ENERGY FOR SUSTAINABLE DEVELOPMENT IN CHINA
1. The Rationale
The rationale for the Working Group on Energy Strategies and Technologies stems from the dual observation that energy conversion and use is fundamental to both development and socio-economic growth, and presently is a major contributor to environmental degradation.The present path of energy system development worldwide is not sustainable from an environmental point of view, nor is it compatible with the social, economic and environmental goals of China, as spelled out in, for example, China's Agenda 21. This conclusion has been elaborated on in earlier reports of the Working Group to CCICED,and still remains valid today.A major change in energy system development in China is required to meet the social, economic and environmental goals of China, which is summed up as sustainable development. To realize the social, economic and environmental goals and objectives of China, it is necessary, but not sufficient, to develop and implement a new approach to energy. Such an approach is referred to here as a sustainable energy approach.
The WG is commissioned to seek strategic solutions in the energy sector, which are consequently long-term in conception. However, the WG is alert to the need for short-term awareness, and to ensure that short-term implications of long-term strategies are fully drawn and actions are proposed which are pertinent to today's problems and realities, while remaining compatible with the long-term objectives.
As a generality, it most of its field of technology & policy the WG sees merit in encouraging implementation of its recommendations by competitive processes, and by publicprivate partnerships, where the former safeguards broader social interests and the latter assumes the professional and managerial responsibilities.
2.Previous Analysis and Recommendations of the Working Group—a Summary
The major elements in a sustainable energy approach are (i)more efficient use of energy at both points of enduse and in the supply chain, (ii) increased use of natural gas and renewable sources of energy, and (iii) developing and implementing a new generation of coalusing technologies.
As promulgated in the 6th Five-Year Plan, the process of modernization of China involves creating, step-by-step, a socialist market economy, which should contribute to globalization and liberalization of the world economy. This overriding framework will create the setting in which, by and large, the development of China's energy system will take place.
Investments in the energy system make up a significant part of total investments. However, sources of finance traditionally used in China are not likely to be able to meet increasing demands for capital. In the past, government finance was dominant, although foreign direct investment has been a very important and rapidly increasing source of capital in China in recent years. Realistically, only the financial markets, domestic and foreign, will be able to contribute the major fraction of the needed capital in the future.
This leads to a need to create conditions that will attract mobile private capital. China has already moved in this direction, as witnessed by the foreign investments that are being made. From the point of view of overall development of China, however, it is necessary, but not sufficient, that capital investment continue to grow. The investments will also have to go into sustainable energy projects, from both foreign and national sources. These required additional conditions would include the full phasing out of any protective pricing or subsidies in the energy sector, which favours non-sustainability.
The WG has therefore recommended that focused attention be given to the system of incentives and disincentives that lead market actors to make economically attractive investments in environmentally positive areas, which can contribute to sustainable development.
The WG has recommended that a sustainable coal strategy for China be developed now, because of the large resources of coal in China, and the emerging global understanding of options to use coal in ways compatible with long term sustainable development.
The WG has therefore further recommended that a much larger emphasis be given in energy related investments to energy efficiency, natural gas and renewable sources of energy, as well as to the next generation of fossil fuel using technologies.
In this context, the WG has recommended that targets for renewable energy use are formulated and incentives are put in place to encourage the wider use of Renewable Energy Technologies (RET's).Experiences can be found from the Non-Fossil Fuel Obligation (NFFO),which has proved workable in the U.K., the recent policy developments in the European Community, the Renewable Portfolio Standard introduced in the United States, and the renewable resource concession or license approach, which may be pioneered in China.
The WG has recommended that China examine the problems, challenges and opportunities in its own critical sectors such as Township and Village Enterprises in terms of their capability of improving energy efficiency and more environmentally benign activities.
The WG has recommended that Integrated Resource Planning (IRP) methodology be widely used on the planning side.
The WG has finally recommended that China takes advantage of the latest developments in the most advanced, sustainable, technologies(such as the hydrogen fuel cell) so as to"leap-frog" over yesterday's technologies to wards tomorrow's, so as to help avoid some of the serious energyrelated problems encountered elsewhere. At the same time China should also seek out and adopt more energy efficient technologies, which are more readily available in the markets of other countries.
2.Preparations for China's 10th Five-Year Plan
The 10th Five-Year Plan (FYP) will be adopted in March 2001,and preparations are well under way. The CCICED SecretaryGeneral, Professor Zhang Kunmin, briefed the WG on the work, and invited the WG to submit recommendations to the CCICED secretariat by July 20, 1999.
The work is guided by three ideas:(i) China should be modernized by the year 2050,(ii) the 10th FYP is the first in the socialist market economy, The 6th-9th FTPs were all transition plans, and (ii) the 10th Five-Year Plan is the first FYP of the next millennium.
Professor Zhang emphasized several themes, summarized below together with the WG's observations on the energy dimension of these problems and of the energy sector's potential contributions to the development towards Chins's goals.
1.The present level of capacity utilization in industry, and the energy sector ,is low, creating a surplus situation, At the same time as this creates a serious problem for China, this also provides shortterm opportunities to close small, inefficient, and polluting plants, as elaborated on in Section 5.1 below.
2.Lack of competitiveness in the state owned enterprises, both domestically and internationally, especially if China joins the World Trade Organization.Energy sector marketization will enhance efficiency and competitiveness of Chinese enterprises. Local manufacturing in China, in cooperation with foreign partners will also increase competitiveness.
3.Market order should be created, while resolving contradictions between objectives in many areas,including population, resources, and sustainable development. The on-going transition to market pricing and competitive structures in the fuels and power sectors will be hlpeful in addressing these problems, as was already emphasized in the WG's recommendations of 1998.
4.Increase in unemployment, as state owned enterprises adjust to competition. The opportunities to establish widespread access to electricity in rural areas from modernized biomass conversion will provide jobs, both directly through the energy industry and indirectly through the incomegeneration activities that would become possible, e.g.in TVEs. Other recommendations of the WG are essentially job creating, e.g.in the network of industries to be created by the syngas strategy.
5.Low capacity for innovation and lack of skilled employees. There are good prospects for international collaboration in R&D, and for training through public-private partnerships, e.g. joint ventures. Experience in the oil and gas industry has shown how much potential for rapid technology transfer exists in such arrangements. The WG has initiated capacity building in analytical methodologies in co-operation with the academic sector.
6.The economic differences between western and eastern China, as well as rural and urban areas must be reduced. Access to modern energy services in necessary but not sufficient for development. Utilization of local resources and smallscale modern technologies can contribute significantly to income generation in electricity, TVEs, as well as in larger centralized projects such as very large wind farms(e.g.in Xinjiang).
7.Shortage of uniform market, many problems in financing, marketing,etc. Leveling the playing field by reducing subsidies and allowing the market to set prices enhance access to financial markets in China and abroad. Public-private partnerships have a large potential for raising funds and venture capital from the financial markets for infrastructure investments.
In conclusion, it is clear that the energy sector must play a central and pivotal role as China embarks on the first full FYP in a socialist market economy. The first FYP of the new century will see energy policy making as one of the fundamental pillars to building China's economy of the future.
4.Report on Activities in 1998/99
4.1 General Status of Activities
This year has proven to be an active one for the Working Group, in all its main areas of activity, namely studies, workshops, demonstration projects and capacity building. In all these aspects, work is in progress and will continue for some time. Specific progress during the past year is summarized below, and ongoing and planned work is outlined in Chapter 5.
4.2 Studies and Research Work
The coal vision: first steps
The WG outlined a strategic, long-term approach to coal utilization in China in its 1998 Report to CCICED. The WG now addresses immediate steps that will address China's shortterm needs and that are compatible with the strategic vision.
With this aim, the WG organized a Workshop on Coal Bed Methane Recovery and Prospects for a Hydrogen Economy. in Beijing, January 18-19,1999, see Section 4.3 below. The WG's analysis and recommendations are presented in Section 5.5 below.
Concessions for large wind-power plants
The WG has reported earlier of its evaluation of prospective competitive wind power delivered in major load centre as baseload power, given that large scale utilization and domestic manufacture of modern wind turbines could be arranged and that sites with high wind speed are selected.
Work continues, with UNDP funding, to develop the institutional framework for the Wind Resource Concession Approach to Wind Energy Development. The project consists of two collaborative elements:(i) concept development in the context of international analogues and with consultation with potential bidders, and (ii) relating the concept to the realities of concrete opportunity to develop large wind resources in China. There have been some delays in this project, but it is anticipated that this enabling framework should be ready for consideration and potential application by the end of 1999.
A study on the growth of the wind power industry in China provided useful ba
ckground for the work.
To bring forward the necessary investment the WG has made the observation that the oil and natural gas industry has made successful use of the concession approach, leading to largescale investments with significant foreign participation and technology transfer. The operating corporations have been set up as public-private partnerships, through publicly owned corporations, China National Petroleum corporation (CNPC) and China National Offshore Oil Corporation (CNOOC) on the Chinese side.
The intention is to propose to the government of China, or one of provinces, to issue invitations to bid for concessions to develop largescale wind power plants.
The WG proposes that the Government of China set up a wind development corporation, with a role similar to that of CNPC for the oil and natural gas exploitation. This corporation would provide the national public joint venture partner for development of wind energy by a concession approach.
Future use of oil
A study forecasting various oil products by 2000-2020 was discussed by the W
G. The study concludes total oil demand in China will reach 171 million tonnes of oil equivalent (Mtoe) in 2000 and 371 Mtoe in 2020, up from 150 million tonnes in 1996.
Energy use in Township and Village Enterprises
A report prepared by the Energy Research Institute of SDPC for the Working Group presented the current status of energy consumption and relative energy inefficiency in Township and Village Enterprises (TVE). The report highlighted key concerns and proposed a number of institutional and technological remedies. Given the large energy consumption for sector of the economy, the subject deserves to remain a high priority in the short term.
Application of IRP in the Chinese Steel Industry
This study, based on integrated resource planning (IRP) methodologies promulgated by workshops by the WG, aims at optimizing resource allocation and equipment operation for thermodynamic system in Baoshan Iron & Steel Corp. and to elevate the status of its energy management. With the full understanding of the parameters for cold dry quenching (CDQ), combined cycle power plant (CCPP),low-pressure boiler, and the input-output relations, all the production units and energy flows have been studied as a system. The mathematical programming model with two objective functions of energy efficiency and economic benefit optimization has been formulated on the basis of the laws of mass and energy conservation, the related thermodynamic principles as well as the real process of the system. A series of scenarios for the maximized electricity generation, highest energy efficiency and best economic benefits, under the circumstances of both winter and summer season, have been created, with the formation of the "energy efficiency——total electricity output curve" Which is useful for making the right decisions. More benefits and higher energy efficiency can be gained with zero cost by optimizing the operation plan according to the research results. The suggested operation plans delivered by the model will be tested in the production process for several months. Other items were researched and discussed by the project such as the necessity and feasibility for the 135 ton/h boiler under construction, rationality of the current pricing for the system, sensitivity analysis of economic indicators for some key energy mediums, and etc.
4.3 Workshops
Village scale modernization of biomass
Following the workshop on small scale biomass utilization for cooking and combined heat and power generation in Jilin Province in January 1998,and the initiation of three demonstration projects, the WG organized a workshop on Mechanisms for Commercialization of Modernized Biomass Technologies in Changchun, Jilin Province, in July 1999.
The effort had three components, (1)two experts assigned by the Working Group (Mao Yushi and Li Jingjing) Visited the Baicheng Stalk Gasification site for a technical, economic and environment assessment during May 12-15th；(2)17 experts (including 5 Working Group members) visited the Baicheng Site at the invitation of vice governor, Dr.Liu,during July 3rd-4th；(3)the Workshop itself which was held July 5-6th,in Changchun.
The workshop focused on:(1)the mechanisms that are used elsewhere to support commercialization of new, renewable technologies, and (2)the realities of developing a biomass gasification plant in China as experienced in demonstrations in Jilin and elsewhere. Specific topic areas of presentation and discussion included:
l experiences with financing and commercializing renewable technologies
lin other countries,
l technology alternatives and technology portfolio strategies for biomas
ls utilization,
l direct experiences of the Baicheng project developer,
l experiences with biomass gasification elsewhere in China,
l environmental issues, health and safety issues,
l ownership and project execution issues, risk issues,
l prospects for local and regional economic development,
l financial and regulatory support mechanisms appropriate to China.
The Workshop had about 35 participants, including all available Chinese Working Group members & international members, officials from SDPC,SETC,MOFTEC, representatives of WWF and Shell, Jilin local and provincial government officials from DPC,ETC and EPA,experts from international and local institutes, and investors and managers of private companies.
Coal Bed Methane Recovery and Prospects for a Hydrogen Economy
A workshop on coal bed methane recovery and prospects for a hydrogen economy was organized by the WG, January 18-19,1999.More than 40 persons attended the workshop, representing China Coal Bed Methane Company, various Ministries and agencies, and experts. The papers presented at the workshop covered the following topics:
l Hydrogen production from coal and coal bed methane, using byproduct CO2 for enhanced methane recovery, with CO2 sequestration in deep coal beds
l China's coal bed methane resources and progress of its development and utilization
l Technology for primary CBM recovery from deep coal seams
l Economics of primary CBM recovery in North America
l Enhanced CBM recovery by nitrogen Injection
l Enhanced CBM recovery by CO2 injection
l Synthesis fuel production from methane
l The application prospect of new energy resource system with hydrogen as energy carrier—hydrogen production by underground coal gasification
l Prospects for a coal-based H2 economy with near zero air-pollutant and GHG emissions
l Affordable electricity from fossil fuels for stationary and mobile applications, with near-zero air-pollutant and GHG emissions
l Hydrogen fuel cell technology
l Demonstration project of fuel cell powered buses in China
l Production and utilization of hydrogen in China-present and future
l Adsorption of hydrogen on superactivated carbon—a promising storage option
The Workshop showed the potentially large benefits to China of pursuing efforts
to advance coal bed methane recovery. The's recommendations in this area appear
in Section 5.5 below.
4.4 Demonstration Projects
Biomass demonstration project
Following the's workshop on small-scale power generation from biomass held in January 1998 in Jilin Province, the Government of Jilin has built two demonstration projects for biomass gasification. Shijiabao rural demonstration project was built in Shijiabao village of Shijiabao County, north of Lishu city. There are 50 household with 248 inhabitants. The annual income of the inhabitant is 3600 yuan RMB(about 440 US$) per person. The annual output of crop straw is 700 tons, among which corn stalks is 560 tons. The project adopted the technology of corn stalks gasification by downdraft gasifiers, and gas purification. The cleaned gaseous fuel is used for cooking and heating. The total investment was 450,000 yuan RMB (about 54,220 US$). There is one gasifier to produce 411,500m3 per year meanwhile; it consumes 274 tons of corn stalks. The heat value of fuel gas is 3.4-4.4 MJ/m3.
The second demo project was built by Biogas Lit. Co.in western Baicheng City, 5 km away from The city, which cao supply 1.3 million m3 pyrolysis, gas for 3000 households. The heat value is 15-20 MJ/m3, which is comparable to that of town gas. The by-products are charcoal, pyroligneous fluid and wood tar. The total investment was 6.7 million yuan (0.8 millions US$).
A third demonstration project is in the process of starting. Using a very low tar gasifier agricultural residues in Jilin province will be gasified and the product gas will be used for cooking, heating, and smallscale electricity generation. The Government of Jilin has secured funding for this project from UNDP, through MOFTED.
To minimize risks of exposure of individuals to the toxic carbon monoxide in the gas in all the demonstration projects, a distinctive `stench' is added to alert people of potential carbon monoxide leakage. Carbon monoxide warning systems will also be installed. The provincial government is going to enhance the development of rural gasificationbased biomass technology to realize the target of a "better-off" and more modern countryside. In 1999 and 2000, based on the experiences of the two demonstration projects, 3-5 villages or small towns will be selected. The local government has worked out programs that will spread gasification based biomass power generation industry in village of all province during 2001 to 2010. Total 600 million yuan RMB (72 million US$) will be invested to build 150 various scale gasifiers for rural biomass utilization.
An important development is the involvement of a private company in the second project in ownership and management.
The Fuel Cell Bus project
The Fuel-Cell Bus demonstration project has moved on from its stage of direct promotion by the WG, through the feasibility study (funded by UNDP) to the bidding stage, the closing date for which was June 30,1998. The Government of China issued a request for proposals for a demonstration project, and negotiations between Skoda/Ballard were initiated. Prof.Mao Zongqiang from Tsinghua University described the status of work on the Fuel cell bus project for the WG. The demonstration project of fuel cell powered bus (FCPB)in China is supported by UNDP and implemented by Ministry of Science and Technology of China.
The WG believes that it is in the mutual advantage of China and the technology developer that a reasonable solution is found to the issue of financing the early prototype technology.
The Ministry of Science and Technology (MOST) will shortly submit a report of the project to UNDP that will include following:
l Summary of fuel cell bus development in world,
l Analysis on potential socialeconomic & environmental benefit of development and commercialization of FCPB in China,
l Analysis on funding requirement of development and commercialization of FCPB in China,
l Development of FCPB and potential demand in market & analysis on commercialization in China,
l Request for proposal on demonstration study of fuel cell powered bus in China.
4.5 Progress on Capacity Building
The Integrated Resource Planning Promotion Network is continuing its work. The next Workshop is planned for the fall of 1999. After a short gap, funding has now been secured for the continuation of the valuable IRP work. The WG believes that given the importance of IRPs potential contribution to solving the modernization problems being addressed being addressed in the 10th Five-year Plan, IRP should be pursued actively and its network greatly expanded.
5.Recommendations to CCICED
Following the request from the CCICED secretariat for suggested specific recommendations in a standard format (whenever appropriate)for the CCICED to consider for its recommendations to the Government of China, the Working Group puts forward below specific proposals in five areas:
5.1 Recommendations on the present Energy Situation in China
The temporary slowing down of Chinese economic growth, in the frame of the worldwide negative economic cycle, had important effects on the energy sector. Electric power, coal and oil are facing a surplus of supply, and consequent declining prices. This creates financial difficulties for the producers, but also provides a unique opportunity to restructure the energy sector by shaking off the inefficient producers and reaching a healthier, more competitive condition. This is a long desired change, which has previously not been possible to achieve due to the tension of supply shortage.
Application of market principles provides an effective way to eliminate inefficient producers: those with a marginal cost higher than market price will close down, leaving those with a marginal cost lower than market price able to continue producing. The prices must reflect full costs, including as far as possible social and environmental externalities connected with energy production and use. The market function identifies inefficiency through price signals, which include technical as well as managerial inefficiency. Any criteria other than market competition to close down producers will lower market efficiency; it is important that public powers allow the market to perform its function.
However, where environment is concerned, market can be efficient only if the social cost of pollution is included in the market price of the commodity, and this is a task for Chinese policy makers to make happen. China already pursues a discharge fee schedule, but most economists and environmentalists consider this fee to be generally too low either to reflect social and environmental externalities (e.g.RMB200/tonne of SO2) or to encourage the deployment of clean technologies.
Government action is required both to protect the environment and to promote economic development. The trade-off between economy and environment is a delicate question requiring cautious decisions.
The closure of a polluting plant is justified as long as the cost of the environmental impact avoided is greater than the wealth which it created; this evaluation, however, involves social, environment and local problems. In light of this, it is important to avoid constructing plants, which do not meet present environmental standards nor have the potential to be upgraded to meet the standards, which are likely to evolve in the plant's lifetime.
The challenge faced with China should not be under-estimated and is not unique, except in its scale. The recent experience of some Asian economies, which introduced institutional reforms following the economic crisis, showed much domestic opposition to the implementation of these reforms. However, where governments have indicated the way in which they would address economic difficulties, domestic and foreign investors have responded positively
In summary, the Working Group recommends that:
l the Chinese government takes the occasion of the present supply surplus in the energy field to improve the efficiency and the environmental performance of the energy sector by closing plants incapable of meeting required economic, social, and environmental standards;
l the social and environmental cost of pollution is reflected as far as possible in the energy prices, or through regulation;
l the selection of producers is then left to market forces;
l approvals for construction of new plants should only be granted to plants which conform to today's environmental standards, and have the potential to be upgraded to meet tomorrow's standards;
l the maximum transparency is ensured in the energy sector reform, so as to encourage domestic and foreign capital to respond to the challenge;
l fiscal arrangements should be adjusted to deter the maintenance of inefficient and less clean power generation, and encourage the more efficient and cleaner.
5.2 A Syngas Strategy for Coal
Background
Over the last two years, the WG has shown that an especially promising strategy for coal in China would be to pursue technologies based on the production of synthesis gas-agaseous mixture consisting largely of carbon monoxide and hydrogen.
Synthesis gas, or"syngas" as it is often called, is made by partial oxidation of coal using modern oxygen-blown coal gasifiers using well-established technology. Synthesis gas-based energy strategies make it possible to extract useful energy services from coal, with very low levels of pollutant emissions.
During the past year, the WG has made considerable progress both (i) in articulating near-term syngas strategies and policies that would both provide major near-term economic and local environmental benefits and put China on a path that would lead over the long-term to toward widespread use of hydrogen derived mainly from coal, and (ii) in understanding better the dimensions of a long-term syngas strategy for China that might involve widespread use of hydrogen as an energy carrier. The near-term and long-term strategies are thus related and are compatible.
Theoretical Basis and Feasibility
Syngas strategy for the near term. For the near term, a syngas strategy for coal offers the prospect of both clean electric power systems and clean synthetic "designer" fuels. The enabling technologies are available now.
For power generation applications, the greatest near-term benefits from a syngas strategy would arise from the deployment of syngas-based combined heat and power(CHP) systems that can provide several times as much electricity per unit of heat provided as existing steam turbine cycles. For synthetic fuels production, the greatest near-term benefits from a syngas strategy would arise from co-production of synthetic fuels+power or synthetic fuels+CHP, using new liquid-phase reactors for synfuels production in "once-through"configurations. Existing liquid-phase reactors employ heavy oil in which appropriate catalysts are suspended to assist syngas conversion to appropriate fluid fuels such as methanol, FischerTropsch liquids (including synthetic middle distillate fuels), and dimethyl ether (DME). In liquid-phase reactors the syngas "bubbles through" a column of this catalystladen oil reaction-promoting medium and is converted to the targeted synthetic fuel at a far higher rate in a single pass than is feasible with the traditional gas phase reactors. Because high conversion rates are achievable with a single pass of syngas through the reactor, it is often worthwhile to burn the unconverted syngas and produce co-product electricity in a combined cycle power plant instead of recycling the unconverted syngas to produce more synthetic fuel.
If excess syngas production capacity is installed at centralized plants for either CHP or multiple product applications based on coal IGCC technologies, scale economies would be realized that could make attractive in many instances the distribution of this excess syngas by pipelines to smaller factories in the region, where the syngas could be used for CHP applications based on either gas turbines or Diesel engines (with pilot oil for ignition) to displace conventional coal boilers at such smaller factories.
Syngas strategy for the long term. The long-term opportunities offered by hydrogen depend on effective means to separate hydrogen from syngas. A key feature of the long-term vision being developed for coal in China by the WG is that advanced gaseous separation technologies—especially inorganic membranes for separating hydrogen from CO2 and other gases (e.g., porous ceramic membranes and monporous composite metal membranes) used in conjunction with the production syngas might make it possible over the longer term to routinely produce hydrogen from coal with high overall energy conversion efficiencies.
Although the highest overall energy conversion efficiencies will result from processes that involve high-temperature gas cleaning and processing, successful development of technologically. Carrying out gas cleaning and processing operations at more modest temperatures would be far less technologically challenging. For the hydrogen strategy to succeed the modest losses in system efficiency arising from carrying out gas cleaning and processing operations at lower temperatures would need to be more than offset by cost reductions arising from the simplifications of lower temperature operation.
Expected Economics and Environmental Benefits
Syngas strategy for the near term. Although coal integrated gasification combined cycle (IGCC) technology for the production of power only is not yet cost effective in competition with coal steam-electric power, there are good prospects that present-day coal IGCC technology could be competitive in many CHP configurations at large industrial sites that are characterized by relatively steady steam loads—provided the co-product electricity can be sold to the electric grid at market rates. The electricity produced in this manner would typically have far less local pollutant emissions and significantly less GHG emissions than would conventional steamelectric technologies used in central station power applications.
Similarly, the co-production from coal of synthetic fluid fuels+power or synthetic fuels+CHP could sometimes be cost-competitive with the production of fuels from crude oil at oil prices near $20 per barrel, provided the co-product electricity can be sold to the electric grid at market rates. The fluid fuels produced this way contain no sulfur or aromatics and typically can be burned with much less air pollution than similar fuels derived from petroleum.
Likewise, any excess syngas produced at centralized plants in conjunction with either CHP or multiple product applications may be distributed by pipelines to smaller factories in the region. Here it can be used for CHP applications based on either gas turbines or Diesel engines to displace conventional coal boilers at such smaller factories, with considerable environmental benefits. The CHP economics will often be favorable when the excess electricity produced can be sold to the grid at market rates.
Syngas strategy for the long term. Development of advanced inorganic membranes for separating hydrogen from CO2 and other gases used in conjunction with syngas production from coal via oxygen-blown gasification are believed to make possible hydrogen production routinely from coal in the longer term at a cost that is close to the present price of natural gas in presently natural-gas intensive energy economies. R.H. Williams, "Toward Zero Emissions for Coal," Proceedings of the International Symposium Toward Zero Emissions: the Challenge for Hydrocarbons, EniTecnologie,Rome,1999 (in the press).Such a development would make it feasible to realize with coal nearzero lifecycle emissions of both local pollutant and greenhouse gas, at low incremental costs in both turbineand fuel cellbased conversion technologies, without the need for complicated endofpipe control technologies. If such advanced hydrogen production technologies could be successfully developed, China would not have to await the commercial availability of advanced fuel cell technologies to start reaping benefits. Successful development of such technologies could, for example, provide major near term benefits as well in reducing the costs and emissions from ammonia manufacture from coal
Essential Measures for Implementation
Syngas strategy for the near term. Launching syngas-based CHP or fuels/CHP co-production options in the market requires commercial demonstration projects. The logical home for such demonstration projects, as well as subsequent commercial projects, is the chemical process industry, where the co-production of chemicals along with synthetic fuels and power or synthetic fuels and CHP can lead to further economic gains. The success of such demonstration projects as well as subsequent deployment activities depends critically on the freedom to sell the co-produced electricity to the electric grid at market rates.
Syngas strategy for the long term. Advanced gaseous separation technologies, especially inorganic membranes, are key enabling technologies for the long-term vision of providing H2 from coal as a major energy carrier in combined cycle and for fuel cell applications. Successful development of such technologies requires significant research, development, and demonstration activity.
The long-term vision of low-cost hydrogen from coal depends not only on the development and commercialization of appropriate advanced coal conversion technologies but also on the availability of abundant quantities of low-cost coal. If coal is to be used at large scales in fully modernized China, reforms relating to coal miner health and safety, environmental impacts, and pricing will be need. Experience abroad shows that although the enactment of such reforms can lead initially to higher coal prices, there are good prospects for major improvements in coal mining productivity and thus lower prices over the longer term with such reforms in place.
Recommendations
Syngas strategy for the near term. High priority should also be given to conducting commercial demonstrations of syngas-based CHP and fuels/CHP co-production technologies. For such demonstration projects and also for subsequent commercial projects policies should now be enacted that enable sale of the excess electricity co-product to the electric grid at market prices.
Syngas strategy for the long term In connection with its new fundamental research initiative China should now give high priority to advanced gaseous separation technologies that offer the potential for reducing dramatically the cost of producing H2 from coal. Such technologies should be considered as a focus of international collaborative R&D efforts, as appropriate. In addition, market pricing should be enacted for coal,in conjunction with coal mining environmental and coal miner health and safety reforms as appropriate.
5.3 Recommendations on the Use of Co-Generation in China
Background
As China is in the process of creating a market place for electricity producers, independent power producers (IPP'S)will be able to participate in the future expansion of China's electricity supply industry. This opens up opportunities for significant contributions to meeting China's electricity needs from co-generation.
Theoretical basis and feasibility
Co-generation (CHP) based on gas turbines, combined cycle, or Diesel engines fired with syngas or natural gas are all characterized by high ratios of electricity/heat output. Thee CHP technologies are typically more cost-effective than steam turbine-based CHP systems when export of power to the grid is based on market pricing, and they can generate several times as much electricity as conventional steam turbine systems serving the same steam load. The economics of such systems are especially favourable for industrial applications involving relatively constant steam loads.Expected Economics and Environmental Benefits
Co-generation technologies with higher electricity to heat ratio are more fuel-efficient and environmentally friendly than those with lower electricity to heat ratios. In China the former have been prevented from deployment by lack of access to the grid for their surplus electricity sales. Co-generated electricity has therefore up to now largely been limited to onsite needs. This undesirable limitation is now being changed.
A very large opportunity is now opening up for co-generation, which can take advantage of more efficient, more economic and more environmentally friendly CHP technologies, wherever process and space heat energy, is required. This applies across industry, commercial building and residential markets of all China, truly a vast `win-win' situation.
Several new CHP technologies offering great advantages in terms of efficiency, of economy and of environmental protection have been developed and applied in recent years especially in industrialized countries, and also to some extent in China.
Essential Measures for Implementation
The key institutional barrier at present is the lack of access to the grid and fair prices for electricity delivered. This situation is now in the process of changing, with the announced reforms of China's power sector.
High electricity/heat ratio technologies should be demonstrated at several sites in China to gain experience and disseminate knowledge about these opportunities.
Recommendations
Therefore, the Working Group considers that the following activities should be carried out as soon as possible:
l a detailed review of the legislation concerning CHP,with the identification of possible improvements to facilitate the diffusion of effective technologies.
l one or more demonstration projects, aimed not only at proving the most appropriate high electricity to heat technologies, but also at identifying and
lovercoming institutional barriers.
l a study of the potential for cogeneration, based on a survey of the demand for heat especially in the most promising industrial sectors and for applications in the tertiary sectors(hospitals, hotels and schools).
l an examination of the options, with a comprehensive economic/environmental assessment, for the replacement of obsolete CHP plants which are scheduled
lfor decommissioning in the near future.
5.4 Recommendations on Mechanisms for Commercialization of Modernized Biomass Technologies
Background
The output of straw and stock residues in China reached about 613 million tonnes in 1998. It is estimated that about 450 million tonnes of this (equivalent to about 250 Mtce) can be used for cooking and heating in rural households, and for electricity generation. With the rapid development of the rural economy, and with increasing farmer incomes, there is a rapid increase in the use of commercial energy for rural residential purposes. More and more straw and stalk, that was previously used in traditional ways for cooking and heating,have been displaced, as farmers turn to coal and LPG for home cooking and heating. As a result, the share of straw and stalk that has to be disposed of by direct burning in the fields is increasing substantially. The worsening smoke pollution from this burning has resulted in recent highway and airport closures in some provinces. Already the surplus straw and stalk residue amount in some regions to over 60% of total production, which not only damages the environment but also, wastes resources.
Theoretical Basis and Feasibility
The Working Group is convinced that gasification technologies, for producing cooking and heating fuels, and eventually localized electricity generation, can provide a `win-win' opportunity with both environmental and economic development benefits. Since the Ninth FiveYear Plan, straw and stalk gasification technologies have been utilized in some pilot demonstration projects, mainly located in resourceabundant provinces such as Shangdong, Jilin and Liaoning. Through those pilot projects, more has been learned about the barriers to further technology commercialization, including:
- Subsidies for conventional coal technologies and external costs ex
-cluded,
- Inadequate financial support for demonstration and commercializing
- gasification technologies;
- Ineffective institutions and institutional mechanisms in supporting and facilitating demonstration and commercialization;and
- Inadequate human capabilities (administrative awareness, scientific and technical expertise, entrepreneurial skills).
Expected Economic and Environmental Benefits
It is generally recognized that in China's pursuit of environmental sustainability and economic development, win-win' strategies and technologies should be pursued first. With market reforms, many `win-win' strategies and technologies will emerge and be largely driven by market conditions. In this biomass context win-win' means that from all viewpoints, national, provincial, and village community, the establishment of local generation of electricity based on biomass is a positive outcome.
From the national point of view, the introduction of decentralized electricity production in rural areas has been part of national energy strategy since the early`80's,because it has helped to provide employment directly and indirectly through TVE's. This remains a very important policy and a counter to the urban drift expected to continue in the coming decades.
From the provincial point of view, the reduction in rural unemployment will reduce the social benefit burden and increase provincial tax revenues, directly and indirectly from the economic activity flowing from the decentralized provision of electricity.
Form the township and village point of view, `win-win' means the elimination of the environmental hazards of biomass burning within dwellings and in the fields, at the same time as accessing benefits of clean energy and additional income from sales to the grid. These advantages are appropriate to the actual resource situation and the real needs of much of the rural population.
From the point of view of the subsidized utility, however, this may not seem to be a `win-win' situation in the short-term, since biomass electricity for a time will cost more than the conventional fossilfuel based electricity. This can be addressed by a pricing mechanism whereby the additional cost of biomass-generated electricity can be covered by a small charge on all grid users (e.g.a`System Benefits Charge'),that the utility should be allowed to raise. This SBC need be no more than sufficient to ensure that no economic losses are incurred by the utility, through their obligation to purchase biomass electricity from village-based IPP's. As the volume of this rural electricity builds up using competitive bidding, the SBC may be allowed to diminish to zero, or it may be retained in order to finance closure of inefficient or environmentally non-complying plant. This process can eventually confer `winwin'benefits to the utility, also. With such an arrangement there would be no economic loss to the utility. There would also be a reduced need to invest in new capacity.
For this development to occur in the reasonably short-term,China's economic reforms must continue, through national government and provincial government actions. This would include the creation of conditions for strong entrepreneurial activity at the village level. Some of this activity may be successfully undertaken by publicprivate partnerships. Typically, these will be joint ventures between public and private corporate entities, where the handson management will lie in the latter's professional responsibility.
In such ways, China can encourage and preside over local economic activity based on the modernized use of a domestic resource in rural villages while at the same time transforming local environmental conditions for the better. This is a truly a `win-win' opportunity.
Essential Means for Implementation
Technologies that offer the greatest potential for China may be temporarily high cost relative to conventional alternatives, largely because these alternatives are subsidized in both a financial and environmental sense, while all new technologies initially have, relatively speaking, high costs. Also, prices of energy services from conventional technologies do not cover full financial costs and neither do they include costs of environmental damage. Subsidies to these environmentally damaging technologies and energy forms need to be eliminated and environmental and social impacts they cause need to be incorporated in their pricing. This can effectively be done with regulations and environmental charges or taxes of various kinds.
Some of the most promising new technologies-or rather, portfolios of technology options-need also to be supported in early stages of demonstration until expanding commercialization can bring about dramatic reductions in costs.
The most promising policy approaches, as shown by experience in China and elsewhere is a combination of regulations, environmental taxes and financial support.Financial support can be provided from environmental charges of various kinds. In some cases, especially at the demonstration phase, international support is also important.
In summary, the essential means for implementation include:
- continued market reforms,- tighter environmental regulations,
- orrection of prices to incorporate full financial and environmental costs,
- government mechanisms to provide demonstration and commercialization support for newly emerging biomass utilization technologies,
- fair and open access to the electricity grid for biomasselectricity technologes
- cooperation to encourage international support, public-private partner ships, coordination and unification of government processes and agencies involved in this area,
- encouragement of competitive mechanisms to bring down costs/prices,
- support for education and training of officials and project developers
-in all aspects of project development including
- technology assessment,
- environmental impacts,
- health and safety risks and protective measures including risks associated with carbon monoxide in homes,
- energy systems and networks, and codes of operational good practice,
- strategies to facilitate smooth and rapid development from successful demonstration to expanded commercialization,
- corporate structure, public and private partnerships,
- local electricity market development for domestic users and TVEs.
RecommendationIn the 10th Five-Year Plan, China should dramatically increase initial financial support for commercialization of biomass (and other renewable) technologies. Increased market reform in China is critical to this objective, and this would allow for the use of market instruments to support biomass commercialization. Also, the government should set specific market share targets for the use of biomass (including a portfolio standard in the case of biomass-electricity technologies). Additional financial, for the period during which the cost of new technologies are being brought down, support should be provided in the form of tax reductions (land,income and VAT) and loan support.
Institutional reforms are needed for biomass commercialization. These include:- defining and legally protecting property rights,
- building regulatory processes,
- encouraging market-driven financial institutions,
- legalizing standardized supply contracts where needed (for grid sales, for biomass purchases),
- legalizing ensured grid access for renewable electricity generation,
- creating a single agency (ministry) responsible for renewable policies and renewable approvals,
- legalizing secure land and other resource use rights (land tenure concessions),and
- creating a process for evaluating technologies for commercialization support. Explicit criteria of this process would include potential for cost reduction, market potential, domestic production potential, environmental effects, social effects (include risk to public health), and potential for energy system synergies.
- encourage the use of environmental fuel surcharges to support biomass commercialization,
- - where practical such funds should be allocated by competitive bidding.
Human capability building is also needed for biomass commercialization. This includes developing chinese administrative expertise and producers' expertise (industry associations), as well as scientific and technical expertise as the fundamentals of the technologies, their impacts on the environment, and the environmental effect of mitigation technologies and strategies. This will include developing:
- administrative expertise and producers' expertise
- industry associations to raise standards, codes of practice and representation to government, and to network internationally.
- scientific and technical expertise
- capacity to conduct environmental impact assessments
- knowledge of mitigation technologies and strategies
- appropriate understanding of how marketbased economies influence proj
-ect success of failure.
5.5 Advanced Coal Bed Methane Recovery Technology
Background
China has large potential resources of methane trapped in coal beds. There is currently considerable industrial activity underway aimed at extracting this coal bed methane using conventional recovery technologies that are already well established in the United States, where coal bed methane already accounts for about 6 percent of total natural gas production.
New technology for enhancing substantially the production of methane from deep beds of unminable coal by injection of carbon dioxide into the coal bed is being field tested in both the United States and Canada.
Theoretical Basis and Feasibility
Coal is a very porous solid whose pore spaces often contain substantial quantities of methane. Commercial technology exists for recovering this methane from coal beds by depressurization of the coal bed, usually by pumping water out of the bed.
Additional methane can often be recovered from deep beds of unminable coal by pumping CO2 into the bed. Because it is typically about twice as adsorbing on coal as is into a coal bed tends to displace the methane in the bed and replace it with CO2 typically leaving two CO2 molecules in the coal pores for each molecule of methane recovered. In field tests that have been carried out, CO2 injected into the coal bed to stimulate methane recovery does not show up in the production wells until essentially all the methane has been extracted from the coal bed.
Expected Economics and Environmental Benefits
The value of enhanced coal bed methane recovery via CO2 injection relative to conventional coal bed methane recovery tends to be greater for lowpermeability reservoirs. The economic potential for enhanced coal bed methane recovery by CO2 injection is very site specific-depending on degree of saturation of the bed with methane, permeability, coal bed thickness, and other factors.
The overall economic attractiveness of CO2 injection for enhanced methane recovery depends on the availability of lowcost sources of CO2 China is currently producing "virtually free" CO2 as a by-product of the manufacture of ammonia from coal with modern coal gasifiers. By siting planned ammonia plants near deep beds of unminable coal and by using the byproduct CO2 at these ammonia plants for stimulating enhanced coal bed methane recovery, China could improve the prospective economics for coal bed methane recovery.
Enhanced coal bed methane recovery offers multiple local and global environmental benefits. The environment benefits first by increasing the availability of methane, the cleanest and least carbon-intensive fossil fuel. Moreover,CO2 injection into deep beds of unminable coal leads to isolation from the atmosphere of amounts of carbon in the form of CO2 that are typically considerably larger than the carbon content of the extracted methane.
Essential Measures for Implementation
To understand better the prospects for enhanced methane recovery from deep coal beds, available data on prospective sites for coal bed methane removal should be compiled and analyzed, and pilot tests should be carried out at several prospective coal bed methane recovery sites.
Recommendations
As a followup to the Workshop on Coal Bed methane Recovery convened in Beijing in January 1999 by the WG, a proposal has been developed by the Alberta (Canada) Research Council, the China United Coal Bed Methane Corporation, and the Computer Modeling Group of Canada to compile and analyze existing data relating to coal bed methane recovery, to identify promising sites for field tests, to carry out a series of such field tests, and to assess the findings of these field tests. This group is seeking $10 million for this projectof which the China Coal Bed Methane Project would contribute $5 million in the form of "in kind" contributions. Support to cover the remaining costs is being sought from the Canadian International Development Agency.
The WG believes this is a sound proposal, which, if funded, could provide a good understanding of the prospects for enhanced coal bed methane recovery in China. The proposal would be strengthened if the set of participants were expanded to include a potential supplier of low-cost CO2 (e.g., a firm that produces ammonia from coal).
The WG recommends public-sector support for this project (e.g.,from the Canadian International Development Agency) to ensure that, following a reasonable grace period after project completion, the major results will be in the public domain. Such information would give policymakers a much better understanding of the prospects for recovering methane from deep beds of unminable coal in China.
6. Workplan for 1999-2000
6.1 General considerationsThe following workplan is based on the approach outlined in Section I above, and appendix I and II. In the overall context outlined there, the Working Group will contribute to the development of market rules for sustainable energy development in China, including contributions to the discussion of the role of government in shaping these rules. Further, the Working Group will identify and analyze important new technologies for sustainable energy, propose demonstration projects for new technologies and new institutional arrangements, and discuss the institutional and human capacity issues that are crucial for making full use of sustainable energy options in China.
With the time limitation of two meetings per year, at which studies are reported, technological and capacity-building workshops are convened and demonstration projects are followed up, it is necessary to be selective in what the WG plans to achieve in the next few years. Human resources and funding also exert constraints upon what can be effectively tackled.
As workshops stem from mature studies, and the choice of studies is arrived at through an ongoing discussion of priorities, it follows that the portfolio of these activities remains dynamic. The Working Group's attention will continue to be directed into those areas and themes that seem most important to Chinese members, seeking at the same time to ensure a balanced attention over the twin concerns of socio-economic development and the environment. The international members will strive to ensure that the most appropriate, clean and efficient technologies, and the most efficient institutional arrangements experienced worldwide, are brought to the attention of the WG.
6.2 Studies
During the next year, studies will address
- the potential for cogeneration in China, both with and without a syngas oriented energy future. The study will include cogeneration in district heating metworks, industrial cogeneration, and decentralized cogeneration. Modern technologies characterized by high electricity to heat ratios will be explored.
- the pollution situation and mitigation options in a selected city with serious pollution problems, in cooperation with the Working Group on Pollution
- the wind resource concession is the focus of an ongoing study being carried out under a UNDP project by Working Group members Professor Ni and Dr. Brennand. If possible, the idea will be explored for other forms of renewable energy as well,
- energy market structuring options, in a more detailed follow-up of the June 1998 Workshop on Mechanisms of Resource Allocation for Sustainable Development of the Energy Sector.
- capturing the opportunities offered by next-generation technologies to
- use biomass. The main issues to follow and study include:
l Evolution of biomass electric generation technologies;
l Concurrent relevant developments of third generation technology—25-50 MW biomass integrated gasifier/gas turbine-steam turbine combined cycle (BIGCC) power plant;
l An analysis of why China might want to consider developing once-through FischerTropsch liquids/BIGCC technology for use with crop residues.
l
6.3 Workshops
The WG is planning at least one workshop for its March/April meeting in year 2000. The subject(s) of the workshops will be selected at the WG meeting in end of October 1999.
6.4 Demonstration projects
During the coming year, the Working Group intends to focus on the already initiated demonstration projects, the biomass project in Jilin, the fuel cell bus, the wind resource concession, and the initiation of follow-up on biomass utilization in Jilin Province. By mid-year 2000, it is to be expected that studies/workshops will have generated additional demonstration projects.
6.5 Capacity building
The Integrated Resource Planning Promotion Network is planning the Third Workshop that has had to be postponed until the fall of 1999. This will receive added emphasis in the context of the challenges of the 10th Five-Year Plan.
7. Report on Funding
The costs of meetings of the Working Group have been funded by the Canadian secretariat of the CCICED, covering the participation of the international members and direct local costs. Funding for workshops and other local activities have been identified by the Working Group during Phase I from other sources. For the last year these costs have been covered by the Canadian secretariat of the CCICED, using grants from Canada and Norway. A large number of contributors have been supportive, as acknowledged in the reports of the Working Group to the CCICED. In the judgment of the Working Group, a larger contribution to total activities from CCICED funds would be desirable.
Appendix
Focus of the Work
The process of modernization of China involves creating step-by-step a socialist market economy. This economy will operate in a world characterized by globalization and liberalization of markets. These overriding processes will create the setting in which the development of China's energy system will largely take place.
Investments in the energy system make up a significant fraction of total investments in any rapidly growing economy. They are projected to increase, as the economy continues to grow. However. traditional sources of finance (e.g., government finance), are not likely to be able to meet increasing demands for capital. Realistically, only private financial markets, domestic and foreign, will be able to contribute the major parts of the needed capital in the future. Foreign direct investment has been an important and rapidly growing new source of capital in China in recent years. In addition, China has an enormous potential for establishing private domestic capital markets based on domestic private savings.
This leads to a need to create conditions that will attract mobile private capital. China has already moved in this direction, as witnessed by the foreign investments that are being made. From the point of view of overall development of china, however, it is necessary but not sufficient that capital investment should grow. This capital must flow to investments that are compatible with sustainable development in a broad sense.
A fundamental issue in energy for China is in fact the design of a facilitating environment for such investments to happen. A system of incentives and disincentives that lead market actors to make economically attractive investments in socially and environmentally positive areas is needed. The Working Group has accepted the challenges of developing ideas in this context. as reported on last years, and in this report.
The major elements in a sustainable energy approach are(i) more efficient use of energy, especially at the point of end use,(ii)increased utilization of renewable sources of energy, and (iii)developing and implementing a new generation of cleaner fossil-fuel using technologies (UNDP, 1997).
The Working Group has analyzed the situation of China in its earlier reports to the CCICED, and concluded that all three elements are relevant and applicable to China's conditions. Detailed analysis in these areas may be found in the underlying reports that have been prepared for the Working Group, and attached to the Working Group reports to the CCICED.
In Phase I of CCICED, the Working Group also analyzed and made recommendations concerning the important contributions to sustainable development that may be obtained in China from an increased utilization of natural gas from conventional gas sources. The Working Group has also discussed and made recommendations regarding nuclear power in China, For the time being the Working Group is not pursuing new analyses in these areas.
The work of the Working Group in phase II of CCICED will continue to focus on a continued rapid improving of energy efficiency in all sectors in China, and on expanding the modernization and utilization of renewable sources of energy, especially biomass, wind and solar energy.
Also, because of the large resources of coal in China, and new long term options to use coal in ways compatible with sustainable development, the Working Group is developing and will contribute new ideas concerning the development of a longterm, sustainable coal strategy for China, based on recently developed and emerging energy technologies.
Appendix Ⅱ
Methodology
The Working Group continues to be guided by its mandate which is to provide advice to the CCICED on energy strategies and technologies which are aimed directly at satisfying the energy service needs of China over the next decades of economic development, and at the same time furthering achievement by China of its Agenda 21 goals.
Recognizing China's abundant domestic energy resources, the Working Group seeks to find optimum ways of developing an energy supply mix which takes full advantage of those resources, including conventional and unconventional resources wherever it appears that meeting the objectives spelled out in China's Agenda 21, and satisfying China's economic development, can be aided.The approach that the Working Group has evolved over phase I of CCICED and which continues to be effective we believe, is to pursue a four-fold strategy of
(i) internal 〖WTHX〗expert study and reporting,
(ii)external promotion and running of workshops on key advanced sustainable technologies and strategies as well as new institutional arrangements. The workshops are expressly aimed at encouraging
(iii) demonstration projects utilizing technologies on both the demand and the supply side, as well as increasingly addressing new institutional arrangements, that in the Working Group's opinion merit wide recognition and application in China, and
(iv) direct efforts to build human capacity to analyze and manage energy issues in a sustainable development perspective.
The Working Group relies on its extensive international and Chinese contacts to achieve as broad as possible a representation of presenters and attendees from interested organizations. The Working Group strictly resists being drawn into any handson project development and management, since it has neither the financial nor the human resources required.
The role of the Working Group with respect to demonstration projects is therefore that of an adviser and facilitator. By convening and chairing Workshops, the Working Group itself gains valuable insights into the merits/demerits of specific technologies and strategies, and is brought into contact with the practical realities in China of achieving higher standards of sustainability. The Working Group maintains a close interest in the outcome and follow-up of these initiatives, and seeks always to be kept informed.
The Working Group has recently established a liaison office at Tsinghua University,with financial support from the CCICED secretariat in Canada. The office is intended to help keeping the Working Group informed about energy related developments in China, and to make the outcome of the Working Group's efforts more widely available in China. The office will also be helpful in keeping the Working Group informed about the advancements of various projects the Working Group has helped to initiate.
The WG is commissioned to seek strategic solutions in the energy sector, which are consequently long-term in conception. However, the WG is alert to the need for short-term awareness, and to ensure that short-term implications of long-term strategies are fully drawn and actions are proposed which are pertinent to today's problems and realities, while remaining compatible with the long-term objectives.
As a generality, it most of its field of technology & policy the WG sees merit in encouraging implementation of its recommendations by competitive processes, and by public-private partnerships, where the former safeguards broader social interests and the latter assumes the professional and managerial responsibilities.
