CEFC China Energy Journal June 2015 Issue 2 by China Energy Fund Committee

CONTENTS

JUNE,2015,The Second Issue China—Pakistan Economic Corridor

8 4 4

Technology ——driven Era

Green Future

Editorial 编者的话

Black Coal, Green Future 黑色煤炭的绿色未来

Opinion 观点 SNG—Unit to be Promoted on a National Level 发展煤制气

宜作

国家战略

Innovation, the Future of China’s Petrochemical Industry 石化行业急需实施创新驱动

16 Policy 政策 Policy Guideline for Energy Transition in Jingjinji Zone 政策出台指导京津冀能源转型

SNG

Figures 数字

Cover Story 封面文章

46 Business 商业

From Black to Green, China’s Ongoing Coal Revolution

Energy Projects, Part and Parcel of China-Pakistan Economic Corridor

从黑到绿：中国煤炭革命进行时

能源项目闪耀中巴经济走廊

Fang JunshiThe Clean and Eficient Utilization of Coal Fits the National Grand Energy Strategy

Sinopec Reform, Where to Go After Fu Chengyu?

专能源局煤炭司司长方君实：煤炭清洁化利用符合国家大能源战略

专中国矿业大学校长葛世荣：中国煤炭行业已进入技术驱动时代

44 Major Events

Energy Security 能源安全 Hidden Concerns in 120,000 km of Oil and Gas Pipelines

Dialogue 对话 China’s Coal Industry Enters a Technology-driven Era A Dialogue with President Ge Shirong of CUMT

要事件

12 万千米油气管道的安全隐痛

Planet 地球 Environmental Capacity, the Basis of Environmental Impact Assessment 环评要

环境容量挂钩

Dilemma of Curbing Ports and Shipping Emissions in China

后傅成玉时代，中石化改革何去何从？

中国港口和船舶减排治理困境

Foresight 前瞻 Chinese Nuclear Technologies Gain Footholds in the World 中国核电技术赢得更大国际竞争力

Technology 技术 L o w Te m p e r a t u r e N u c l e a r Heating Reactors Seek Next Round of Industrialization

Chinses Nuclear power

低温核供热堆再谋产业化

China Speeds Up Construction of Ultra-high-voltage Power Grid 中国特高压建

全面加速

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CFFC China Energy journal

some 200 years earlier. Although the indigenously rich, easily exploitable and relatively cheap coal resources have fueled China’s economic growths and lifted millions of people out of poverty in the past three decades, the tremendous environmental and health costs associated with such extensive consumption of coal is becoming more and more apparent.

Black Coal, Green Future Ho Chi Ping Patrick China is the world’s largest coal producer and consumer today. Its documented record of large scaled utilization of coal could be traced back to as early as the Tang Dynasty (618-907 AD), when coal was first used to supplement the shortage of charcoal following the massive deforestation in North China caused by the surging iron and steel production at that time. Whereas coal was widely explored and combusted to accelerate the mechanization progress in Europe in the 19th century, its scope of usage in China had long been confined to civilian heating purposes. It was not until the second half of the 20th century when the Chinese government put forward 4

its own industrialization plans under the support of the Soviet Union that the coal production in China began to surge to a comparable level to other industrial economies. In this regard, they lagged almost 150 years behind western economies. The miraculous economic growth of China following the “reform and opening up” policies made in the late 1970s drove the volumes of coal production and consumption in China to unprecedented levels. Driven by the rapid development of its labor-intensive and exportoriented industries, China’s demand for coalderived energy rose tremendously. But in the carbon constrained 21st century, coal usage in China is destined to face more challenges and restrictions than the western predecessors

However, given China’s gigantic economy and energy consumption size, it will be extremely difficult and costly, if not impossible, to derail the country from its current dependence on coal. Renewables are intermittent and costly given the existing technologies and policy instruments; natural gas resources are still scarce and expensive in China; nuclear energy is controversial and equally expensive, given its high upfront costs, long construction periods and public concerns about its safety. Given China’s energy endowment and the socio-economic paradigm, coal can hardly be replaced or displaced as an important energy component in China and this will not change at least in the near future. Thus, how to use coal more cleanly and responsibly in a carbon-constrained world becomes the central concern of the Chinese government and the industries. While the Chinese government has pledged to be a responsible international player in climate mitigation and that China could be endowed with the possibility to lead the world in low-carbon development, clean coal utilization will be both a necessary and pressing option for China’s future energy consideration. Currently, the Chinese government has adopted a three-tier strategy in promoting clean coal utilizations: a). capping total coal consumption, b). committing to a carbon emission target, and c).directing more investments in clean coal technologies. These policy goals have been manifested in several government documents and policy white papers recently. For example,

in the Energy Development Strategy Action Plan (2014-2020) (“Energy Plan”), the share of coal consumption in China has been mandated to be kept below 62% by 2020 and clean coal utilization technologies are encouraged to be expanded to help to meet the country’s target of reducing carbon intensity by 40-45% in 2020 on the 2005 basis. A national program aimed to upgrading the efficiencies of coal-fired power plants and coalfired industrial furnaces in China has also been commenced to ameliorate the environmental impacts that coal consumption will generate. The most recently issued “Clean and Efficient Coal Utilization Action Plan (2015-2020) by the National Energy Administration, which gave specific and detailed policy guidance to the development of clean coal technologies, has once again afirmed the Chinese government’s determination in directing its coal utilization toward a clean and sustainable end. These measures will not only clean up China’s air but also conserve water and land resources, reduce water pollution, and alleviate transportation pressures, all of which will help secure a healthier future for China’s citizens, environment, and economic growth. Given the necessity to rely on coal, the only energy source which China has abundance of, the fact that China needs an affordable energy for its industrialization, urbanization and development, and the international pressure to mitigate the deleterious effects of coal consumption, China might become the only place on earth to possess the room and opportunity to realize the potential of developing and experimenting with the various modes of low carbon and clean coal technologies. And China should welcome all professionals and experts working in the coal area, and investors from all over the world, to join her in developing the green future of coal and partake in this golden opportunity of the era to optimize the economy of this plentiful cheap fuel with the responsibility of carbon emission. 5

Opinion

CFFC China Energy journal

NG—Unit to be Promoted S on a National Level

“ ▲ Li Junfeng

Li Junfeng ( 李俊峰 ) “We must not develop SNG blindly regardless of the consequences because once a system is formed and consolidated over time, it will bring about an immeasurable negative impact on our energy structure, and impede our efforts to deal with climate change and environmental protection.” 6

We must not develope SNG blindly regardless of the consequences because once a system is formed and consolidated through time, it will bring about an immeasurable negative impact on our energy structure, and impede our efforts to deal with climate change and environmental pollution.

In recent years, to optimize China’s energy structure, governments at different levels, from the central government down to local governments, have turned their eyes to synthetic natural gas (SNG), viewing it as a promising avenue for clean utilization of coal and addressing the inadequate supply of natural gas, providing an alternative for end-use. Although our government has shown concerns over the environmental consequences

that may arise from the development of SNG, it is beginning to endorse its development gradually. Since 2011, the excess production capacity of coal in China has led to a steady decrease in coal prices both at home and abroad and the skyrocketing of natural gas prices, offering a significant profit margin for the development of SNG in central and western coal-producing areas, making SNG a new investment hot spot in the coal chemical industry. As is indicated in some documents, the SNG capacity in China will reach 9 billion cubic meters by the end of 2015, and the figure will continue to grow to as high as 32 billion cubic meters in 2017. Up until now, there have been 4 approved SNG projects, and another 17 SNG projects have received a preliminary “pass”. The combined capacity of these projects will add up to 121.5 billion cubic meters/year, with a irst-phase capacity of 65 billion cubic meters/year, of which 85% is located in Xinjiang and Inner Mongolia where there is a severe shortage of water. We have chosen several different SNG-conversion technologies and compared them with regular energy consumption methods. More specifically, we have divided the life cycle of SNG into different phases, including raw material mining, fuel production (power generation) and final consumption. And we have studied the consumption of SNG and the direct consumption of its respective raw materials separately. After comparing the primary energy consumption, water consumption, pollutant emission, carbon dioxide emission and economic feasibility of the two approaches, i.e., SNG and regular consumption, on the basis of equal output, we are able to draw the following conclusions: A comparison

of primary energy consumption To use SNG to replace traditional energy

technologies, whether it is to generate power for heating boilers, cooking or powering vehicles, SNG consumes more energy in its full life cycle than the technology it replaces. For example, SNG consumes 50% more energy than coal, and 80% more than vehicle fuels. The worst choice is to use SNG as an alternative to coal for big heating boilers and natural gas for generating power because energy consumption will rise by 110%. What is worth noticing is that of all the energy consumed in the full life cycle of SNG, over 50% is used in the process of converting the source energy into SNG. Therefore, compared with its source energy, SNG provides less energy in the inal consumption phase. A comparison of water consumption The production of SNG requires a lot of water. Approximately every 1000 cubic meters of SNG produced needs 7 tons of water. Therefore, from the perspective of water consumption, it is not economical to develop SNG. And after comparing SNG with the technology it replaces, I find that in terms of water consumption in its full life cycle, SNG is only as good as coal used for power generation and a cooking hot plate. If we use SNG to replace coal when we are cooking or heating up boilers or use SNG to take the place of natural gas for power generation, water consumption will increase 4 to 6 times. After comparing the water consumption of SNG power generation and coal power generation, we can see that though in the process of power generation SNG only uses 56% as much water as coal, the high water consumption in the production process gives SNG little advantage in comparison to coal. If we use natural gas to generate power directly, water consumed will be 58% as much as SNG and 35% as much as coal. In terms of water conservation, natural gas is in a better position than 7

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SNG, which, in turn, is better than coal. A comparison of pollutant emissions SNG looks better than most conservative technologies except ultra-supercritical (USC) coal power generation. Other traditional forms of energy consumption such as heating boilers, hot plates and vehicle fuels emit more sulfur dioxide and nitrogen oxide in their full life cycle than SNG. Whatâ&#x20AC;&#x2122;s more, as most pollutants are emitted during the production of SNG, wherever SNG is merely consumed, the issue of air pollution can be largely addressed. However, wherever SNG is produced, it can be a nightmare. From the perspective of cutting the emission of traditional pollutants such as sulfur dioxide and nitrogen oxide, the environmental beneits of SNG are still acceptable. When SNG is used to replace vehicle fuels, emissions of the pollutants above are cut by 70%. 70% of the carbon dioxide emission occurs during the production of SNG. Considering the full life cycle, however, you will find that SNG emits more carbon dioxide than the energy sources it replaces. Therefore, from the perspective of greenhouse gas emission control, the development of SNG is not economically viable. The carbon dioxide emission in the full life cycle of SNG is 10% to 270% higher than in technologies it replaces. Carbon dioxide emission will skyrocket by 270%, 170% and 60% respectively when SNG is used to replace natural gas (for power generation), vehicle fuels and central heating. An analysis of economic feasibility We can also analyze the economic feasibility of SNG in terms of prices. Suppose the price for natural gas is 3 yuan/cubic meter, the price for coal 500 yuan/ton, the power price for civilian 8

use 0.56 yuan/kilowatt, and the price for diesel oil or gasoline 8 yuan/liter. By roughly comparing the prices above, I have reached the following conclusions: the feed-in tariff of power generation by SNG is about the same as natural gas, but is 2.5 times as high as coal; the cost of heating by SNG

is 4 to 5 times as high as middle-sized or largesized boilers; the cost of cooking by SNG is on the same level as natural gas and hot plates, but it is 2 times as high as honeycomb briquettes; the price of SNG as vehicle fuels is that of ordinary gasoline or diesel.

Therefore, considering economic feasibility, SNG is only competitive when compared with vehicle fuels. However, the price of natural gas in China is twice that of Europe and four times that of North America. If the price of natural gas drops to the level in the European Union or suffers a 9

Opinion

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signiicant decrease, and if we take carbon tax into consideration, the only competitive aspect of SNG will no longer exist. All in all, I think SNG, though not without its benefits, is unfit to be promoted as a national strategy. Granted SNG can help optimize energy structure and cut emissions in consumption areas, it is at the cost of increasing primary energy consumption overall. And if we take all the factors into consideration, SNG contradicts the low-carbon development trend in the energy field. Additionally, the development of SNG is constrained by water. Most SNG projects in China are located in the western part of the country like Xinjiang and Inner Mongolia, which suffer from a severe shortage of water. Worse still, producing SNG in those areas will bring about a great negative impact on the already fragile local ecologies and use up water resources that can be otherwise allocated for other industries or the improvement of people’s living standards. Therefore, the development of SNG or coal chemical industry in water-deficient areas will be restricted by water resources. In order to control China’s greenhouse gas emission and total energy consumption, we shouldn’t develop SNG on a large scale either. After evaluating primary energy consumption, environmental benefits and greenhouse gas emission in a comprehensive manner, I have drawn the conclusion that to some extent, the development of SNG compromises primary energy consumption and greenhouse gas emission on the whole for the sake of optimizing the energy structure in some areas. As a result, this unclean, carbon intensive approach shouldn’t be promoted nationwide. Furthermore, it is also not advised to develop 10

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SNG on a large scale considering energy security and energy internationalization. Currently, China is the only country that is developing SNG extensively. In reality, there is an ample supply of oil and gas in the international market. It is true that SNG can address the temporary shortage of gas supply in some areas. In the long run, however, the energy structure in our country should be in line with the international model. Therefore, the focus should be put on the utilization of both domestic and international markets and the increase of natural gas output.

A Brief Introduction of China’s Gas

Market Liberalization:Current Status and Prospects

To meet the objectives of clean and lowcarbon development in China, relevant departments should take into consideration China’s energy structure as well as the country’s goal in containing environmental pollution and coping with climate change. In addition, SNG and relevant issues should be evaluated in terms of their energy efficiency, environment footprint and economic feasibility over the full life cycles. On the one hand, we can leverage prices to offer rational guidance on the development of energy; on the other hand, we can promote our domestic clean and renewable energies and actively cooperate with the international community to push forward the clean and low-carbon development of China’s energy system.

A netback approach for gas pricing will be introduced in a national width and all non-residential gas in China will be priced against competing fuels under the new scheme.

Shi Xunpeng ( 施训鹏 ) To conclude, with current technologies, w e s h o u l d d e v e l o p S N G c a u t i o u s l y, i . e . , develop SNG with limitations or under certain circumstances. We must not develop SNG blindly regardless of the consequences because once a system is formed and consolidated over time, it will bring about an immeasurable negative impact on our energy structure, and impede our efforts to deal with climate change and environmental pollution. (The author is the Director General of National Center of Climate Change Strategy)

China reached a milestone in its gas market liberalization on April 1, 2015. From this day on, a netback approach for gas pricing will be introduced in a national width and all non-residential gas in China will be priced against competing fuels under the new scheme. This marks the first time ever that a market-oriented gas pricing mechanism is introduced in China and signifies a remarkable progress in pushing forward market-oriented energy pricing and energy market liberalisation.

mechanism symbolizes an expansion and perfection of the previously introduced dual-track gas pricing scheme that went into effect in july 2013. In that reform, only gas supply volume that exceeds domestic gas consumption in 2012 (or also known as “incremental volume”) will be priced against alternative fuels (e.g. LPG and fuel oil) and gas consumptions that fall under the 2012 consumption volume (or also known as “stock volume”) are still priced according to the cost-plus approach, which governs about 91% of total gas trade in China by that time.

To some extent, the current gas pricing

Before the introduction of netback approach, 11

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cost-plus approach governed gas trade in China for decades, under which ex-plant gas prices (comprising both well-head costs and processing fees) were determined by the varying production costs between gas producers. Under the cost-plus approach, retail gas prices were formed based on the sum of the ex-plant prices and the pipeline tariffs and thus vary between cities and regions as well. However, such pricing method had difficulties in accommodating the rapid increase of LNG imports in China. In addition, fragmented and unequal pricing regulation had created tensions among producers and distributors, and discouraged investment in gas production and gas infrastructure construction. The price distortion limits the role of price signals in allocating the usage of gas. The pricing mechanism also leads to less transparent price signals and an unstable investment climate. Costs to reveal the real costs of production at fields would be prohibitive, if not impossible, as information asymmetry exists between producers and the government. The price also fails to reflect the market fundamentals and fails to send the appropriate market signals in terms of upstream development and demand response. The netback pricing reform brought signiicant changes in at least two aspects: 1) by shifting the price formation stage from the wellhead to the citygate, the new mechanism allows more room for wholesale gas price fluctuation in future; 2) gas wholesalers will be allowed to directly negotiate gas prices with suppliers. Apart from the change of pricing mechanism, in the past two years, China has introduced some other significant initiatives for gas market liberalization. According to documents issued after the Third Plenary Session of the 18th CPC Central Committee in November 2013, the administrative monopoly of state-owned enterprises (SOEs) will be broken further and accessibility to upstream energy resources will be more open to private 12

CFFC China Energy journal

investors. Network (transport) and operation (marketing) are expected to be separated and restrictive policies on market access to competitionbased operations should also be dropped and prices of energy commodities such as natural gas will be further liberalized. The calling for “Energy Revolution” proposed in mid-2014 also indicated the necessity for restoring the commodity nature of energy products and reiterated the importance of energy price reform. One significant example is the renewed attempt of the National Energy Administration (NEA) announced in February 2014, aiming to allow more third party access (TPA) to the country's oil and gas pipeline network. These recent and ongoing changes will pave way for the initial formation of a more competitive gas market in China. According to the International Energy Agency (IEA), the initial step to create a competitive gas market includes four goals: open access to infrastructure; introduction of consumer choice; regulation on wholesale price and application of competition policy in the sector. By integrating the two tracks of gas prices into a uniform one and reducing government interventions in gas pricing procedures, the current gas price reform in China has introduced a price basis that can act as an important referral point to guide future wholesale gas price negotiations. It also provides effective measures to contain government interventions in gas pricing and increases competition within the production chain. However, the current pricing mechanism is not yet fully market based. Retail gas prices are still subjected to local government regulations and are most common in the practice of residential gas sectors. Currently, the residential gas price in China is lower than that of industrial, commercial and transportation sectors and is often cross-subsidized by overlapping government schemes. Whether the government will continue to adhere to the netback approach when oil prices

bounce back remains uncertain as well. Under the current low oil price scenario, implementation of the netback gas pricing has been smooth and did not cause any price surge. But to continue to execute the market-oriented pricing model in a high oil price scenario will inevitably lead to a surge in gas price. Considering the sensitivity of Chinese consumers to gas price, whether the netback pricing model will be strictly executed under a high oil price scenario remains to be tested. Further advances in the netback pricing are possible and desirable as the netback pricing model could be extended from petroleum products to other alternative fuels, such as coal and electricity. The frequency of price adjustment could be increased gradually. The extension of the pricing mechanism to include residential gas users would also be a challenging but necessary step. For the long run, the Chinese government is planning to establish a competitive gas market by introducing a gas-to-gas pricing mechanism. In january 2015, China unveiled its plan of establishing a Chinese “Henry Hub” gas market in Shanghai to promote spot gas trade. Having such a competitive price, we need a functional wholesale market, which in turn needs both institutional reforms (a hands-off government approach – removal of regulatory barriers and entry, separation of transport and commercial activities, and deregulation of wholesale prices) and infrastructural and market reforms (sufficient network capacity with non-discriminatory access (Third Party Access, TPA), sufficient number of market participants to generate competition, and involvement of inancial institutions). Financial institutions will also play a crucial role in facilitating the functioning of the gas wholesale market. There are much more barriers need to be removed to realize China’s vision of establishing a dynamic commodity gas market in which gas prices can truly relect China’s own market fundamentals.

When assessed against the IEA framework, there are many critical challenges remaining ahead. For example, the inadequacy of gas pipeline network development and the monopoly of SOEs in pipeline operation make TPA merely a possibility on paper. China has about 120,000 km of long-distance gas transmission pipelines by 2014, which lags far behind the 380,000 km in the US. As capitalintensive infrastructure projects, gas pipeline development in future may be further constrained by the higher financial costs in China than that in competitive markets. Furthermore, 80% of the gas pipelines in China fall in the hand of China National Petroleum Company (CNPC), a monopoly that clearly contradicts to the basic requirement of a competitive market to separate pipelines from commercial activities. Moreover, the domestic market structure and policy regulations are not prone to competitiveness. The Chinese gas industry is dominated by three national oil companies (Big Three), namely China National Petroleum Company (CNPC), China National Offshore Oil Company (CNOOC) and Sinopec. Competition policies and regulations are either not in place or properly enforced. A capable regulatory body and concerted regulations are yet to be formed and executed as well. Although the recent progresses in gas price marketization look encouraging, realizing the longterm goal of gas market liberalization will take time. Experiences of the US, UK and other European countries in gas market reforms implied that it might take another one to two decades for China to achieve a fully-matured gas market. Nevertheless, the long journey does not justify a wait-and-see strategy: incremental reforms will still be highly desirable and lessons from international experiences and practices will continue to be valuable in guiding the gas market reform in China. (The author is the Senior Fellow of Energy Studies Institute, National University of Singapore) 13

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imitation. In fact, in the past decade when China still lagged behind other countries in terms of economic capacity and technology innovation, it was inevitable that China boldly introduced foreign technologies and learned within imitation paradigm so as to achieve the goal of modernization. However, when China today becomes the world’s second largest oil and petrochemical market, it is believed that China will gradually reduce its dependence on foreign technology and use more alternative in the long term, which makes indigenous innovation crucial for the whole Chinese industry. Given that Chinese government has put emphasis on reform and innovation and sought greater progress in promoting scientific development in its 13th Five-Year Plan (2016-2020), the petrochemical industry in China should explore new paths for innovation in order to attain the goal.

Innovation,

the Future of China’s Petrochemical Industry

Li Shousheng ( 李寿生 )

Since a new round of technological and industrial revolution unfolds globally, the world has been shifting from an industrial economy to one that is driven by innovation, and it is all the more important for China, particularly in its oil and petrochemical industry, to transform itself through innovation, in order to strengthen the competitive position in this competitive world.

Weak innovation capability has been an important reason for the lackluster performance of China’s ill-structured oil and petrochemical sector, which only copycats others and lacks ingenuity.

Weak innovation capability has always been the Achilles’ heel of the ill-structured oil and petrochemical sector in China, because China has always been accused of lacking ingenuity and relying only on

In March 2015, the State Council of China issued two documents urging deepen reform and implementation of innovation-driven development. To live up the promise, the reform of industry will focus more on removing institutional barriers which may restrict innovation-driven development. The reform will tap into the creativity of each and every practitioner to make the most of information, technology, management expertise and capital. Models for moving incentivize R&D staffs and their findings from lab to market should also be implemented. The oil and petrochemical sector has three missions in its innovation-driven strategy over the next ive years. Firstly, individual businesses must enhance their innovative capacity. The rapid expansion of China’s oil and petrochemical industry has long been driven by massive investment and growing consumption. However, our oil and petrochemical companies just learned how to reap the benefits from expanding production but failed to invest in innovation.

However, things are improving, though at a slow pace. Some companies are performing well in the international markets with their laudable technological innovations. For example, the ultra-deep drilling technology and other 21 new technologies developed and designed by China National Offshore Oil Corporation (CNOOC) has won China’s highest award for progress in science and technology. It is widely believed that the example of CNOOC may foster innovation across the industry. Secondly, it is crucial to the formation of effective collaboration between academics and companies. Innovation in basic science is crucial for the technology-intensive oil and petrochemical industry. There are numerous academic institutes and universities in China which are started from scratch since the founding of New China and have made ground-breaking contributions in the oil and petrochemical industry over the past few decades. It is believed that the collaboration between business and academia may hold great potential for breakthroughs in technologies and the usage of technologies, thus upgrading and transforming China’s oil and petrochemical companies. Lastly, there must be innovative leaders who can protect and sustain the creativity of the industry. I have heard many businessmen complaining about the lack of innovative talents. Indeed, they can hire the world’s top scientists and engineers. However, the most reliable and cost eficient way for them to drive innovation and growth within the company is to carry out internal education and training. Every employee can be an innovator and lead to the company’s success, and what managers should do is to help employees to conjure up their creativity in their minds. Businessmen who invest in manpower never lose against those spend big money for talents. (The author is the vice president of the China Federation of Oil and Petrochemical Industries.) 15

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Policy Guideline

for Energy Transition in Jingjinji Zone

京津一体冀化 T h e national capital Beijing, along with Tianjin Municipality and Hebei province, a region referred to as Jingjinji Zone would be a leading force for the naio al e o o as ell as a hub of clean energy uilizaio .

and loads of electric power and heating power have signiicantly increased. Zhangjiakou in Hebei province, which is next to Beijing, is abundant with wind power. During the process of accelerating coordinated development of integration in jingjinji zone, industries like new energy industry, energysaving industry, environmental protection industry and circular economy industry will acquire new investment opportunities. According to the analysis made by China Securities, apart from the development opportunities for energy-saving and environmental protection ields, air pollutant emissions standards in the areas of coal power, iron steel and industrial furnaces are also expected to be improved to gas emission standard (ultra-low emissions).

Su Nan On April 30, jingjinji Coordinated Development Plan (Hereinafter referred as “plan”) was approved by Political Bureau of the CPC Central Committee, which means the top-level design of jingjinji coordinated development has been oficially completed. “From the aspect of enhancing capacity of energy security mentioned in the plan, Hebei is expected to become energy base for jingjinji zone”, the industry insider said. For the integration layout of jingjinji, Hebei is expected to become “special zone” of renewable energy. In recent years, renewable energy industries in Hebei, such as wind power, photovoltaic, have rapidly developed. Due to the advantage of wind and solar energy resources in Zhangbei County in 16

Zhangjiakou city, more than 30 energy enterprises were set up there, including Huaneng Group, Datang Group, Huadian Group, Guodian Group, China General Nuclear Power Group and so on. Furthermore, some research reports suggest that, in order to curb air pollution and optimize energy structure of jingjinji Zone, Zhangbei County and its nearby areas will establish large cluster of wind power, photovoltaic and thermal solar projects during the future 10-15 years. In order to accelerate the coordinated development and integration process in jingjinji zone, and promote adjustment of energy structure in Beijing, National Energy Administration (NEA) issued a notice on April 29th requiring that heating demonstrative construction of renewable clean energy in jingjinji zone should be arranged as soon as possible. The notice said that the energy consumption in jingjinji is based on coal, and extensively used for quite a long time. However, Beijing is located in the core area of jingjinji zone,

Last year, Eco-environmental Protection Overall Plan in jingjinji Zone was issued. Industrial insiders believe that the unification of pollutant emission standards in jingjinji zone suggested in the plan is imperative. A series of measures including unified driving restriction, unified emission restriction, unified oil quality, unified environmental protection standards and so on are expected to be implemented. “But the proportion of heavy industry and traditional energy consumption in Hebei is relatively high, so uniication of emissions standards will undoubtedly requires high emissions standards on Hebei.” the industrial insider told media. “Thus the nitrogen content is high in air pollutant in Beijing, but sulfur content is high in air pollutant in Hebei, so the constitution of pollutant is various in different areas. Therefore, it is dificult to unify the pollutant emissions standards, so measures of controlling pollution should be differently adopted to local conditions.” the person said. 17

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China Slashes Taxes on Green Autos

encourage cities to replace their public buses that run on fuel with new-energy models. Ten cities and provinces will follow the new policy, including Beijing, Shanghai and Tianjin, as well as Hebei, Shanxi, jiangsu, Zhejiang, Shandong, Guangdong and Hainan provinces. Wi t h g r o w i n g a w a r e n e s s o f environmental protection and the need for sustainable growth, green travel is becoming a trend in China. According to the Ministry of Industry and Information Technology, 9 , 0 6 0 n e w - e n e rg y v e h i c l e s w e r e produced in China in April, up one and a half times year-on-year.

Hu Jun China, the world’s second largest new-energy vehicle market, is once again making the purchase of a new-energy vehicle much easier and less demanding on customers’ pockets. The Ministry of Industry and Information Technology and the State Administration of Taxation recently announced that 330 models of new-energy vehicles can be purchased taxfree. Oficials said the move would help boost the development of the new-energy vehicle industry, transform the transportation and energy sectors and help protect the environment. This is the fourth time that the central government has rolled out a tax-free purchasing plan for new-energy vehicles, following moves in August, October and December. 18

The list of available new-energy vehicles includes 295 pure electric models and 35 plug-in hybrids. Pure electric models include 26 models of passenger cars, 191 buses, 77 special-purpose vehicles and one van; plug-in hybrid models include two passenger cars and 33 buses. The list only consists of Chinese brands and joint-venture brands, such as BAIC, BYD Auto, Geely and Foton Motor. In a separate measure to put more electric buses on city streets, the Ministry of Finance, Ministry of Industry and Information Technology and Ministry of Transport jointly issued an updated policy on fuel subsidies for public buses. The ministries, which currently pay the cost of fuel for public buses in China’s cities, will reduce fuel subsidies every year by 2019. It is hoped that the removal of subsidies will

In the irst four months of this year, new-energy vehicle production in China reached 34,400 units, almost three times as many units as the same period last year. 15,900 pure electric passenger cars among the total number of new-energy vehicles were produced, followed by 8,780 plug-in hybrid passenger cars and 6,416 pure electric commercial vehicles） ive times greater than the amount in the same period last year. More than 3,300 plug-in hybrid commercial vehicles were produced, up 70 percent year-on-year. The Chinese government is making a series of preferential policies to encourage people to use electric cars. In 2012, the State Council set an ambitious goal of having 500,000 new-energy cars on the nation’s roads by the end of this year, and 5 million new-energy vehicles by 2020.

China Speeds

up Fuel Quality Upgrading Kong Jueting The Chinese government introduced new measures to accelerate the upgrading process of reined gasoline in May. Quality upgrading is key to preventing and controlling air pollution and will help improve the environment and living standards, said a statement released after a State Council executive meeting presided over by Premier Li Keqiang ( 李克强 ). A work plan to accelerate the upgrade of fuel quality in China was released by seven government departments, including the National Development and Reform Commission, Ministry of Finance, Ministry of Environmental Protection and Ministry of Commerce. The plan stated that China will soon start formulating a new national standard - National VI - for fuel and diesel oil. The departments said they will issue the new standard at the end of 2016, and implement it in 2019. A total of 11 provinces in East China will supply fuel and diesel oil that meets the National V standard, which requires sulfur content in fuel to be no greater than 10 parts per million, one-ifth of the National IV’s 50 ppm, from Jan 1, 2016. To fulfill these tasks, domestic oil refiners should upgrade their equipment to ensure that they can provide qualified products. This means Chinese oil refineries will have to increase their investment in technological upgrading by about 68 billion yuan, which will further mobilize investment and production of related industries such as reining equipment. 19

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China's Nuclear Power Capacity to Reach 30 mln Kilowatts in 2015 China will ha e illio kilo atts KW of nuclear power capacity by the end of 2015, said Xu Yu i g 徐玉明 , deput di e to of the Chi a Nu lea E e g Asso iatio . Currently there are 23 nuclear power units ope ati g i Chi a, ith a o i ed apa it of . illio kilo atts. u its a e ei g uilt o pla ed, Xu said. The go e e t pla s to i ease Chi a’s total u lea po e apa it to illio kilo atts , pe e t o e tha the u e t le el. Xu esti ated that this

ill e ui e

illio

ua ea .

illio US dolla s of i est e t e e

It is e pe ted that Chi a’s ele t i it usage ill double by 2030, Xu said, additional efforts should e ade to p o ote lea e e g i ludi g u lea po e . In April, China approved the construction of pilot nuclear power units using the Hualong One technology, a indigenously developed third ge e atio ea to desig hi h follo s the o ld’s leadi g desig philosoph . It is elie ed that the ho eg o te h olog ill help o t i ute to i dust ial upg ades a d stead e o o i g o th.

China Crude Oil Output Rises 1.6 percent Crude Oil output in China reached 69.58 million tonnes in the first four months of 2015, a 1.6 percent year-on-year increase, according to data from the top economic planner.

Imports of natural gas increased 7.8 percent to 19.8 billion cubic meters, while apparent consumption was 62.9 billion cubic meters, the commission said.

China reined 155.57 million tonnes of crude oil during the period, 3.6 percent more than the same period last year, while refined oil production rose 5.2 percent to 98.32 million tonnes, the National Development and Reform Commission said in an online statement.

China’s appetite for natural gas has grown substantially with the country’s initiatives of industrialization and urbanization amid government efforts to cut carbon emissions.

Apparent consumption of refined oil, which is calculated as production plus imports minus exports, increased 4.8 percent to 89.18 million tonnes from a year earlier.

Last year, a report by energy giant British Petroleum (BP) predicted that China’s dependency rate on oil and natural gas import would rise to 75 percent and 40 percent by 2035, from the current 60 percent and 30 percent, respectively, making China the world’s biggest energy importer.

In a separate statement, the planner said natural gas output reached 45 million cubic meters in the irst four months of 2015, a 4.7 percent more than the same period last year.

The share of coal in China’s energy mix would fall to 51 percent from the current 68 percent by 2035. Natural gas would take up 12 percent and oil 18 percent, said the report. 21

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New wind projects will not be approved in Chinese provinces where more than 20 percent of wind electricity is abandoned, according to China’s energy regulator. The National Energy Administration (NEA) announced on May 20 that cities and provinces that plan to use wind resources will have to increase energy transfer through the improvement of grid connectivity.

60% The Proportion of Renewable Energy in China Expected to Exceed 60% by 2050 The uestio of ho Chi a’s e e a le e e g de elop e t ill e i the futu e has ee att a ti g glo al atte tio . Re e tl , a energy-related research institutes in China answer this uestio i a e st o g elief that Chi a’s e e a le e e g ill suppl o e tha pe e t of the p i a e e g o su ptio . This opti isti e pe tatio is o igi ated f o a epo t a ed Resea h o De elop e t S e e a d Route of High P opo tio of Chi a’s Re e a le E e g i . Liu Qi 刘琦 , i e hai a of Natio al E e g Ad i ist atio , ote a p efa e for the report and stated that the purpose of this report is to explore nonfossil energy and develop a path forward for the e e a le e e g a ket i Chi a, gi e that oal is g aduall ithd e f o do i ati g Chi ese e e g de elop e t. This epo t also stated that Chi a’s te i al e e g o su ptio is esti ated to ea h . billion tons of standard coal by 2050, and electric 22

po e e eg ill i Mo eo e eg

ill o up pe e t of the e ti e te i al o su ptio . Te i al ele t ifi atio atio ease pe e t f o to . e , di e t o su ptio of te i al fossil ill ea h illio to s of sta da d oal , hile e e a le e e g ill take up to pe e t, a d e e g o su ptio pe u it of GDP ill e . t e/te thousa d ua . As a esult, the e e g effi ie ill e i p o ed pe e t fo to .

China has tilted towards clean energy, such as wind power, hydropower and nuclear power to reduce air pollution. China’s newly installed wind power capacity increased to a new record of 19.81 million kilowatts in 2014. Wind power generated 153.4 billion kilowatt hours of on-grid electric power in 2014, contributing to 2.78 percent of the country’s total generated electricity, making it the country’s thirdlargest source of electricity, following thermal power and hydropower. However, the imbalanced distribution of wind resources and imperfect grid system has led to the waste wind electricity in China. This problem

of Wind Electricity Was Abandoned in China Last Year happens in the northern regions, especially in the northeast region, with a waste of 33 percent of wind electricity. An average of 8 percent of wind electricity was abandoned last year with a decrease of 4 percent compared to the previous year. 18.6 percent of wind electricity was wasted in the first quarter of this year. This has been increased by 6.6 percent compared to the year before. The NEA believes that the decrease in demand on wind electricity and the speedy new installation will waste more wind electricity.

The report was initiated and supported by the E e g Fou datio , a d it took th ee ea s to o plete a esea h tea o sisti g of o e tha e pe ts f o doze s of i stitutes, i ludi g the E e g Resea h I stitute of the Natio al De elop e t a d Refo Co issio , the Chi a Natio al Renewable Energy Center a d the State G id E e g Resea h I stitute. The epo t as te h i all suppo ted the De a k E e g Age a d the Natio al Re e a le E e g La o ato i the U.S. 23

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From Black to Green,

China’s Ongoing Coal Revolution

Hu Jun Overproduction and rampant smog has put China’s coal sector in a tight spot. After two years of steep fall, the coal price continues on downward path in 2015. The prices of steam coal and coking coal have hit a new low of the past nine years, almost back to the pre-2007 level, said Zeng Hao ( 曾浩 ), Director of China’s Fenwei Energy Price Center. Before 2007, the coal price was dictated by the government, whereas now it has dropped to the lowest since the price cap was lifted. However,

it has yet to hit the bottom. “In April, steam coal of lesser quality sold at 250 RMB per ton in the Qinhuangdao (a major port for coal shipment in Northern China). Transportation cost and tax deducted, the profit margin is almost zero,” said Zeng. Go green, a call that coal producers must answer The falling price is about to break the back of China’s coal miners. Private coal mines in Inner

Mongolia and Shanxi, two major coal producers, only have half of their workers on duty. Even China’s most profitable coal giant, the Shenhua Group, is unable to escape the same ill fate, announcing pay cuts on May 22. The Chinese Coal Industry Association blamed the current difficulties of the coal industry on oversupply. Structural overproduction is a hard fact that people in and out of this industry have come to recognize. The Association gave some figures to underscore to the severity of the challenge: existing production capacity staying at 4 billion tons per year plus over 1 billion tons per year under construction and not taking into account those illegal coal mines. Even if technologically outdated mines are to be shut down in the coming months and years, there will still be a glut of coal supply in China.

Such view was echoed by Zeng, who believes that the currently 5 billion tons per year government verified production capacity has already outweighed the nation’s 4 billion tons of annual coal consumption. Considering further the unverified production capacities, the actual annual coal output in China could stay as high as 6 billion tons. “Many mines in China are willing and capable for over-production for at least two reasons: irstly, workers are willing to work overtime to gain additional income; secondly, as to follow the order of containing coal production volume, governments in China are inclined to keep the verified coal production capacities lower on record than the real production capacities. ” Other than that, the coal industry is also battling with negative public views. As a result of the choking smog that frequently blankets most urban

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parts of the country; many people consider coal as the culprit for the deteriorating environment and assume that any revolutionary reform of the energy paradigm of China must be a “de-coal” process. Xie Heping ( 谢和平 ), academician from the Chinese Academy of Engineering, believes otherwise. At the 2015 China Coal Summit in February, he voiced for China’s withering coal industry, arguing that coal will keep its primary position in the global energy revolution in the coming 50-100 years. Even so, selfimposed revolution is still an imperative for China’s coal sector. “Chinese coal miners must ride on the worldwide green and low-carbon trend,” said Xie. How will China revolutionize its coal industry? Xie Kechang ( 谢克昌 ), another academician of the Academy, said clean coal technologies will be the real answer. “It is important to promote clean coal technologies across the industrial value chain.” To cap coal consumption volume and make its usage cleaner is also the centerpiece of the Strategic Study on Clean, Efficient and Sustainable Use of Coal in China, a research report issued by the Chinese Academy of Engineering. Greener Coal Consumption: Clean Extraction and Utilization I n p r e p a r i n g f o r C h i n a ’s 1 3 t h F i v e Year Development Plan, the National Energy Administration (NEA) has recently invited numerous coal experts in China to contribute views and suggestions to the development of China’s coal industries for the next ive years. According to Fang junshi ( 方君实 ), Director General of Coal Devision of NEA, upgrading and transformation of the entire coal industrial chain, from extraction, production, storage, conversion to utilization, will be the central task for the coal industry. 26

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“To ensure an entirely green process from extraction to utilization, advanced equipment and technologies must be adopted at mining sites to meet the rising government standards,” said jing Chunmei ( 景春梅 ), a research fellow from the China Center for International Economic Exchanges. On December 12 of last year, NEA, together with the Ministry of Environmental Protection and the Ministry of Industry and Information Technology, issued a decree that primarily targets the cleaner extraction of coal. This document sets a number of specific targets governing clean coal extraction in the 13th Five-Year Plan period from 2016 to 2020. For example, it indicated that a mechanization rate of 85% in extraction shall be realized and the utilization of heading machines for coal mining should reach 62%; the mortality rate of coal mining should be kept below 0.15 for every million tons of coal production; world-class coalfired electricity generation technologies should be widely adopted and the share of coal consumption by the power sectors should exceed 60% of total coal consumption; thermal efficiency of industrial coal boilers should be improved by at least 7% and the efficiency of coal conversion should be improved by 2% from the 2013 basis. On May 5, 2015, the NEA released the Clean and Efficient Coal Utilization Action Plan, 20152020 that laid down detailed plans governing a number of critical topics of clean coal utilization in China, including coal preparation, super lowemission coal-fired power generation, coal-based chemical production, environmentally friendly coal-fired boilers, gradable coal utilization, scattered coal combustion and conversion of waste minerals. Medium-term and longer-term binding targets were set as followings: the rate of coal preparation must penetrate 70% by 2017 and 80% by 2020; the efficiency of industrial coal boilers must improve by 5% by 2017 and 8% by 2020 from the 2013 basis.

According the China Coal Industry Association, China has already made big strides in clean and efficient coal utilization technologies. Thanks to technological innovation, some large-scale coal-fired plants in China now emit less NOx, SO2 and particles than even gas-fired plants, a giant step toward super low emissions. The Association’s 2014 statistics show that the national average net coal consumption for coalfired electricity generation stays at 318 grams standard coal equivalent per kilowatt hour (gce/ kWh) in 2014 and the number for the No.3 Coalfired power plant in Waigaoqiao, Shanghai, even reached an astoundingly low of 276.02 gce/ kWh, lower than the average 286.08gce/kWh in Demark and the 300.08 gce/kWh level in the US, the two global leaders in eficient coal-ired power generation.

in China. Even in 2014 when coal consumption slowed down, it still took up 66%. China is the largest coal consumer, burning about half of the world’s total coal supply and representing 80% of the increased coal consumption. “The importance of coal to both China’s energy development and the global energy market bodes well for the prospects of clean coal technologies,” said jing Chunmei, “A clean and efficient coal revolution will be as momentous as the US shale gas revolution and will also likely determine the success of China’s larger energy revolution.”

“China now has outstanding research and development (R&D) professionals in coal-based chemical plants. Almost all the world’s coal chemical techniques are being experimented for commercial purposes in the country and good progresses have been made,” said Wei Fei ( 魏飞 ), Professor of the Department of Chemical Engineering at Tsinghua University. “Take the coal-to-olefin projects as example, they are still largely profitable in China even though oil price has plunged more than 45 dollars per barrel from the previous high. This is a Chinese miracle.” Besides the coal-to-olein plants, China is also the first country in the world to produce coal-derived liquids to fuel spacecraft, which has been tested on a rocket launch in April 2015. In addition, after several experiments, China has also achieved a 98% combustion rate for its pulverized coal-fired boilers, close to the level of gas-ired boilers and with its thermal eficiency 20% higher than ordinary coal-ired boilers as well. For a long time, coal has accounted for 70-75% of the total energy production and consumption 27

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Fang Junshi – The Clean and Eficient

national conditions.

Utilization of Coal Fits the National Grand Energy Strategy

“

Given China’s Dependency on Coal for Energy, Cleaner a d More Ei ie t Uilizaio of Coal Should e Widely Pro oted

Yu Menglin There is no doubt that coal is the basic energy of China and has an important strategic position in the national economy. However, in view of the progress of science and technology and the development of modern industry, the traditional methods of development and utilization of coal can no longer meet the increasing needs of economic development and environmental protection in China. The revolution in coal industry has become crucial. The reporter with CEFC China Energy journal interviewed Mr. Fang junshi ( 方君实 ), the Director of the Coal Division at the National Energy Administration (NEA) on this subject. Q: Reporter A: Fang junshi Q: With the guidance of the national “grand energy concept”, what kind of reform should the coal industry take? A (Fang junshi): Coal is the main energy and an important industrial raw material in China.It accounts for around 70 percent of primary energy 28

However, environmental pollution associated with massive use of coal is becoming apparent. Given China’s dependency on coal for energy, cleaner and more eficient utilization of coal should be widely promoted.

”

production and consumption for a long time. In 2014, our raw coal production was 3.87 billion tons and the consumption was 4.13 billion tons, which accounted for 73.1 percent of the total primary energy production and 66 percentof the consumption respectively. The character of our country’s energy resources, which is rich in coal but poor in oil and gas, and the current development of productive forces decides that coal will continue to be the main energy source in our country for quite a long period of time in the future. Coal reserves are relatively rich in China. By the end of 2013, the proven coal reserves of our country were about 1.48 trillion tons, which accounted for 94 percentof total energy resources in China. From the perspective of the energy security, China’s energy strategy should be based on the principle of relying on domestic resources. In 2014, China’s external dependence on oil and natural gas reached 59.5 percent and 30.5 percent respectively. Our country needs stable, reliable and economic energy resources to safeguard the national energy security. Although we have made great achievements on the development of non-fossil energy in recent years, it still needs a considerable period of time to form a strong supply capacity. In the short term, there are significant challenges of

▲ Fang Junshi

We have to transform the development, promote the clean and efficient development, realize the cleanness and efficiency of the whole process of coal exploration, storage, transportation, combustion and conversion, as well as reduce its impacts on the eco-environment as less as possible. This inevitable choice not only ensures a healthy and sustainable development of the coal industry, but also prevents air pollution and promotes the revolution in energy production and consumption. Q: What progress has been made in our country’s clean and eficient utilization of coal?

replacing traditional fossil energy with non-fossil energy on a large scale. According t o t h e E n e rg y D e v e l o p m e n t Strategy Action Plan (2014-2020) launched last year, by 2020, China’s total annual primary energy consumption is set at 4.8 billion tons of the standard coal equivalent, and total coal consumption will be controlled below 4.2 million tons. The coal consumption ratio is to be controlled within 62 percent. Based on the above situation, we can expect that for a considerable length of time, coal is still likely to be our major source of energy consumption, because the coaldominated energy mix in China is not only decided by our energy sources, but also decided by our

A: In recent years, our country has made great progress in the clean and efficient utilization of coal. For the process of coal upgrading, the coal washing rate increased from 25.9 percent in 2000 to 62 percent in 2014. Technologies of power coal blending, briquettes and coal water slurry have been commercialized. Lignite upgrading demonstration has also achieved positive progress. F o r t h e t h e r m a l p o w e r g e n e r a t o r, c o a l consumption of thermal power supply accounts for 47.5 percentof our country’s total coal consumption. Over the past ten years, the technology of thermal power generation has been rapidly developed. The average coal consumption of thermal power generatingsets is reduced to 318 grams/degree. The dust-removing efficiency of the dust precipitator installed in boilers is around 99.5 percent. The national installed electricity generating capacity of coal-ired power generating sets with desulfurization and denitriication facilities reaches 0.8 billion kw 29

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and 0.69 billion kw respectively. Currently, the power generating capacity with desulfurization facilities increases from 12 percent in 2005 to 95 percent this year. At the same time, the power generating capacity with denitrification facilities also increases from 0 to 82 percent. A new round of technology innovation of power plants’ pollution control is unfolded, and impacts of coalired power plants on the environment continue to write off. In june 2014, the first “near-zero emission” coal-fired power generating set was put into operation, named the 350,000 kilowatt homemade No.4 ultra-supercritical power generating set by Shenhua Group Guohua Zhoushan Power Plant. Monitoring shows that during the test operation period, the average emission concentration of SO2, nitrogen oxides, atmospheric dust by this set is less

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than half of the standard limitation of a coal-fired power generation set. The emission by Shanghai Waigaoqiao No. 3 Power Plant is much lower than the emission limitation of other coal-fired power plants, except dust. The emission of nitrogen oxide, which is considered to be the largest contributor of PM2.5, is only about 1/3 of the natural gas emission standard. As for the deep coal processing, the technical feasibility of coal liquefaction and coal-to-olefins technologies have been verified, and skills have been accumulated after the construction of the irst group of demonstration projects during the Eleventh Five Year and the Twelfth Five Year periods. As for the coal-ired industrial boilers, there are about 500,000 coal-fired industrial boilers which are mainly chain-grate boilers. In actual operation,

these coal-fired industrial boilers have many drawbacks, such as their low combustion eficiency, low heat efficiency, large pollution emissions and so on, which lead to the low coal utilization eficiency and environmental pollution in China. At present, the fuel burning ember rate of new eficient pulverized coal-fired industrial boilers reaches 98 percent, which is close to the level of gas-fired boilers and 28 percent higher than regular coal-ired industrial boiler. The thermal efficiency reaches 89 percent, 20 percent more than that of regular coal-fired industrial boilers. By using rear fabric filter technology, high desulfurization and low nitrogen combustion technology, emissions of smoke and dust, SO2, nitrogen oxides and other air pollutants from efficient pulverized coal-fired industrial boilers are much lower than the national standards. In recent years, efficient pulverized coal-fired industrial boilers are widely used in 20 provinces, provincial cities and self-governed municipalities, such as Liaoning, Tianjin, Shandong and Anhui. The application and promotion of efficient pulverized coal-ired industrial boilers can greatly improve the utilization eficiency of coal as a terminal resource, and it can reduce the pollution caused by direct combustion of coal. Owing to the development of this technology, the pollutant emissions caused by coal utilization can be effectively eased. It will be a long-term process for the adjustment and optimization of our country’s energy structure. The reform in coal utilization has been deepening, and clean coal technologies are also improving and evolving. Q: Although China has started to conduct research on clean and efficient utilization of coal since the mid-1990s, technology innovation has not fundamentally reversed the trend of extensive development and utilization of coal over the past 20 years. What are the reasons behind this phenomenon?

A: China started to conduct research on clean and efficient utilization of coal earlier than other countries. In 1994, the former Ministry of Coal Industry set up a “Clean Coal Engineering Technology Research Center of Coal Industry” under the China Coal Research Institute. In 1995, a “National Planning Group for the Promotion of Clean Coal Technology” was established composed of 13 ministries, commissions and bureaus. Both of these two organizations did a lot of work. Over the past twenty years, our clean coal technology has obviously achieved leapfrog development. However, these technologies do not fundamentally reverse the trend of extensive development and utilization of coal due to the following reasons. Firstly, the rapid growth of total coal consumption has led to more pollutants emissions. From 1995 to 2014, China’s coal consumption increased from 1.37 billion tons to 4.13 billion tons, an average annual increase of 150 million tons. Yet, there can be little doubt that clean coal technology played an important role in controlling the pollutant emission caused by coal utilization. Honestly speaking, if we didn’t develop our clean coal technology in the past twenty years, we would have faced a serious pollutant emission which our community may not be able to burden. Secondly, advanced technology and backward technology coexist and the backward technology dominates a larger proportion. Although new thermal power plants have been installed with supercritical and ultra-supercritical generators in recent years, a lot of subcritical generators, which is the least eficient and most polluting form of coalired generation, still exist. According to a research, supercritical and ultra-supercritical generators only account for less than 40% of the total installed coalired power generation capacity. Advanced eficient pulverized coal-fired industrial boilers, coal water slurry industrial boilers, low-quality raw coal briquette boilers in total only occupy less than 20% of the market. Although our clean coal technology 31

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and utilization scale maintains the world’s leading position and our coal consumption accounts for half of the world total consumption, the application proportion of advanced technology in China’s coal utilization is still relatively low. The replacement of backward technology needs huge amounts of investment and a considerable length of time. Thirdly, the internalization of environmental costs cannot be achieved without the support of economic development. At present, our economic power has reached a surprising level and we have entered a new state of new normal. Our country is taking more stringent pollutant emission standards. For examples, the “Environmental Protection Law”was implemented in 2014, and the “Air Pollution Prevention Law” is now being prepared. These measures will bring the clean and efficient utilization of coal to a new level. Fourthly, the change requires participation by all members of society. The total energy consumption in China is large and the current extensive energy consumption pattern causes too much wastes. Education should be needed to increase public awareness on low-carbon green energy consumption. At the same time, we should guide and direct the society to use electricity instead of coal. We should increase the proportion of electricity in the end energy appropriately and reduce the proportion of directly-combusted coal. Public participation is crucial to promote the clean and efficient utilization of coal. Q: What should we put our focus to achieve clean and eficient utilization of coal? A: First and foremost, the clean and efficient utilization of coal should be of strategic importance to the country’s energy development. We should strengthen the unified leadership of the clean and 32

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efficient utilization of coal. The nation, every industry and local governments at all levels should regard the clean and efficient utilization of coal as an important strategy for the sustainable development of the whole society. Secondly, we should provide all-weather support to the scientific and technological innovation for the clean and eficient utilization of coal. A new scientiic and technological innovation system is needed to engine the implementation of major national scientiic and technological research projects.

A Panoramic View of China’s Current

Plans of Clean Coal Utilization and Its Future Development Trends China Energy Fund Committee

Thirdly, fiscal and taxation policies should be carried out in order to promote the clean and eficient utilization of coal. Just like we did in the renewable and new energy ield, we can increase tax incentives in terms of inancial discount, enterprise income tax and value-added tax to encourage the application of new and high technology. We should actively guide to promote shift of investment to the clean coal technology. Fourthly, we should review the relevant pollution control laws and regulations system and make improvement if possible, so that a more stringent energy efficiency standard of coal utilization and atmospheric pollutants emission can be enacted. Specifically, we should strengthen the punishment against pollution, since it is the only way to maximize the cost of illegal enterprises, so that they dare not illegal sewage. Last but not least, we should strengthen supervision on the operation of coal utilization projects by promoting the real-time monitoring and information disclosure practice in order to ensure pollutants reported by enterprises are accurate. An efficient utilization of coal requires a strong, efficient and coherent system of supervision to ensure the application of advanced technology is operating as intended. 33

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After more than three decades of robust economic growth, China’s coal-centered energy industries are now in dire need of a major transformation to respond to the ever increasing pressures from climate change, accelerated domestic environmental degradation and the pervasive air pollution. The traditional coal-reliant, carbon-intensive and environmentally costly energy production and consumption models in China have showed increasing signs of unsustainability. In light of the rising public demand for clean air and clean water and the government’s re-afirmed commitment to combat climate change, a comprehensive reform of China’s energy sectors is urgently needed to shift the nation’s energy industries away from the existing track.

use of coal in China, its environmental impacts should be carefully addressed as well. Although a cheap and abundant coal supply powered China’s economic boom in the past decades, it has also led to appalling urban pollutions and resulted in wide spread water degradation. According to the IEA statistics, of the total 8 billion tons of carbon dioxide (CO2) emission in China in 2011, 82.8% or 6.6 billion tons were related to the consumption and combustion of coal. Under-regulated sulfur dioxide (SO2) and nitrogen oxides (NOx) emitted directly from the coalfired boilers have also generated mountains of toxic matters, posing a great threat to the public health of all major Chinese cities. The hazardous clouds of particulate matter that began to shroud cities since late 2012 are a testament to this fact.

As a coal-rich nation, to promote the development of clean and eficient coal utilization methods in China will be of strategic importance to the country’s energy and economic development. As the most abundant and affordable fossil fuel source, coal has long dominated both the supply and demand ends of China’s energy mix and provided a reliable and accessible energy supply that underpinned the country’s rapid economic growth in the past three decades. In 2013, coal alone accounted for more than 65% of China’s total primary energy demand and produced more than 70% of the country’s electricity supply. Despite the surging investments in renewable energies and the increasing consumption of natural gas in recent years, coal retains its dominant share in China’s energy mix and remains an enticing energy option due to its accessibility and affordability. When alternative fuel sources like natural gas and renewables are either too expensive for the industries or still technologically premature to produce a stable energy supply around-the-clock, it is almost certain that coal will continue to be the linchpin of China’s energy supply for at least the near-term future.

In face of rising environmental challenges, to explore more efficient and cleaner coal utilization methods has been widely identiied by scholars and policy-makers in China as one of the most feasible and efficient approaches to address the country’s most eminent environmental challenges. Besides, to develop eficient utilization of the indigenously rich coal resources was also believed to be valuable in alleviating the country’s reliance on foreign energy imports.

But while we admit the inevitability of the 34

Recognizing the prospects and the environmental gains of promoting clean and efficient coal utilization in China, the Chinese government has recently rolled out a number of policy measures to prioritize the development of clean coal technologies (CCT) in its energy development agenda. A number of government programs have also been initiated to incentivize market investments in clean coal demonstration p r o j e c t s . I n t h e “ A c t i o n P l a n f o r E n e rg y Development Strategy: 2014-2020”, a guiding document that outlined the roadmap for China’s energy development for the remaining years of the decade, “clean and eficient use of coal” was listed as the top priority in the plan to strengthen China’s energy self-suficiency while improving its energy

eficiency. The strategic importance of “clean coal utilization” was also directly addressed by Chinese President Xi jinping ( 习近平 )in the sixth meeting of the Central Leading Group for Financial and Economic Affairs held in june 2014, where he recognized clean coal utilization as “one of the ive core pillars to underpin the comprehensive reform of China’s energy production and consumption” and an indispensable factor in reducing “irrational energy use and keeping total primary energy consumption under control”. Several other important policy documents such as “The Action Plan for Upgrading and Retrofitting Coal-fired Electric Power Plants, 2014-2020” and the “The Program to Strengthen Air Pollution Control for the Energy Industries” also carried similar messages that confirmed the official recognition of the importance of clean and eficient coal utilization in China’s energy mix. Recognizing the Chinese government’s increasing commitment to clean and efficient coal utilization development and the prospective changes that clean coal projects might bring to the fundamentals of the Chinese energy market, we want to summarize the latest developments in clean coal technologies in China for English readers, and also presents the potential future trends and challenges associated with this increasingly important energy industry.

Cleaner utilization of coal in China is usually comprehended in a much broader sense that it not only covers important technological aspects like carbon mitigation, but also includes a range of other technological issues including power plant eficiency improvement, coal-based chemical conversions and coal preparation. However, under the current policies, wherein the environmental costs of energy consumption have hardly been monetized, different opinions still exist in terms of the effectiveness and economic feasibility of different technological approaches of cleaner 35

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utilization of coal in China.

Divergent views exist regarding the peak coal timing and level. The central government has set a target to control annual coal consumption at around 4.2 billion metric tons by 2020. Yet various interviewed experts gave different projections of the timing and the physical volume of the peak coal demand, relecting different views of the economic growth, energy demand growth, and the supply mix. Their projections range from coal peaking at 4.0 billion metric tons by as early as 2016 to coal peaking at 4.55 billion tons no earlier than 2020.

The coal-fired power sector should not be the primary sector to blame for the pervasive air pollution. Although most of the coal consumption in China comes from the electric power sector, their environmental performance, however, is better than that of the industrial coal boilers, thanks to the increasing adoption of pollution control technologies in the power sector. Latest data has shown that the average emissions of coal-fired power plants in China are 1.9g/kWh for SO2, 2.6 g/ kWh for NOX, and 0.4 g/kWh for ine particulates, which is impressive for a developing economy.

The overall efficiency of the coal-fired power plants in China is highly competitive, even compared with those in many developed economies, thanks to the increased deployment of modern coalired power plants. By the end of 2013, the net coal consumption per unit of electric power output in China was 321 grams of standard coal equivalent per kilowatt hour (gce/kWh) in low heating value (LHV), which was close to the corresponding 306 gce/kWh in japan and well below the 359 gce/kWh level in the US in 2012. The Chinese government has set a target for the average net coal consumption of coal plants in China to be lowered further to 310 gce/kWh by 2020. 36

CFFC China Energy journal

Considering the high-efficiency and the economic viability of supercritical (SC) and ultrasupercritical (USC) units, their deployment in China is expected to continue to increase in the near future. China is currently running the worldâ&#x20AC;&#x2122;s largest leet of SC and USC units and is expected to deploy more advanced power units to improve the overall efficiency and reduce the net coal consumption of its coal-reliant utility power sectors. In 2010, the total installed capacity of SC and USC units in China exceeded 120 GW and the number of 1000 MW USC units in operation alone had reached 62 GW by the end of 2013.

The integrated gasification combined cycle (IGCC) technology might offer much better environmental performance than conventional coal power plants, but its high operating and maintenance costs governs that a wide scale commercial application of the technology is less likely in China, at least for the near future. According to the latest data, the average cost of electricity generation of an IGCC unit in China is as high as RMB 0.8-0.9 per kilowatthour, which is about five times higher than the average cost of a pulverized coal-fired power plant. Even provided with government subsidies, the IGCC plant will still be running at a RMB0.3 deficit for every kWh of electricity it generates.

Coal-based chemical projects are developing at full speed in China and are regarded as an important aspect of clean and efficient utilization of coal. However their economic viability will hinge on multiple factors including technological matureness of the coal-conversion system (in most cases referring to the gasification systems), feedstock prices, and the operating and managerial experiences of the plant proprietor. Price of alternative fuels and feedstock such as oil and natural gas are also important factors that will

influence the market performance of coal-based chemical projects in China.

Among all the sub-sectors of the coalbased chemical industry, coal-to-synthetic-natural gas (CSNG) production is regarded as the most controversial and least proitable one. Due to the gas price level not high enough to justify the capital and operating cost and the high delivery cost associated with the long-distance gas transmission, the coalto-syngas projects were commonly regarded as the least profitable coal-based chemical projects in China by the interviewed experts. Although the National Energy Administration (NEA) envisioned a 50bcm/y production capacity of coal-based syngas to be completed by 2020, whether the real production capacity will reach the designated number remains uncertain.

Coal-to-liquids (CTL) is identified by the interviewed experts as the most proitable coal based chemical projects in China in a high oil price scenario, considering its relatively lower production cost and its value in providing alternative supply sources to foreign imported oil. According to the data collected from the interviews, the lowest possible production cost for every ton of coalbased liquid production in China could be as low as RMB 2,850 (or about USD 64 per barrel), which is very competitive under a high oil price scenario. Through technological advancement and eficiency improvements, it is believed that the proit margin of the coal-derived liquid products could even be expanded further given persistent high oil prices.

10.

As for the coal-to-olefin (CTO) projects, the low fuel costs of the stranded coal mines in Western China might be able to secure its cost advantage over the conventional naphtha based olefin production routes, but how long the cheap feedstock factor can be sustained is uncertain.

In addition, the fast-growing CTO industry in China might displace its own naphtha to olefins industry for the time being. However, it might also be displaced by the expanded olefin production capacity in North America and the Middle East underpinned by cheap natural gas feedstock.

11.

Aside from the economic factors, water resource availability is another key issue for modern coal chemical projects in China. As the coal chemical projects are usually gargantuan water consumers, how to ensure sufficient water supply for the coal-based chemical projects and balance their water requirement with competing water consumers should be carefully addressed. In addition, technological matureness of the processing systems and the managerial experiences of the operator will also play a critical part in determining the plantsâ&#x20AC;&#x2122; eficiency in water use and waste water treatment.

12.

Carbon capture and storage (CCS) systems have been operational in several demonstration projects in China. Three pilot CCUS projects have been completed and put into operation in the electric power industry in China and two advanced carbon capture projects are under construction. Three more projects have been planned but are still pending inal government approval. But considering their high operating and investment costs, whether CCS projects could be commercially viable in China will largely hinge on the progress of policy instruments such as an effective carbon pricing system and a mature carbon trading market. This is the executive summary of the report of the China Energy Focus 2014: Towards Clean Coal by China Energy Fund Committee. To view a copy of the full report, please visit http://www.cefc.org.hk/ a-list/6393. 37

Dialogue

Dialogue CFFC China Energy journal

CFFC China Energy journal

China’s Coal Industry Enters a Tech-

nology-driven Era

——A Dialogue with Preside t Ge Shiro g of CUMT

revolution will not remove coal from China’s future energy mix but instead enhance safety and ensure high-eficiency in coal production, promote eco-friendliness and help to realize low-carbon and intensive development in coal production, consumption and utilization.

▲ Ge Shirong

As a world-renowned university in mining technology and science, China University of Mining and Technology (CUMT) has made significant contributions to promote technology revolutions in China’s coal industry. How does a technology revolution in the coal industry enhance safety, eficiency and cleanliness in coal production? With this question in mind, China Energy News held an exclusive interview with Mr. Ge Shirong ( 葛世荣 ), President of CUMT. Q: Reporter A: Mr. Ge Shirong

Gui Junsong Wu xiaojuan

have technology and equipment made to the coal industry? A (Ge Shirong): China’s coal industry is now experiencing two great transformations. One is a substantial increase in coal production. Last year, national coal production reached 3.8 billion tonnes and accounted for half of the world’s total production. Given the endowment of China’s coal resources, advanced technologies and equipment are something that makes such large production volume possible. Another is the sharp decline in the number of national coal accidents, fatalities and injuries, which cannot be achieved without the advancement in safety technologies and mining equipment. Technology spurs these two great transformations and has become an important part of the coal industry. Q: Environment, safety and resources are three main challenges ahead for the coal industry amidst the economic turmoil. What type of technological innovation in coal production should be considered in order to deal with the dificulties at present? A: China is still lagging behind some developed countries in coal exploitation and utilization, although we have made great progress in these areas in recent years. I believe that the coal industry must advance technologically in order to survive. For instance, CUMT has paid great attention to the environmental challenges arising from coal mining over the past decade. Our academician Qian Minggao ( 钱鸣高 ) has put forward the concept of green mining of coal resources, considering the constraints of these resources, safety and the environment.

The Technology Revolution Scales Editor’s notes: The undergoing transformation in China’s energy sector will be inevitably accompanied by a revolution in its coal industry. Such a coal 38

Up Production but Cuts Down on Accidents Q: Given that almost two thirds of China’s energy is supplied by coal, what contributions

Generally speaking, over the past three decades, the coal industry in China has experienced the following three phases of development: (1) efficiency-oriented production; (2) safetyconcentrated production; and (3) green production.

I believe that by consolidating the best practices in these three phases, the coal industry in China will be directed toward a very positive end. Q: Under what circumstances did the technology transformations in the above three phases occur respectively? A: Since 1978 when the reform and openingup policy was adopted, there was a massive demand for coal as an energy source. High-efficiency mining thus served as a solution to maintain coal production. The first technological revolution in China’s coal mining industry occurred when comprehensive mechanized mining technology was adopted to bolster our coal output from 1 billion tonnes to 2 billion tonnes. However, an increase in coal production is always accompanied by the safety issues, and so safe mining and the safety of personnel becomes our foremost mission. Since different types of coal mines, ranging from large, medium to small, and from world-class modern collieries to extremely outdated traditional mines, coexist in China, our second technology revolution in coal industry focused on safe mining by implementing comprehensive regulations and treatments to lower severe coal-mine safety risks resulting from gas explosions, roof collapses, flooding, transport accidents and other causes. In recent years, as environmental concerns are increasingly apparent in coal exploitation, green mining has become a bottleneck for China’s coal industry. The third technology revolution is hence to refine coal exploitation so as to protect our ecological system and environment. Specifically, these technological innovations involve the simultaneous exploitations of coal and groundwater, of coal and gas, of coal and associated minerals, and of coal and heat, as well as ecological restoration in mining areas, reduction 39

Dialogue

Dialogue CFFC China Energy journal

CFFC China Energy journal

in coal gangues, and energy-saving in exploitation. At present, some of the coal areas and companies have indeed realized “near-zero emissions”, but there is still a long way to go for green mining in terms of low environmental damage, low carbon emissions and low energy consumption. Some analysts who trace smog pollutions have found that coal does contribute to a large percentage of smog pollutants. Therefore, the consensus that has been reached within the coal industry is that, over the next 10 to 20 years or more, much attention should be placed upon the environmental impacts during coal exploitation, on the basis of eficient and safe mining. Coal Can Say Farewell to being “Dirty” Q: Coal is usually regarded as “dirty” rather than a clean resource. What should we do to change such a negative perception? A: Coal is a gift to human beings from nature, and has made important contributions to the development of human civilization. However, due to our improper utilizations of coal, coal was labeled with a negative image. In order to change this perception, the most important thing is to ensure safe coal-mining and boycott blood coal, which requires the vigorous promotion of intelligent and unmanned mining systems and a fundamental enhancement of the technological level in coal exploitation. Also, in order to change the way we use coal, we need to widely adopt technologies to reduce emissions of nitrogen, sulfur and dust, as well as to capture emissions of CO2, so that coal will serve completely as a clean fuel. This process will certainly require the collective effort of the society as a whole. Q: As you mentioned earlier, we have reached a consensus within the coal industry that, on the basis of eficient and safe mining, our irst focus is to deal with environmental issues on coal utilization. How 40

exactly can we realize the clean utilization of coal through technical reforms? A: Pollution in relation to coal will exist both before and after the utilization of coal. Therefore,

the key to realizing clean utilization of coal is to introduce certain technologies at both the entrance and the exit of coal utilization. These innovations include purification and

other treatment that can prevent pollution at the source, so that we can ilter out bad-quality coal and provide cleaner coal for commercial use. In China, only 60% of raw coal will go through the washing and dressing process, while approximately another 41

Dialogue

Dialogue CFFC China Energy journal

1.5 billion tonnes is distributed to the market without going through such processes. Therefore, I suggest that coal should be classiied and arranged into different categories in order to serve different customers’ needs. Without this classification, coal fuels will not be fully utilized and pollution would exist. Therefore, we need to keep a good control on the process of coal utilization. In addition, we need to reduce emissions and keep the level as low as possible. Discharge of solid wastes can be mitigated by applying an integrated approach of underground mining and dressing or by adopting selective separation technology, so that gangue can be controlled in wells; Liquid waste can be reused through an underground circulation or a two-level circulation; emission can be controlled in wells, by collecting and utilizing low-concentration gas, or by extracting and exploiting highconcentration coal bed methane in order to achieve the “zero-emission of gas”. Q: In order to achieve clean utilization, what kinds of technologies should be adopted during the process of exploitation, transportation, coal processing and emission?

CFFC China Energy journal

belt conveyors. These vehicles have yet experienced great reform but only an increase in capacity and loading. In fact, coal transport be fluidized by the use of pipelines for continuous transport, which will occupy less rail capacity but increase eficiency and prevent dust pollution.

feasibility studies on the possibilities of changing coal to other energy forms, such as electricity, heats and gas. In this way we will be able to make a breakthrough in transferring raw coal, a low-end resource, to high-end products in a clean way.

The coal processing aims to realize comprehensive utilization and raise proportion of coal washing and dressing. Since the direct utilization of raw coal accounts for an excessively high proportion in China, we need to increase the ratio of washing and dressing of raw coal by introducing regulatory restraints and policy incentives, shifting from the direct utilization of raw coal to the large scale utilization of clean coal. Meanwhile, we need to enhance the research, development and promotion of high-performance a n d l a rg e - s c a l e d r y w a s h i n g a n d d r e s s i n g technologies.

Q: Given the current physical mining methods, in what direction should we strive to make technical progress?

At the emission stage, we need to work hard on recycling and utilizing coal gases and dust in order to attain the goal of “near-zero emissions.” Promoting a Revolutionary

A: Despite the prevalence of physical mining methods, we have yet to make great efforts to support the integration of coal mining and informationization, in order to gradually realize scientific and intelligent mining. At present, efficient mining remains a very important direction for coal development, where “efficiency” is not merely about increases in production, but also increases in the resource recovery ratio, as well as the realization of energy and cost-saving mining. The ultimate goal for intelligent mining is to deploy automated equipment without employing workers at the mines. Safe mining can thereby be guaranteed.

Technology Reform A: At the stage of exploitation, we need more centralized coal mining, and we should gradually eliminate small-scale capacities; we also need to simplify the exploration system, develop largecapacity mining equipment in order to achieve high-level intelligent methods of mining. Besides coal, there are plenty of solid, gasified and liquid resources at the coal bed level. We should emphasize on the comprehensive evaluation and systematic exploitation of these three types of associated resources, and try to maximize and optimize energy utilization. As for transportation, vehicles today remain the same as those that were invented 100 years ago, such as tramcar transport, rail haulage and rubber42

Q: Given that the coal industry revolution is not entirely reversible, what is your ideal coal mining system? A: We need to enhance coal technology through innovation. I believe that an ideal system is intelligent coal mining, where chemical approaches will help to achieve this goal. For example, we can widely use machines instead of manpower during the mining process. Chemical mining, which produces solid coal with a set of chemical reactions including gasification, liquidation and biological dissolution under wells, can also be adopted. We can also conduct research and technical

Furthermore, mine areas should be green and ecologically friendly, rather than polluted or devastated. Mine development should be sustainable. China can proceed with clean and efficient utilization of coal with advanced technologies. This can help increase the social recognition and reputation of coal utilization. Q: Are there any institutional guarantees for technological innovations in realizing the clean and eficient utilization of coal? A: The government should create a conducive environment for directing the coal industry towards sound and sustainable development. Our national macro strategy

planning should be scientific, well-organized and sustainable. Laws and regulations regarding coal and environmental protection should be enacted. For instance, the law should stipulate that coal fuels that are not processed cannot be used, or wastes which fail to meet the required standards cannot be discharged. Severe punishment should be introduced if somebody has violated the law. Furthermore, the outdated capacity of coal mining should be eliminated gradually and incentives for the healthy development of the coal industry should be provided. The government should also look for ways to reduce production costs without eliminating high-end technology. At the stage of clean coal production, certain tax policies should be tailored to encourage clean coal mining, and regulations should be introduced to restrain mines from high emissions. We also need to follow the guidance of technologies that are beneficial to guaranteeing safety, protecting the ecological environment and promoting emission reductions. Since most of the resources are not renewable, we must conserve good-quality coal fuels. Though tax adjustments, those low-quality and unclean coal products without washing and dressing should be gradually phased out. Indeed, China has a considerable amount of coal reserves for future use; however, the amount of exploitable coal reserves is still low. In order to safeguard the sound and efficient development for good-quality coal fuels and to aviod non-renewable resources being wasted, we should come up with some legislations. Furthermore, great efforts must be made to encourage and support advanced technological innovations, such as establishing policies in training, employment and social welfare to improve personal skills. At the same time, we also need to invest more in universities and institutes to ensure studies on efficient and clean coal mining technologies can be sustained. 43

Major Events

Major Events CFFC China Energy journal

CFFC China Energy journal

project is set for completion in 2017. This line will send electric power from Inner Mongolia, Shanxi , Shaanxi and Yunnan to Beijing, Tianjin and Hebei. The operation of this project also implies that the Four AC and Four DC lines listed in the Action Plan have begun. The UHV market in China has entered the stage of large-scale and highspeed construction.

China Speeds Up Construction

of Ultra-high-voltage Power Grid

Zheng Lu The Ultra-high-voltage (UHV) is one of three vehicles for China’s “going out” strategy, along with nuclear power and high-speed rail manufacturing. Since it is widely believed that UHV can enhance the transmission capacity of power grid, this technology is now receiving fresh impetus both at home and abroad. UHV, defined as voltage of 1,000 kilovolts or above alternating current (AC), and 800 kilovolts direct current (DC), is designed to deliver large quantities of power over long distances with power losses less than the most commonly used 500-kilovolt line. On May 20, jiuquan–Hunan ± 800 kV UHVDC project got permission from the National Development and Reform Commission (NDRC). 44

This line is designed to ease the problem of air pollution control. O n M a y 1 2 , Yu h e n g – We i f a n g 1 0 0 k V UHVDC project, which is one of the twelve major transmission lines designed under the Action Plan for Air Pollution Prevention and Control issued by the State Council, was officially launched. This project is currently the longest UHVDC transmission line via Shaanxi province, Shanxi province, Hebei province and Shangdong province. Among the Four AC and Four DC lines listed in the Action Plan, this line is the ifth UHV transmission line permitted to operate, and will play an important role in North China’s UHVAC main grid by promoting development and transmission of Shaanxi and Shanxi energy bases and greatly relieving the electricity tension in central and eastern regions in China. With a total investment of more than 24.2 billion yuan, this

“Yuheng-Weifang project is significant in accelerating the power grid upgrades, optimizing the development layout of energy, building a clean and safe energy supply system, and supporting economy growth. Moreover, this project will play an important role in allocating energy sources in a wide range in order to tackle the high tension in coalired power transmission and ease electricity shortage in central and eastern regions” said Mr. Shu Yinbiao ( 舒印彪 ), general manager of the State Grid Corporation of China (SGCC). SGCC is the largest grid operator in China and is supplying electricity to 80 per cent of China’s population. “The project, considered important investment measures to stabilize economic growth, aim to ease power shortage in the east and alleviate the worsening smog problems in central and eastern regions” said Zhang Zhengling ( 张正陵 ), a planning oficial with SGCC. China has long depended on coal-burning power plants to fuel its explosive growth over the past three decades. As pollutants such as PM2.5 and PM10 have risen to alarming levels in the central and eastern regions in recent years, policymakers are trying to shift the country’s energy structure by using greener power and transporting more electricity from the western regions to the east. As China’s coal-rich provinces, Shaanxi and Shanxi provinces are two good sites for setting up large-scale coal-ired power bases, as both of them

are relatively close to the eastern developed regions where the coal is transferred in. Shanxi province is expected to be one of five comprehensive energy bases decided by the State Council. Shendong base, Shanbei base and Huanglong base, which located partly within and partly without Shanxi province, are three of thirteen national large-scale coal bases with maximum electricity-generating capacity of 50 million kilowatts of to be built during 12th Five-Year Plan. Apart from the three bases above, North Shanxi coal base, Central Shanxi coal base and East Shanxi coal base are also named from the list. At present, initial operation of coal-fired power project is 80 million kilowatts, construction of transmission lines including UHV should be speeded up. It is believed that the Yuheng-Weifang project will be of great significance to promote the development of Shaanxi and Shanxi energy bases by (1) accelerating the transformation resources superiority into their economic advantage, (2) stimulating domestic demand and economic growth, (3) driving reformation and upgrading of equipment manufacturing industry, (4) improving the power grid capacity in North China, (5) fulfilling electricity demand in North China, (6) moderating the energy consumption intensity, and (7) solving air pollution etc. Demand on electricity power has been constantly increased due to the rapid economic development in jingjinji zone ( 京津冀经济圈 ). Meanwhile, given the shortage of primary energy resources and limitation on land and environmental protection space, the expectation of stable electricity supply to meet demand has been increasingly challenged. It is also estimated that demand on out-of-region power in jingjinji region will raise to 54 million kilowatts by 2020, as the region struggles to reduce their reliance on coalfired power, a huge amount of electricity from outside is urgently needed. 45

Business

Business CFFC China Energy journal

CFFC China Energy journal

Energy Projects, Part and Parcel

of China-Pakistan Economic Corridor

Yu Huan China-Pakistan “all-weather friendship” bears new fruits. During Chinese President Xi jinping ( 习近平 )’s visit to Pakistan in April, the two sides signed 51 cooperation agreements and MOUs, mostly on energy and infrastructure. Over 30 of them, with a total investment of 28 billion US dollars, fall under the China-Pakistan Economic Corridor (or “Corridor”), China’s largest overseas investment portfolio worth as much as 46 billion US dollars, equivalent of one-fifth of Pakistan's GDP. The Corridor, stretching over 3,000 kilometers from Kashi in China’s Xinjiang all the way down to the Gwadar Port in South Pakistan on the Indian Ocean, is where China’s two strategies, the “Silk Road Economic Belt” and the “21st Century Maritime Silk Road” (the “Belt and Road”), meet. This joint endeavor is designed to link the two economies of China and Pakistan and deepen the integration of Central Asia. The success of the Corridor is expected to serve as a replicable model for projects under the “Belt and Road”. A headstart on energy

and infrastructure About 20 energy projects were identified in those documents, including thermal, hydro, wind and solar power, which will be undertaken by over 10 Chinese companies, such as Power Construction Corporation, State Grid Corporation, 46

China Gezhouba Group, China Power International Development and Tebian Electric Apparatus Stock Co. As part of a long-term plan, China and Pakistan will build an oil and gas pipeline connecting the Gwadar Port and China’s Xinjiang. The two countries agreed to build the Corridor when Chinese Premier Li Keqiang ( 李克强 ) visited the country in May 2013. About half a year after that visit, China started making its “Belt and Road” strategy. In less than two years, the Corridor has been turned from a vision into real actions on the ground. The headstart on energy projects has been driven by Pakistan’s power crisis. Oficial statistics show the country has an installed generation capacity of 21 million KW, leaving a shortfall of 300-500 KW. Blackouts are commonplace even in Islamabad, Lahore and other big cities, making increasing the generation capacity an imperative. Those newly planned project will ultimately add 16,400 MW, almost doubling the existing capacity of this power-hungry country. Energy cooperation has been long in the making. The Chinese and Pakistani governments signed an energy agreement under the Corridor, which identiied 14 priority projects with the Qasim coal-ired plant coming irst. According to General Manager Pang Xu ( 庞旭 ) of the Asian Business section of Power Construction Corporation of China, which builds the Qasim project, the Pakistani government prioritizes coal-ired power, the price of which is highly competitive given the huge demand

in the country. Gwadar Port, next Dubai? Along the 3,000 kilometer-long Corridor, the Gwadar Port has received most attention, as it lies at a strategic juncture. The Pakistanis hope to see this Indian Ocean port, with investment from China, becomes the next Dubai. Gwadar, a deep-water port in the southwestern

region of Belochistan close to the Hormuz Strait, is a strategic location on two major trade and oil routes, the Red Sea and the Persian Gulf. Due to dysfunctional facilities, this port has lied idle since it was built in 2007 and failed to function as befit its geographical and strategic conditions. Now it is only accessible by one road, which also links the well-developed port of Karachi. As the building of the Corridor gathers pace, the Gwadar port is being revived. Local media said CNPC is negotiating on an Iran-Pakistan gas 47

Business

Business CFFC China Energy journal

pipeline worth 2 billion US dollars. Optimists also anticipate the restart of the construction of a 3,000-kilometer China-Pakistan pipeline, which runs through Gwadar. Once it is completed, around 60% of China’s imported oil will go from there to Xinjiang. At the moment, 80% of China’s oil imports reach its shores through the Strait of Malacca. Analysts say if the Middle East oil is transported over land from the Gwadar port to Xinjiang, the distance will be cut by 85%. That means the crowded, shallow Malacca Strait with potential security risks will no longer be the only maritime pathway for China. Yet, Professor Zha Daojiong ( 查道炯 ) from the School of International Relations, Peking University holds a different view that security-wise, the Gwadar Port should not be overrated for its contribution to breaking through the so-called “Malacca Dilemma”. “When it comes to the security of oil and other commodities, a ship may be attacked and sunk at any point along the route.” Liu Qiang ( 刘强 ), Secretary General of the Global Think Tank Forum on Energy Security, even called the “Malacca Dilemma” a false proposition. “No one will attempt to block this international trade route, only to get bogged down in a war.” Instead, to ensure the China-Pakistan Corridor delivers maximum benefits, Xinjiang and other western provinces of China must make the shift from energy producers and places of transit to energy markets. “If the oil still goes on to the reineries and major consumers in the east, the shortened distance does not matter much.” Terrorism is the biggest threat for the Corridor For China, the Corridor comprises mostly 48

CFFC China Energy journal

projects outside the country, involving multiple companies. This brings practical dificulties for the implementation. As Pang Xu sees it, overdue utility payment is the biggest problem for Chinese companies which invest in Pakistan’s power sector. “An average deferred payment of six to nine months causes huge losses for power producers. Suspended production by utility companies will exacerbate the already severe power shortage.” This concern of the Chinese companies was addressed in the ChinaPakistan cooperation agreement on the economic corridor, which pledged to set up a deposit account for electricity consumption. Liu Qiang cited treacherous geological co n d i t i o n s as a h i n d ran ce o f t h e C o r r i d o r construction, which runs through the Pamirs, a region of both permafrost and much tectonic activity. “It is no easier to build railways and pipelines here than on China’s Qinghai-Tibet Plateau.” There have been several failed attempts by China and Pakistan to build a transport corridor in the past few decades. The Karakoram highway in the northern part of this area, which is known as “the eighth wonder of the world”, is a testament to the hostile environment for construction works.

Hanergy Solar Collapse:

Throwing the China’s Richest into Crisis Cheng Sisi “As a platform for international exchange and public education, the Renewable Energy Exhibition Center will display the latest clean energy technologies and contribute to the development and transformation of the clean energy industry.” On May 20, Li Hejun ( 李河君 ) who serves as the Chairman and Chief Executive of Hanergy Holding Group delivered a speech at the opening ceremony of Hanergy Renewable Energy Exhibition Center. People can only feel the confidence and pride that he projected. The Hanergy Renewable Energy

Yet, it is widely acknowledged that security issues remain the biggest threat. Pakistan’s former ambassador to China AkramZaki blamed his country’s economic difficulties on power crisis, outdated transport infrastructure and terrorism. The first two issues are being tackled by building the Corridor, while the third one poses the biggest threat to this development endeavor. Over the past decade, because of the inluence of Taliban, the Belochistan region, where the Gwadar Port is located, has suffered from incessant terrorist activities. As such, the government of Pakistan promised to put 12,000 security personnel in charge of Chinese engineers and workers. 49

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Exhibition Center, which is located in the north end of the Beijing Olympic Forest Park, is expected to promote public awareness and exchange ideas on the energy issue. When fanatics of solar energy were concentrating on Li’s speech at that morning, the share price of Hong Kong listed Hanergy plunged 47% within a span of just 24 minutes before the trading was halted, wiping out $19 billion of its market value and made Li lose his position as the richest man in China. Li is the tycoon in China’s PV industry, and he surprisingly became China’s richest man as the Hong Kong-listed Hanergy’s shares surged about 500 per cent over the past two years. Founded in 1994, Hanergy Holding Group is the biggest thin-film maker in China, with core businesses covering hydropower, wind power and solar power. Its listed subsidiary, Hanergy Thin Film which focuses on thin-film solar technology, has involved in the manufacturing of equipment and production lines used to make thin-ilmed solar panels that convert sunlight into electricity. Li began the day as China’s richest man with a fortune worth more than $30 billion, according to a Forbes estimate. In recent years, Hanergy has bought at least four Western businesses in a bid to achieve business and technology breakthroughs in thin-film solar products. Its market capitalization rose to several times that of First Solar, a big U.S. thin-ilm solar maker. Ironically, by 11 a.m. May 20, Li was almost $14 billion poorer. Shares in Li’s flagship Hanergy Thin Film plunged 47% in Hong Kong before trading was suspended at the request of the Hong Kong Stock Exchange. Li’s absence at the company’s annual meeting held in Hong Kong was behind the decline in prices, according to some reports, but there was no reason given by the company for the drop. Hanergy said in 50

CFFC China Energy journal

a statement it would make an announcement containing inside information. Actually, Hanergy stock’s rise of 500 per cent over the past two years has been surprising to many analysts who said it was long overvalued. Also, the media was constantly keeping their eyes on Hanergy. For examples, the Financial Times newspaper in reports earlier this year questioned the company’s inancial health and transparency. A report by Caixin magazine’s website even said that the parent company Hanergy Holding Group had used its shares to take out bank loans but had been unable to repay some of them. According to a regulatory announcement made by the Hanergy, shares of Hanergy Thin Film Power Group remain suspended pending “an announcement containing inside information”. The parent company said in a statement, “the group operations are normal in all respects and we maintain a good inancial position with no overdue loans.” The group didn’t reduce stake in Hanergy Thin Film, nor use its stocks for any derivative trading. Hanergy Group and its associates hold about 30.6 billion shares in the Hanergy Thin Film, according to the statement. However, the statement didn’t respond to a rumour that the company was under investigation by Hong Kong regulatory body for alleged market manipulation. On 28 May, the Hong Kong Securities and Futures Commission confirmed that “a formal investigation into the affairs of Hanergy Thin Film Power Group Limited has been active and is continuing”, right after company officials including Li denied any such investigation. The Chairman has always stressed the importance of “trust” but his actions seem to undermine this principle.

▲ Fu Chengyu

▲ Wang Yupu

Sinopec Reform,

Where to Go After Fu Chengyu? Wang Haixia Amidst the recent leadership changes in China’s three oil giants, the retirement of Fu Chengyu ( 傅成玉 ), Chairman of Sinopec, has attracted most public attention, because Fu had got a great deal of media exposure on his job and, more importantly, the public and the market are more interested to know where Sinopec’s mixed ownership reform previously under his command will go. Though the media is still focused on Fu’s retirement, Sinopec, where he was at the helm, has fast entered the era of Wang Yupu ( 王玉普 ), the new boss. Fu and Wang share similar backgrounds. Both were born in northeast China, graduated from Northeast Petroleum University and worked in the oil ields of Daqing. Different from Fu, a reformer

in China’s oil industry, Wang Yupu is a technology guru. From 1982 when he started a life-long career in the oil sector, Wang had worked in Daqing until 2009. He spent most of the thirty years on oilrelated science and technology. Before joining Sinopec, he was vice president of the Chinese Academy of Engineering. I n D a q i n g , Wa n g w a s s u p p o r t i v e o f technological innovation. To tackle the high water cut issue, he put a great deal of money on scientiic study, something average officials in oilfields seldom do. He made in-depth research on oil and gas reserve theories and cutting-edge technologies. From the reformist Fu Chengyu to the technology-savvy Wang Yupu, will Sinopec’s ambitious reform continue? In 2014, Sinopec came to the forefront of the mixed ownership reform launched by the central 51

Business

Business CFFC China Energy journal

government to fire up the creativity and vitality of SOEs. At the beginning of that year, Fu vowed at an executive meeting that Sinopec would open further to private capital as part of its market-based reform. In March 2015, 25 investors put additional 105 billion RMB into Sinopec, a substantial step in the mixed ownership reform of the conglomerate. Two months later, Wang Yupu, the new boss, underscored at a management meeting the importance of reform to corporate governance. “Wang won’t veer from the vision laid out by Fu, though the reform may slow down a bit. But it won’t stop, as mixed ownership reform is one of the means to enable SOEs to get out of its current difficulties, such as dropping oil sale and mounting environmental pressure,” a researcher with Sinopec told. Such a view was also echoed by a sales

CFFC China Energy journal

manager at Sinopec, who believed the trend is unstoppable, though there may be some twists resulting from leadership change. Without the reform and the private capital it brings, some sale companies under Sinopec may go bankrupt in the next ive years. As Wang Yupu worked in the oilields for many years, some expect him to make some changes in the upstream business of the group, as that is where major losses have been incurred since oil prices tumbled internationally. Take Shengli Oilfield, the largest under Sinopec, for example. If oil price continues around 50 US dollars per barrel this year, it may lose 20 billion RMB for the whole year. Now, as the Fu era came to a close, many Sinopec staff interviewed still believe mixed ownership reform started by their former boss is the right direction forward for their company.

Nuclear Power Firm Plans

Biggest Mainland IPO in 5 Years Wang Haixia The nuclear power feast in China’s stock market is just around the corner. On May 26, China National Nuclear Power Corp. (CNNPC), one of the top two state-owned nuclear power giants, announced that it would raise as much as 13.4 billion yuan by selling up to 3.89 billion shares, or a quarter of its total, in the what is expected to be the country’s largest domestic initial public offering (IPO) in ive years, according to its IPO prospectus iled with the Shanghai Stock Exchange. Media reports that the share float is poised to be the largest in the domestic market since China 52

Everbright Bank Co. raised $2.6 billion in Shanghai in August 2010. Meanwhile, China’s Security Regulatory Commission has announced that China’s nuclear Engineering Group Corporation (CNEC) will be listed in july. According to the commission, CNEC plans to issue no more than 525 million shares to raise up to 2.7 billion yuan. China suspended the approval of nuclearpower plants after japan’s Fukushima nuclear disaster in 2011 due to safety concerns, but the industry has since received fresh impetus after Beijing stepped up efforts to reduce its reliance on coal in April. 53

Energy Security

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flammable and explosive substances and are susceptible to corrosion, natural disasters and third party damages. Leaks are hard to detect, and should an accident occur, the consequences would be disastrous.

Hidden Concerns in 120,000 km of Oil and Gas Pipelines

Some experts also pointed out that the crisscrossing of oil and gas pipelines with municipal and public utility pipelines may lead to dangerous leaks, pollution, and even fires and explosions. Aging pipelines with internal corrosion may also constitute threats to the public. Since the Chinese Government issued the “Oil and Natural Gas Pipeline Protection Law” in 2010, there has been a lack of supporting legislation and practitioner’s certification, and the delegation of responsibilities within pipeline management departments remains unclear. Nonetheless, there is still a lot of room for improvement in terms of laws and regulations. Ill-deined responsibilities

Wu Xiaojuan Underneath China extends a vast oil and gas pipeline network with a total length of over 120,000 kilometers, long enough to encircle the earth three times. However, safeguarding the security of this tremendous oil and gas supply system is no small feat. With this hard task ahead for the Chinese government, State Councilor Wang Yong ( 王勇 ) said in the meeting of the State Council on March 31 that even though 54

China has made positive progress in enhancing pipeline safety, the remaining challenges are still “a tough nut to crack” and may require even greater efforts by the state. Why it is a tough nut to crack Yang Dongliang ( 杨栋梁 ), director of the State Administration on Work Safety, says that after an eight-month investigation, there are currently 30,000 hidden dangers identiied along the 120,000 km of

oil and gas pipelines nationwide, an average of 3 hidden dangers per 10 kilometers of pipelines. 60 percent of these dangers have been rectiied so far, but the remaining 40 percent will be hard to tackle. These dangers include a lack of suficient distance between pipelines, crisscrossing pipelines, ruptured pipelines caused by construction above ground, as well as pipeline vandalism and oil theft. The pipeline network is extensive. Most of the pipelines are buried underground and transport

Society has been permeated with serious concerns over pipeline safety. Wang Rujun ( 王如君 ), head of the Dangerous Chemicals and Safety Technology Institute of the China Academy of Safety Science and Technology, points out that the city’s underground pipeline network is complex and full of highly pressurized pipelines which run through important infrastructures. The dangers inherent to this situation are hard to resolve. On the one hand, roles and responsibilities of government departments regarding pipeline safety are vague and not well-defined; on the other hand, the pressurization of pipelines is a recurring problem and cannot be eliminated entirely. According to statistics, approximately 1/4 of the total hidden dangers are a result of pipelines running through densely populated areas or important infrastructure, whereas over 1/3 of the 55

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hidden dangers are attributed to the effects of the rapid urbanization process. These pipelines were originally planned to run along the outskirts of urban areas but are now gradually falling within the boundaries of new towns, which in turn puts further pressure on these buried pipelines. Some experts say that a top-down law enforcement system cannot be effectively achieved when the duties of the various management departments cannot be well-defined. In China, departments in relation to energy, urban planning, construction, land and resources, railways, transportation, water resources, work safety and environmental protection, as well as regional governments and enterprises, are all involved in pipeline management. According to the “Oil and Natural Gas Pipeline Protection Law”, regional governments above the county level shall strengthen their leadership over the protection of pipelines within their respective administrative areas, supervise and inspect the relevant departments' fulfillment of their pipeline protection functions, and organize the elimination of major external hidden safety risks to pipelines. However, only state and provincial regulatory authorities are bound by this law, and not city and county-level regulatory authorities. As many pipelines in China have been in operation for a number of years, their management lags behind the current pace of urbanization. Take for example the Donghuang pipeline explosion in Qingdao on 22 November 2013. Experts say that the design of that pipeline did in fact meet the standards required by the regulatory authority when it was constructed and put into use. But due to rapid urban development, the barren land that the pipeline was originally designed to run through and installed in is now littered with new towns and factories. The situation was made worse by the construction of illegal buildings near these buried lines that pose a 56

potential threat to public safety. Additionally, oil and gas pipelines should be kept a certain distance away from municipal pipeline networks. Due either to initial design laws or negligence in subsequent inspections, crude oil seeped into the city’s under drains.

China Firmly Upholds Sovereignty

and Interests in the South China Sea

Determined to ight a battle Although very positive progress has been made since the inspection and removal of hidden dangers in oil and gas pipelines was carried out at the end of 2013, the pace of progress is now slowing due to reasons such as complexity, scale, costs and traditional problems involved in pipeline rectification. At the same time, serious damage to pipelines and ancillary facilities are frequent due to reckless construction, excavation and drilling. This in combination with pipeline corrosion has put the health and safety of the public at risk. O n 2 9 O c t o b e r 2 0 1 4 , t h e Wo r k S a f e t y Committee of the State Council issued a notice urging more efforts to crack down on the damage of pipelines over the next 3 years. The campaign aims to pinpoint any hidden dangers in pipelines and penalize any unauthorized activities which may result in damage to pipelines. The notice also requires that 80% of all recognized hidden dangers be rectified before September 2016, and before September 2017, all potential risks must be eliminated. State Councilor Wang Yong says that this year’s focus will be on tackling major hidden dangers and those resulting in sealed spaces within the pipeline network, as well as enhance cooperation across different departments to ensure an adequate and safe supply of energy. The allocation of funds, the application of standardized regulations, and the penalty imposed for disregarding safety regulations will also be considered in this year’s agenda.

▲ Hua Chunyin

Tensions in the South China Sea are heating up. Once again China’s sovereignties in this sea as well as its offshore oil and gas reserves and energy import security have been pushed back into the spotlight. Government oficials in China have recently reaffirmed that China’s activities in the South China Sea is within China’s sovereign rights. Ms. Hua Chunyin ( 华春莹 ), the Chinese Foreign Ministry spokesperson, said, “The South China Sea provides major shipping lanes for China’s trade and imports of energy. To ensure the freedom and safety of navigation in the South China Sea is of vital importance to China.” “China’s sovereignty and rights in the area have historical foundation, and do not require land reclamation as justification. Constructions on the Nansha Islands are within Chinese sovereignty and do not target any country.” Hua said. “China has indisputable sovereignty over the

▲ Ma Zhaoxu

South China Sea islands and their adjacent waters, and China has a solid historical and legal basis for that. It is in China’s interest to maintain peace and stability in the South China Sea, because it is not only a well-known international sea lane, but also an important route for China’s foreign trade and energy import.” said Mr. Ma Zhaoxu ( 马朝旭 ), the Chinese Ambassador to Australia. “China has every right to carry out construction on some of the islands and reefs in the South China Sea since it falls entirely within China’s sovereignty and is completely lawful, reasonable and justiied.” Ma added. The first-ever Chinese Military Strategy white paper released by the Chinese Ministry of National Defense on May 26 also makes clear that the protection of China’s oversea interest such as security of energy and resources, strategic sea lanes, institutions, personnel and assets is stressed as one of the eight strategic tasks of the Chinese People’s Liberation Army (PLA). 57

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CFFC China Energy journal

Low Temperature Nuclear Heating

Reactors Seek Next Round of Industrialization Low temperature nuclear heating reactors embracing unprecedented opportunities in China

Zhu Xuerui Recently, China General Nuclear Power Group (CGN), China Nuclear Engineering Group Co. (CNEC) and Tsinghua University jointly signed a cooperation agreement on “The Industrialization of Low Temperature Nuclear Heating Reactors” to propel the industrialization and commercialization of low temperature nuclear heating reactors in China, which, with its history of nearly 30 years, has once again drawn the attention of the public. A dream yet to be realized Since 1979, countries such as Soviet Union, Canada, Germany, Switzerland and France conducted exclusive research and development on nuclear heating reactors, more specifically, on vessel-type reactors and pool-type reactors. Up until now, however, there has been no precedent of successful commercialization of the reactors. In recent years, Russia has tried to promote 58

nuclear heating so as to provide heating for country’s severe cold regions. China began its research on nuclear heating in 1980s. Researchers from Tsinghua University suggested carrying out research on low temperature nuclear heating based on pooltype reactors at a conference about small-andmedium-sized power reactors in 1981. In the next ten years, China made a series of breakthroughs, such as its first success on low temperature n u c l e a r h e a t i n g t e s t . M o r e o v e r, Ts i n g h u a University’s 5 MW nuclear heating test reactors were also approved by State Scientific and Technological Commission. Low temperature nuclear heating reactors were officially included in the “7th Five-year Plan” and a 50 MW low temperature nuclear heating reactor run at full power for 72 successive hours. In early 1990s, the 50 MW low temperature nuclear heating reactor in China realized both co-generation and subzero refrigeration, making it the first “integral full power reactor with natural circulation” put

into operation in the world. As for the 200 MW commercial reactors which raised much concern, and anonymous expert told the reporter that Tsinghua University conducted a series of test for comprehensive utilization of heating reactors, such as cogeneration, refrigeration and air conditioning, desalination of sea water during the “8th Fiveyear Plan”. Besides, Tsinghua University studied the feasibility of trial commercial reactors and finished its initial design and other early-stage preparations. During the period of “9th Fiveyear Plan”, several trials concerning promotion of nuclear heating reactors were conducted. Also, an initial safety analysis report and an environmental impact assessment of Daqing 200 MW nuclear heating reactor were approved. The expert also said that 200 MW vessel-type reactors adopted many advanced technologies such as integration, self-stabilization, natural circulation, passive safety system, hydraulic drive control rod, etc., which were safe and reliable and with perfect means for quarantine in case of radioactive leakages, so that the reactors could be installed in the vicinity of cities where they were needed most. In addition, low temperature nuclear heating reactors can be widely used, especially in desalination of seawater. Documents from CNEC showed that China has developed two types of nuclear heating reactors (NHR300-I and NHR200-II). NHR-I can provide heating for cities and thermal seawater desalination, while NHR200-II can be applied in industrial steam and hybrid seawater desalination. Grasp the development opportunity As a cutting-edge technology with China’s absolute independent intellectual property

rights, low temperature nuclear heating reactors were included in one of the five scientific innovation breakthroughs in the government report announced in the 3rd meetings of the 8th National People’s Congress in 1995. They were also mentioned in the “9th Five-year Plan of the People’s Republic of China for National Economic and Social Development and the Outline of the Long-term Target for the Year 2010” a year after. They were listed in “Current Catalogue of Key Industries, Products and Technologies and the Development of Which is Encouraged by the State” (amended in 2000). However, as the nuclear technology grows tremendously, small modular pressurized water reactors have caught people’s attention in recent years, and nuclear corporations are also trying to promote and seek for new factory sites. They have gained much attention than the low temperature nuclear heating reactors. The export pointed out that the state policy and public acceptance are the two key factors that restrict the application of low temperature reactor technologies. Besides, factors including market demand, promotion and capital investment are also important. Chinergy is a subordinate of CNEC which mainly promotes low temperature nuclear heating reactors. At the beginning of 2013, Chinergy signed a “joint Agreement on the General Contract of jilin Baishan Nuclear Heating Reactors” with CPI Power Engineering CO., LTD. It was described as a breakthrough for vessel-type reactors after dozens of years of setback in marketing. As central heating is widely used in northern China, nuclear heating reactors will gradually show their advantages in regional heating supply in the future. Companies will try by all means to speed up their promotion of the technology. 59

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CFFC China Energy journal

Environmental Capacity, the Basis of Environmental Impact Assessment An Interview with Xu Xiaodong, Former Director of the Research Ofice of the Committee on Environmental and Resources Conservation of the National People’s Congress

The Ministry of Environmental Protection, the national environment watchdog in China, has transferred more assessment approval power on coal-fired and thermal power plants to provincial environmental authorities. What are the reasons behind this? And what are the prominent problems in the implementation of the Law on Environmental Impact Assessment since it was enacted in September 2003? In an interview with Mr. Xu Xiaodong( 徐晓东 ), the former Director of the Research Ofice of the Committee on Environmental and Resources Conservation of National People’s Congress and is currently serving at the Counselor’s Office of the State Council, he claimed that local authorities with more power devolved to them is now playing a key role in environmental protection. Q: Reporter A: Xu Xiaodong Q: In 2003, the Chinese government promulgated the Law on Environmental Impact Assessment, which required all relevant parties to evaluate the likely impacts of development projects, programs, and plans on the natural and human environments, both beneicial and adverse. How do you evaluate the implementation of this law over the past ten years? A: The law has played a big role in boosting environmental protection in the country, particularly 60

in moderating the pace of project approval and raising the threshold for environmental protection. Yet, there remain many issues to resolve. For example, the law was not strictly enforced or even ignored at all in many cases. In addition, assessments were often completed perfunctorily, and corruption occurred in the process. Deiciencies and loopholes in the law itself might also be unavoidable in lawmaking process. A: I have two observations on these deiciencies and loopholes. Firstly, the law fell short in achieving its ultimate goal, which was controlling pollution at the source and preventing environmental and ecological damage. Secondly, the law could not leave enough space but posed obstacles to innovation in science and technology. For example, procurements of technologies and equipment have been required to comply with the mandatory catalogue list determined by the government. However, during our constant investigation, we found that the list had not been up-to-date and could not meet the needs of latest technological advancement. It obviously discouraged innovation. Q: You said the law falls short in achieving its ultimate goal. What is missing there? A: What is generally missing now is the linkage

between environmental quality and the standard for pollutant discharge. To ensure a sound environment, discharges of pollutants must be within the allowed environmental carrying capacity. Therefore, the standard for discharge must be designed according to environmental capacity. There are both national and local standards for pollutants, and local authorities may set standards

at different levels than the national levels for their areas. However, local standards must be at least as protective as the national level. In fact, the environmental carrying capacity varies among different regions, and the national standard may fail to accommodate the distinct regional needs. Even if pollutants are discharged within the agreed limit, the overall environment still suffers. The national standard has caused constant environmental degradation across the country. 61

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That is why I have once suggested the central government to delegate the right of setting standard for sewage discharge to local authorities. With considering the environmental carrying capacity, local governments can decide the maximum number of projects to be approved and the corresponding quotas of discharge. For instance, if 10 projects are approved, each project will only be permitted to get 1/10 quotas of discharge. Q: How to distributethe discharge quota? A: Since the environmental carrying capacity is a kind of public resource, the most equitable way to determine and distribute quotas is by open bidding. For instance, the government divides the environmental capacity into 100 quotas which will be auctioned by open bidding, with the highest bid winning. The revenue generated from opening bidding will go into public treasury. Discharge quota is tradable, and enterprises for new projects should acquire discharge quotas in advance either through open bidding or purchasing from others. For public projects, quotas can be allocated to them by the administration. It should be emphasized that the revenue from the auction cannot be used for tackling pollution based on the polluter-pays principle. Environmental tax imposed to enterprises solely means that enterprises are permitted to discharge pollutants within the agreed limit, but they are still liable for any environmental pollution or ecological damage that they result. The quota obtained through opening bidding is only valid within a specific period of time. When it comes to the expiration, enterprises must stop their projects in hand but seek other quotas. Enterprises are also welcomed to sell their residual quotas which are saved through technological advancement. 62

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In this regard, the best practice for the government to eliminate pollution is to dictate overall emissions levels but let enterprises decide how best to meet those standards.

Dilemma of Curbing Ports

and Shipping Emissions in China

Q: Since local authorities are given stronger power in environmental assessment, will problems mentioned above be solved? A: Although the central government still put reins on most of the trans-provincial and transregional projects to control the pollution, local authorities are now in a better position to fulfill their responsibilities to protect local environment with new statutory power, which was long held by the central government. Q: What is your desired environmental impact assessment system?

Kong Jueting Ships create significant air-quality problems due to their large engines, high-frequency marine activities, comparatively low-quality fuels, and high smog and soot emissions. Due to the fact that most of ocean-going vessels are (OGVs) using poor quality marine fuel, PM emissions from OGVs account for over a third of total emissions in some cities in China.

▲ Wang Haifeng A: The recent national development plan suggests that China will be stratified into several areas according to their functions, and each of them will bear different obligations for environmental protection. In my opinion, the most important thing for the environmental protection system is that it must be lexible enough to take account of various circumstances, times, and places. For examples, limits on emissions in cities can be eased if there is enough wind to disperse pollutants. If wind is inadequate to disperse pollutants and air pollution level is too high, restrictions on driving and manufacturing activities should be hoisted. To conclude, the environmental assessment and protection system should be progressively developed with fully considering the environmental carrying capacity. Science, technologies and innovation can also produce significant positive effect on this.

However, ports and shipping emissions are considered as an overlooked contributor to China’s air pollution. China’s State Council decided last month to lower the cap on sulfur content in gasoline and diesel for on-road vehicles to 10 parts per million (ppm) in 2018, yet the official international limit on sulfur content of marine fuel is still at an eye-popping 35,000 ppm, and the progress in reducing sulfur content of marine fuel is frustratingly slow. Additionally, emissions from shipping and ports are barely regulated in China. The overall reduction target of nitrogen oxides is 10% under China’s “12th Five Year Plan”, but works to reduce emissions from ports and shipping are not included in this agenda. Thus, Wang Haifeng 王海峰 , a senior policy analyst with The International Council on Clean Transportation, was interviewed for his opinions on this issue. Q: Shipping and Ports emissions are signiicant sources of air pollution in China, yet the problem has not been given adequate attention by the

Chinese oficials, why? A (Wang Haifeng): China’s container ports are among the busiest in the world, propelled by the country’s economic growth over the last few decades. In fact, seven of the ten busiest ports in the world are located in China. However, although the Chinese government has incorporated environmental issues and emission reduction target into its “12th Five Year Plan” set off in 2011, it is surprising that reduction target of shipping and ports emissions was not included in this agenda. In my opinion, emissions from shipping and 63

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CFFC China Energy journal

departments and transportation departments. In other provinces in China such as Guangdong, the collaboration between the two departments has just started and may take time and effort to overcome some hurdles. Q: By using comparatively low-quality fuels, emissions from OGVs contain high levels of nitrogen oxides (NOx), SOx and DPM. How should we deal with this problem? A: The most convenient way is to mandate fuel switch at berth so that OGVs will be required to use fuels with low sulfur content in our territorial seas. This practice can reduce SOx and PM emissions signiicantly. Government can also provide inancial incentives to shipping companies which participate in this scheme. Another quick way is to regulate OGVs speed when approaching or departing the port.– For example, OGVs are required to reduce their speed within 40 nautical miles of the port. Using less energy can also lead to reduction in NOx, SOx, and PM. ports have so far been underestimated in China, and only few people know the reality. Although there have been researches discussing that the emission problem is getting worse, people still need to take bit of time to understand this issue. Therefore, we rarely see any thorough analysis about shipping emissions in China. What we know so far is that sulfur oxides (SOx) emissions from shipping account for over half of total emissions in Hong Kong. Diesel particulate matter (DPM) accounts for over a third. In Shanghai, emissions from shipping represent about 10% of total emissions in the city. Q: Vessel speed, operation budget and fuels consumption are three important aspects affecting emissions from shipping. What shall we do to reduce ports and shipping emissions in these three aspects, and which method is the most effective way for China to reduce emissions? 64

A: A multi-pronged approach can be adopted to tackle emissions. For example, regulations can be designed to restrict OGVs speed when they approach or depart the port, in order to reduce energy consumption and air pollutants. Moreover, OGVs can be required to switch to cleaner fuel while berthing so as to reduce DPM and SOx. At the moment, developing a detailed emissions inventory based on state-of-art methodology is an important step in managing shipping and ports emissions. Q: As you mentioned, emission inventory is the key to reduce port emissions. However, only Hong Kong and Shanghai has developed official port emissions inventories. What is the reason behind this? And do you have any ideas for improvement? A: The emissions inventories in Hong Kong and Shanghai are achievements of constructive collaboration between their environmental

Some ports are now looking at onshore power, meaning that vessels at berth replace onboard generated power from diesel auxiliary engines with electricity supplied by the shore. This is another way to reduce emissions when ships are at berth. Selective Catalytic Reduction (SCR), Diesel Particular Filter (DPF), Exhaust Gas Recirculation (EGR) and other technologies can also be considered. Q: What can we learn from how developed countries reduce ports and shipping emissions? Do you have any examples? A: In my opinion, there are many measures we can learn from the developed countries. One of the widely used measures to reduce the sulfur content in marine fuels is the establishment of Emission Control Areas (ECAs), which is an approach

currently being implemented in North America and some parts of Europe. Ships operating in these areas are required to use fuel with much lower sulfur content—though by no means does that parallel ultra low sulfur diesel used on-road: sulfur limit up to 1,000 ppm are currently permitted, a limit that will drop by 90% in 2015. Furthermore, incentive should be given by the government. Taking the Long Beach, the second largest container port in the U.S., as an example, this port embarked on a port clean air program in 2005 following the increasing pressure from nearby communities on its port expansion projects. It deployed a number of strategies, such as retiring old and less efficient drayage trucks and incentivized ships in order to reduce speeds of vessels. At the same time, the California Air Resource Board promulgates a number of policies, such as mandatory cleaner fuels and onshore power, in order to clean shipping emissions. Eventually, emissions from the port declined over 50% between 2005 and 2011. phase Q: Under the “new normal” 新常 which advocates both energy saving and emission reduction, what should Chinese ship owners do to attain this goal? A: They can participate in the policymaking process and shape it from inside. The industry has enormous technical capability and experience to offer, as policymakers are looking into emissionsaving measures. Indeed, the most successful businesses always stay a few steps ahead. Maersk, for example, turned low-sulfur fuel regulation in California to its advantage a decade ago and established itself as a beacon for environmental stewardship in the shipping business. Given the Chinese government’s resolute and speedy effort to solve its air-quality problems, Chinese companies in the shipping industry would be welcomed to follow that example. 65

Foresight

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CFFC China Energy journal

Chinese Nuclear Technologies Gain Footholds in the World Zhu XueRui From domestic to international markets, China is transforming itself into a world leader in nuclear energy and bringing its nuclear generators onto the international market. This country now has one of the world’s largest installed nuclear power generation capacities and is determined to develop cutting-edge nuclear technologies, said Liu Baohua 刘宝华 , Director General of the Nuclear Energy Division of China’s National Energy Administration. At the same time, Chinese manufacturers are looking to sell their indigenous pressurized water reactors and High Temperature Gas-cooled Reactors (HTGR) to potential customers in Europe, Asia, Africa and South Africa. Chinese pressurized water reactors debuted in the international market The made-by-China ACP1000 and CAP1400 have made their ways into the international commercial nuclear power market. During a recent joint press briefing by China National Nuclear Corporation (CNNC) and China General Nuclear Power Group(CGN), oficials from the two nuclear giants told that they are partnering to promote ACP1000, in a historic move to seize 66

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the European market.

HTGR, ready to go global

The British government has endorsed Chinese involvement in the country’s nuclear power projects. Apart from Hinkley Point C, ACP1000 will also be installed in the Bradwell B project after passing the generic design assessment. According to CGN, core elements have been hammered out in the cooperation agreement, which is expected to be signed late this year.

China has made rapid advances in pressurized water reactors, and China now is moving firmly towards commercialization of its fourth-generation high-temperature reactor, which is the world’s leading technology, around the world.

On 4 February, the Chinese and Chilean governments signed an agreement on a pressurized water reactor project. In addition, CNNC has entered into cooperation agreements with Egypt, Saudi Arabia and South Africa in nuclear energy and fuel. Partnerships with Malaysia, Sudan, jordan, Algeria, Brazil, Ghana, Armenia and Kazakhstan are also being established. Besides the UK, CGN is making inroads into Turkey, Hungary, South Africa, and Southeast Asia, where the market for its ACP1000 is rich with potential. China is also moving forward with its overseas CAP1400 plants deployment as fast as possible. South Africa is one of the CAP1400’s target markets, and it has expressed keen interests in CAP1400. In December last year, China’s State Nuclear Power Technology Corporation (SNPTC) signed a cooperation agreement with South African counterpart, pledging that SNPTC would help to train nearly 300 nuclear power experts and managers for South Africa. In addition to South Africa, SNPTC also prioritizes Turkey and Brazil as the potential partners of CAP1400 plants construction. Recently, SNPTC formed a joint venture with the US-based Westinghouse Electric Cooperation to develop two AP1000 units and two CAP 1400 units in China. 68

China’s Tsinghua University, the patent holder of HTGR, is joining hands with China Nuclear Engineering Corporation (CNEC) and China Huaneng Group in promoting HTGR technology. They have built the HTGR demonstration in Shidaowang and started installment. The project will be completed and put into practice in late 2017. With breakthroughs in R&D and veriication on critical technologies such as steam generator, primary helium circulator and CRDM, 95% of the equipment are indigenous Chinese inventions. Preparatory work on HTGR projects in jiangxi, Hunan, Guangdong, Fujian, Shandong, Hubei and Zhejiang, and some of the commercial HTGR technology has been promoted overseas. For examples, CNEC has announced a Memorandum of Understanding (MOU) with Dubai’s nuclear energy commission for designing HTGR seawater desalination in City for Science and Technology in Saudi Arabia. On 21 April, CNEC signed MOU on HTGR with South African Nuclear Energy Corporation. According to the Chief Economist of CNEC, HTGR has been highly recognized by many countries, such as those in Southeast Asia, the Middle East and Europe, for its adaptability to different power grids. Capacity of generator units ranging from 200,000 to 1 million KW can be realized through different module combinations. Such lexible approach best suits locations close to load centers and countries and regions with smaller grids. Some countries have been in contact with China for HTGR application in power generation, desalination, petrochemical and coal chemical.

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