Developing Chinas electric power sector will require international cooperation

Developing China`s electric power sector will require international cooperation

With a need to double its existing installed capacity by 2010, China will remain the largest market for new generating equipment

By Douglas J. Smith

Managing Editor

The Chinese government says that 16,000 MW of new electric capacity must be added annually through the year 2000 to keep up with the country`s annual growth rate of 7 percent. At the end of 1996 there were 11 counties in China with a total combined population of 72 million which had no access to electric power. China`s per capita of installed capacity is currently less than 0.20 kW. Figure 1 shows the current per capita energy consumption in China compared with other countries around the world.

However, the Chinese electric power market is the fastest growing market in the world and the government is dedicated to increasing the use of electricity in the country. With contracts for 36,155 MW of new capacity for the period 1993 to 1995, China was the biggest market for power plant equipment. Figure 2 compares the Chinese electric power market with the markets other areas of world for the same two-year period.

China is in the process of allowing independent power producers (IPP) to enter the electric power market. With changes in the way Chinese power projects are financed, including build- own-transfer projects, it is possible that the Chinese electric power industry will provide more opportunities for foreign companies to enter the Chinese market. Although there are opportunities for overseas developers in China, the obstacles are many and the Chinese market is not for the faint-hearted.

In a paper presented at the “Fourth China Electric Power Forum `97” in Guilin, China, April 16-18, 1997, sponsored by Power Engineering International and Independent Energy, a speaker from Mitsui Babcock Energy Ltd. of the UK, said that for any company to succeed in China it must be willing to invest in China, maintain and accelerate product development and take the lead in financing projects.

State Power Corporation of China formed

On Jan. 16, 1997, the State Council of China officially inaugurated and established the State Power Corporation of China. Mr. Tan Aixing, Director General International Cooperation Department at the Chinese Ministry of Electric Power and a keynote speaker at the Guilin conference, said, “The establishment of the State Power Corp. of China is a natural transition of the electric power market. Over the last few years many reforms have been carried which have allowed the electric power industry in China to develop.” Some of the changes that have allowed the Chinese electric market to develop include:

– the change from a planned economy to a socialist market economy;

– reform of tax, investment and financing rules; and

– reorganization of the electric power industry management into a commercial operation.

The State Power Corp., which is a state-owned company funded by the State Council, is made up of the following subsidiaries:

– the Northeast, North, Central, East and Northwest China Power Groups;

– the Huaneng Group;

– Gezhouba Engineering Group;

– Shandong, Sichuan, Fujian, Yunnan, Guangxi and Guizhow provincial power utilities;

– the South Electric Power Joint Venture Co.; and

– the State Power Grid Development Corp.

The total installed capacity of the State Power Corp. is 140,000 MW and is supplied by 30 thermal power plants and eight hydroelectric power plants. In addition, the company owns 100,000 km of 220 kV-plus transmission lines. According to Mr. Tan, the major objectives for establishing the State Power Corp. of China is to maintain and add value to the state-owned power assets and to continue the development of the electric power industry. Development and expansion of the country`s electric system will contribute to the growth of China`s economy and its people, said Mr. Tan.

Current capacity and needs

Currently China has a total installed capacity of 235,000 MW, but despite the rapid development of the electric power system, China`s demand for electricity exceeds its supply. As mentioned earlier in this article, China is growing at an annual rate of 7 percent, and to keep up with this growth, it will need 290,000 MW of installed capacity by the year 2000. From 2000 to 2010, China will need to add 260,000 MW of additional capacity, at which time the balance between the demand for electricity and its supply will be achieved.

Although new electric capacity will be supplied predominately by coal and hydroelectric power plants, China will use nuclear and renewable energy to supply some of its capacity needs. Where possible, Mr. Tan said that priority will be given to hydroelectric power. Mine mouth coal-fired power plants and cogeneration plants will also be encouraged, Mr. Tan said. Currently over 25 percent of the coal consumed in China is used to fuel conventional coal-fired power plants, thus making it one of the leading countries in emitting CO2 into the atmosphere. Because of this, and other environmental concerns, China is now exploring the use of clean coal technology for new coal-fired power plants.

In areas where there is a shortage of energy resources, such as the coastal regions of China, nuclear power and combined-cycle gas turbine plants will be developed. Wind, solar, geothermal and tidal power are other technologies that China will use. In parallel with the construction of new power plants, China`s grid system is also being expanded. Under the grid expansion program, emphasis will be put on interconnecting the large power grids with the provincial grids. The aim is to have a nationally interconnected grid system by the early part of the 21st century.

Financing Chinese power projects

China Electric Power Technology Import and Export Corp. (CETIC), a corporation approved by China`s Ministry of Foreign Trade and Economic Cooperation, is the major agent for all power projects in China. In this capacity, CETIC is responsible for all overseas engineering services, labor services, financing and qualifying of international companies that wish to tender for projects in China.

Financing of Chinese power projects comes from a variety of sources including the World Bank, the Asian Development Bank, foreign government loans, export credit, loans from overseas commercial banks and the floating of Chinese company shares in overseas stock markets. China is encouraging joint venture, or joint operation, for its coal-fired power plants, hydroelectric power plants and nuclear power stations.

Some of the World Bank financed projects include:

– the 2 x 900 MW Waigaoqiao thermal power plant in Shanghai.

– the 2 x 600 MW Qinbei thermal power plant in Henan province,

– the 2 x 600 MW Tuoketuo thermal power plant in Inner Mongolia,

– the Ertan hydroelectric and transmission and distribution project in Sichuan province,

– the Shuikou transmission line project for a hydroelectric station in Fujian province,

– the Yangzhow transmission line project in Jiangsu province, and

– retrofit of the Beijing Power Grid.

The Asian Development Bank has supplied financing for new thermal and hydroelectric projects in the provinces of Heilongjiang, Henan, Hunan and Fujian.

Opportunities in North China

North China Power Grid, which covers the municipalities of Beijing and Tianjin, the provinces of Hebei and Shanxi, and the autonomous region of Inner Mangolia has a population of 140 million and a total installed electric capacity of 26,910 MW. Coal- and oil-fired units supply 25,960 MW and hydroelectric units supply 950 MW. The North China region is managed by North China Power Group. Besides owning the generation, transmission and distribution networks the North China Power Group owns four design institutes, 20 construction contractors, five research and development organizations and 11 repair and manufacturing companies.

According to Dong Hanjie, Director General, International Cooperation Bureau, North China Power Group, the company maintains an open dialog with international equipment manufacturers, electric power utilities, engineering consultants, research institutes and financial and investment organizations.

Although North China utilizes Chinese-manufactured equipment where possible, it has over the years imported advanced technology from overseas. Between 1974 and 1996, North China imported generating equipment with a total capacity of 13,100 MW, of which 8,000 MW is now in commercial operation.

With the support of the Ministry of Electric Power, the North China Power Group is using foreign funds to help develop its power industry. Over the last few years, more than 20 joint ventures have been formed with international partners. As a way of raising capital for the funding of electric power projects in North China, the Group formed the Beijing Datang Power Generation Company Ltd. and listed it on the Hong Kong and London stock exchanges.

The need for capacity in Southern China

The South Interconnection Power Network (SIP) consists of the electric power grids of Guangdong, Guangxi, Guizhou and Yunnan provinces. In addition, SIP is connected with the Hong Kong grid through the Daya Bay nuclear power plant in Guangdong and South Joint Power Network (SJP). At the end of 1995, the total installed capacity of the four southern provinces and SJP was 38,310 MW (Table 1).

South China Electric Power Joint Venture Corp. (SCEP) is in charge of the planning, construction and management of SIP. The main reason for SIP is to transmit the power from the western provinces to the eastern provinces of southern China.

Although the four provinces have many potential hydroelectric sites, the area is short of coal and other conventional energy sources. Furthermore, the distribution of the energy resources is uneven with Yunnan and Guizhou, accounting for 91.1 percent of the total energy in the region. Even though Guangdong and Guangxi account for 79.2 percent of GNP in the region, the two provinces only possess 8.9 percent of the total energy resources.

Guangdong is the richest province in the region with 61 percent of the total GNP. This is expected to increase to 70 percent by the year 2000. Likewise, the province has the strongest economy and the highest output per kWh. As a consequence, it must import large amounts of energy from other parts of China.

Yunan and Guizhou, the two less developed provinces in the region, are being helped economically, and they are optimizing their energy resources by supplying energy to Guangdong province. By utilizing more hydroelectric resources Guangdong has been able to replace more expensive small thermal and oil-fired power plants. The province has also been able to reduce the use of some expensive imported fuels.

By developing the western regions energy resources, in particular hydroelectric, China aims to increase its use of renewable energy in the region while at the same time reducing its investment in coal mining. Furthermore, China is in the process of increasing its investment in the construction of transmission and distribution systems. The new transmission lines will supply power from the energy rich western provinces to Guangdong in the east. China is also expediting the links between the power grids of the four provinces.

By the year 2000, the amount of electricity from the west to east will amount to an annual energy output of 18,900 GWh. Guangdong province will receive the majority of this energy–12,100 GWh– while Guangxi province will receive 6,800 GWh annually.

Because the southern provinces of China, and more so Guangdong, will continue to grow after the year 2000, the area has plans to construct new capacity. This capacity will be supplied mainly by new hydroelectric power plants–Longtan, Xiaowan and Nuozhadu–which are expected to add over 12,500 MW to the area`s grid. New thermal power plants are expected to add a smaller amount of new capacity.

As China enters the 21st century it will continue to add thousands of megawatts of new capacity. However, China alone will not be able to supply all of the equipment it needs. Consequently, there will be a market for power plant equipment and technology from outside of China. This equipment might be manufactured outside of China and then imported or the technology transferred and the equipment manufactured under license in China. Whatever happens, the China electric power market will continue to be one of the largest in the world over the next several years.

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An opening session of the Fourth China Electric Power Industry Forum, Guilin, PRC, April 16-18, 1997.

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