To keep pace with economic growth, China must add another 90,000 MW by 2000

Chinese officials predict that 6 percent of the equipment and 25 percent of the financing for the new capacity will be from sources outside of China

By Douglas J. Smith

Managing Editor

The Third China Electric Power Industry Forum, organized by PennWell Conferences & Exhibitions and sponsored by Power Engineering International and Independent Energy magazines, was held on board a Regal China Cruise ship as it sailed along the Yangtze River in the People`s Republic of China (PRC). This year`s conference, April 22-26, had the support of PRC`s Ministry of Electric Power and the cooperation of the Wuhan University of Hydraulic and Electric Engineering, Wuhan, PRC.

In addition to more than 60 delegates from China, delegates from the US, Singapore, UK, Nepal, Thailand, Spain, Japan, Norway, Germany, Finland, Korea and Denmark also attended. On the first day, the delegates met at the Wuhan University of Hydraulic and Electric Engineering for the opening ceremony and the plenary session. Following the morning`s session, the delegates toured the University`s campus, after which they boarded buses for the five-hour trip to Yichang, where they joined the Regal China Cruise ship Princess Jeannie.

Yichang is situated at the eastern mouth of the Three Gorges and is the site of the Gezhouba hydroelectric power plant. Currently this is the largest hydroelectric power plant in China, more than 2000 MW of power. However, this power project will be surpassed in size when the Three Gorges hydroelectric power plant is completed. The Three Gorges project is currently under construction and is located 44 km up stream from Yichang, inside the first of China`s Three Gorges.

When completed in the early part of the 21st century, the Three Gorges project will turn the stretch of the river from Sandouping, the site of the project, to Chongqing into a reservoir 600 km long. As a result, the topography of the Three Gorges will be changed dramatically.

The Three Gorges project

The Yangtze River is the third-largest river in the world and as a water resource, accounts for 53 percent of China`s total exploitable water resources. Although the river has been the lifeblood of China, it is still subject to flooding; and the 600 km stretch of the river from Yichang to Chongqin is very dangerous for navigation. From AD 236 through 1992, there has been more than 160 major flood disasters. However, once the Three Gorges project is complete, many of the problems just mentioned should be eliminated or reduced. China said that the Three Gorges project will have the following benefits:

– improved flood control,

– increased electric power production,

– safer navigation and a reduction in transportation costs for raw materials transported up and down the river,

– better water conservation and

– increased tourism.

When completed, the crest of the dam will be 1,980 m long, with an elevation of 1,185 m. The concrete dam will have a center spillway with non-overflow sections on either side of the spillway. With a normal level of 1,175 m the total reservoir storage capacity will be 39.3 billion cubic meters (m3), including 22.15 billion m3 for flood control. There will be 26-by-700-MW generating units: 14 units on one side of the spillway and 12 units on the other side. Once all 26 units are installed, the plant will have a total generating capacity of 18,200 MW, making it the largest hydroelectric plant in the world.

The majority of the electricity generated by the plant will be transmitted to Central China and East China, with a small percentage being supplied to the province of East Sichuan. A permanent double-lane, five-step lock and a one-step vertical “shiplift” will be constructed. However, to allow for navigation of the river during construction, a single-lane, one-step temporary “shiplock” is under construction.

According to the China Yangtze Three Gorges Project Development Corp. project construction will be carried out in stages. Construction of the permanent navigational structures, the dam and the first group of units is estimated to take 17 years. China Yangtze Three Gorges Project Development Corp. is a state-run enterprise that reports directly to the State Council of the PRC. As owner of the Three Gorges project, the corporation is responsible for the raising of funds, construction, management and commissioning of the project. The corporation is also the owner of the Gezhouba hydroelectric power plant.

Economic developments in China

In his keynote address, Mr. Xu Dayou, China Council for the Promotion of International Trade vice chairman, gave an overview of economic development in China and discussed the opportunities for foreign participation. Since 1980, the gross national product (GNP) in China has increased 12 percent annually, passing the government`s goal of quadrupling the GNP by the year 2000. Five years ahead of schedule, he said.

Over the same period, the average annual per-capital income of people living in cities has increased by 7.7 percent, while the income of people in rural areas has risen by 4.5 percent annually. According to Mr. Xu, the country`s current ninth five-year plan (1996-2000) has the following goals:

– increase growth by 8 percent per year,

– decrease the country`s deficit and

– control the rate of inflation to less than 10 percent annually.

Under the five-year plan, China aims to strengthen and develop its transportation, telecommunications, natural resources and electric power sectors, according to Mr. Xu. A major emphasis will be put on the construction of new electric generating capacity, which is essential if China is to develop economically. Priority will be given to developing thermal and hydroelectric power. However, nuclear power will also be a significant player in supplying electric power in the 21st century. China is currently adding 7 percent of new capacity annually.

Mr. Xu said that China is looking at standardizing its tax policies in order to make them fairer to both Chinese and overseas investors. These changes should also make China more attractive to foreign investors, he said. Foreign investors are being encouraged to invest in projects in the central and western parts of the country and away from the coastal regions. The goal is to reduce the economic gap between the coastal and inland regions of China. China is also looking at new laws that would reduce the risk of foreign investment. The aim is to have a set of uniform policies that would cover Chinese and non-Chinese enterprises. Figure 1 shows the PRC`s growing shortage of electric power.

China`s electric power industry

Mr. Tan Aixing, PRC Ministry of Electric Power`s Department of International Cooperation director general, in his keynote address, gave a good overview of the electric power industry in China. Mr. Tan stated that at the end of 1994, China had a total installed capacity of 199,880 MW: 74 percent coal, 25 percent hydro and 1 percent nuclear. Table 1 shows seven of China`s major electric power networks with installed capacities of more than 10,000 MW. The East China Power Grid , which covers three of the country`s provinces plus the Shanghai municipality along the Yangtze River Delta, is the largest network with an installed capacity of 31,670 MW. Figure 2 shows the geographic locations of the PRC`s major electric power systems.

Over the past few years government-sponsored economic reforms of the electric power industry have undergone some profound changes, Mr. Tan said. According to Mr. Tan, with the introduction in the mid-1980s of the “new service, new tariff policy” which was based on the principle of cost recovery, plus a reasonable profit–China has continued to reform its tariff structure to reflect the dynamics of a market-oriented economy. Other developments in this area, he said, include the introduction of competitive bids for equipment procurement and project development and the launching of a build-own-transfer (BOT) pilot project.

Mr. Tan said that the country`s economic reforms have produced a favorable environment for the development of China`s electric power industry. Since 1980, the annual growth rate in installed electric generating capacity has averaged 8.14 percent. By the end of 1996, China`s total installed capacity is expected to reach 210,000 MW. At that time, China will rank number two in the world for electric generating capacity, but its per-capita electricity consumption will still be one of the world`s lowest. Tables 2 and 3 show construction schedules and installed capacity through 2000 in the PRC.

Although the annual growth of electric generating capacity over the last 15 years has been impressive, it has barley kept up with the growth in China`s economy, according to Mr. Tan. China`s National Social and Economic Development plan calls for the country to grow at an annual rate of more than 8 percent between now and the year 2000. At that time, it is expected that the total installed electric generating capacity will be 300,000 MW.

From 2000 to 2010, China has plans to double the country`s economy. When this happens, the installed electric generating capacity is expected to be 550,000 MW. However, because of a shortage of domestic funding options and locally manufactured power plant equipment, China will continue to work with overseas investors, creditors, developers and power plant equipment suppliers. According to Mr. Tan, there will be opportunities for overseas participation. These include:

– coal-fired electric power projects using clean coal technology,

– hydroelectric and pumped storage projects,

– upgrade of existing power plants, and

– renewable energy and conservation projects.

– Funding and investment in China

When compared to other Chinese industries, the electric power sector has a long history in using foreign financing. Between 1979 and 1993 a total of (US)$14.1 billion of foreign capital was used for the development of 14,120 MW of new electric generating capacity. Another (US)$1.1 billion of foreign capital was invested in the electric power sector in 1994, and (US)$1 billion was invested in 1995. The figures for 1994 and 1995 were around 10 percent of the total power industry investments for both years.

Overseas funding came from a variety of sources including: multilaterals, export credit agencies, foreign governments, and strategic and financial investors. These funds were raised through cooperatives and equity joint ventures, overseas debt and equity issues, and syndicated loans. Over the next few years, the proportion of foreign capital will increase from the current 10 percent to 25 percent of the total capital expected to be invested in the country`s electric power sector.

Mr. Tan believes that foreign-supplied power equipment will continue to play an important role in the development of China`s electric power industry. For the foreseeable future, at least 26 percent of the country`s new capacity will utilize foreign-supplied equipment. Before any electric power project can be approved, it must first meet the requirements and be incorporated into China`s “national medium to long-term power development plans.” Once this has been established, the developers are then able to proceed with getting the necessary approvals from the central and provincial governments. According to Mr. Tan, a project approved by the provincial government does not provide the same level of comfort as that of a central government-approved project in terms of foreign exchange, fuel source and fuel transportation. Recent policy changes by the Chinese government now allow foreign independent power producers to have a majority ownership in Chinese projects. For a trial period, regulations will allow 100-percent foreign ownership of BOT projects, according to Mr. Tan. However, there is still a 30-percent cap on the sale of state-owned electric power generating assets. Mr. Tan pointed out that investment by foreign partners can be for up to 20 years for coal-fired projects and up to 30 years for hydro-power projects. However, this does not include the time taken for developing and constructing the project.

Under the current foreign exchange system, all projects that have been approved by the State Planning Commission have access to China`s interbank foreign exchange market. Remittance for debt service and profit is administered by the State Planning Commission, which allocates a quota for approved projects through the State Administration of Exchange Control. Mr. Tan said that contrary to what the media has reported, the Chinese government has never imposed a cap on the rate of return for foreign equity investors. Chinese policy is to review, on a case-by-case basis, any return on investment by foreign investors. According to Mr. Tan, foreign equity investors should be responsible for risks related to construction and operation of the projects. Performance standards–cost efficiency, availability and energy conservation—are considered when negotiating rate of returns, said Mr. Tan. In the opinion of Mr. Tan, the most efficient and better performing projects should be given the opportunity to earn a higher rate of return than projects that perform poorly. For this reason, the availability and reliability of a project must be taken into account when determining the rate of return for a project.

Other speakers at the conference discussed and reviewed development of China`s electric power grid, the prospects for development of electric power projects in the northwest, northeast (Table 4), and north of China. A paper by Mr. Xu Hang, East China Electric Power Group deputy general manager, discussed the challenges of the 21st century for developing that region`s electric power system (Table 5). East China Electric Power Group is located in an area that is densely populated. For this reason, environmental protection is of major concern, said Mr. Xu. Because of this, East China Electric Power Group is looking at the use of clean-coal combustion technology and the feasibility of utilizing liquefied natural gas.

Invited speakers from Amoco Power Resources Corp., SCL Engineering & Inspection of the US, Phillips Petroleum, and Wartsila Diesel discussed their companys` technologies and their applications to the Chinese electric power industry. Representatives from all provinces in China attended the forum. As in previous years, time was set aside for the delegates from outside of China to meet informally and formally with the Chinese delegates. The majority of the attendees, Chinese and non-Chinese, said these breakout sessions were the highlight of the conference.

Over the years these sessions have been invaluable for everyone. Not only are the non-Chinese delegates able to meet the leaders of the Chinese electric power industry, the Chinese executives are able to learn first-hand what technologies and equipment are available and how they can be applied to the Chinese electric power industry. What would take two to three weeks of travel to visit various Chinese provinces can be accomplish in one afternoon at the forum.

Editor`s note:

A limited set of proceedings of the “Third China Electric Power Industry Forum” can be purchased for (US)$195 by contacting Mr. Ray Leung at (918) 832-9244 (phone), (918)831-9476 (fax), or rayl@pennwell.com (e-mail).

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