China looks beyond coal to fuel its dragon economy's fire

Over the last two decades, China’s unprecedented economic growth has led to rapid growth in electricity demand. Supply has not always kept pace with demand growth. Power shortages occurred frequently during 2002-2005, notably in the high economic growth regions, such as the provinces of Shanghai, Jiangsu, Fujian, Anhui and Guangdong. A return to a more balanced supply and demand situation was achieved in most regions in 2006 and continued into 2007, as capacity expanded by approximately 200 GW over the last two years. A few regions still face potential shortages, due to transmission constraints or severe weather conditions.

Others, such as the central and northwest regions, have some limited surplus of capacity. How does China plan to overcome these problems, and what is their plan for the power generation industry’s future?

Lofty Goals

As of now, total generation is projected to increase by 4.9 % per year, more than tripling by 2030. At 8,472 TWh, China’s generation in 2030 will be comparable to the current level of production in OECD North America and Europe combined. Electricity generation is projected to increase at a slightly lower pace than demand.

This is because the combined rate of transmission and distribution losses and own use is projected to decline gradually from the current level of 20% to 16% by 2030.

One reason for the low power supply is the lack of coal for power plants. Coal-fired generation accounted for 78% of total electricity supply in 2005. Coal-fired generation is expected to increase at an average rate of 4.9% per year.

The expansion of coal-fired generation in China will continue to be based on pulverised coal, with supercritical steam cycle technology expected to play a much greater role in the future, due to its efficiency and emissions advantages. China has made considerable progress in the implementation of state-of-the–art coal-fired generation technologies, by building world-class, larger and more efficient power plants.

There are about 100 GW of supercritical plant on order, implying that the share of supercritical technology in new capacity will increase significantly over the next few years. The average efficiency of coal-fired generation is expected to improve from 32% in 2005 to 39% in 2030.

The new coal-fired plants are expected to be concentrated in Shanxi, Shaanxi, Inner Mongolia, Guizhou, Yunnan, Henan, Ningxia and Anhui, areas with convenient and economical access to the coal resources.

However, with coal supplies on the scarce side, what does China plan to support or supplant coal with?

Oil plays a limited role in power generation, and its share is projected to fall to less than 1% by 2030.

Natural gas accounted for just 1% of total generation in 2005. Although gas is not competitive with coal for power generation under current market conditions, China is pursuing policies to diversify the electricity mix and to reduce local pollution, which could boost the share of gas in certain regions. In the Reference Scenario, gas-fired generation is expected to reach 313 TWh by 2030, nearly 4% of total electricity generation. China received its first LNG shipments at the new Guangdong Dapeng terminal in 2006. A second terminal is under construction in Fujian, which is expected to be operational in 2009, while construction of a third, in the Shanghai area, started in early 2007, for completion in summer 2009. Gas-fired generation will be concentrated mainly in coastal areas.

Nuclear generation amounted to 53 TWh, or 2.1% of total generation in 2005. It is projected to rise fivefold, with its share increasing to 3% of the total by 2030. Two new reactors were connected to the grid in 2006 and 2007, bringing the total number of reactors in operation to 11 and installed capacity to 8.6 GW. Four reactors with a total capacity of 3.2 GW are under construction. They are expected to be completed by 2010-2011.

The government’s target is to have 40 GW in place by 2020. The target set by the government seems ambitious given the current level of development, the long construction times and the current global bottlenecks in nuclear component manufacturing, which impose extended delays on delivery. In the Reference Scenario, installed nuclear capacity reaches 21 GW in 2020 and 31 GW in 2030. In this scenario, all new nuclear power plants are assumed to be built in coastal areas.

China is the largest producer of hydroelectricity in the world, and it is expected to rise to 1,005 TWh in 2030, but its share of total power output will fall from 16% to 12%. China is actively engaged in the development of other sources of renewable electricity, mainly wind power, biomass and solar photovoltaic.

Generation from these sources is expected to reach 263 TWh in 2030, about 3% of total electricity.

A dozen pilot projects of gas-fuelled trigeneration are being undertaken in Shanghai and Beijing. The potential for CHP is significant, mostly concentrated in Beijing, Tianjing, regions in the Yangtze River Deltas, including Shanghai, Jiangsu and Zhejiang Provinces, where direct coal combustion is now forbidden in many cities. The Pearl River Delta regions also have good potential. An additional 611 TWh is projected to come from CHP plants by 2030.

Natural Selections

China’s economic hydropower potential – some 1,750 TWh - is the highest in the world. The resources are located mainly on the Yangtze, Lancang, Hongshui and Wujiang rivers.

Further hydro development will be undertaken due to its economic advantages and advantages in reducing gaseous emissions. Hydropower is projected to increase from 397 TWh in 2005 to 1,005 TWh in 2030, but its share in total generation will fall from 16% to 12%. The government’s 300 GW target is met by 2030 in the Reference Scenario.

The huge Three Gorges Dam on the Yangtze River in Hubei Province, when fully completed in 2009, will have a total installed capacity of 18.2 GW, by far the largest hydro generating facility in the world. There are 14,700 MW currently in operation. Construction has recently started on two other very large hydro power plants: the Xiluodu project, located along the Jinsha River in south western China, which, when completed in 2015, will have a total capacity of 12.6 GW; and the Xiangjiaba project, in Sichuan Province, which is projected to be completed also in 2015, with a capacity of 6 GW. Small-scale hydropower plants are widely used. About one-third of China’s counties rely on small-scale hydropower as their main power generation source, with a total installed capacity of 50 GW.

Total wind power capacity reached 5,899 MW at year-end 2007. Estimates by the China Meteorology Research Institute, based on measurements done at ten meters above ground, indicate a potential of 253 GW for onshore wind power. The institute estimates offshore wind resources to represent an exploitable potential of about 750 GW.

The government’s target for large-scale wind turbines is 5 GW in 2010 and 30 GW in 2020. Wind power capacity is projected to reach 49 GW in 2030, accounting for 1.6% of China’s electricity supply. Wind power development will need to be accompanied by investment in grid expansion and transmission upgrades.

By the end of 2005, China’s installed capacity of photovoltaic systems was about 70 MW, of which approximately 50% was used to supply electricity in remote rural areas without grid connection.

The future potential is very large, as most areas benefit from high solar radiation. The national targets are 300 MW installed by 2010 and 1.8 GW by 2020. PV technology can be expected to make significant advances beyond 2020 along with cost reductions. China’s PV capacity is expected to reach 9 GW in 2030.

The Alternative Scenario

The Alternative Policy Scenario is based on the assumption that governments at all levels take stronger action to ensure that policies and measures are implemented fully, enforced effectively and supplemented by new measures where necessary.

For example, it is assumed that structural change within the economy is more vigorous than in the Reference Scenario and that switching to natural gas is actively promoted.

China’s power sector now accounts for almost 40% of total energy consumption and for almost half of total CO2 emissions. Both these shares are expected to rise in the future, if the government were not to make additional efforts to diversify the electricity supply mix and to reduce CO2 emissions and local pollution.

The Alternative Policy Scenario demonstrates that, if policies to improve the efficiency of the way electricity is used are put in place, electricity generation can be lower by 12% in 2030, compared with the Reference Scenario. Total generation savings in 2030 amount to almost 1,040 TWh and installed capacity is 148 GW lower.