Trend spotting

China has abundant small hydro power (SHP) resources with the potential to develop some 128GW in 1500 of the country’s 2300 counties. By the end of 2003, China had 42,000 SHP stations with a total installed capacity of 30,509MW and a combined annual output of 100.9TWh (accounting for one quarter of the total developable potential, as shown in Table 1.)

The rapid development of SHP in China has helped the country to accumulate valuable experience in the technology. In fact, the country has developed a unique electricity supply system of SHP-based local grids serving specific rural supply areas. The system increases the rate of expansion of local grids in rural areas, changes the composition of electrical energy use in the supply areas and ensures a sustainable increase in the power consumption of businesses and households. It has also improved the rate of electrification for villages and households from 78.1% and 65.3% in 1985 to 98.7% and 98.5% in 2003 respectively.

SHP stations in China fall into two categories; those owned and managed by local government or communities, and small IPPs with their investment coming from private companies. SHP is also grouped according to installed capacity; stations with installed capacities up to 100kW are referred to as micro; those between 101–500kW are mini, while those between 501kW–25MW are small. However, stations up to 50MW still enjoy the preferential SHP policies stipulated by Chinese government.

Moreover, SHP development has also stimulated the local manufacture of equipment. There are currently 80 key manufacturers producing about 4000MW of SHP equipment annually employing more than 1.5million people. (The recent position of SHP stations in China, according to installed capacity can be seen in Tables 2.)

The country has also upgraded weak and obsolete local grids, refurbished old SHP equipment and stations, and improved its operation and management mechanisms. During 2000-2001, 2362 old substations were refurbished and 782 substations were constructed with a total investment of US$1.57B. This was followed by US$1.07B in 2002 and US$717M in 2003. These upgrades resulted in reduced local grid losses and restructuring of the sub-standard and disorganised local grid into a more standardised local grid. (The Scale of the local grid is shown in Table 3.)

SHP-based rural electrification

Primary Rural Electrification Construction in Counties

Rural electrification is a pre-requisite for the social and economic development of poor, isolated and remote areas. As in most developing countries, rural remote areas of China are still subsistence economies, with a majority of peasant farmers depending on biomass as their main energy source. Lack of electricity has become the major barrier to rural economic development in China.

The first Primary Rural Electrification programme for 100 counties began in 1982. At that time, the local people’s living conditions and the output of village-run industries were in need of substantial improvement. It was clear that meeting demand for electricity was an urgent task that had to be successfully accomplished.

SHP can play a leading role in rural electrification programmes firstly because about half of the counties can achieve primary rural electrification through the development of their own SHP potential. Secondly, the technology has already been developed to a large scale; at that time, 1501 counties had already developed some of their SHP, and 770 counties had their electricity supplied mainly by SHP. Thirdly, SHP is developed mainly by local government and local people, with limited support from the central government. Objectives can be met by developing the available potential locally, and by supplying electricity to the nearby villages. In doing so, the burden on the large grid can be greatly reduced. This was very important because, at that time, the large grid suffered serious electricity shortages and outages were frequent.

The State Council pointed out that while central government developed the large hydro power potential, the others concerned should pay equal attention to develop SHP, with local government and local people actively involved. By the end of 1990, there was renewable energy not only in the initial 100 counties, but also nine more.

Based on the success of the first batch of Primary Rural Electrification Counties (PREC), the State Planning Committee and the Ministry of Water Resources implemented the second stage of renewable energy in 208 counties between 1991–1995 and a third batch in 335 counties from 1996–2000. A US$8.5B fourth round is to add 8000MW to 400 counties by the end of 2005.

Policy stimulated development

During large-scale developments, China formed a series of very effective policies and measures:

• SHP should be developed according to the policy of ‘self-construction, self-management, and self-consumption’. In SHP supply areas, unified generation, supply and consumption must be adopted.

• Multi-channel collect funds with a ‘he who invests, he who constructs and he who manages, he benefits’ policy. The central government released US$120,000 in subsidies annually for every county, in addition to soft loans, to support the PREC construction.

• The local government was authorised to fix tariffs for electricity from SHP stations according to the prevailing conditions in a particular rural area.

• Local government is permitted to charge an additional 2 cent for every kWh of electricity sold to establish the ‘SHP Development Foundation’. Any developer of SHP can apply for a soft loan from this Foundation.

• Profits from existing SHP stations and grids had to be used in building more SHP. Also a VAT of 6% of tax preference for SHP stations was set up. This policy is called Electricity Generates Electricity policy.

• Protect SHP supply Areas. Large grid and local grids can develop their own consumers. Local grids are independent and not controlled by large grid. The electricity exchange can even be calculated on difference in net exchange with the same tariff. The large grid should support local grid’s development.

Since the introduction of these policies, 652 PRECs have been constructed with a total capacity of 16,741MW. The SHP supply grid currently covered about half of the country’s territories, providing electricity to about 300 million people in rural areas.

Electricity to villages

Need for social development

In 2000, there were 16,509 villages and 28 million people without an electricity supply. The then Premier Zhu Rongji visited Sichuan, Guizhou and Hunan provinces to stress the importance of SHP.

Some US$700M was made available for rural initiatives and 226 preliminary design documents were evaluated by the China-based International Center on Small Hydropower (IN-SHP). Since the successful implementation of the ‘Send Electricity to Villages’ programme, about 17.8 million people are now supplied with SHP electricity. Statistics for 2002 showed that there were still 10.15 million people without access to electricity, indicating the need for China to continue to develop local SHP.

Litang

Litang county lies in the southwest of Ganzi Tibetan autonomous prefecture, in western Sichuan province. The altitude of this county reaches 4014m and it is usually referred to as the ‘world’s high city’. It also has the reputation of being ‘The Gate to Tibet’, with a total area of 14,182km². There are 24 towns in the county, with a total population of 47,000, of which 94% are Tibetans. The density of population is only 3/km². The county has a continental highland monsoon climate, characterised by low temperature, long winters, high sunlight radiation and a short frost-free season with an average temperature of only 3°C. Because of historical and geographical reasons, the economy of Litang is still underdeveloped.

Moreover, due to insufficient power supply, local people burn firewood, animal dung and straw for space heating during the nine months of the cold season. The annual wood consumption per household is about 24m³, so a total of about 0.32 million m³ of wood are cut annually. Meanwhile, every year, 350,000t of cow dung is burnt for heating. More than 100,000 hectares of pasture are degenerating due to lack of manure. The hardened or arid grassland have increased the losses of soil and water and the ecological system gets deteriorated as well. In order to arrest this situation, the State Council decided to carry out the Tianbao project, aimed at forest protection in the upper reaches of Yangtze river. Thus, it became extremely necessary to send electricity to the local people for lighting, cooking and heating.

Considering the terrain and geological analysis of the river basin, as well as the estimation of future load, the Mula station (2_2 MW), Sangduo station (2_0.2 MW), Xiaba station (2_0.4 MW) and Gemu station (2_0.2 MW) need to be built. The total installed capacity is to be 5.6MW with 34.86GWh of total annual electricity output. The total investment required will be US$8.4M. Central government will subsidy 50% of the costs.

Replacing fuel wood with SHP

Wolong nature reserve in Sichuan province is the home of the giant pandas. In the past, people living there used to rely heavily on firewood for fuel. With large areas of forests destroyed, soil erosion, flood and droughts were common events.

In order to protect the ecosystem, five SHP stations have been constructed to provide electricity to thousands of people. Local government subsidised one-third of the funds for Qiang minority people to buy electric cookers and other appliances with the aim of discouraging them from using firewood for cooking.

A household paid a small fixed monthly amount for all the electricity it consumed. The local people eventually got into the habit of cooking and heating with SHP electricity because of the convenience that goes along with it, and as a result the demand for electricity is increasing rapidly.

With SHP development, the rate of deforestation has been gradually reduced and it has effectively protected the natural forests, which occupies 200,000ha of land. It has become the largest panda reserve in China and combines both the UNESCO’s Human and Bio-diversity Programs. More than 100 rare mammal species such as panda and golden monkeys, more than 2000 kinds of insects, more than 300 kinds of birds and more than 100 kinds of medicinal plants in the area have also been protected.

Deregulation and Small IPPs Development

Commercialisation of SHP Industry

The current shift from traditional centrally planned economy to a commercialised and deregulated market economy is gradually reforming the development and management system of the SHP industry. With the decentralised management system and the determination of electricity tariffs by the market itself, the monopolistic electricity system is gradually on the wane and this is also promoting the commercialisation of SHP development.

In recent years, the development of SHP has transferred from being a government responsibility to a private or individual one. To achieve this, new policies were formulated to develop SHP based on rural society and economic development. The policies have brought SHP development to a new phase by changing investment structures, expanding SHP business scales, innovating SHP technologies and accelerating the development of small IPPs.

In 2003, US$5B was invested in SHP stations and grids allowing the addition of 2020MW of capacity and the establishment of about 2500 companies, of which 80% were share-holding, cooperative or individual companies.

SHP construction under large grid covered areas

• Share-holding system stimulates SHP development – The Zhejiang provincial government attached much importance to the development of SHP, and initiated systematic reforms. Meanwhile, rapid economic progress called for urgent SHP development. Faced with the problem of poor funding, the provincial government reformed the investment system by introducing the shareholding system into the SHP industry and this helped to promote SHP development under large grid covered areas. By 2002, there were 2836 SHP stations totalling 2060.4MW.

• Change in electricity tariffs to benefit owners – To ensure the steady and rapid development of SHP, Zhejiang province enforced a series of major reforms on SHP-based electricity pricing. The basic price for SHP was 0.23 Yuan/kWh for stations constructed before 1985; 0.29 Yuan/kWh for the SHP stations that were put into operation between 1986 and 1990; and 0.39 Yuan/kWh for stations commissioned between 1991 and 1993. Stations built after 1994 would specify the price in accordance with the repayment plan of loan, but that should not be less than 0.45 Yuan/kWh. All these prices included the water resource fee and the levy for the SHP Development funds and taxes.

• Reform in the Ownership of SHP stations to guarantee the owner’s interests – in 1998 the province government released a special document highlighting several regulations on property rights reform for the SHP industry. These policies have boosted the development of SHP in the province by stimulating people’s enthusiasm to invest in the technology.

Reasons for success

SHP has developed very rapidly for the following reasons:

• Support of Government Preferential Policies – The Chinese government has introduced many preferential policies, including tax breaks, soft loans and grants, and promotion of private investment in SHP stations.

• Indigenous Manufacturing Capability – the government decided to promote local manufacturing to reduce the overall cost of developing SHP stations. This has led to a tremendous increase in quality and quantity as well as reductions in price. Today, China is able to satisfy its domestic needs, as well as export equipment to other countries.

• Recognizing the advantages of SHP -– SHP is simple to construct, takes less time to complete and the problem of displacement of people is generally absent. The technology is relatively simple and can therefore be understood even by local people. SHP stations are often close to the consumers and require only a small transmission cost and as most have their own supply areas and local grids, they can easily supply electricity to local people.

China’s practice of SHP development demonstrates that renewable energy sources can play a major role in achieving sustainable development in rural and isolated communities.

The author is director general of the International Centre on Small Hydropower