HomeWorld RegionsAsiaSupporting CHP and district energy system development in Asia

Supporting CHP and district energy system development in Asia

The Asian Development Bank is active in projects to refurbish old and inefficient district heating systems across Asia, as well as projects to add new capacity. David Hayes reports on extensive activity in China, where many coal-fired systems still operate, and projects in Mongolia, Kyrgyzstan and Kazakhstan originally developed by the Soviet Union.

The Asian Development Bank (ADB) recently has approved a US$201 million loan to support the development of district heating and cooling systems in China. This is part of a wider initiative aimed at improving energy management and increasing energy efficiency among developing countries in the Asia-Pacific region. The loan is the first the ADB has made to the private sector to promote the growth of district energy systems in Asia, and indicates the large potential which CHP district heating and cooling has in China as part of government policy to improve energy efficiency and tackle environmental pollution from energy use.

ADB has awarded the loan to Dalkia Asia, a division of Dalkia of France, to fund half the investment required for an estimated $400 million scheme to establish and operate CHP district energy systems across China. In addition to setting up new district energy systems, Dalkia will use part of the loan to finance the acquisition, rehabilitation and operation of existing CHP district heating systems in various cities. Dalkia’s business model in China involves forming joint ventures with local partners to manage district energy systems. The company plans to set up eight to 10 joint ventures over the next five years to deliver reliable heat and cool air supplies to residential, industrial and commercial customers.

Since beginning operations in China in 2003, Dalkia has established itself as a leading district energy company operating district heating systems in cities including Harbin, capital of Heilongjiang Province in northeast China and nearby Jiamusi City. Dalkia also has contracted to operate the district cooling system serving Guangzhou University, the world’s largest university campus, in Guangzhou, capital of Guangdong Province in southern China.

Founded in 1860, Dalkia is the world’s leading district energy system management and maintenance company employing over 50,000 people in 40 countries. Dalkia manages 96,000 sites worldwide with 83 GW of total heating capacity and 2.7 GW of power generation capacity including 710 MW of renewable energy facilities. Paris-based Dalkia is majority owned by Veolia Environment, which holds a 66% interest in the company, while Electricite de France (EdF) owns the remaining per cent shareholding.


ADB has been involved in the development of district heating in China for the past decade. In addition to loans to finance the rehabilitation and upgrading of CHP district heating systems in various cities, the bank has funded the installation of heat-only boilers for district heating systems in the capital Beijing, as well as cities in Liaoning and Shanxi provinces.

ADB district heating rehabilitation projects involve upgrading existing facilities and extending the system coverage to serve a new part of a city or into new industrial zones. Currently the ADB is funding an environmental improvement project in China’s Inner Mongolia autonomous region which includes upgrading the CHP district heating system serving the Hangjinhou area of Bavannaoer City.

Until now the development of district heating systems in China, Mongolia and Central Asia has followed the model developed in the former Soviet Union, using coal-fired power plants to run CHP district heating systems.

‘The anchor for CHP district heating has to be residential heating demand. In western countries the model used is gas for winter heating but the Soviet Union did not have gas at the time, so they developed district heating,’ explained Anil Terway, senior energy advisor and practice leader in ADB’s regional and sustainable development department, ‘Industrial heat demand requires a higher temperature but it also requires a residential heating load for the system to be viable as you cannot store steam.’

ADB, the World Bank and other agencies are helping China implement a government-backed programme to renovate city CHP district heating systems. ADB is discussing a project for Shanxi Province where the bank supported a previous district heating upgrade scheme. Noting that Shanxi is one of China’s leading coal producing provinces, Terway added: ‘At the ADB we call these district heating schemes environmental improvement projects as they help reduce waste heat. ‘The geographical dividing line for CHP projects in China is north of Shanxi Province. China, Central Asia and Mongolia have coal so they can do CHP heating projects.’

‘Northern China has the most potential for district heating because of low winter temperatures. We designed a project for Inner Mongolia with 11 cities planned to have from 300,000 to 500,000 residential heating customers each but this was not enough as a CHP district heating system requires a 500 MW to 700 MW power plant. The alternatives are to find a natural gas source and supply it to homes for winter heating. Otherwise you can use a boiler-only system for district heating which is 95% efficient.’

Second and third level cities and towns in China are expanding fast through economic development. In some cases the local government faces difficulties locating new power plants near to each city. Power plants located too far out of town cannot be used for district heating due to heat loss in the pipeline network.

‘Maybe it will be possible to have CHP power plants in some cases,’ Terway remarked, ‘The government is saying not less than 300 MW for each CHP power plant unit, so a 600 MW CHP station fitted with two 300 MW CHP units is the norm. There is no exact rule how close a CHP power plant should be to a city or town to supply heating, but steam loses its heat during transmission.’

As part of its programme to attract funding for district energy system development, the government is stepping up efforts to attract private investment after opening the district heating market to foreign investors in 2003 to obtain operational know-how and private sector capital. More recently, in a bid to encourage private investment in CHP district heating, China’s Ministry of Construction, the National Development and Reform Commission jointly issued Interim Measures for Price Control of Urban Heat Supply in 2007 which guides heating pricing in urban areas. Importantly, under the new measures, heating suppliers can apply for tariff increases to maintain adequate profitability.

In a move to increase energy efficiency, government regulations require many cities to close down their decentralized small heat-only boilers completely by 2010 and connect the affected urban area to a centralized district heating system. The government estimates the cost of the five-year programme will be 200 billion renminbi ($28.6 billion) from 2008 to 2013. Whether targets are met remains to be seen as many cities are experiencing difficulty in obtaining the necessary funding.


According to Terway, district heating in China dates back to the 1950s, with the use of heat-only boilers. The original Chinese district heating system model involves a large number of small plants linked to local heat networks covering a relatively small area. Under China’s centrally planned and controlled economy, the provision of heat during winter months was considered a general public welfare service and was priced below the actual cost of providing the service.

China’s rapid economic expansion during the past two decades and the resulting growth in urbanization have greatly increased the national demand for heating. According to ADB, China is the world’s second largest district heating market after the Russian Federation. China’s district heating market is comparable to the combined 27 member countries of the European Union and 5.5 times larger than the United States district heating market.

In spite of the market size, district heating represents only about 30% of the floor area in China’s northern cities leaving a large service area still served by heating sources other than district heating. Compared with the 55-60% penetration rate of district heating in European countries, China presents substantial opportunities for further district heating expansion. The total heated floor area in China reached 2.5 billion m2 in 2007 and is expected to reach 3.6 billion m2 in 2010. The floor area served is expected to grow by double over the next decade to reach 7.5 million m2 in 2020.

Growing demand for district heating in China has highlighted current energy inefficiency and environmental concerns over the present district heating system. In most cities the district heating operation is run by municipal-owned utility companies which due to a lack of available finance have neglected the need to commit a minimum level of investment and the need for regular system maintenance. According to government figures, in the years from 2001 to 2005 China’s ageing district heating pipeline network suffered 233,000 general failures in district heating systems serving 140 cities including 1,400 serious breakdowns.

The majority of heating system customers receive heating at a low temperature directly from the heat source. District heating operations tend to be intermittent which further lowers the temperature of the circulating hot water. To obtain hot water sooner, end users often dispose of the circulating water. This together with leakage caused by the ageing pipeline network causes significant water loss ” anywhere from eight to 30 times more than that from a modern district heating system. In addition, existing heating systems suffer relatively high thermal heat losses due to the oversized pipe diameters, pumps, valves and substations that are in use.

Under the present district heating system still in use in China, hot water typically is sourced from many small coal-fired heat-only boilers (as opposed to modern centralized CHP systems) with a boiler house capacity of 2 MW to 14 MW each or from 3 tonnes to 20 tonnes of steam per hour which are inefficient at 40-45% thermal efficiency.


Another problem is that many of China’s older district heating systems create health problems for people living near the coal-fired boilers as the boiler and stove smokestacks are relatively short and are not fitted with adequate pollution control devices. As a result the boiler stacks emit smoke into the air near local housing causing air pollution and respiratory problems, particularly during winter months.

In spite of government efforts to replace these small boilers with centralized heating systems, more than 500,000 small heat-only boilers are still in operation in China. These boilers together with coal-fired boilers and stoves used by industry and households consume almost half China’s coal and are the major cause of urban air pollution.

Terway noted the government has encouraged the development of CHP district heating for the past two decades, following official recognition of the benefit of district heating in promoting energy efficiency and reducing air pollution from old coal-fired boilers. Since 1986 the government has introduced legislation to encourage and support the development of district heating, making CHP the preferred technology. In 1986, the ruling State Council issued Special Order No 22,which outlined a policy to rebuild district heating systems using CHP to replace small coal-fired heating boilers and household stoves.

Government efforts to increase CHP district heating have grown during the past five years as the national energy policy has made energy conservation and energy efficiency top priorities. In 2003, the Ministry of Construction, the National Development and Reform Commission, the State Environmental Protection Administration and five other central government agencies jointly issued document MOC 2003-148 outlining plans to reform the district heating industry.

The government’s district heating reform programme calls for district heating to be developed on a market basis rather than on a subsidized public welfare basis, with consumers being required to pay real energy costs. The government recognizes that efforts are needed to improve the efficiency of heating supply, transmission and distribution; also, to reduce the environmental impact of district heating, to improve and expand district heating availability, and to introduce competition to the district heating market.

District heating development has been included in China’s current 11th Five Year Plan (2006-2010) as part of wider plans to increase energy efficiency and conservation. Under the 11th Five Year Plan, the government intends to increase the heat supply from CHP district heating systems from 20-50% of the total district heating market and to increase the penetration of the CHP district heating market from 30-50% of total district heating use during the plan period.

District heating is also one of the key elements in the government’s medium- and long-term energy conservation programme. Plans call for the current heat supply from small scattered coal-fired boilers to be replaced by CHP district heating units fitted with environmental protection facilities. This plan is designed to achieve energy savings of 35 million tonnes of coal equivalent each year by 2020.

Apart from district heating, district cooling is another area where CHP systems have a large growth potential as electricity hungry air conditioners supply the cooling needs of households and industry in China.

Improving the energy efficiency of air conditioning is one of the most effective measures that municipalities can take to decrease energy usage as 82% of China’s electricity production currently is generated by coal-fired stations. Government figures show air conditioning accounts for up to 40% of the total power load in major cities on hot summer days.


Meanwhile, since its establishment in 1966, ADB has been one of the leading multilateral institutions supporting energy development as part of its wider portfolio of economic and social development funding activities throughout the Asia-Pacific region. Currently the ADB has 63 member countries including 36 borrowing developing countries in a region stretching from Pakistan and Central Asia in the west to Pacific island nations in the east.

ADB’s involvement in energy development has evolved over the years. In the 1970s and 1980s, most energy sector loans were used to build power stations and to construct natural gas transmission pipelines. In the 1990s, attention moved from building new power plants to improving transmission to reduce system losses and remove distribution bottlenecks affecting supply from new power stations. ADB continued to finance construction of gas transmission pipelines and in the 1990s began supporting development of CHP and boiler-only district heating systems in China, Mongolia and Central Asia.

Today, efforts to improve energy management and energy saving are major drivers of ADB’s energy lending programme though the core aim to improve energy management also influences the bank’s approach in other sectors where energy saving is possible in designing buildings or in infrastructure development such as energy and transport projects.

In Central Asia, ADB has provided funding for the rehabilitation of the Bishkek district heating system which serves the capital of Kyrgyzstan. The project was co-funded with various parties including the World Bank which provided a soft loan to overhaul and increase the generating capacity of the CHP unit, while ADB provided a $30 million loan to upgrade the Bishkek heat distribution system. Rehabilitating and modernizing the Bishkek district heating network began in 1997 and took 10 years to complete. The break up in 2001 of Kyrgyz National Energy Holding Company, which operated the entire CHP district heating system, into seven joint stocked companies caused delays to the project work schedule including lengthy delays replacing outdated heating pipes in various parts of Bishkek.

Rehabilitating the Bishkek heating system also involved repairing and upgrading seven of the systems 19 pumping stations with variable speed pumps, and the renovation of 2,280 heating substations. The Bishkek district heating system was installed during the Soviet era along with heating systems in several other Soviet republics.

‘A lot of Asia has a long winter such as Ulaan Baatar in Mongolia. A lot of Central Asia is the same. The Russians installed CHP district heating in Bishkek, Dushanabe in Tajikistan, Tashkent in Uzbekistan and Almaty in Kazakhstan. These used coal-fired CHP power stations,’ Terway explained, ‘The water cooler in the power plant is used to provide heat for district heating. The heat separates water at 160-170à‚°C and pumps using the power plant pumps. During the winter these Soviet power plants grow from 38-39% thermal efficiency to 80% thermal efficiency using the CHP operation. If combined heat and power is done with a combined cycle plant in Europe, the thermal efficiency reaches over 90%.’

Apart from the Bishkek project, ADB was involved in preliminary planning in the mid-1990s to fund a project to upgrade the Almaty CHP district heat system in Kazakhstan. The government initially planned to privatize the district heating system but eventually did not request ADB assistance after changing its privatization approach.

‘The government tried get the private sector to invest in the Almaty district heating system but it did not happen, as the government then sold off the CHP power plants,’ Terway recalled, ‘The government initially discussed with ADB to take out a private loan to expand the CHP plants, but the government instead decided to sell off the power plants in 1996.’


Meanwhile, ADB also has funded the development of CHP district heating in Ulaan Baatar, Mongolia, where the bank has completed a nine year project started in the late 1990s. With a population numbering one million people, Ulaan Baatar is the world’s coldest capital city where winter temperatures can drop as low as -40à‚°C. District heating is a major source of heating in the capital, where ADB provided Ulaan Baatar District Heating Company (DHC) with a $41 million soft loan to upgrade its ageing heating system to improve services to existing and new clients.

The Mongolian government requested ADB assistance in rehabilitating and modernizing the Ulaan Baatar district heating system after numerous faults and other problems caused the CHP heating system’s performance to deteriorate rapidly in the late 1990s. Deterioration in the heating pipes and other equipment reduced the Ulaan Baatar system’s operating capacity and prevented new industrial and residential customers from connecting to the district heating system. The lack of available heating supplies for new customers stopped the capital from growing and held back Mongolia’s economic development.

Ulaan Baatar district heating system dates back to 1959 and is based on hot water produced at three coal-fired CHP plants. The CHP plants generate electricity for the central electricity grid, steam for industrial uses which is supplied through a separate pipe network, and hot water for the district heating system. DHC’s main network consists of about 125 km of double pipelines ranging from 1200 mm to 150 mm that feed the main substations and distribution points. About 34% of the pipelines on the main network are above ground while the rest of the pipeline network is below ground in concrete ducts, mainly along the city’s roadways.

DHC’s distribution system totals about 220 km in length of double pipelines ranging from 200 mm to 20 mm in diameter. The ADB project involved replacing ageing pipelines and other equipment used to operate the district heating system. The number of customers connected to DHC’s heating system rose from 4000 to 6000 during the course of the project.

The Mongolian government’s project targets included increasing useful heat supply to consumers by more than 50% without installing additional capacity, and reducing electricity consumption for hot water pumping by one third. Equipment installed and replaced included variable speed pumps at power plants, substation heat exchangers, differential pressure controllers for heat ventilation systems, new distribution pipelines, and modifications to the pressure holding system. ADB funding also covered the replacement and installation of various meters to monitor the flow of hot water and heating in the transmission and distribution systems, as well as customer premise meters.

Meanwhile, ADB is interested in providing further support to CHP district heat development in Mongolia. Terway noted the government is looking to attract private investment to build a CHP power plant that will sell electricity to the national grid and steam to a local heating company. Currently the government is looking to handle bidding for the CHP power plant on its own. ADB assistance could be requested if difficulties arise with the bidding process.

David Hayes writes on energy matters in Asia. Email: cospp@pennwell.com

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