CEFC China Energy Journal December 2015 Issue 8 by China Energy Fund Committee

CONTENTS

DECEMBER, 2015, Eighth Issue

Intenet +: China’s New Drive

Internet +: China’s New Drive to Power Inclusive,Innovative and Interconnected Growth 互联网 +: 为中国经济包容，创新和互联发展注入新动力

8 Opinion 观点

22 28

16 Policy 政策 Energy Industry Calls for Supply-Side Reform 能行业呼吁供给侧改革 Belt and Road Initiative’s Oil and Gas Cooperation to Focus on Six Key Fields of Development “一带一路”油气合作瞄准六大领域

Cover Story 封面文章

Major Events 主要事件

Planet 地球 Environmental Improvement Paves the Way for a Green Future 加强环境治理，铸就绿色未来

Shale Gas Industry on the Rise in China 中国页岩气产业发展逆势前行

Dialogue 对话 Wang Zhixuan： Power Industry Not the Culprit for Smog 王志轩：电力行业绝非雾霾元凶

Business 商业 The Hualong One Reactor: A Model for China’s Future Nuclear Power Development “华龙一号” 核反应堆：中国核电未来发展的示范工程

China Accelerates “Energy Internet” Deployment 中国加快部署“能互联网”

How to Stabilize the Coal Economy 六措并举稳定煤炭经济 New Electricity Reform Promotes Energy Transition 新电改推动能转型

Figures 数字

The Hualong One Reactor

Energy Supply-Side Reform

4 Editorial 编者的话

Three Gorges Hydropower Station

Foresight 前瞻 Coal Power Surplus to Reach 200 Million Kilowatt during 13th Five-Year Plan 十三五煤电装机过剩 2 亿千瓦

Technology 技术 The World’s Best Million-Kilowatt Coal-Fired Generator Is Born 世界综合指标最优百万千瓦火电机组问世

China Admitted as IEA Association Country 中国成国际能署联盟国 China Commits to Steering the Coal Industry out of Trouble 中国着力煤炭行业脱困

Shale Gas Industry on the Rise

Environmental Improvement

48 56

Editorial

CEFC China Energy Journal

Internet +: hinaâ&#x20AC;&#x2122;s New Drive to Power Inclusive, Innovative and Interconnected Growth

Dr. Patrick C.P. Ho The advent of the personal computer in the 1970â&#x20AC;&#x2122;s marks the beginning of the Digital Age. Since then, continuous advancement in information and communication technology (ICT) has transformed not only economies but our everyday life. Today, with 3.2 billion people online worldwide, all segments of society, all fields of knowledge and endeavor, have been impacted by this Digital Revolution. But the digital divide remains, and it is incumbent on all of us to narrow and bridge that divide. Digitalization, like industrialization, thus presents many opportunities, but also many challenges and questions. Each country, every society, will have to ind its own particular way to balance opportunities with challenges, and derive their own answers to the questions posed by this new technology. China, like many countries, is undergoing a digital evolution of its own. The number of broadband internet users in China has now grown to almost 800 million with over 700 million smart 4

Editorial

CEFC China Energy Journal

devices active in the country. Next year, the internet economy is expected to contribute to almost 7% of the country’s GDP. An exponentially greater impact is expected in the near future. China is taking a proactive approach to this transformation. It has set out a master plan for digital age development in its 13th Five-Year Plan. In March of this year, Premier Li Keqiang 李克强 unveiled the country’s “Internet Plus” strategy. The strategy aims to integrate “mobile Internet, cloud computing, Big Data, and the Internet of Things, with modern manufacturing, [in order to] encourage the healthy development of e-commerce, industrial networks, and Internet banking.” A major goal of the initiative is also to “get [Chinese] Internetbased companies to increase their presence in the international market.” In July this year, the State Council of China released its implementation plan for Internet Plus. The action plan identiies four primary goals:

■ Upgrade and strengthen the security of Internet infrastructure,

■ Expand access to the Internet and related technologies, ■ Make social services more convenient and

CEFC China Energy Journal

There are three dimensions to Internet Plus. First and foremost is economic restructuring. The widespread use of ICTs will create a new generation of businesses and jobs with increased efficiency, market access, and ingenuity of all sectors. We will see ICT-enabled breakthroughs in e-government, e-business, e-education, e-health, e-employment, e-agriculture and e-science, among others, allowing greater numbers of people access to services and data that might previously have been out-of-reach or unaffordable. Digital economy will kick-start domestic consumer market and service industry, stimulate productivity and innovation and spearhead growth. In turn, this will help the country meet the goals of the 13th Five-Year Plan, particularly those related to innovation and coordination. The second dimension to Internet Plus pertains to social restructuring and governance, which relates to the goals of openness and inclusiveness. The Internet is a global resource that must be managed in an open and inclusive manner to serve public interest. ICTs provide new channels among citizens, businesses and governments to share and augment knowledge, as well as participate in decisions that affect their lives and work. ICTs advances social development and improve quality of life. It provides connectivity bridging city dwellers and rural residents, women and men, children and the elderly, and persons with disabilities, shifting the paradigm of social development.

effective and, most importantly,

■ Increase both the “quality and effectiveness” of economic development. The Internet Plus strategy thus complements the ive development concepts outlined in the 13th Five-Year Plan to be rolled out in March next year. These concepts, which underpin the major policies for China’s future development, are Innovation, Coordination (to ensure balanced development), Green, Openness and Inclusiveness. 6

The third dimension to Internet Plus is a cultural or lifestyle transformation. The digital economy produces an informed, connected public, which today, is nearly constantly online. The virtual world that this public now inhabits is still very new, and does not yet contain the order – structural or moral – that we rely on in everyday life. The internet is, at times, an ambiguous world, presenting benefits as well as dangers. For example, online, it is easy to conceal

one’s identity. As a result, many seem to enjoy much greater freedom of expression in their online lives. At the same time, the social and moral responsibilities that one bears offline seem to not have yet carried over to cyberspace. Bullying, misinformation, defamation, are common, as are more serious offenses, such as theft and malicious destruction. The reality is that there are criminals as well as victims in cyberspace. This reality has social and economic consequences. Cybercrime and cyber-violence threaten individuals as well as states and companies. Cyber security policies can help to keep the internet safe for everybody. In so doing, successful policies will not curtail freedom, but protect and ensure it. We can consider a three-pronged approach to cyber security, and each country and community will formulate its own combination of measures to ensure the safety and freedom: 1.First, we must promote education on cyberethics, in order to establish a safe, secure, tolerant and reliable cyberspace. Such cyberethics should publicize the role of ICT as an enabler of development and not of destruction, as well as stress respect for the individual’s rights and security online. 2.Second, we must find ways to redirect the passion and talent invested in cybercrime into other, more constructive fields of development in the cyber world. This means addressing incentives as well as penalties, as well as creating opportunities – such as those that could be done through the Internet Plus initiative.

in this area. The binary number system, which is the basis for the digital systems in use today, can be traced back to the ancient Chinese “Book of Changes” or Yi Jing, written some 2500 years ago. The yin and yang notation used by the Yi Jing diagrams are the forerunners of the 0s and 1s of digital binary code. According to ancient Chinese wisdom, there is a yin and a yang perspective for everything. There is always a pro and a con for consideration. The digital transformation of society also presents two separate paths of evolution. If we adopt an approach of respect and scruple in harnessing technology to serve our needs sustainably, it may promote humanity to a higher level of existence. However, we should also be wary of the alternative, where the “tail wags the dog” when we all become addicted and totally dependent upon online technology 7-24, and when technology comes to dictate over our humanity. It is a difficult balance to strike, but I maintain that we should not be afraid of change, or turn down the possibilities or opportunities that technology continues to offer us. Rather we should embark onto a new era that reafirms our humanity, facing up to the challenges and inspirations of technology. The outcome will certainly lead to a redeinition of our core life values, signifying the awakening of a modern humanity and will perhaps, ultimately lead to a Renaissance of modern times. But where do we go from here? I am sorry. There is no app that will tell us what to do. The choice is left to you, and to me.

3.Third, we must bolster vigilance and surveillance by developing and propagating the use of security software and detection devices, which should be fielded in conjunction with gatekeepers at choke-points and critical junctures. Government and stakeholders from civil society must collaborate

(Editor’s note: This presentation was made by Dr. Patrick Ho Chi-ping at a conference on “Internet Economies: Opportunities and Challenges”, held on December 14, 2015, at the United Nations Headquarters in New York.) 7

Opinion

CEFC China Energy Journal

How to Stabilize the Coal Economy Since the second half of 2012, China’s domestic coal market has been in decline. Insufficient demand, combined with excess production capacity, has resulted in excess supply and sharp drops in coal prices. Coal enterprises face declining profits and other dificulties in their operations.

Through the publication of policies and regulations, the Conference System has been successful in containing the illegal construction of coalmines, restricting unsafe and unreasonable production, limiting imports of low-quality coal, and cutting the heavy tax and fee burdens on coal enterprises. Meanwhile, local governments have provided administrative support for the structural adjustment and transformation of coal enterprises. These measures appear to be having some positive effect on the coal industry. But overall, the current situation of the coal economy is grim. Coal prices remain low, and it will be dificult to raise them in the short term. Supply and demand patterns will also be dificult to change. For years, China’s coal market configuration has

been shifting towards a model of “decentralization versus centralization, long-term versus short-term focus”. It is difficult to reverse this configuration, particularly in such a critical industrial situation. However, thanks to some turnaround policies, the downward trend has slowed its pace. Coal enterprises should make use of currently available opportunities. Taking advantage of favorable government policies, they should (1) acquire a clear understanding of the current situation, (2) begin to address the challenges they are facing, (3) strive for development. This is the only way that coal enterprises can promote a smoothly operating coal economy. Coal enterprises should pursue the following

The situation worsened in the third quarter of this year. Even strong enterprises began to experience losses, which in the entire industry have surpassed 80%. Experts foresee continued deterioration in the fourth quarter. The increasing difficulties faced by mines and enterprises have a destabilizing effect on safe production.

▲ Wang Xianzheng 王显政

President of the China National Coal Association (CNCA) 8

The Chinese government pays considerable attention to the development of the coal industry. Last July, in line with decisions made by the State Council, Mr. Lian Weiliang ( 连维良 ), deputy director of the National Development and Reform Commission (NDRC), led the establishment of the Coal Industry Turnaround Joint Conference System. Its members include the NDRC, the National Energy Bureau, the National Coal Supervision Bureau, and the Coal Industry Association, among others. For more than one year now, the Conference System has done a great deal of productive work. Their objectives have included “stabilizing prices, standardizing imports, reducing the burden of taxes and fees, and improving assessment mechanisms.” 9

Opinion

CEFC China Energy Journal

specific policies and measures for the closure of collieries. Third, stabilize coal prices. Coal is a crucial element of national economic development. Unreasonable coal prices are not conducive to coordinating upstream and downstream development of the coal industry or the sustainable development of the national economy. The price of coal is currently lower than its actual market value. Stabilizing coal prices at an appropriate level is therefore a priority. Research has shown that a

Links actions and measures: First, enterprises should increase their understanding of markets and their competition. Products without a market are destined to be eliminated. Companies should carry out timely reform, so as to meet market demand in a more sophisticated way, rather than simply resorting to increasing production. Simply waiting, or counting on government policies, is not enough to solve the industry’s fundamental problems. Enterprises must begin to act on their own initiative. This is the reality of a market economy. Second, enterprises must strictly control total production of coal. This requires major coalproducing provinces and large-scale coal enterprises to earnestly implement prescribed turnaround 10

policies. Today, coal production is experiencing huge overcapacity. Production control is necessary to restructure the coal industry and facilitate the return of favorable market prices. Coal enterprises must therefore exercise more self-discipline, and search for a better balance between supply and demand. Coal should only be produced to meet demand in available markets. Production control is essential not only for the survival and future development of the industry, but also the economic stability of coal mining areas. This highlights the importance of government action. Local governments of major coal-producing provinces should improve the industry’s assessment systems, shifting emphasis from speed and quantity to efficiency and quality. Governments should optimize their coal reserve amounts, and propose

China’s coal consumption has been slowing since 2012 after years of rapid growth, and 2014 saw its first fall in more than a decade. Coal-fired power plants account for around half of the country's coal consumption. China’s coal consumption grew by an average 9.8 percent between 2002 and 2013, when it peaked at 2.05 billion metric tons , before dropping to 1.95 billion tons in 2014. China is suspending the approval of any new coal mines for three years to eliminate stockpiles and increase newenergy consumption.

reasonable coal price would be around 0.1 yuan/ kcal, a point which is proitable for enterprises and acceptable for consumers. Fourth, speed up supply-side coal reform. The coal sector and government should keep track of the profound changes that have taken place within China’s coal consumption structures. The core task of reform is to improve the efficiency and clean utilization of coal. The coal sector and government should encourage all coal to be used according to its quality and grading. The joint development of coal and coal power should be encouraged, as should the development of a modern coal chemical industry. Finally, the industry’s structural transformation and upgrading must be promoted. This will require improving quality and efficiency inside the coal supply system, stimulating new demand, and advancing the industry’s transition from mere producer to service provider. Fifth, ensure coal mine production safety. The industry must strengthen its sense of responsibility for coal mine safety. It should enhance safety supervision, expand investment in safety, and improve risk management and compliance with related laws and regulations. At the same time, the industry and government must pay increased attention to the health of coalmine workers. Regular assessments of coal mine safety will be needed. Sixth, ensure social stability of coal mines. The operational difficulties experienced by coal enterprises have significant collateral effects on social stability. The industry and government should reinforce efforts to recover payments, as well as ind and provide the capital needed for normal operation of enterprises. Increased attention must also be paid to people’s livelihoods in coal mine areas. A policy prohibiting reduction of wages and beneits should be implemented. In particular, poor, injured, and disabled workers, as well as retirees, must be looked after. 11

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CEFC China Energy Journal

New Electricity Reform Promotes

Energy Transition

Renewable energy will also enjoy preferential development; for example, power grids deals across provinces and districts will prioritize transmission of renewable energy.

The government has also clearly stated that it “will revise the technical standards for thermal power generation and allow peaking adjustments to be more flexible, in order to leave greater room for renewable energy.”

“Contracts on priority generation of renewable energy will be transferable.” At the same time, the government has also clearly stated that it “will revise the technical standards for thermal power generation and allow peaking adjustments to be more flexible, in order to leave greater room for renewable energy.” Market Based Measures Marketization, on the other hand, will be advanced through a variety of measures.

First, the government will determine electricity transmission and distribution prices. It will then in discriminately open the grid to all sources. Wind and solar power generation enterprises can thus sell their electricity directly to consumers, after paying a transmission fee to grid companies.

The government has established clear goals for a spot market. “The spot market will determine the price of electricity, and should function smoothly while allowing for a variety of trades.”

China’s new electricity reform aims to promote a transition from traditional fossil fuels to renewable ones. Six recently released documents demonstrate intent to integrate government planning and marketization in advancing an energy transformation.

▲ He Jijiang 何继江

Director of the Policy Analysis S e c t o r, E n e r g y I n t e r n e t Innovation Institute, Tsinghua University

distribution companies. These renewable energy enterprises will thus not participate in market competition.”

Planning Based Measures The government-planned approach is mainly implemented in the following aspect: renewable energy will be prioritized for power generation. “The power generated by distributed wind and solar enterprises will be fully purchased by power 13

Opinion

CEFC China Energy Journal

In some local markets, the retail price for wind power (including the transmission fee) is already quite attractive for customers. The combined generation and transmission cost for distributed photovoltaic power is currently less than the commercial day time electricity price in some eastern cities. Shenzhen and Inner Mongolia have already set electricity transmission and distribution prices, with Shenzhen ready for the direct supply of photovoltaic power. Second, the government has established clear goals for a spot market. “The spot market will determine the price of electricity, and should function smoothly while allowing for a variety of trades.” This spot market will guide power generation enterprises to adjust peak power generation through real-time price signals, as well

CEFC China Energy Journal

as lay a foundation for the implementation of a demand-side response. Furthermore, it will also optimize the overall ability of the whole grid to coordinate resource allocation, promote renewable energy consumption, and reduce the amount of wasted electricity generated from wind and solar power sources. Third, the government will help implement increased demand-side response. “The government will guide the supply and demand sides to actively participate in the adjustment of peak times and frequency, thus ensuring the balance between power supply and demand.” This measure will greatly increase the flexibility of the grid’s resources, as well as encourage the increased consumption of highly intermittent wind and photovoltaic power sources.

Indeed, demand-side response data was included in the supporting documents on electricity reform, the first time that such data has appeared in power reform documents. “On the basis of early pilot programs, the government will promote greater demand-side response and encourage wind power and photovoltaic power to participate in market competition. This will gradually allow for more lexibility in the capacity of peak adjustment on the demand side. The capacity will be about 3% of the largest power demand load.” In Beijing, for example, the total demand load is almost 19 million kilowatts. 3% of this would mean that approximately 0.6 million kilowatts will be adjustable during peak load. This is, in particular, good news for the Zhangjiakou wind power project. However, it would certainly be better if the entire country could realize this goal. The gap between peak and off-peak electricity prices is also expected to increase. “Direct electricity trading should distinguish between peak power and off-peak power. The prices for the two periods should be different.” It is hoped that an increased gap between peak and off-peak prices will encourage the development and use of energy storage, as well as increase the consumption of electricity generated from wind and photovoltaic power sources.

also stated that “small, distributed power generation enterprises or micro-grid users can authorize other electricity retail companies to sell their power.” Retail companies have become quite competitive in the market because they provide clean electricity and value-added services to consumers. Currently, the minimum registered capital for retail companies is 20 million yuan. This is a substantial threshold for many small, distributed photovoltaic power g en er atio n en ter p r is es. The trend towards encouraging the development of distributed power enterprises is quite clear, but more documents on retail transaction methods are needed. In the future, renewable energy can become the primary energy source for enterprises’ self-owned power plants. The six supporting documents encourage “enterprises to promote the use of selfowned renewable energy power plants instead of thermal power plants.” In areas rich in wind, solar, and water resources, the government will guide enterprises which own thermal power plants to reduce their own electricity production, in favor of increased purchasing of generated electricity on the market. Over time, this will allow renewable energy to gradually replace coal in power generation. Conclusion

A fourth measure is that distributed power enterprises will be allowed to establish their own retail companies for selling electricity:“distributed power enterprises can develop their own electricity retail businesses. Distributed power enterprises can integrate the use of the internet, distributed power generation, smart grids and other new technologies to promote interaction between power producers and consumers. Ultimately this will ensure that consumers have access to intelligent, comprehensive energy services.” The supporting documents for electricity reform 14

The adjustment of renewable energy consumption still mainly depends on government planning and is only supplemented by market forces. However, we are already seeing pilot electricity transmission and distribution prices expanded from Shenzhen and Inner Mongolia to the whole country. The spot market for electricity is also gradually developed, as is support of peak and off-peak electricity pricing systems and renewable energy quotas. In the future, a market-oriented renewable energy system will become the dominant driver of energy reform. 15

Policy

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the energy industry, as well as improve the quality and eficiency of the supply system.

China’s medium-to-long term developmental pattern of slow growth. This year ’s GDP growth rate is estimated at 6.9%. China’s GDP in 2020 can still be double that of 2015 so long as the average GDP growth rate during the 13th FiveYear Plan period remains above 6.5%. If this year’s rate is 7%, the required average GDP growth rate for next five years will be 6.52%.

Tong Xiaobo

Energy Industry Calls for Supply-Side Reform

The energy industry’s development has been impacted by slowing economic growth and dropping prices of conventional energy. The industry’s profitability is declining, and demand growth for some enterprises even stalling. At the 11th Meeting of the Central Leading Group on Financial and Economic Affairs in mid-November, President Xi Jinping ( 习近平 ) said that the government would strengthen structural reform on the supply-side of

In the context of deepening marketization reform, what kind of problems should be addressed in the energy industry? What kind of preparations should be undertaken by energy enterprises? The 3rd China’s Natural Gas Industry Market Development Conference, held recently in Beijing, provided some answers to these questions. Observers at the meeting generally agreed that China’s economic growth would likely continue to decline, conforming to China’s medium-tolong term developmental pattern of slow growth. This year’s GDP growth rate is estimated at 6.9%. China’s GDP in 2020 can still be double that of 2015 so long as the average GDP growth rate during the 13th Five-Year Plan period remains above 6.5%. If this year’s rate is 7%, the required average GDP growth rate for next ive years will be 6.52%. Lu Zhongyuan (卢中原) is the former Deputy Director of the State Council's Development Research Center. He claimed that relying too much on high investment to generate high-speed economic development is unsustainable. High-speed economic development, he said, may disguise market distortions and non-market behaviors. This restrains the elimination of outdated production capacity. A marketization which emphasizes survival of the ittest, technology innovation, structural reform and new energy development should be seen as the only way to rectify the market’s problems during this period of economic slowdown. “China is on track to implement a ‘new normal’ of economic development, featuring slower but higher quality growth. Accordingly, China’s energy development should be based on the actual economic situation,” said a research for the China Center for International Economic Exchanges, Jing Chunmei ( 景春梅 ). 17

Policy

CEFC China Energy Journal

Attendees at the conference also shared their perspective on the state of the oil and gas industry. Currently, the costs of oil and gas production and utilization are considerably high. Many saw increasing the utilization efficiency of oil and gas resources as an urgent task. Many also noted that investment enthusiasm, as well as daily operations of some state-owned energy giants, are greatly affected by plummeting international oil prices, while civil society has been unable to take advantage of dropping oil prices. These sorts of unfavorable factors are expected to hinder the country’s sustainable growth and its ongoing industrial restructuring. In addition to new energy industries, such as the photovoltaic and wind industries, conventional industries, like the coal and petrochemical industries, are suffering from overcapacity. This is seen the greatest problem facing the Chinese energy industry’s supply side. Whether or not the overcapacity can be solved will be decisive for the success of China’s economic restructuring and transformation. Given these circumstances, observers urged the advancement of supply-side reform and the importance of letting the market rule. They recommended that the government reduce the tax burden on enterprises and lessen institutional restrictions, in order to foster a more competitive environment, where innovation, eficiency, and new energy development would be prioritized. It was also recommended that state-owned enterprises deepen their own reforms, by means of mergers and restructuring. Chen Weidong ( 陈卫东 ), the chief researcher of the China National Offshore Oil Corporation (CNOOC) Energy Economic Research Institute, pointed out that, from the perspective of energy transformation, China needs more gas, more advanced technology, more new energy sources, 18

and less coal. When considering energy security, he recommended that the government take into account certain factors in particular, such as domestic resource endowment, technology advancement, energy supply safety and nationalized monopoly, so as to make immediate and positive adjustments on oil policy, energy strategy, diplomatic policy, and national security. Some observers also suggested that the supplyside reform of the energy sector should eye “quality consumption”– the eficient use of energy resources. Wang Yinan (王亦楠), researcher at the State Council Development Research Center, stressed that reform of the energy sector should be innovative enough to safeguard national energy security while also protecting the environment. Some industry insiders think that supply-side management is much more important than demandside management in determining the private sector’s survival. In the future, China’s mediumto-long-term growth pattern may gradually lead to a path of increasingly well-developed supply-side management policies. Companies which possess technology and competitiveness will celebrate the government’s supply-side reforms. “The recent purchasing manager index and the external environment together tell that China's economy will be buffeted next year. Therefore, companies have to stay focused on grasping the opportunities brought about by supply-side reform, as well as formulating their own long-term development strategies,” added Lu Zhongyuan. From the perspective of production, Haitong Securities predicted that supply-side reform would boost the market share of the tertiary industry, especially emerging industries. With regard to the secondary sector, the share of traditional industries will drop. The reform will also bring allocation effect on income in society.

Policy CEFC China Energy Journal

elt and Road Initiative’s Oil B and Gas Cooperation to Focus on Six Key Fields of Development

Wang Lu The “Belt and Road Initiative” (B&R) is ratcheting up and moving towards detailed implementation. As a highlight of foreign cooperation, the energy sector is receiving special attention in the initiative. Oil and gas cooperation, in particular, is set to focus on six key fields of development, to be pursued in four cooperative zones and six industrial regions. The six key ields are: (1) establish and improve oil and natural gas transaction, (2) open up new seaand-rail transportation lines, (3) construct oil & gas mainlines in Asia, (4) create a series of first-class international oil and gas enterprises, (5) enhance energy equipment manufacturing, and (6) promote the international expansion of Chinese energy service enterprises. Since the issuance of the “Vision and Mission on Jointly Promoting and Constructing the Silk Road Economic Belt and the 21st-Century Maritime Silk Road”, the central government has assembled a leading team to promote the B&R and study its deployment and development. China’s 31 provinces have also neared completion of the connecting work required by the B&R construction and implementation scheme of the Xinjiang Production

and Construction Corps. A series of key energy resources cooperative projects have also already begun construction. Meanwhile, most government departments are formulating their own implementation schemes. The National Energy Administration held a meeting in May to implement the promotion of international cooperation on energy under the B&R. The current objectives of such cooperation include:(1) deepen the exploration and development of traditional energy resources, such as coal, oil, gas, as well as metals and mining, (2) enhance cooperation on clean and renewable energy, including hydro, nuclear, wind, and solar energy, (3) boost the cooperation for the nearby processing and conversion of energy resources, and (4) form an industrial chain of upstream and downstream integration for energy resources cooperation. The B&R’s upstream oil and gas industrial chain will be simultaneously developed with the regions of Central Asia-Russia, the Middle East, Africa and Latin America. The downstream chain, on the other hand, will focus on creating and building up oil refining and chemical engineering bases, technological R&D, and equipment manufacturing. The latter is expected to be developed in both 19

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CEFC China Energy Journal

In particular, however, the B&R will pursue its key developments in six industrial regions: (1) Chinaâ&#x20AC;&#x2122;s west, (2) Kazakhstan, (3) Gwadar Port, in Pakistan, (4) the Middle East, (5) the Russian Far East and (6) Southeast Asia.

connectivity of oil and gas pipelines. The construction of an Asian oil and gas pipeline artery will serve as the foundation for the formation of regional pipeline network. The key project is linking the crude oil pipelines of China, Central Asia and Russia. This will signiicantly improve the transport of Chinaâ&#x20AC;&#x2122;s land-link of crude oil import.

important feature of the B&R. The B&R will connect the gas pipelines of northeastern China, eastern Russia, Central Asian gas producing countries, and South Asian consuming countries. A pipeline connecting Mideast and Southeastern Asia, crossing over several countries, will also be a feature of the B&R.

The focus of midstream cooperation is

Gas pipeline network construction is another

In terms of seaways, in addition to ensuring

producing and consuming countries.

the safety of traditional channels, such as Strait of Malacca, more sea-land transportation lines will be created. In the future, the routes will be further diversiied through the opening of multiple channels. The establishment and improvement of oil and gas trading centers are also major tasks of the Belt and Road Initiative. The Shanghai International Energy Exchange (SIEX) is a very good example for crude oil futures. Xinjiang Autonomous Region and southwestern China may establish similar platforms in the future, which will contribute to the formation regional markets and prices. In the meantime, China can work together with surrounding countries to speed up the construction of regional oil and gas financial markets, so as to create an Asian oil and gas trading system. These initiatives are the solutions for the oil and gas premium that has existed for so long, and should reduce the costs of oil and gas trade for all of Asia. In the construction of oil and gas trading centers, more participants should be allowed to enter the oil inancial market. Restrictions should be relaxed for domestic enterprises to trade on the oil derivatives market. Foreign investors should be introduced to the market, especially foreign hedgers. At the same time, a better regulatory system should be built for the financial market, to reduce risks of exchanges and investors. This involves formulating reasonable trading rules applicable to East Asia, standardizing derivative market and constraining violations. Leveraging the advancement of the Belt and Road strategy, traditional oil companies should also begin to develop a multinational strategy and build themselves into world-class oil and gas companies. Major energy projects will also provide huge opportunities for energy think-tanks, equipment manufacturers, service providers and construction companies to deploy international operations. (Xinhua Finance)

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CEFC China Energy Journal

Natural Gas to Account for 10% of Primary Energy Consumption by 2020

As China's economic transition continues, energy consumption is shifting to cleaner and more efficient sources, including natural gas and nonfossil fuels.

increase natural gas consumption in the coming years. The planned schedule aims to achieve natural gas consumption of 10% of total energy consumption by 2020, and 15% by 2030.

Over the next five years, annual energy consumption in China will expand at a rate of approximately 3%. This is a drop from the 4.3% rate average from 2010 to 2014, said Zhang Yuqing (张玉清), Deputy Director of the National Energy Administration.

The recently published China Gas Clean Energy Development Report 2015, authored by the Development Research Center of the State Council, shows that China has abundant self-produced natural gas as well as high domestic demand. It is estimated that natural gas consumption in China will reach as high as 400 billion cubic meters by 2020. At present, China’s primary natural gas sources are reserves, overseas pipeline gas, and imported LNG.

The upside is that growth will be led by cleaner energy sources such as natural gas and non-fossil fuels, rather than coal, currently the country’s primary energy source, said Mr. Zhang, who made his remarks at a recent conference on clean energy. Consumption of natural gas accounts for 24% of global energy consumption. In China, however, it only accounted for 5.7% of primary energy consumption in 2014, indicating a huge potential market. China’s government has issued policies to 22

China is the world’s sixth largest producer of natural gas, and the world’s fourth largest consumer. In 2014, natural gas production was 131.6 billion cubic meters, and was growing at rate of 15.8% yearon-year. Natural gas consumption, on the other hand, was 176.1 billion cubic meters. Net imported natural gas was 60.8 billion cubic meters. 19.89 million tons (27.8 billion cubic meters) of this was from LNG, which accounted for 45.72 % of total imports.

Total Investment in the Environmental Protection Industry Will Reach 17 Trillion Yuan

In recent years, the Chinese government, under the combined pressure presented by climate change and economic transformation, has spared no effort in fostering the development of the environmental protection industry. An increasing number of traditional enterprises are following this trend, suggesting that the industry might help China reach a greener future. China’s environmental protection industry is expected to boom in 2016, the irst year of the 13th Five-Year Plan. Policies issued by the State Council ranked China’s environmental protection industry as irst of seven strategic emerging industries. The sector is already expected to realize an output worth 4.5 trillion Yuan in 2015. Zhao Hualin (赵华林), Director of the Department of Planning and Finance, Ministry of Environmental Protection, pointed out that the annual growth of the environmental protection industry will exceed 20% during the 13th Five-Year Plan. The expected investment is 17 trillion Yuan.

In the past three decades, investment in the environmental protection industry has experienced dramatic growth, paralleling China’ economic boom. During the 9th Five-Year Plan, the total investment in the environmental protection industry was 360 billion Yuan, accounting for 1.01% of the national GDP. The number reached 1.2% in the 10th Five-Year Plan, and 1.35% in the 11th FiveYear Plan. In the 12th Five-Year Plan, it increased to 15% to 20%. Total investment hit 3.4 trillion Yuan, 62% higher than the 11th Five-Year Plan, and accounted for 3.5% of the GDP. China is currently suffering from severe environmental problems, such as smog and water pollution. The upcoming Five-Year Plan will highlight environmental protection and remediation, particularly for air, water and soil. Public demand for a better environment is also growing. Soil remediation can be considered as example of the levels of investment needed. Currently, approximately 20% of soil has been polluted beyond national standard. Trillions of yuan in investment will be necessary to remediate this problem. There is no denying the huge market potential for the environmental protection industry in the 13th FiveYear Plan. 23

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China's New Energy Vehicle Output Surges In November, thanks to government support, China's new energy vehicles production surged up by 600% year-on-year. Total production in November stood at 72,300 units, said the Ministry of Industry and Information Technology in a statement. In November, output of pure electric passenger vehicles soared 700% from last year, and reached 30,000 units. Plug-in hybrid passenger vehicles tripled to 7,509. In its statement, the ministry also indicated that output of pure electric and plug-in hybrid commercial vehicles skyrocketed by 18 times at 97%. China has implemented a variety of measures to promote new energy vehicles, which it hopes will be part of the solution to energy and pollution issues. The measures include tax exemptions, subsidies for car purchases and a requirement for government departments to buy new energy cars. Oficial data shows that 95% of the new energy vehicles produced in November would beneit from the favorable taxation policies. In the irst 11 months of 2015, China produced 279,200 new energy vehicles, four times that of the 24

same period in 2014. Last December, five government departments jointly released a draft plan to popularize electriccharging facilities across the country over the next five years, as a response to public opinion. The drafters included the Ministry of Finance and the Ministry of Science and Technology, among others. The draft makes local governments eligible to receive up to 200 million yuan in annual rewards from the central government. The higher the igure of new energy vehicle (NEV) sales, the bigger the reward. In 2016, areas that meet a minimum requirement of selling more than 30,000 NEVs will get 9,000 yuan as a reward for each vehicle sold. In addition, the central government will provide a special bonus of 7.5 million yuan for every 2,500 units of increased sales. The reward ceiling is 120 million yuan. Both minimum requirements and the incentive ceiling will increase year-over-year, the draft said. In 2020, the minimum sales requirement will grow to 70,000 units and select areas could earn 12,600 yuan for each sale. With sales increasing, the bonus rule will change to 11 million yuan for every 6,000 units, and the total bonus would be more than 200 million yuan.

Silk Road Fund to Buy into Russian Natural Gas Project China's Silk Road Fund, a medium to long-term investment fund, will buy a 9.9% share of a Russian liqueied natural gas (LNG) project. The Silk Road Fund was set up in December 2014 to promote investment and financing cooperation between China and other countries. It serves China “Belt and Road” Initiative, which consists of the “Silk Road Economic Belt” and the “21st Century Maritime Silk Road”. The Yamal project, named after its location in the Yamal Peninsula, is the world's largest natural gas development involving liquefaction,

transportation and sales. It has an expected annual output of 28 billion cubic meters. The Silk Road Fund said that it assumed a set of binding agreements with Russia-based natural gas producer Novatek. Present were Premier Li Keqiang ( 李克强 ) and Russian Prime Minister Dmitry Medvedev. The Fund will buy a 9.9% stake in Novatek's Yamal LNG project and provide a 15-year loan of around 730 million euros ($790 million) to inance the project. The deal will not go ahead until an intergovernmental agreement comes into force. 25

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Three Gorges Corp. Generates 191 Bln Kwh of Electricity in 2015 China’s Four largest hydropower stations- Three Gorges hydropower project, Xiluodu hydropower station, Xiangjiaba hydropower station, and Gezhouba hydropower station-ran by China Three Gorges Corporation generated 190.9 billion kwh of electricity in 2015, the company said. The amount was 2.1 percent lower than the 194.9 billion kwh in 2014 mainly because the Three Gorges Reservoir received nearly 30 percent less water upstream, thus affecting power generation. The Three Gorges hydropower project, the country's largest with a generating capacity of 26

22.4 gigawatts, located in the middle reaches of the Yangtze River, generated 87 billion kwh of electricity in 2015. Xiluodu, the country's second largest, generated 55.2 billion kwh, and Xiangjiaba, the third largest in operation, generated 30.7 billion kwh. The smaller Gezhouba generated 18 billion kwh. On December 24, the company started construction of the country's new third largest hydropower station, Wudongde, located upstream from Xiluodu and Xiangjiaba on the Jinsha River, the upper section of the Yangtze River.

13.2% of China's Energy Consumption to be Non-fossil Fuels in 2016 China will continue improving its energy consumption structure and efficiency in 2016, a senior energy oficial said on December 29.

kilowatts of installed wind power and more than 15 million kilowatts of installed photovoltaic power in the 13th Five-Year Plan.

China will lift the ratio of consumption of nonfossil fuels among total energy consumption to 13.2 percent in 2016, compared with about 12 percent in 2015, and reduce that of coal from 64.4 percent in 2015 to below 62.6 percent in 2016, said Nur Bekri (努尔•白克力), head of the National Energy Administration.

A group of nuclear power projects in China's coastal regions will be given green-light over the next ive years, according to Bekri.

The government aims to add over 20 million

China will establish a warning mechanism to control coal-fired power plants construction and production. No new coal mines will be allowed in the next three years in principle, Bekri said. 27

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CEFC China Energy Journal

China Accelerates “Energy Internet” Deployment

Wang Haixia Zhong Yinyan The Chinese internet and information technology sector exhibited dramatic growth in the final years of the 20th century. The early years of the 21st century, on the other hand, were marked by the intensifying growth of China’s new energy sector. Today, it is the intersection of these two sectors – known as the “Energy Internet” – which is emerging as a hot sector in the market. The Government’s Strategy: Promoting Energy Transformation through Internet Plus “Internet Plus”, a government initiative, promotes an alliance between the modern manufacturing and internet industries. It seeks to advance technologies like cloud computing, big data and the Internet of Things (IoT), to facilitate sound development of e-commerce, industrial internet and internet inance, and to lead internet enterprises to go international. Internet Plus has been incorporated into China’s national strategy. A closer alliance between the internet and clean energy sector has also been sought under Internet 28

Plus. There have, however, been many questions over internet technologies, development patterns and the dynamics of energy sector. In July of 2015, the State Council released its Guideline on Promoting Internet Plus. A specific section is dedicated to “Internet Plus Smart Energy”, which recommends using internet to develop the current energy system, improve energy productivity and consumption, and enhance energy utilization eficiency. In other words, the initiative strives to accelerate the deployment of an Energy Internet. It seeks to accomplish this in four ways: pursuing i n t e l l i g e n t e n e rg y p r o d u c t i o n , b u i l d i n g a distributed energy network, creating new models for energy consumption, and developing gridbased communication facilities and new businesses opportunities through the power grid. President Xi Jinping (习近平) has discussed the concept at the international level. He highlighted the concept at the recent United Nations Sustainable Development Summit held in New York on September 26, 2015. In his remarks, Towards a Mutually Beneficial Partnership for Sustainable 29

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CEFC China Energy Journal

Development, President Xi said that “China will propose a discussion on establishing a global energy internet, with the purpose of facilitating joint efforts to meet global power demand with clean and green alternatives.” Recently, the draft Action Plan for Internet Plus Smart Energy (Energy Internet) entered its consultation stage. Its authors include several organizations, such as the National Energy Administration and the Ministry of Industry and Information Technology. The draft states that by 2018, China will promote pilot models for the Energy Internet, so as to ensure the sound and ordered development of the action plan. Despite its relative infancy, the Energy Internet initiative has received considerable attention. This

is attributable to the expectations of the government and the public. China is in urgent need of finding new driving forces for economic development, and an energy revolution is seen as one such driver.

“

Fuzzy Concept versus Great Business Opportunity

Energy Internet is primarily a combination of internet and renewable energy technology. The Energy Internet shifts industry from conventional centralized model into a smart, distributed one. It also makes use of the global power grid as a sharing tool.

”

The Energy Internet initiative envisions energy as an ordinary commodity, with supply and demand linked directly by means of a network. Every person is able to produce green energy on their house roofs or in the farming ields, after that, they go to internet platform for trading. According to Jeremy Rifkin, the author of The Third Industrial Revolution, Energy Internet is primarily a combination of internet and renewable energy technology. The Energy Internet shifts industry from conventional centralized model into a smart, distributed one. It also makes use of the global power grid as a sharing tool. In China, Energy Internet has two definitions, one narrow, and one broader. The broad Energy Internet embraces a wide range of supply sources, including coal, petroleum, natural gas, and renewable energy. All of them play important roles in maintaining annual economic growth and safeguarding national energy security. The platform of the Energy Internet thus enables greater reactivity from conventional business models while also fostering the growth of new business models. This is especially important in light of the volatile situation in the global energy market.

Mr. Jeremy Rifkin 30

The narrow definition of the Energy Internet assumes renewable energy will be the dominant energy supply of the future. This approach to the Energy Internet is popular mainly among production enterprises and related inancial enterprises, where photovoltaic and wind generated power serve as a major business foundation.

According to HeJijiang ( 何继江 ), Director of the Policy Research Division at the Energy Internet Innovation Research Institute, Tsinghua University, the Energy Internet serves as the interface for clean energy.The Energy Internet provides renewable energy with a solution for high absorption rate problems. The Energy Internet also facilitates comprehensive integration of smart grids, energy networks, the Internet of Things (IoT) and the internet as a whole. “In future, the energy system will be led by clean energy. Reducing reliance on thermal power plants will inevitably change the existing power system. New energy, however, has yet to stabilize. If Energy Internet intends to reshape the system, it will be necessary to establish an intelligent system for consumers.” Another characteristic of the Energy Internet is private ownership of the new energy sector. Lin Boqiang ( 林伯强 ), Director of the China Centre for Energy Economics Research at Xiamen University, said that the current situation brings more opportunities to private enterprises. The barrier to entry of the Energy Internet is low, and the initiative encourages private capital. “Private companies will find it easier to profit from the new network. Traditional energy companies usually have mature infrastructure, which leaves no room for private companies to invest into or benefit from. A network, however, offers more opportunities.” There are also dissenting voices. Professor Dong Xiucheng ( 董秀成 ), Associate Dean of the School of Business Administration, China University of Petroleum and China Energy Strategic Research Institute, is one such voice. “It can hardly be considered successful if private capital only has access to a small portion of the Energy Internet. Integrating the power grid and the internet requires signiicant investment. It might be more than what the private sector can afford. Only government, with the joint effort of big grid and energy enterprises, could reach this level of investment. Nevertheless, 31

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“

It can hardly be considered successful if private capital only has access to a small portion of the Energy Internet. Integrating the power grid and the internet requires significant investment. It might be more than what the private sector can afford. Only government, with the joint effort of big grid and energy enterprises, c o u l d re a c h t h i s l e v e l o f investment. Nevertheless, it is certain that the Energy Internet is the future.

A Global Energy Internet: Apple of the State Grid’s Eye

as essential elements of global efforts to address climate change and environmental pollution.

The State Grid is one of the champions of the Energy Internet initiative.

On 22 October, 2015, Liu Zhenya ( 刘振亚 ), President of the State Grid Corporation, published an article on Building the Global Energy Internet and Promoting Green Development of Clean Energy in the People's Daily. The article illustrated the signiicance of buildinga global Energy Internet and proposed to promote its development worldwide. Mr. Liu hoped that the completion of the initiative would revolutionize the global energy industry.

On December 10 and 11, 2015, the Global Energy Internet: Sino-European Technology and Equipment Seminar was held in Berlin, Germany. The seminar was co-organized by the State Grid and the Association for Electrical, Electronic & Information Technologies (VDE, Verband der Elektrotechnik, Elektronik und Informationstechnik). The experts in attendance agreed that it is necessary to strengthen international collaboration on smart grid infrastructure, common standards, and technology sharing. These actions were seen

The State Grid’s global Energy Internetseeks to simultaneously advance clean energy and electricity development, so as to substitute traditional energy sources and optimize global energy consumption. Supported by ultra-high voltage grids for its backbone, and utilizing clean energy transmission

as its main instrument, the State Grid’s plan is dubbed the “two substitutes”. The State Grid sees its plan as seizing a historical opportunity to promote renewable energy while addressing major challenges for global development. Looking ahead, the State Grid sees communications and consensus building as essential to advancing cooperation. The State Grid Corporation has already launched several demonstration campaigns in various parts of China and some key universities. Through its own initiative, the State Grid has attracted global attention to China’s original initiative. It has, thereby, also helped to cement China’s leading position in the emerging global energy market.

”

it is certain that the Energy Internet is the future.” Although opinions vary, energy and internet enterprises have started to take action. Business potential is the biggest attraction. Reports indicate that current consumer power sales amount to 2.5 trillion yuan. Including the investment on construction, the market potential for Energy Internet is estimated to be at least ive trillion yuan. Some industry experts predict that the market size of Energy Internet, including power sales, hardware for electric vehicles and intelligent home equipment, might surpass six or seven trillion yuan. 32

Dialogue

Dialogue CEFC China Energy Journal

CEFC China Energy Journal

Wang Zhixuan：

Power Industry

Not the Culprit for Smog

Power generating capacity in China increased 100 million kW per year during the 12th Five-Year Plan period, providing a solid basis for the country’s economic and social development. However, continued rapid growth in power installation, mainly in the coal-fired power sector, has many wondering whether the power generating industry is exacerbating smog problems. Such questions persist despite the fact that emissions such as soot, dust, sulfur dioxide and nitric oxide have been reduced signiicantly during the 1th Five-Year Plan period, to levels meeting international requirements.

Jia Kehua

Is the power industry a scapegoat for smog? If it is, who is to blame for the worsening smog problem? What air pollution targets will the power industry take on in the coming five years? These were the questions covered in this interview with Mr. Wang Zhixuan ( 王志轩 ), Secretary-General of the China Electricity Council.

▲ Wang Zhixuan

The Power Industry Is Not the Culprit for Smog Q: Many believe that emissions from thermal power plants are a leading cause of smog. What are your thoughts on this? A: In general, emissions from thermal power plants are no long a major cause of smog or environmental deterioration. This is thanks to stricter guidelines imposed by the government on the power industry, particularly the coal-ired power sector, over the past few decades. In 1973, the government issued tentative Standards for Discharging Three Industrial Wastes, which established the discharge standards for sulfur dioxide, carbon dioxide and 11 other categories of hazard substances. In 1991, the Emission Standards for Coal-fired Power Plants came into force, and

was revised in 1996, 2003 and 2011, respectively, to further suppress soot and dust, sulfur dioxide and nitric oxide. The 2011 revision also speciied a restriction on emissions of mercury and its chemical compounds. These emission standards were originally intended to control pollutants in the atmosphere rather than addressing smog problems, although smog and air pollutants are usually interrelated. Air pollution refers to levels of air pollutants that are above the air quality standards prescribed by regulations. However, calculation of air pollutant concentration levels depends not only on the volume of emissions, but also the source of emissions and air diffusion conditions. When analyzing the impacts of air pollutants on the environment it is, therefore, important to understand both the characteristics of pollutants as well as the share of air pollutant concentrations in the atmosphere. For example, if the level of air pollutant concentration linked to the power industry after diffusion exceeds 50% of all pollutants in the atmosphere, the power industry will undoubtedly be the major cause of air pollution. But if the level is below 10%, it is hard to say that power industry is the true culprit. In accordance with international practices, the environmental assessment for thermal power plant constructions in China emphasizes analyzing the impacts of air pollutants on the environment. Thermal power plants must meet the required emission standards and, more importantly, ensure that the level of air pollutant concentration is kept under 10% of all pollutants in the atmosphere. In other words, air pollution can be mitigated if power plants strictly comply with existing regulations. Due to the fact that nearly half of China uses coal for power, people usually correlate the power 35

Dialogue

Dialogue CEFC China Energy Journal

sector with smog. The conclusion is that burning coal is the leading cause of smog, and therefore stringent emission standards should be imposed on thermal power plants. From my point of view, this is based more on emotion than rational observation. Q: So the correct conclusion is that the power sector is not the leading cause of smog? A: Definitely. Smog can be caused by various factors beyond common air pollutants, such as Volatile Organic Compounds (VOCs), which are not produced by power generating activities. In my opinion, common air pollutants from thermal power plants contribute to the smog problem but are not the primary cause. Instead, air pollutants from scattered coal-burning, motor vehicles, VOCs and scattered straw burning are the main culprit of the smog problem, and should be investigated. Scattered coal-burning, in particular, causes much serious damage than power plants to the environment because they are not treated with highlevel emissions control. Low-Emission Development Is the Future of the Power Industry Q: What is the power industry’s agenda for the 13th Five-Year Plan period? A: Low-emission development will be the power industry’s main agenda during 13th FiveYear Plan period. The power industry has outperformed others over the last 5 to 10 years in the ield of common air pollutant control. More significantly, the power industry is no longer the leading cause of environmental deterioration. In 1979, the power industry peaked its pollutant emission at 6 million tons per annum, while the 36

CEFC China Energy Journal

per capita GDP was about $200 USD. Since then, emissions continued to drop, finally reaching less than 1 million tons in 2014. It is hoped that the industry can meet this year’s requirement of less than 500 thousand tons of emissions. If the industry can achieve ultra-low emissions, soot and dust emitted from power plants can be further reduced by 100 thousand tons or more. Sulfur dioxide and nitric oxide emitted from power plants have peaked in 2006 and 2011, respectively, while the per capita GDP in these two years were $2,000 USD and $5,400 USD. Some international research suggests that economic growth tends to alleviate pollution problems once a country’s per capita GDP reaches about $4,000 USD. If per capita GDP reaches $8,000 USD, most pollutant emissions can be eliminated. Although it is not possible to simply compare China and other countries in terms of efforts on pollutant emission control, we can, based on the above measures, still ind that China has performed well in pollutant emissions control. Furthermore, according to an annual report on the environment in 2013, independent power producers achieved a dazzling 80.3% removal rate of sulfur dioxide, compared to 14.8% for nonmetallic mineral product manufacturer, and 27.6% for iron and steel enterprises, respectively. These data also prove that the power industry has done a good job of reducing pollutant emissions. With recent economic growth and technological advancement, people are more aware of environmental protection than ever before. Nowadays, the power industry in China has nothing to do with the Environmental Quality Standard set by the central government. Instead, the industry is more likely to enhance its technological level, so as to gradually achieve zero emissions. The power industry will have to align itself with the increasing prominence of low-emission development in China.

Currently, the northern region of China has been hit frequently by severe smog. Beijing issued a red alert, the highest response level against severe air pollution, twice in December. 37

Major Events

Major Events CEFC China Energy Journal

CEFC China Energy Journal

China Admitted

as IEA Association Country Wang Haixia

On November 18, 2015, in a minister-level meeting held in Paris, the International Energy Agency (IEA) officially announced China’s admittance as an association country. During the meeting, Nur Bekri (努尔·白克力), Director of the China National Energy Administration (NEA), had a bilateral talk with the IEA’s Executive Director, Fatih Birol. Together, they signed the Joint Declaration between the China National Energy Administration and International Energy Agency. The declaration establishes cooperative plans and projects between China’s National Energy Administration, Ministry of Science and Technology, National Bureau of Statistics and the IEA for the years of 2016 and 2017. The IEA and the NEA will explore the possibility of setting up an IEA-China Energy Collaboration Center. The center would become an institutional tie between the two parties, with the aim of deepening and extending collaboration. Working teams have been appointed to explore this possibility and prepare for future transactional negotiations. The IEA was founded in 1974 as a response to the 1973-1974 oil crisis. Its original role was to help countries coordinate a collective response to major disruptions in oil supply. In the wake of the energy market transition of the past few decades, the missions of IEA has both changed and strengthened.

Ministers and high-level officials from all 29 IEA countries and 9 partner countries attended the 2015 IEA Ministerial Meeting. The center of the front row is Mr. Nur Bekri, Director of the China National Energy Administration. 38

Today, the IEA’s areas of focus are summarized as “3-E”: enhancing energy security, ensuring economic development and protecting the environment. Current work by the IEA includes climate change research, energy market reform, energy technology cooperation, and promoting partnership with countries around the world, particularly major energy consumers and producers like China, India, Russia and the OPEC countries.

In early September of this year, an article published in Reuters cautioned that the relevancy of the IEA as an agency protecting the interests of energy consuming countries was declining. The article attributed this to changing circumstances on the global energy arena. The United States, in the past a major energy consuming nation, is now a major energy producer, while emerging energyconsuming countries, such as China and India, have not been granted IEA membership. As a result, the global energy market evaluations made by the IEA are now coming under scrutiny. The IEA is transitioning in response to this change in the global energy landscape. During the Paris meeting, Fatih Birol proposed modernizing the IEA by shaping it to be a more inclusive, truly global energy organization. This suggestion was praised by many participants. Mr. Birol believes that a successful IEA modernization lies in three pillars: enhancing engagement with major emerging economies, strengthening and broadening commitment to energy security (taking into account the continued evolution of global oil markets and also the rising role of LNG in global energy trade), and increasing focus on clean energy technology and energy eficiency. According to Li Junfeng (李俊峰), Director of the National Center for Climate Change Strategy and International Cooperation (NCSC), National Development and Reform Commission, the IEA is a multi-national organization that aims to coordinate energy issues in developed countries under the framework of Organization for Economic Cooperation and Development (OECD). It currently has 29 member countries, most of which are OECD members. “‘Association Country’ is just a loose-contact mechanism. It does not have any functions, but is used as a pretense to facilitate the participation of countries that have not yet been granted 39

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membership in the IEA’s meetings and programs,” said Mr. Li. “China started its exchange and interaction with the IEA some time ago. Since 2008, the China National Energy Administration has sent an official to the IEA each year for coordinative work. However, our officials have lacked access to IEA’s meetings and programs, due largely to the absence of IEA membership. Although China has now become an Association Country and is thus expected to have more interaction with the IEA, it does not mean that China has been granted IEA membership,” said Zha Daojiong (查道炯), Professor at Peking University’s School of International Studies. “Furthermore, there are two reasons why China can be appointed as IEA’s Association Country. One is the fact that the political support for Mr. Birol’s appointment as IEA’s Executive Director is weak. The other is that China has shown its cooperation and support in signing the new declaration for the International Energy Charter,” added Mr. Zha. Lin Boqiang (林伯强), Director of China

CEFC China Energy Journal

Energy Economics Research at Xiamen University, believes that the IEA will strengthen its cooperation with China, since China is the world’s largest energy producer and consumer. Mr. Lin said that “by providing more accurate energy data to the IEA, China can help improve the reliability of the IEA’s periodic energy-related reports and statistics.”

China Commits to Steering

the Coal Industry out of Trouble

Xu Xiaodong (徐晓东), a research fellow at the Counselors' Office of the State Council, said that China, should accelerate its cooperation with multilateral organizations around the world. Such cooperation will be beneicial to China and help to promote the “Belt and Road” Initiative. M r. Z h a , h o w e v e r, a l s o q u e s t i o n e d t h e importance of the relationship between China and the IEA. “What can the IEA really do for China? And what can China really do for the IEA?”Mr. Zha explained that the IEA generally acts like a chamber of commerce, only chasing market trends, analyzing market data and providing information when enterprises need help.“The IEA is only a platform for data analysis. Therefore, the cooperation between the IEA and China should not be overstated.”

Bie Fan

—————— About IEA —————— Founded in 1974, the International Energy Agency (IEA) was initially designed to help countries co-ordinate a collective response to major disruptions in the supply of oil. While this remains a key aspect of its work, the IEA has evolved and expanded over the decades. It is at the heart of global dialogue on energy, providing authoritative statistics and analysis. The IEA examines the full spectrum of energy issues and advocates policies that will enhance the reliability, affordability and sustainability of energy in its 29 member countries and beyond. 40

Since 2014, the coal industry’s overcapacity has drawn the government into a series of attempts to stabilize the coal market. Currently, government intervention remains indispensable in China’s coal market, since coal is still China’s primary energy source. On November 19, central government agencies met with four of China’s major coal giants in an attempt to address challenges and seek solutions for rehabilitation of the coal industry. In attendance were the Bureau of Economic Operations

Adjustment of the National Development and Reform Commission (NDRC), the Coal Department of the National Energy Administration, the State Administration of Coal Mine Safety (SACMS), and the China National Coal Association (CNCA). Shenghua Group, China National Coal Group Corp (China Coal), Datong Coal Mine Group and Yitai Group were the four major coal companies in attendance. During the meeting, the four coal giants presented their current situation, covering topics such as supply chain and pricing strategies, among other things. The meeting concluded with 41

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recommendations to be implemented by both the industry and the government, with the aim of rehabilitating the industry. Maintaining Coal Price Stability Li Yangzhe (李仰哲), the Director of the Bureau of Economic Operations Adjustment, NDRC, chaired the meeting. Mr. Li stressed that the key to solving the difficulties of the coal industry was to maintain the currently stable development while keeping an open mind for future structural change. He added that sales contracts should be signed according to the actual situation faced by both vendor and purchaser, so as to keep coal prices stable. As such, large-scale enterprises should play an exemplary role for other enterprises, and industry associations should work out detailed measures to strengthen the industry’s self-regulation.

CEFC China Energy Journal

CNCA, which has very close contact with China’s four coal giants, reached an internal consensus in a meeting in late October on stabilizing coal prices. As agreed, coal prices will not be brought down until the end of this year. In addition, due largely to the coal consumption peak in winter, the drop in coal prices may also be narrowed. As explained by some industry insiders, coal enterprises will not bring down prices until next year’s annual meeting on coal prices is held. Instead, coal enterprises may increase prices, so as to create a favorable atmosphere for price negotiation in coming year. Therefore, these insiders predict that there will be no possibility for coal prices to experience large luctuations. However, some industry insiders hold the

opposite view. They believe that enterprises cannot achieve their target sales volume if coal prices remain high. For example, in October, Shenhua Group sold 26.40 million tons of coal, 4.9 million tons less than that in September, 15.7% lower than last month, and 23.9% down year-on-year, according to some relevant statistics. During the first ten months of 2015, the volume of coal sold added up to 30.53 million tons, or 18.8% lower year-on-year, accounting for 75.5% of the annual sales target. Meanwhile, China Coal produced 8.34 million tons of coal this October, 12.1% higher compared to last month, and 23.1% lower year-on-year. From January to October, total coal production added up to 79.93 million tons, 18.6% down year-on-year. Earlier this year, the yearly target of coal output was around 150 million tons. Based on the above igures, it appears dificult for coal giants like Shenhua Group and China Coal to attain annuals target with current prices. It is possible, however, that some large-scale coal enterprises will reduce coal prices in the last two months to boost their sales volume. Cutting Back on Coal Overcapacity Nonetheless, all participants at the meeting urged to put consensus into action. This included cutting coal production overcapacity, rebalancing supply and demand of coal, and creating a fruitful environment for economic policy implementation. Stringent governance on illegal construction and production of coal mines, strict control on new production capacity, and attentive standards for eliminating backward production capacity were also seen as necessary for the coal industry. Since 2014, the relevant government departments have published a series of documents on solving the problem of overcapacity of coal

production. These documents recommend the imposition of stricter regulations against illegal construction and production, overcapacity, and unsafe production, among other things. For example, on September 18 of this year, the NDRC issued two notices on the control of coal production overcapacity. It will strictly investigate new coal mine projects and penalizing the illegal construction of coal mines. All relevant coal departments must comply with the NDRC’s new policies. Following the NDRC, the NEA issued its own statement on September 21, directed at coal mine safety. Provincial coal departments must now immediately report any changes in coal production capacity to the NEA, and receive approval before making such changes. According to CNCA’s data, the gap between supply and demand of coal has been widening this year. Over the first ten months of 2015, national coal production reached 3.045 billion tons, 3.6% lower compared to last year. But coal production in October has only reduced by a mere 1.2% year-onyear, which shows that coal output control is still not functioning well. As of the end of October, the national coal reserve had exceeded 300 million tons for 46 consecutive months, 100 million tons of which came from coal enterprises, which have increased 16% of their coal stock since the year started. However, major coal enterprises have experienced a decrease in coal reserves of 21.5%. Some observers believe that it is important for government departments to oversee coal production. This would help to maintain balance of coal supply and demand during a time of decreasing demand, as well as lay a solid foundation for the coal industry’s transformation towards clean and efficient coal usage. The coal industry seems to have a promising future, but only if overcapacity is addressed. 43

Business

Business CEFC China Energy Journal

CEFC China Energy Journal

The Hualong One Reactor:

A Model for China’s Future Nuclear Power Development Zhu Xuerui

“Hualong One demonstrates that China has become a leader in world nuclear power development. As a pilot reactor for foreign nuclear projects, Hualong One has attracted great attention from abroad, laying a solid foundation for the reactor to go global.

When advanced nuclear technology goes from a drawing board to reality, construction is the cornerstone of implementation. Because the assembled reactor becomes a representation of the new technology, it is essential to do everything possible that guarantees the safety and reliability of the new design. The construction of the Hualong One reactor is an exemplary demonstration of this approach. On November 22, all three modules were successfully installed at Fuqing 5, the world’s irst reactor to use the Hualong One design. Constructed by China Nuclear Engineering Group Corporation ( C N E C ) , F u q i n g 5 m a r k s C h i n a ’s m a j o r breakthrough in modular construction of ultra-large and ultra-thin steel structures in nuclear plants. The Hualong One reactor is itself an example of modular nuclear technology. Since May, several key achievements have been made in the first Hualong One reactor, such as the completion of the nuclear island FCD and joint pumping stations. However, being a complex, unprecedented reactor, construction has presented many challenges for the technicians involved. Lack of experience, complicated construction procedures and limited resources have hindered the construction of the first Hualong One reactor. Site structure construction, construction machinery allocation, material preparation and labor mobilization have also been problematic for the project manager. Hualong One combines is unique in combining the advantages of EPR, M310 and AP1000 reactors. Its inner and an outer shell use an inverted U-shaped prestressed structure and external water tanks. These designs have presented great challenges for the construction of the Hualong One reactor. These challenges have not, however, been insurmountable.

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“Our professional and skillful staff, together with a high pace of technological innovation, has enabled us to tackle one problem after the other,” said Zhang Shibing ( 张仕兵 ), General Manager of the China Nuclear Industry No.24 Construction Company (CNI 24). Mr. Zhang is in charge of construction of the Hualong One nuclear island and the conventional island. “Today CNI 24 builds most of the reactors in China. These reactors include experimental fast reactors, AP100, HTGR and the first Hualong One reactor.” Mr. Zhang explained that “although [CNI 24] has encountered many difficulties in the implementation of the Hualong One Project, we refer it to as an opportunity and we are conident to complete it excellently.” Before Fuqing 5, a series of collaborative projects have been managed by CNI 24, China Nuclear Machinery Co., LTD. (CNMC) and China Nuclear Building Materials Co., LTD. (CNBMC). These projects include nuclear island pouring, concrete alternative pouring, the first phase of temporary crane installation, FCD stimulation pouring and preliminary tests of FCD. These past projects have helped CNI master techniques of large-volume concrete pouring and temperature control for concrete. These were essential on May 7, during the 57 hour-long continuous pour of concrete at Fuqing 5. In the modular construction that followed the pour, CNI 24 and CNMC successfully overcame the practical dificulties created by the heavy and bulky modules. “The modular construction of Fuqing 5’s steel lining is based on the construction of the Haiyang AP1000 modular reactor, with some advancement,” said Mr. Zhang. Li Bing ( 李兵 ), General Manager of the Fuqing Project of CNI 24, explained that “modular construction of containment steel lining not only effectively avoids deformation that hinders 46

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traditional construction, but also shortens the construction period.” “Hualong One has achieved considerable technological innovation in the process of construction. Such innovations include concrete temperature control and crack prevention, construction of external water tanks, largetonnage inverted U prestressed structures, modular construction and BIM. As such, Hualong One is a worthy representative of China’s third generation nuclear power technology,” said Mr. Li. Mr. Li added that “Hualong One demonstrates that China has become a leader in world nuclear power development. As a pilot reactor for foreign nuclear projects, Hualong One has attracted great attention from abroad, laying a solid foundation for the reactor to go global.” Mr. Zhang elaborated on the achievements of Hualong One technology. “The successful completion of Hualong One demonstrates that China has mastered and achieved commercialization of third-generation nuclear reactor technology. China is now a leader in nuclear technology. The recognition it is receiving will help to increase its exports of nuclear technology and, more broadly, enhance its inluence in the international arena.” The first Hualong One reactor thus marks an important exploration milestone in China’s nuclear power construction. As construction of the reactor proceeds, CNEC plans to develop a management system which is tailor-made for the needs of the reactor. The system will provide for a standardized building and management process, so as to further the experience gathered from the irst Hualong One reactor. This system will also help to export the Hualong One technology. Construction of the first Hualong One reactor will take 62 months, 25 of

which are for the block buildings. Subsequent reactors can draw lessons from this irst project to improve construction duration and reduce costs, such as through standardization of processes and management.

Hualong One technology has already taken root overseas. China National Nuclear Corporation (CNNC) and the utility Nucleoeléctrica Argentina SA (NA-SA) have signed a contract to build heavy water and pressurized water reactors in Argentina.

“CNI 24 will continue to refine technology and accumulate experience. Our aim is to form an integrated management system which embodies systematic resources allocation, standardized manufacturing processes and key technology application. These will provide a solid technology and management base for our work to go global,” added Mr. Zhang.

CNEC has built nuclear power plants both at home and abroad for more than 30 years. Since CNEC has experience in building various types of nuclear reactors, it holds unique advantages in the construction of the irst Hualong One reactor. CNE Chopes its experience will help to gradually propel the international operation of the Hualong One reactor. 47

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Shale Gas Industry on the Rise in China

Wu Li Shale gas, a new favorite of global energy market, is leading an energy revolution in China. China is poised to open up shale gas exploration even as the appetite for producing the fuel ebbs amid a global glut and a plunge in energy prices. In recent years, China has made great breakthroughs in shale gas exploration, both in capacity and drilling techniques, as the country moves to adjust its energy structure from its reliance on coal, which has been blamed for the foul air. Sinopec, China's largest oil refiner, announced on December 29 that its Fuling shale gas project in southwestern Chongqing Municipality achieved annual production capacity of 5 billion cubic meters. This makes China one of the world's biggest shale gas developers, second only to the United States. The new energy is transferred to eastern areas like Shanghai, while also powering the middle and southern parts of China via Sinopec's pipelines. In the mountains of Chongqing's Fuling District, 253 tall drilling wells are working day and night over an area of more than 220 square km, with 174 wells constantly transferring shale gas across China. It was only three years ago that shale gas was irst extracted from the ield. "I think the burning fire from the first drilling well in 2012 not only lit up hopes of shale gas commercialization, but really, really empowered our conidence in its future exploration," said Yang Guosheng ( 杨国圣 ), General Manager of Sinopec Jianghan Oilfield Service Corporation (SJOSC), a Sinopec subsidiary in charge of the Fuling field development. Shale Gas on the Rise

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First extracted as a resource in the U.S. in 1921, the shale gas, the highly efficient energy has been applied in a variety of sectors, including heating, power generation, automobiles and chemical production. According to the international estimation, China has about 26 trillion square meters of shale gas reserves, the largest in the world.

to low through safely.

While regular natural gas is extracted from sedimentary rocks, shale gas, mainly methane, comes from delicate shale formations, making the new energy resource difficult to extract with traditional methods.

Promising Future of Shale gas Development in China

China began extracting the resource in 2011, with Sinopec building the irst shale gas well in the central province of Hubei, but the process proved no easy task. Although Sinopec failed to extract any shale gas from its Hubei project, but the company began to accumulate experience from the process. "Traditionally we use vertical wells for gas drilling, but because the gas is stored in shale formations, we have to use horizontal wells," said shale gas expert Zhang Liangwan ( 张良万 ). "So we are talking about a well with a right angle and placing it deep down," he said. "The well that helped extract the first shale gas at Fuling relied upon American technology, but if we were to develop the industry, we had to use our own and break their monopoly," said Yang Guosheng. After a series of trial and errors, the team gradually took control of the drilling and began to develop their own techniques by using a geological positioning technology, known as LWD, in the drill bit, which really sped up the whole process. They also developed equipment that fractured the formations around the horizontal well, allowing gas 50

Within just three years, the firm has secured 24 national invention patents, with some key technology such as a down-hole bridge plug even exported to North America. "We exported 6,000 of our plugs to North America last year," said SJOSC Party secretary He Kaiping 何开平 .

Despite the breakthroughs, there is still room for improvement in the industry, with total shale gas output accounting for less than 1 percent of natural gas production, while that number stands at 35 percent in the United States. The current daily production at the Fuling site, which has 380.6 trillion cubic meters of proven shale gas geological reserves, is enough to meet the daily needs of 32 million residents. Currently, China's natural gas accounts for a mere 5.5 percent of primary energy consumption, much lower than the world's average natural gas consumption of about 24 percent in the energy mix. Experts says shale gas is likely to become a game changer in China's energy mix just as happened in the United States, given the huge potential of shale gas exploration in the country. Dong Xiucheng (董秀成), Associate Dean of the School of Business Administration, China University of Petroleum and China Energy Strategy Research Institute, believes that the annual production capacity of 5 billion cubic meters will, certainly, lay a solid foundation for China’s future shale gas exploration and development. Jiao Fangzheng 焦方正 , Vice-president of Sinopec, says that shale gas output from Fuling

“The fruits that we achieved have given us huge confidence. The extraction and exploration model in Fuling can be duplicated and promoted in many other places.

would bolster the country's energy strategy and achieve large-scale shale gas commercialization soon. "The fruits that we achieved have given us huge confidence. The extraction and exploration model in Fuling can be duplicated and promoted in many other places," he says. Furthermore, Fuling project, China’s largest shale gas project to date, is the latest sign that China’s shale gas sector is reviving up as the country seeks to optimize its energy use to reduce emissions. Sinopec said recently that the production capacity will improve, and there are plans for a large-scale gas field with annual production of 10 billion by 2017. If that goal is hit, it could help bring down China's carbon dioxide by 12 million tonnes annually, equal to removing 8 million cars off the roads. 51

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T he World’s Best Million-Kilowatt Coal-Fired Generator Is Born Wu Li On November 19, GuodianTaizhou Power Generation Co., LTD announced that its millionkilowatt, ultra-supercritical, double reheat coalired power generator, the irst unit of its kind in the world, had successfully passed its performance test. Guodian Taizhou is a subsidiary company of China Guodian Corporation, one of the ive largest power producers in China. Guodian Taizhou claims that this coal-power generator will become the best in the world, with both the highest power generating efficiency and environmental friendliness standards and the

“This is the first time that double reheat technology is deployed in a million-kilowatt, ultra-supercritical, coalfired power generator. The project reflects China’s successful dedication to improving coal-ired technology and developing high-efficiency, low-emissions coal-fired power generation units.

lowest coal consumption rate. The power generator is an example of the improvements in design, manufacture and operation of China’s high-end large-scale coal-fired power generation units. China is hoping to realize major technological advancements in double reheat technology, and the reactor is an example that will promote the application of the technology in the country. Zhang Zongfu (张宗富), chief engineer of the China Guodian Corporation, explained that this is the first time that double reheat technology is deployed in a million-kilowatt, ultra-supercritical, coal-fired power generator. The results of the performance test fulfill all requirements, and the emissions test even surpasses national ultra-low emissions standards. The project reflects China’s successful dedication to improving coal-fired technology and developing high-efficiency, lowemissions coal-ired power generation units. Double reheat technology has been named as a major strategic technology in China’s “National Energy Development Plan for the 12th Five-Year Plan”. By increasing the number of thermal cycles, the technology can improve operating eficiency and emissions performance of power generating units. Comparing the double reheat unit with a typical single reheat unit, the former is 2% more eficient while also producing 5% less carbon emissions than the latter.

is 256.8 g/kWh, 14 g/kWh and 6 g/kWh less than China’s and the world’s former best standards, respectively. The power plant also realizes extremely-low emissions, and meets the national emissions standards for dust, sulfur dioxide and nitric oxide. According to Yang Hongqiang (杨宏强), General Manager of Guodian Taizhou Power Generation Co., LTD., the new units will save up to 151,800 tons of standard coal per year for the power plant. With current coal prices, the power plant will see a return on investment within a period of 6.25 years. Three Chinese corporations collaborated on this project: China Guodian Corporation, China Power Engineering Consulting (Group) Corporation and Shanghai Electric. The project also serves as a demonstration for the National Energy Administration, the Ministry of Environmental Protection, and the Ministry of Science and Te c h n o l o g y. T h e M i n i s t r y o f S c i e n c e a n d Technology lists the project as a national major science and technology support program for energy conservation and emission reduction, a part of the 12th Five-Year Plan.

The 2nd phase of the Guodian Taizhou power plant project involves construction of two more units of the new generator. After completion of the 2nd phase of the project, Taizhou will become the biggest thermal power generation base in Jiangsu.

The R&D team of the project has achieved significant breakthroughs in the manufacturing, design, and production of million-kilowatt double reheat generators. These breakthroughs have been achieved domestically, through continuous technological development and repeated demonstration projects. The team has also developed experience in manufacturing the equipment required by ultra-supercritical technology.

The Guodian Taizhou Power Plant has a power generating eficiency of 47.82%, 1.2% higher than the existing million-kilowatt coal-fired power generator, which had the best record for a coalfired plant worldwide. The coal consumption rate

The project’s domestic development and operation will help China reduce its dependence on importing high-capacity, high-parameter thermal units, and will ultimately advance the technological maturity of China’s thermal power technology. 53

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Environmental Improvement Paves the Way for a Green Future

Kong Jueting The China Environmental Improvement Forum, an annual environmental protection meeting, was recently held in Beijing. The forum, which serves as a gathering place for policy makers and environmental experts, aims to achieve deep discussion on policies and measures for environmental improvement. In particular, the forum focuses on issues concerning economic growth, inance and energy transformation. Environmental Improvement Rejuvenates Economic Growth China’s central government has already released a series of regulations and policies to address environmental problems. Examples include the Atmosphere Pollution Prevention and Control Law, and the Action Plan for Water Pollution Prevention and Control, China’s most stringent environmental law. Wang Yunlong(王云龙), Deputy Director of the Environment Protection and Resources Conservation Committee of National People's Congress, gave the forum’s opening remarks. He explained that although the implementation of these policies has resulted in some great achievements, the whole environmental improvement project remains a daunting task. China’s embracing of a new development model, aimed at achieving a “moderately prosperous” society, entails economic 54

re-balancing to curb the consequences of runaway economic growth, such as air, water, and soil pollution. Environmental issues have been incorporated into this year ’s CPC Recommendations for China’s 13th Five-Year Plan. For example, the recommendations lay out clearly the indicators to be used for carbon emissions. These include total carbon emissions, peak time for carbon emissions, carbon intensity, and the percentage of non-fossil fuels in the primary energy consumption. Wang Yi (王毅), Director of the Institute of Policy and Management of the Chinese Academy of Sciences, said that China plans to set ambitious targets as a catalyst for the realization of a cleaner environment. In due course, these targets would also accelerate social and economic transformation. According to Mr. Wang, the green economy is the primary driving force for China’s economic transformation. The green commitment policies taken by the Chinese government may hint at a decline in the economic growth rate, especially compared to the rates achieved in the beginning of the century. However, the new, more moderate rates will ensure that the country’s economy is on a course that is more sustainable in the long term. Professor Li Daokui (李稻葵), from the Center for China in the World Economy, Tsinghua 55

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University, expressed similar views. Professor Li added that environmental protection should be highly integrated into economic development planning. Although China is the world’s second largest economy from the perspective of purchasing power parity, he noted, it still falls far behind its Western counterparts on green development. To catch up, China will be in urgent need of technology and capital. However, during their long development course, Western countries have also experienced environmental problems similar to those China is facing today. After decades of research, technologies effective at addressing environmental problems have gradually matured. As a late-comer, China should take full advantage of available technology. On the other hand, China is not lacking money. According to the oficial estimations, the saving rate in China accounts for nearly 50% of national GDP.

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In 2014, the number even broke through ten trillion US dollars. In the wake of growing demands for better environmental protection in China, the main uncertainty may lie in the stability of technology application and investment capital. Environmental Governance Calls for Substantial Investment China’s sustainable development requires a green transformation, which is a focal point in China’s 13th Five-Year Plan. Nevertheless, the Vice President of China Public-Finance Academy, Jia Kang (贾康), pointed out that environmental governance can’t work separately from inance and Public-Private-Partnerships (PPP). Finance is necessary for green development, and the Chinese government already relies on many financial tools. For example, the Chinese government invests huge amounts of money in

speciic projects and demonstrations conductive to green development. The government also prioritizes subsidies for environmental protection. New energy vehicles are one example. To help address deteriorating environmental problems, the Chinese government has proposed subsidies for the promotion of new energy vehicle. The maximum subsidy could reach 60,000 yuan per car. China also offers tax preferences and sector specific funds to enterprises in the environmental protection industry. Green policy funds function as a safeguard for eficient, environmentally friendly development. A comprehensive environmental assessment has been included into the risk management framework set by international financial institutes. This is known as the Equator Principles. On this issue, China can learn from British experience on how to develop a green development bank, Mr. Jia suggested. Last but not the least, PPPs can presents an innovative system that guarantees the development o f t h e e n v i r o n m e n t a l p r o t e c t i o n i n d u s t r y. Environmental governance is closely related to public projects like sewage treatment, green space, and urban construction, among other things. PPPs make the best use of available domestic and foreign social capital for investment in environmental protection. Energy Transformation Requires More Stringent Environmental Regulations Environmental improvement is inseparable from inancial support. On the other hand, stringent regulation is also of great signiicance. China used to pursue high-speed economic

growth, which featured high energy use and pollution. This model resulted in numerous negative implications for the environment. Today, China is promoting energy efficiency and optimizing its energy structure, and generally shifting to a more environment friendly course of development. Zhou Hongchun (周宏春), a research fellow at the Development Research Center of the State Council, said that though people often blame exploration and consumption of fossil fuels for environmental pollution, it is the lack of technology and regulations that should take primary responsibility. Li Junfeng (李俊峰), Director of National Center for Climate Change Strategy and International Cooperation, said that China has surpassed most countries in the world in terms of emissions. However, China’s indicator standards still lag far behind international ones. Mr. Li said that China should bolster its environmental legislation so as to stimulate its process of energy transformation. He said that high-polluting enterprises should pay for the costs of this transition. Environmental improvement is not only an economic issue but also a social one. The environment has a direct influence on people’s quality of life. The former deputy director of the State Environmental Protection Administration, Wang Yuqing (王玉庆), said that the 13th Five-Year Plan stresses the role of environmental improvement in establishing a “moderately prosperous” society. Accordingly, the Chinese government has started to strengthen the existing environmental regulations. “China intends to accelerate its transnational economic development by pursuing a green, lowcarbon transformation. The global climate summit in Paris is significant for today’s and tomorrow’s China. What China does in the post-Paris-summit period will be important to watch,” said Mr. Wang.

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Coal Power Surplus to Reach 200 Million Kilowatt during 13th Five-Year Plan Lu Qixiu On November 18, the North China Electric Power University’s School of Economics and Management released its latest report on coal power in China. Titled Research on China’s CoalElectricity Overcapacity and Investment Bubble, the report makes an appeal for increased attention to coal power overcapacity.

Figure 1: China’s Power Installation Structure 100% 90%

40% 28.98%

30.05%

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Since the number of hours of coal power utilization is expected to continue to drop to 3,800 hours, the economic performance of coal power enterprises will be threatened considerably. The large scale of coal power installation will also further suppress the development of renewable energies, resulting in many renewable energy facilitates remaining unused. The squeeze-out effect caused by misplaced investment may cause China to miss a strategic opportunity in its search for an energy transition.

6.88%

50%

According to the report, the number of hours thermal power plants are in operation will drop to 4,330 hours in 2015. The excess capacity of current coal power units is estimated to be 80-100 million kW. If all facilities under construction, or slated for construction as of September 2015 – which have a total output of 283 million kW –go into production by 2020, coal power surplus will instantly increase to 200 million kW. A surplus this large has considerable negative implications. At a cost of 3,500 yuan per kW, the loss on investment will amount to 700 billion yuan.

35%

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Thermal Power except Coal Power Solar Power and Others

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0% 2015 Estimated

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Nuclera Power

The report states that continued rapid growth in new thermal power installations – mainly coal power – and the habitual arrangement of potential installation capacity are in conflict with both China’s new economic objectives and decreasing power usage. Yuan Jiahai ( 袁家海 ), Associate Professor at the School of Economics and Management, was the main author of the report. During the publication’s press conference, he pointed out that the average number of hours of thermal power utilization in 2014 fell to a record low since 1978. This signal, however, has not been taken seriously by the power industry, with the scale of new and under-construction power plants still growing. Professor Yuan said that when this type of irrational development is notrectiied, the resulting bubble will sharply deteriorate the sector ’s proitability.

Wang Xinmao( 王信茂 ), Former Director of the Power Ministry’s Planning Department, explained that as of 2012-2014, approved construction projects amount to 160 million kW of total capacity. If all these projects go into production during the 13th Five-Year Plan period, national coal power capacity will be as high as 1.03 billion kW, and overall coal power overcapacity will be around 40 to 120 million kW. If all construction projects approved or waiting for approval – a total capacity of 283 million kW – go into production during the aforementioned period, the overall coal power overcapacity will further reach 200 million kW.

Figure 2: National Coal Power Installation 100000

10,000kw

90000 80000

8% 7.77%

6.25%

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2015 Estimated

Growth Rate

Figure 3: Thermal Power Utilization Hours Hours 8%

5500

Statistics from the 12th Five-Year Plan period demonstrate that national coal power installation has declined from 7.77% in 2011 to 4.3% in 2014. Over the first three quarters of this year, thermal power installation kept a steady growth of 4.3%. This rate is expected to climb in the fourth quarter. The report points out that while the expectation is that coal power installations will grow at a rate slightly less than 4.3%, such a rate is still far beyond the 0.8% growth rate of national

5305

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Change Rate

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electricity consumption. A consequence of this is that the number of hours thermal power plants are in operation will continue to drop, as will the average utilization hours of all power generation facilities.

Figure 4: Thermal Power Utilization Hours in Special Provinces 5900

5400

5979 5767 5785 5752 5686 5284

Statistics from the China National Energy Administration (NEA) also indicate that the average utilization hours of thermal power facilities has dropped from 4,706 hours in 2014 – the lowest since 1978 – to 2,158 hours in the irst half of 2015, and to 3,247 hours in the irst three quarters of 2015. The potential installation capacity of coal power continues to increase, instead of decrease, despite the fact that the average utilization hours of thermal power facilities has hit a record low. As of 2015, the total capacity of coal power plant projects which have either gone through an environmental assessment (EA) or are still pending an approval, runs up to 123 million kW. This igure is equivalent to 80% of the total capacity of coal power projects (except combined-heat-and-power projects), which had passed an EA from 2012 to 2014. The report also seeks to answer the question of why installation capacity of coal-ire power is still growing. The main driver is the central government’s delegation of the power to approve coal power projects to local authorities, which began in 2013. The report says that the approval powers for general coalfire power projects were gradually transferred from the NEA, the National Reform and Development Commission and the Ministry of Environmental Protection to the corresponding bodies at the provincial level. However, the result of this was that a measure originally intended to simplify bureaucracy and increase efficiency became a carte-blanche for local governments to increase GDP, especially in provinces that rely heavily on coal. 60

4900

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Zhejiang

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2014 Shanxi

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“If only a portion of the facilities currently under construction go into operation by 2020, surpluses may be kept under control. Different action will be necessary for provinces like Xinjiang, Shanxi, Hebei, Jiangsu and Zhejiang, which exceed ideal installation capacities by 2-3 million kW,” says the report. Of these provinces, Shanxi has the highest surplus of output, which exceeds 21 million kW and results in a loss of investment of 73.5 billion yuan. Xinjiang is the next, where surplus exceeds 15.5 million kW and losses equal 54.2 billion yuan. Jiangsu has a surplus of 10 million kW, with 35 billion lost in investment. Zhejiang has the lowest surplus, 2.3 million kW. For these regions, the report recommends the imposition of stricter controls on rampant expansion of coal power facilities. This includes abandoning the new coal power plants projects during the 13th Five-Year Plan period, closely controlling the construction of newly approved units, establishing an early warning mechanism for investment in power projects, fully implementing national guidelines and strengthening coordination between various governmental departments, to ensure policies are better integrated into actual regulation of the coal power industry.