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China: open for business

Beijing Jingxi gas-fired power plant

Credit: Siemens

In an environment of slowing growth coupled with increasing energy demand, China’s energy sector is finding new ways to meet its needs both at home and abroad, finds Tildy Bayar

As China’s economy enters a phase that has been dubbed ‘the new normal’, growth has slowed from its previous breakneck pace to what the government hopes will be a more sustainable long-term pattern.

This new phase is driven by diverse forces both within and outside the country, but the government still has much to do with it. Among the new economic drivers are an ‘open for business’ strategy in which the domestic market is opened to foreign companies with a strong emphasis on localizing production in China, and the government’s Made in China 2025 programme, which aims to help Chinese companies, or ‘national champions’, export their products and services overseas. The government says this two-pronged plan will help it in “transforming China from a manufacturing giant into a world manufacturing power, shifting from ‘Made in China’ to ‘Innovated in China’, from speed-oriented to quality-focused, from Chinese products to Chinese brands.”

President Xi Jinping’s signature ‘One belt, one road’ (yi dai yi lu) policy is again a two-pronged strategy, focused on building modern equivalents to the ancient Silk Road trading routes: an economic ‘belt’ from inland China through Central Asia to Europe, and a maritime ‘road’ echoing traditional trade routes spreading outward from China’s coast. Along these routes will travel trade, investment and, the government hopes, travellers who will spend money.

On a recent trip to China, I could see the evolution and diversification of China’s power sector as domestic energy policy moves to address ever-growing need while balancing climate considerations, foreign companies enter the market and Chinese firms look to expand their reach beyond the nation’s borders.

Going global

One company that is benefiting from the going-global initiative is the Power Construction Corporation of China (PowerChina), a state-owned project developer. Founded in 2011, the firm has installed 108 GW in 1561 power projects in 110 countries (as of mid-2015), largely hydropower and renewables. PowerChina this year rose from a ranking of 313 to 253 on the Fortune 500 index.

According to Ding Zhengguo, PowerChina’s chief executive, Asia represents 60 per cent of PowerChina’s overseas business, with 30 per cent in Africa and 10 per cent in Latin America. Ding says the China-Pakistan economic corridor is the central area for the firm’s work under the ‘One belt, one road’ strategy, with a large coal-fired power project planned in India and a $2 billion contract for a gas-fired plant in the works. The firm is also working with the governments of Myanmar, Thailand and Mongolia on the design of those countries’ national energy plans.

In its global strategy, PowerChina goes where the business is. “There is a saying in China,” Ding says: “If a lot of people walk on the route, a road is formed naturally.” He emphasizes that not only Chinese companies, but foreign and multinational firms are interested and participating in this process and, to get projects done, PowerChina is “open to co-operate with public-private partnership (PPP) financing and other kinds of models”.

PowerChina’s strategic development includes different approaches for different regions. “‘One belt, one road’ is a national strategy,” Ding explains, “and then there are different industrial and financial policies to support its materialization. These policies are tailor-made for different countries and projects.” What kinds of projects PowerChina undertakes is “not simply decided by a company or the local government,” he notes. “It is decided by the economic development of the host country – so for different projects there are different demands and requirements.”

Ding explains that the firm’s strategy in its largest market, Asia, is focused on developing distributed power projects, especially in remote areas and “especially in new energy sectors such as solar and wind, and also some small-capacity gas-fired turbines”. He says the firm recently held discussions with Thai state utility EGAT about a 5 MW solar power project, and is also in discussions with private investors and local governments in Myanmar and several African countries on developing distributed power projects.

Ding echoes China’s overall shift in focus to quality rather than quantity. “A few years back,” he says, “the African market accounted for a bigger part of our portfolio because we had lots of financing support from the Chinese government.” Now, he says, “for EPC and contracting, and for PPP projects, we have to take more considerations because usually there is a business tenure of 20+ years. We have to take account of all factors and then decide to make the investment or not.”

Cleaner air at home

Environment policy is another area where big changes are afoot, largely in response to China’s smog problem in urban and industrial areas. In Beijing, the municipal government’s Clean Air Action Plan, established in 2013, targets a reduction in airborne particulate matter of 25 per cent by 2017.

A flagship project under the plan, Beijing Jingxi Gas Thermal Power Co was established to build and operate the city’s largest gas-fired plant, a combined heat and power (CHP) plant commissioned in 2014. The 1 GW combined-cycle plant features three SGT5-4000F Siemens turbines and operates for 4500 hours per year, producing 5885 GWh as well as 883 MWth for district heating for around 200,000 households. In addition, the operating company recently reached an agreement to supply warm water to households.

Construction work at Jingxi began in 2012 after an initial investment of RMB48.6 billion ($7.6 billion). “Because the Beijing government is very ambitious about cutting back on coal consumption we were not given much time to construct this project,” says Zhao Jianbo, the plant’s general manager.

The plant replaced two main coal-fired power plants in the northwest part of Beijing, says Zhao – one 600 MW and one 800 MW – and it saves around 19 per cent of Beijing’s annual coal consumption as well as reducing emissions. “The national NOx standard is 50 mg/m3, the Beijing standard is 30, and this plant is 15-20,” Zhao says. “We are also doing much better with coal-fired plants in terms of SO2 emission, NOx emissions and ash and slag production.”

Zhongwei compression station, West-East gas pipeline

Credit: Tildy Bayar

Zhao also notes that there is now only one operational coal-fired power plant left in Beijing, while there are four major gas-fired power plants, or so-called thermal power centres: the Northwest Centre (2680 MW), the Southeast Centre (840 MW), the Northeast Centre (2×840 MW) and the Southwest Centre (1.5 GW), plus a number of smaller facilities.

Zhao said his firm had “accomplished a lot in terms of energy conservation and technology innovation” in the planning and construction of Jingxi, and had “paid a lot of attention” to environmental protection and emissions reduction. Among the measures taken were the use of recycled water for landscape irrigation, an intelligent lighting system, changes to the condenser and an investment of RMB100 million in noise reduction technologies.

Self-sufficiency emerged as an important theme in discussions with plant staff. Asked about the challenges involved in operating the plant, Zhao said: “It’s a new plant and also a very big system, so it’s natural that we have encountered issues in operation. China’s power generation history involved very fast development for decades, so we have a lot of technical expertise and capabilities – so when we find problems we try to rely on our own expertise to solve them.” Some remote diagnostics have been performed by Siemens, he noted, but any issues have largely been addressed on-site.

Power for the people

Although China’s overall growth may have slowed, the nation is still upgrading its infrastructure in order to address an ever-increasing demand for power. At the Zhongwei Compression Station at Ningxia in the northwestern Hui Autonomous Region, I got a look at the third and newest arm of the West-East Gas Pipeline, again a new development begun in 2012 and a key strategic project. Zhang Zhaojun, director of the pipeline’s administrative office, says the project, which produces around 120 m3 of gas per day, aims to “solve China’s energy resources problem”.

The first arm of the vast pipeline, which runs from the Tarim Basin gas fields in the Xinjiang Uyghur Autonomous Region to the Yangtze River Delta, began operation in 2004. Construction on the second arm, which runs from Khorgas in northwest Xinjiang to Guangzhou in Guangdong, began in 2008. The third arm, once completed, is planned to run from Xinjiang to Fujian.

A fourth pipeline, which Zhang says is “very strategic for China”, is currently in the planning stage. And, “to fully utilize the gas resources and limit geographic limitations,” he says, it will be necessary to “integrate all of the pipelines together into a generic comprehensive pipeline network”.

Line three’s total length is 7378 km, and it transports 30 billion m3 of gas per year. Helping it to do so are six gas turbines, six compressors and two compression stations.

In total, Zhang says, there are 29 compression stations on the pipeline, and 39 industrial RB211 gas-fired turbines at work. Phase 1 of the project used 19 gas turbines and six variable speed drive (VSD) units, with four more turbines added in 2009-10 and one VSD in 2010. There are 23 units in Kazakhstan for the second line, and three more in Uzbekistan for the third. In addition, there are five units on a line from Zhongwei that supplies Beijing.

Zhang also picks up the theme of self-sufficiency. “For the first five years Siemens supported us with a long-term service engineer,” he says, but “for the second half of the decade we have been able to maintain the machines by ourselves.”

Localization

The role of foreign companies in China is also changing. Dr Wang Baoli, vice-president of Siemens China’s Power & Gas Division, says his firm’s focus is now on more than just equipment sales. “Siemens is not only providing technology in China but working with our Chinese partners to develop the global market,” he says.

The firm believes that localization, or siting production and services close to the customer, makes good business sense. “Having a local team allows us to be close to the client and get continuous feedback in order to update our technology,” says Dr Wang.

Kevin Carpenter, Siemens China general manager, Power & Gas Services, says localization is a “major emphasis” for his company. “We started the service engineering effort with one engineer in 2009; now we’ve trained many.” In “the near future”, he says, Siemens aims to set up a power diagnostics centre in China, and there is already a globally-focused manufacturing centre.

At SITH in Huludao

Credit: Tildy Bayar

Siemens Industrial Turbomachinery (Huludao) Ltd – known as SITH – is a joint venture between Siemens China (which holds a 90 per cent stake) and Huludao State Assets Management Co (which holds 10 per cent). The facility manufactures centrifugal compressors and industrial steam turbines, integrating Siemens technology with former local supplier Jinxi Turbo Machinery Factory’s production and distribution facility.

Located in coastal Huludao in China’s southwest, SITH is “a very good example of the implementation of Siemens’ most advanced technology in China,” says Ling Shung, compressor sales and gas division general manager, adding that “we’re not only ‘local for local’, but also manufacture for the global market.”

In terms of Siemens’ factories, SITH is ranked second globally, after Duisberg in Germany. The Huludao branch invested RMB40 million to import rotor machinery from Germany, Ling says, and he notes that the plant sold 14 units in 2014, a significant portion of the 20 sold to the Chinese market.

SITH is working on getting its products certified for the global market, with its target market segments for compressor sales including gasification, carbon capture and storage, compressed air energy storage and district cooling.

For “all machines except standardized technology we have completed the technology transfer [from Duisberg] to Huludao,” Ling says. “The standardized technology transfer is ongoing.”

A new rotor workshop will be operational by the end of this year, and SITH has already manufactured 200 rotors, he says. By end 2015, the facility will have manufactured approximately 20 steam turbines and over 100 compressor units.

“Close to the customer is now the Siemens mindset”, says Ling, adding that “we want to grow together with China”.

In explaining the choice of Huludao, Guo Changlin, SITH’s general manager, says customers in China had complained that without a local office there was a higher price and slower response time, especially for service. In the last 10 years the Chinese market has seen dramatic changes, he explains, and it is unique in that “the speed of the construction phase of Chinese projects is very, very short. This required us to have a really fast response time to customers.”

Originally, he says, “we only had sales, then a proposal team, then project management and procurement teams. Engineering was next, then manufacturing, service and R&D. We’re also working with Chinese universities on a joint research and development pipeline. This shows our commitment to the Chinese market.”

With China’s growth slowing, the team at SITH faces new challenges. “The ‘new normal’ was not in our consideration, to be very frank,” says Guo. “But from three years ago we already thought the market will change – so we decided we will go for the engine market. In three to five years the market will be downsizing. That is why we started to introduce large air separation units to Huludao. We enriched our product lines and are using our complete portfolio to face the ‘new normal’.”

Guo said SITH also faces challenges from “low-cost suppliers which are growing robust. One [challenge] is price, one is delivery time. We’re facing challenges from Chinese competitors, so we must further reduce our price gap and benchmark delivery time.”

In terms of suppliers, he said that “of course we do have lots of lessons learned. Originally we were looking for ones with a cheaper price, but at the end we found that the quality is really not so stable. So four years ago we put more focus on how to develop supplier management.”

Growing together

For the Chinese market, “besides local manufacturing,” Guo says, “we are intensifying our R&D to make sure that, when the economy is slowing down, we’re still competitive in the market.”

And, echoing the two-pronged strategy, he says SITH as a supplier will “follow the trend of EPC projects because Chinese companies are going abroad, so we will go with them and serve the global market.” Global sales currently account for one-fifth of SITH’s total sales volume, with the recent milestone of the first foreign order for an industrial steam turbine from Huludao.

For Luo Sheng, head of compressor sales, self-sufficiency goes hand-in-hand with localization. “Five years ago all engineering work was done at our headquarters [in Germany]; now 80 per cent of the engineering work can be done in China,” he notes. “We want to be a good Chinese citizen, not only from the technology product view but for talent.

“It’s not only about ourselves,” he adds, “but also the growth of our sub-suppliers. We all play a very important role in China’s development of a high-end manufacturing industry.”

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