housing and Urban-Rural Development, the building energy consumption (including consumption for initial construction, daily operation, heating and cooling, etc.) accounts for approximately 30% of total energy consumption of the entire society and that heating and cooling account solely for 20%. If the energy consumed in the production of construction materials is added (16.7% of total), the building-related energy consumption accounts for 46.7% of the total in China. Over 99% of newly constructed buildings are high energy usage buildings, among which those large public buildings are the “black holes” for energy consumption, and only small number of existing buildings adopt energy efficient solutions. Currently, building energy consumption has become one of three biggest energy-consuming sectors in China, together with industry and transport. Especially with the increase of the total number of buildings and improvement of living standard, total building energy consumption will be rising substantially. Experts predict that the building energy consumption will reach 1 billion tons of standard coal equivalent by 2020. Confronted by this situation, it is imperative to promote green buildings to reduce the energy consumption. With reference to the Green Building Standards LEED (US) and the BREEAM (UK), China has established its Three-star Rating Green Building Assessment System.

Should the additional cost of developing green buildings be jointly borne by the government, the developer and the users?

Adoption of green building in China is still facing with barriers like public awareness, unreliable technologies and politics as well as lack of monitoring and incentive policies. Despite on the effort to promote building integrated solar & wind energy and further deployment of ground source heat pumps, the related technologies will need to be upgraded. Another critical issue is who should bear the additional building cost; the government, the developer or the users. One possibility is that the developer receives compensation, subsidies, tax reduction or exemption from the government by developing green buildings. The remaining cost has to be absorbed as additional construction cost. Through public promotion campaign, the users will hopefully realize the benefit by utilizing energy and water saving facilities so as to reduce related costs and gradually offset the additional cost incurred in the initial purchase. However, facing the already high housing price, there is a doubt whether the users would like this concept. Other critical issues include certification, promotion, compulsory execution of green building standards and further improvement of energy-saving technologies.



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Green Transport: From Oil to GasLow-carbon transport offers a good solution to help achieving the national committed emission reduction target of China. To address the demand of green transport, China has taken many initiatives including (1) using gas to replace oil for vehicles, (2) deploying bio-ethanol & biodiesel as fuel, and (3) developing electric and hybrid vehicles. Although the use of biofuel can basically minimize the pollution originated from vehicles’ emission, problems such as immature conversion technology, its low conversion efficiency and insufficient biofuel supply, haven’t been properly resolved. Thus, before fully entering the era of extensive use of bio-fuel together with electric vehicles, the initiative of using gas to replace oil for vehicles becomes very important. Vehicles using natural gas have 90% lower emission of carbon monoxide, nitrogen oxides and hydrocarbon than using gasoline. Reduction on running cost by using natural gas attracts many taxis, buses and even some private cars to join the campaign in using gas to replace oil. While the economic and environmental benefits of using gas in vehicles seems very promising, various associated problems limit its further use, such as short running distances, inadequate gas filling stations and difficult to carry out vehicle maintenance.

Have you joined the campaign on using gas to replace oil?

To satisfy the increasing demand on natural gas for vehicles, it is important to establish an extensive gas filling network. China will increase the supply of natural gas during the period of 12th Five-Year Plan and the consumption of natural gas will reach 260 billion m3/year by 2015, accounting for over 8% of primary energy consumption. This will include the additional supply of 40-50 billion m3/year for vehicles, and 3,000-3,500 new natural gas filling stations. To better facilitate the transformation into green transport by means of “gas replacing oil”, the focus will be on the replacement of diesel by gas for conventional trucks.



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Green Transport: Green VehicleTo help promoting green transport in China, it is beneficial to develop new vehicles that depend more on electric charging. There exist two major opinions on their future development direction: (1) Development of hybrid powered vehicles will depend on certain critical technologies, such as gearbox redesigning, which China is currently lacking of. It will be effective to directly jump into the development of complete electric powered vehicles; and (2) The transformation of traditional vehicles to complete electric powered vehicles will take at least 15 years and the development of hybrid powered vehicles will play an important transitional role. The Chinese government strongly supports the green vehicle industry and provides vehicle purchase subsidies. According to the Ministry of Finance, the budget for subsidy in the purchase of these vehicles is 5 billion Yuan currently and can be increased if there is a good demand on it. Based on this encouraging policy, some optimistic analysts believe that direct development into complete electric powered vehicles will be possible.

Should we focus the development on complete electric powered vehicles or hybrid powered vehicles in China?

The sales of green vehicles is, however, not satisfactory at this stage. About 10,000 were sold in 2010, including only ~100 privately-purchased. It is a long way behind the set target of 1.5 million in 2015. The budget for subsidy for privately-purchased green vehicles is 5 billion Yuan but less than 100 million Yuan have been allocated so far. As such, it is necessary to reconsider the development policy on green vehicles. The current problems include: (1) The industry is receiving overwhelming attention but only a few companies have the core technologies; (2) the related technologies are not mature leading to short running distances per charge, long charging time, large size and short discharge life of batteries and low-efficient electric-drive system; (3) there are insufficient supporting facilities, shortage of charging stations as well as lack of unified standards and (4) High Cost.



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Power StoragePower storage in this context means transforming electric energy into potential energy, kinetic energy, chemical energy or electromagnetic energy and releasing later to meet the electric demand at an appropriate time and location. At present, due to the intermittent nature of some renewable energies such as solar energy and wind energy, the power grid is required to be able to respond dynamically to the changing electricity supply and demand. Effective power storage is therefore necessary. There are many feasible energy storage methods, such as using compressed air, battery (lithium battery, fuel cell, flow battery, etc.), flywheel and hydro-power (pumping water to higher ground and related power being stored as potential energy). The hydropower storage is comparatively mature. When there is excessive power, the downstream water will be pumped into the reservoir; and when the power is needed, water will be released to drive the generator to compensate the power shortfall during peak hours. As such, the resource is better utilized and the network is more reliable. The installed hydropower storage capacity in China reached 14.545 million kW by the end of 2010, accounting for 1.66% of the national installed electricity capacity. Existing facilities include, for examples, the Beijing Shisanling Hydro-power Storage Plant, the Guangdong Huizhou Hydropower Storage Plant (single established plant with the biggest installed capacity in the world of 2.4 million kW), etc.

What other choice(s), apart from hydro-power, should also be considered for power storage in China?

According to the “12th Five-year Plan” for power industry, the installed hydropower storage capacity will be increased to 30 million kW by 2015, and 70 million to 0.11 billion kW by 2020. As it takes 4-6 years to build a hydropower storage plant, in order to achieve the target, most bidding activities will be completed during the “12th Five-year Plan” period.


Energy demand side

Energy demand sidemanagement

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Distributed Power GenerationSmall distributed power generation plants utilize clean (such as natural gas) and renewable (like waste or biomass power generation) energies to generate electricity and distribute the power to local communities. These plants are considered as a very useful complement to those large national grids. Being closer to the end users, the power loss caused by transmission (because of shorter distance from these plants) can be reduced and the heat released during power generation process can be better utilized. As such, the total energy utilization efficiency can reach 60-90%. The scale of distributed power generation is relatively small, from several kW to 50,000 kW, and it can provide electricity individually, in the way of combined heat and power generation or combined cooling, heating and power generation. The surplus of generated electricity can be fed into the related power grid. The operation can be very flexible. Distributed power generation is regarded as an essential element for effective energy demand side management. Distributed energy generation is also a good solution for controlling the total energy consumption in China. According to the National Energy Administration, if the distributed power generation can reach 5% of the current total power generation capacity, it can save 70 million tons of standard coal equivalent, which means reducing 64 sets of 0.6 million kW large coal-fired generator. Due to the rapid development of the natural gas network and the relatively clean nature of natural gas, its use for the gas and steam circulated heat and power combined generation is the main form of the current distributed energy system. The current installed natural gas based distributed power capacity in China is about 5 million kW; less than 1% of the total national installed capacity.

What are the challenges in promoting the use of distributed energy system?

In April 2010, the National Energy Administration proposed to build 1000 natural gas based distributed energy projects in the next few years and to increase the use of distributed energy systems in big cities hopefully reaching an installed capacity of 50 million kW by 2020. Encouraged by this policy, the five big power generation groups are considering launching distributed energy projects, and the grid companies are also creating favorable conditions for the connection of distributed energy to the grid.


Energy demand side


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Combined Heat and PowerCHP enhance the utilization of energy by using the high grade heat for electricity generation and the low grade heat for heat supply. As such, it improves energy utilization efficiency and is also more environmental friendly. CHP is suitable to be implemented in cities of the northern China demanding substantial heating, industrial parks in southern China, and some large industrial enterprises. The power plants that implement CHP are called thermal power plants and have a heat utilization efficiency up to 70%, much higher than that (40%) of the coal-fired power plants. Compared to the separate generation of heat and power, CHP can save about 15-20 kg/GJ standard coal consumption for heat supply and about 30-50 g/kWh standard coal consumption for electricity generation. According to the statistics from the China Electricity Council, by the end of 2009, the total capacity of national CHP units was 0.145 billion kW, accounting for 20% of the total installed coal-fired electricity generation capacity and 17% of the total capacity of national electricity generation. The contribution of CHP to the reduction of energy consumption and emission during the “Eleventh Five-year Plan” period included: (1) saving 75 million tons of standard coal equivalent per year; and (2) reducing 1.12 million tons/yr of sulfur dioxide, 1.128 million tons/yr of nitrogen oxide, 48.45 million tons/yr of carbon dioxide and 0.6942 million tons/yr of fumes.

Will the “heat” in CHP be fully absorbed by the market?

Experts predict that the newly-added installed capacity of CHP will reach 0.11 billion kW during the “Twelfth Five-year Plan” period, and will achieve 0.25 billion kW in total by 2015, accounting for 32-35% of the planned installed capacity of coal-fired power generation. This will make the power consumption per unit GDP of the power industry reduce by 3-5%. To further improve the energy utilization efficiency, combined cooling, heating and power generation system shall be adopted and will help forming the basis for central cooling.


Energy demand side


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Central Heating/Cooling Central heating has many economic, environmental and social benefits and has already been a key solution for sustainable urban development in China. If the system takes the cogeneration (combined heat and power generation) as the core, with the heat being the by-product of power generation, a very high efficiency on energy utilization can then be realized. However, the construction cycle of a central heating system is usually long. In China, central heating systems are typically based on coal as fuel. With the future focus on low-carbon city development, other alternative “clean” heat sources shall be needed, including natural gas (distributed energy supply system), waste incineration, geothermal energy, wood pellets, straw, solar energy, etc. It is expected that the development of central heating will be greatly enhanced during the period of the “12th Five-year Plan” under the extensive promotion of CHP and construction of pipe networks. There exist different development barriers related to the industrial framework, the policy, funding, and technology in the industry. The advantages of central heating are still not fully realized because charging is based on area in most regions. Policy support for central heating has not been sufficient. As central heating requires an extensive pipe network, a substantial investment shall be required. The central heating technology and related metering technology shall need to be improved.

Is the metering system the biggest obstacle to central heating/cooling?

Central cooling is relatively new in China. At present, the main difficulty encountered during its implementation is related to the change in social behavior, despite the development of combined cooling, heating and power supply has already provided a good technical support for its deployment. Other cooling technologies include the use of low-temperature heat sources such as lake water or river water and the usage of geothermal heat pumps. Whether it is central heating or cooling, proper household metering/charging system is the key for their wider adoption.


Energy demand side


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Light Emitting Diode (LED)Light Emitting Diode is a solid-state semiconductor device, which can directly convert electricity to light. Compared with common incandescent lamps and high pressure sodium lamps, the LED lamp has higher conversion efficiency, longer service life as well as lower energy consumption. In 2011, the production output of LED industry in China reached 154 billion Yuan, with an annual growth of 22%, while the annual growth of production volume exceeded 50%. The newly increased investment on the LED industry reached 125.6 billion Yuan from January to July 2011. In 2012, the output value of the industry is expected to exceed 200 billion Yuan. In the “12th Five-year Plan”, the LED lighting has already been regarded as an emerging strategic industry. Many problems have evolved in the development of the LED industry in China. At present, there are about 1,200 LED packaging enterprises, with the production capacity exceeding the current market demand. The lack of core technology restricts LED enterprises in China to downstream business of the industry and to contend for only less than 40% of the total profit for the entire industry worldwide. Moreover, the scale of Chinese LED enterprises is small and the competition among each other is fierce. In China, because of its relatively high price, LED light is mainly used in government projects, luxury hotels, office buildings, etc. With the launch of the “Roadmap to phase-out the use of incandescent lamps in China”, the domestic market will be expected to expand.

Can LED lamp light up the night better?

Some experts believe that it would be difficult to eliminate incandescent lamps in China by 2016 because the whole industry has not been well-prepared. Many complicated issues exist, such as the establishment of a proper technology roadmap, enterprises’ closure, change in production line, resettlement of workers, etc. If these are not properly handled, the industry may suffer from a great setback. Instead, the better way may be phasing out through different regulatory means in the market and continuous improvement on the industry standard.


Energy demand side


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Energy Saving ServicesThe business model for a company to provide these services is to share the energy saving benefits after the implementation of a customer’s project, according to the energy saving service contract signed with that customer. The services include helping the customer on selling or purchase of power and related transaction, energy supply and/or management, improvement on energy efficiency, provision of technical renovation fund, energy audit and energy investment project. The emphasis on energy saving by the government in recent years has led to an intensive launching of policies and solutions on energy saving and emission reduction as well as the establishment and perfection of supporting system on testing and assessment. It is expected that the energy service industry will be growing significantly. During the period of the “11th Five-year Plan”, energy saving service industry increased its contribution to (1) the saving of standard coal equivalent from 861,800 tons to 10.6485 million tons and (2) emission reduction of carbon dioxide from 2.1545 million tons to 26.6213 million tons. The industry achieved the total output of 41.7 billion Yuan and realized an annual growth of 92.7% in 2008. In 2009, 502 energy saving service companies implemented more than 4,000 energy saving projects and achieved a total output of 58 billion Yuan with a total investment of 28 billion Yuan in that year. In addition, the number of person involved in this industry increased from 65,000 in 2008 to 113,000 in 2009. The total output of the industry reached up to 70 billion Yuan in 2010.

Are the energy saving service companies ready for the future challenges?

It is predicted that by 2015, the number of person involved in the industry will be over 1 million and the total output will surpass 300 billion Yuan. The following eight high energy consumption industries are important markets for the energy saving service industry: (1) electrolytic aluminum, (2) iron alloy, (3) steel, (4) calcium carbide, (5) caustic soda, (6) cement, (7) yellow phosphorus and (8) zinc smelting. Apart from that, transport and construction sectors will also become the main targets for emission reduction during the period of the “12th five-year plan”. Although energy saving service industry is attractive, it is facing substantial challenges. Some experts pointed out that the industry shall need to overcome various barriers related to industrial policy, financing and marketing. Moreover, the lack of a specific business model to suit the common practice in China restricts the future development of the industry.


Energy demand side


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Off-peak Electricity ConsumptionIn 2011, facing the widening gap between electricity supply and demand, various provinces and cities started the adoption of different kinds of power utilization scheme in an effort to surmount the difficulties caused by shortage of electricity. The thought behind all these schemes is the same, that is to shift some of the demand load off-peak. In general, the demand load of the power grid is higher in the daytime than at nighttime and higher in workdays than at weekends. Therefore, if the supply and demand of electricity can be better balanced, the peak load can be reduced. In the Nanjing City of Jiangsu Province, capable enterprises are encouraged to shift their production off-peak and to have rest day(s) scheduled within weekdays. For residential electricity consumption, Jiangsu has the peak-valley TOU (time of use) pricing scheme, with the peak price set as 0.5583 Yuan per kWh and the valley price as 0.3583 Yuan per KkWh, while the price of other time as 0.5283 Yuan per kWh. In Shanghai, similar solution has been taken by setting the electricity price at nighttime (22.00-6.00 of the next morning) equal to half of that in daytime (6.00-22.00). In Guangdong Province, when the shortage of electricity reaches a certain level, the first emergency plan of “5 day working and 2 day break” will be implemented. On reaching a more serious level, the second emergency plan of “4 day working and 3 day break” will be exercised.

‘Multi-step” or ‘Time-of-use” pricing system should be adopted in China?

To cope with electricity shortage, the National Development and Reform Commission is planning to implement multi-step (3-step) electricity pricing system for the residential power usage. The basic power consumption level will be set at either 110 kWh or 140 kWh. However, some experts believed that it would not be a good method to save energy and even contradict to the principle on encouraging energy conservation. Instead, shifting the demand load from daytime to nighttime should be encouraged. For instance, the available electricity generated by wind power in Inner Mongolia is wasted due to the low power consumption load at nighttime in Northern China.


Energy demand side


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Shortage of ElectricityRecently, shortage of electricity in China is not unusual and happens every year; well before 2011. However, the year 2011 was a special year because this was the first year of the “12th Five-year Plan”. Many industries deliberately exercised their full productive capacities to address certain political issues. As such, the electricity consumption of those high energy-consumption enterprises increased significantly. At the same time, the rising price of coal led to shortage of power generation coal, which further widening the gap between demand and supply of electricity. According to State Grid Corporation of China (SGCC), 2011 was the most severe year with regards to power shortage recently. The gross electricity shortfall surpassed that of the most severe year of 2004 in China. The electricity shortfall in 26 provinces, under the supply from the State Grid, reached about 30 million kW, and even extended to 30 ~ 40 million kW during the peak season in summer. The shortage was mainly come from northern, eastern and central China. The main reasons for power shortage were: (1) the electricity consumption of those high energy-consumption enterprises increased significantly, (2) the construction of new electric power transmission lines has been lagging behind such that transmission of excessive generated electricity from northwest and northeast China to other places could not be realized; and (3) more importantly, the pricing contradiction between “marketing coal and planning electricity” affected the willingness of those coal-fired power enterprises to generate electricity. In order to avoid the consequence of business loss, the coal-fired power enterprises were forced to generate less electricity, causing significant idling time of many power generators. Therefore, the electricity shortage in 2011 was caused by the structural problem in the industry, rather than the inadequate power generation capacity.

How can we solve the problem of “electricity shortage” in China?

To improve the current situation, experts suggest that: (a) energy conservation and emission reduction shall be further promoted, (b) electricity consumption of the “Two High” (high pollution and high energy consumption) enterprises shall be strictly controlled, (c) the unreasonable demand on electricity from enterprises with excessive productive capacity shall be avoided; (d) the construction of electricity transmission lines shall be accelerated to improve the transmission capacity under the principle that electricity transmission is for long-distance while coal transmission to power plant is mainly cater for short-distance; (e) the development of alternative energy usage shall be enhanced to reduce the strong reliance on coal-fired power in the energy supply structure; (f) the prices of coal and electricity shall be rationalized while the mechanism of “coal-electricity price linkage” shall be exercised.


Energy demand side


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煤企 �企

Coal-Electricity Price LinkageThe unreasonable pricing structure under “marketing coal” and “planning electricity” strategy caused a common loss in the coal-fired power business of the five power generation groups in China and continuous deterioration of their operating conditions. According to the China Electricity Council, due to the continuous rising of the coal price from January to April in 2011, the loss from this business of the five groups reached up to 10.57 billion Yuan; increased by 7.29 billion Yuan comparing to the same period in the previous year. Even though the National Development and Reform Committee had raised the grid-connection prices of 16 provinces on 10 April 2011, yet this business of the five groups continued to lose 1.71 billion Yuan in that month. Reports showed that, from January to July, their coal-fired power business had been in a continuous deficit to 18.09 billion Yuan in total. In this situation, rising the electricity price could only ease off the increasing demand temporarily and the fundamental problem has not been resolved. The mechanism of “coal-electricity price linkage” is still the most powerful solution expected by the market to alleviate the dilemma of coal-fired power industry. However, the launching of “coal-electricity price linkage” will inevitably increase the current electricity price, which will be very sensitive in the current high inflation period. Moreover, rising the electricity price will further increase the coal price leading to a spiral growth of both prices, which may cause a panic for hyperinflation. Therefore, the “coal-electricity price linkage” shall not simply be a strategy just to increase electricity price, but a mechanism to ensure simultaneous change of both prices to reflect the related costs in a timely manner.

Is coal-electricity price linkage the only solution?

In response to the increasingly rising coal price, the power generation enterprises, in addition to advocating the mechanism of “coal-electricity price linkage”, begin to speed up the change of the electric power supply structure, increase installed capacity of new generation systems based on new energy, extend their business into the coal industry and improve the percentage of imported coal (because the transportation of the imported coal to different power plants located along the coast will have a price advantage compared to transferring the power generation coal from inner Mongolia and Shanxi).


Energy demand side


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