hydropower in china

Energy Policy 30 (2002) 1241–1249

Hydropower in China

Francis Li*

2082 Arvida, St. Bruno, Que., Canada J3 V 3R8

Abstract

This paper provides an overview of the power sector in China during the past 40 yr, with a special emphasis on hydropower. The

article includes a description of the power sector in China and the main problems it is now facing. The alternatives for China’s

peaking requirements are also described, with mention of both pumped storage and increased hydro capacity as important options.

Hydropower has very important side benefits, and these are also described. The article finally summarizes the main concerns of the

Chinese Government in sustaining its economic development, and describes the future role that hydropower will play in this

development. r 2002 Published by Elsevier Science Ltd.

Keywords: Hydropower; China; Power

1. Evolution of the Chinese power sector

China has an abundance of energy resources. Its coalreserves of 86� 1010 tons are ranked number one in theworld. In addition, China has the largest exploitablehydropower potential in the world, with only 12%already developed (1998 figure). Since the early days ofthe present government, the development of hydro-power has been considered of national importance andhas been planned and controlled by the government.For a long time, the country was closed and isolatedfrom the rest of the world; today, even after more than10 yr of market reform, the country is still a mystery tomost people. We can have a look at the past recordof development, make assumptions about the deci-sion making process and judge the results of thisdevelopment.

Fig. 1 shows that the ratio of hydro development hasremained constant at about 25% of new coal-firedgeneration. Included in the hydro capacity are a largenumber of mini hydro units. These mini hydro units arefor rural electrification program and have no effect onthe national grid operation. What is not shown in theoverall figure is the regional distribution of thesethermal and hydro units. Due to the large size of China,

this regional distribution becomes quite a problem; thiswill be discussed later.

The data in Fig. 2 cover a turbulent period of thecountry’s history, from international isolation, toCultural Revolution, to market reform. Combining thisdata with economic development is interesting. Formost developing countries, the energy elasticity (thepercentage change of energy generation per unit changein economic activity) is usually >1. Despite the recentrapid economic growth (average of >7%, for the past10 yr), China has managed to keep this energy elasticityto o1. Other countries talk about Demand SideManagement; China has successfully done it, withoutfanfare, without excuses.

2. Problems facing China’s power sector

2.1. Overview of major problems and challenges

In spite of this positive overall picture, the powersystem in China does face the future with a fair amountof problems:

* Uneven regional distribution of energy resources,* Old and inefficient generating equipment,* Unreasonable energy pricing structure,* Financial constraints in future hydro development,* Environmental concerns,* Lack of peaking capability.

*Corresponding author. Tel.:+1-450-441-1938; fax: +1-450-441-

1938, http://communities.msn.ca/FrancisLiHydroConsultant.

E-mail address: [email protected] (F. Li).

0301-4215/02/$ - see front matter r 2002 Published by Elsevier Science Ltd.

PII: S 0 3 0 1 - 4 2 1 5 ( 0 2 ) 0 0 0 8 5 - X

http://communities.msn.ca/FrancisLiHydroConsultant

2.2. Uneven regional distribution of energy resources

Since the market reform, the coastal region of Chinahas become the hub of economic activity. Witheconomic activity comes high-energy demand. But mostof the energy resources are located far away from thesenew economic zones. The coalfields of China are in thenorthern provinces of Shanxia, Shaanxia, Hebei, Henanand Ningxia. The large thermal stations are usuallylocated at or near the mine heads. Most of the hydrosites are in the southern inland provinces of Yunnan,Guangxia, Guizhou, Sezhuan, Tibet and the upperreaches of the Yellow and Yangtze Rivers. The largenatural gas fields are in Xinjian in the Far West andHainan in the far South. To get the energy to the loadcenters on the coast requires long railway lines, extensivehigh-voltage power grids and new and expensive gaspipelines. Some of these elements, such as railway lines,are already in existence, but most of the rest are stillwaiting to be built. With the increase in prosperity, mostof the coastal cities are also reluctant to have large

polluting thermal stations in close proximity. In Beijing,all the thermal stations within the city limits are beingshut down and moved. Shanghai and Guangdong aretrying to use nuclear energy instead of relying on localcoal-fired thermal stations (Fig. 3).

In order for the power system in any grid to functionproperly, several things are required:

* Sufficient energy to meet the system requirements,* Sufficient flexible capacity to follow the peak demand

pattern of the load curve,* Sufficient reserve in the system to guard against

unscheduled outages and* A robust transmission system.

As we can see from Fig. 4, approximately 30% of thebase load capacity is required to follow peak demand(depending on the load patterns, time of year, etc.). It isfeasible, but not economical, to use coal-fired thermal to

1

2

3

4

5

Gro

wth

Inde

x (Y

ear/

1980

)

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Year

Total Capacity

Total Energy

GDP

Fig. 2. Power sector growth index.

Generating Capacity in China

0

40000

80000

120000

160000

200000

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Inst

alle

d C

apac

ity (

MW

)

Hydro

Thermal

Fig. 1. Generating capacity in China.Fig. 3. Existing China power grids.

F. Li / Energy Policy 30 (2002) 1241–12491242

supply the peaking energy. Instead, gas turbines orhydro units that can respond quickly to the changes inthe demand pattern are generally used. Because of theexpensive fuel requirements and the relatively shortequipment life, gas turbines are used only wheninsufficient hydro capacity is available. In China, wherelarge hydro potential exists, gas turbines should only beused as a temporary stopgap measure. In some cases,where hydro capacity is insufficient, pumped storageunits can be built for this purpose.

2.3. Old and inefficient generating equipment

Thermal generation is dominated by older, smallunits. Fifty-one percent of capacity is composed of unitssmaller than 200MW (see Table 1). These smaller unitsare characterized by low operational reliability and lowefficiency, about 24–29% (for bituminous coal, from500 g/kWh for units under 50MW to 420 g/kWh forunits rated 100–120MW). The efficiency of newer300MW units is much better, at about 34% (350 g/kWh for bituminous coal). The consequences of havinga large number of inefficient, unreliable units are higherpollution and higher operational reserve requirements(these points will be addressed in later sections).

2.4. Unreasonable energy pricing structure

In spite of the government’s push for a marketeconomy, certain items are still under price control.

Electric energy is one of those items. In the past, theenergy price was determined by the need to repay thegovernment’s investment in the project, plus tax andinterest. As a result, contrary to the claims of mostenvironmental groups, hydropower ended up being thecheapest energy in China. This is reflected in Fig. 5; thelower energy prices are in areas with substantial hydrogenerating facilities. This low price for hydro has severaladverse effects on the hydro industry: it is a disincentiveto designing the generating plants for peaking, and it is amajor obstacle to future investment in hydro (particu-larly by private investors in build, operate and transfer(BOT) projects).

This situation may be changing soon. In a recentpaper by the Economic Research Center of the StateElectric Corporation, this problem is recognized and theidea of ‘‘Same Grid, Same Quality, Same Price’’ is being

0

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Hours of day

Winter Summz

Typical Daily Load Curves (load%)

(Guangxi Main Power Grid)

Source:Selection of Installed Generating Capacity forBaise Hydropower Station, Liang Xiaohong,Hongshui He,June,1998.

Fig. 4. Daily load curve.

Table 1

Size of thermal units (1996) Total of 181,000MW

Size range in MW % of capacity

0–199 51

200–250 21

300–363 23

500 1

600–660 4

900 1

F. Li / Energy Policy 30 (2002) 1241–1249 1243

put forward. This idea is not new; it is already written inthe Electricity Law of China. Rigorous enforcement ofthis law will certainly encourage future development ofhydropower in China and greatly improve the powersituation.

2.5. Financial constraints on future hydro development

Hydro development requires large initial capitaloutlays. This is traditionally done at the governmentlevel. For most developing countries with uncertaineconomic futures and typically high internal interestrates (more than 20%), such large capital investmentsare usually difficult to arrange. Most developingcountries, therefore, rely on financial institutes such asthe World Bank and the Asian Development Bank, withlower interest rates to fund such large-scale projects. Inthe early days of market reform, China was noexception. Loans from such institutes usually come withcertain conditions attached, such as the requirement forinternational competitive bidding, the very strict andlong environmental assessment, and even subjects likehuman rights. Most client countries consider these to beless than acceptable interference, forced on them by therich countries.

In recent years, due to the pressure from environ-mental groups, the international funding institutes havegradually moved away from hydropower projects. Thishas had a serious impact on developing countries. Mostof them have started to look for alternative methods offinancing, such as BOT, BOO, etc. China is morefortunate than most: its recent economic growth has

lowered the internal interest rates to such a degree that itis competitive with the international lending rate fromthe World Bank and the Asian Development Bank. Inorder to promote the local construction industry, theChinese government has dictated that Chinese contrac-tors will carry out all civil works for future waterresources projects. Electric and mechanical equip-ment will be purchased internationally only when theChinese manufacturers cannot produce the equivalentitem.

But such independent development comes with a highprice. The government can only fund projects that areconsidered of national importance (such as ThreeGorges, Longtan, South–North Water Diversion, etc.),while other projects will be delayed or have to look foralternative funding. The sole use of Chinese contractorswill prevent the Chinese from picking up the latesttechniques and construction equipment. This maylengthen the construction period, increase the interestduring construction (IDC) and ultimately add to thetotal cost of the projects.

As an alternative to government funding for suchlarge-scale projects, China is attempting to tap into theBOT market. So far, a couple of thermal stations havebeen built using BOT, but no hydro projects yet. Forsuch ventures to be successful, certain elements in theChinese system have to be improved:

* Streamline and simplify the approval procedure.China has a very large bureaucratic system, withdifferent departments at different levels of govern-ment. For a large hydro project, the investors can

0

50

100

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Y/M

Wh

EAST

FUJIAN

NORTHEAST

NORTH

CENTRAL

SHANDONG

SICHUAN

YUNNAN

NORTHWEST

GUIZHOU

GUANGXI

AVERAGE MEP

REGION

334.00

302.95

281.76273.54

266.63258.64

204.95198.40

190.02179.78 175.99

262.34

Fig. 5. Average power tariff.


afford to spend months following the paper trails in alanguage unfamiliar to them. But for medium andsmall size projects, the profit margin is not there forthis sort of exercise.

* Data availability. Every foreign consultant who hasspent time in China has some horror stories abouttrying to get data out of the Chinese system. The dataare there, the Chinese will even show them to you, butto get them into your possession is a task not for thefaint hearted. Topographical data and any large-scalemaps are treated as state secrets, and clearance fromPublic Security is required. China has some of theworld’s best and longest continuous hydrologicalrecords (50–80 yr of daily flow records are common-place). But none of them are in the public domain,and large sums of money have to be paid before suchessential data are made available. Geological datafrom previous studies are usually not well kept;particularly soft rock core samples are usually leftunprotected and allowed to deteriorate to a uselessstate. All of these factors make finding and justifyinga suitable project difficult and expensive for theinvestors.

* Fair market pricing of energy (as discussed pre-viously).

* Open and transparent legal process. Most investorsare unfamiliar with the situation in China. Theirknowledge of the country is colored by the usuallysensational and often biased reporting of the Westernmedia. Therefore, they need to have the legalassurance that their rights and investments areprotected under the Chinese laws. Hopefully, whenChina finally enters the WTO (perhaps by 2002), thiswill no longer be an issue.

2.6. Environmental concerns

According to World Bank data (‘‘1999 WorldDevelopment Indicators’’, World Bank), CO2 emissionsin China have increased from 1476 million tons in 1980to 3363 million tons in 1996 (second only to the USA at5301 million tons in 1996). It is worth noting thatcarbon emissions per capita in China in 1997 were705 kg, compared to 5303 kg per capita in the USA (datafrom ‘‘Climate Action in the United States and China’’,Advanced International Studies Unit, Battelle MemorialInstitute, 1999). If China had kept the same energyintensity as in 1977, carbon emissions would be doublethan what they are now. In fact, since 1977, China hasmanaged to reduce its annual energy intensity by anaverage of 4.7%, in spite of maintaining one of theworld’s fastest growing economies for more than 10 yr(Fig. 6).

In addition to energy conservation efforts, theChinese government has imposed a building morator-ium on small thermal plants and continues to replace theexisting small plants with larger, more efficient units.The major pollution problem with coal burning isusually NOT due to electricity generation; it is related tocoal used directly as fuel by domestic and businessconsumers. A publication from the World Bank (‘‘Canthe Environment Wait?’’ by Gordon Hughes, Novem-ber, 1997) suggested, ‘‘In China, the main task must be to

phase out the use of coal except in power generation and in

large industrial plants with high-efficiency dust controls.’’(p. 2). ‘‘Instead of burning coal, Chinese households and

businesses will rely on gas, petroleum products, and

district heat for cooking, heating, and process energy.’’(p. 35).

Fig. 6. Chinese energy consumption.


One of the most controversial aspects of the hydroprojects in China is the resettlement issue. With a largerural population and only 10% of its land suitable foragriculture, the available land in the river valleys is fullyutilized. Any change in the river level due to dambuilding will result in resettlement. Since all the arableland is already under cultivation, the resettlement areasare usually less attractive. The government tookadvantage of the present economic growth in the urbanareas and resettled part of the displaced people in thegrowth regions and the rest in irrigated areas. So far,according to the World Bank, China has one of thebetter resettlement programs in the world.

2.7. Lack of peaking capability

With around 80% of the system being coal-firedthermal generation and most of the hydropower used togenerate base load energy, there is a definite lack offlexibility for peak loading and operational reserve. It ispossible to use some of the thermal plants for peakingand reserve, but this is not efficient and will add to theenvironmental problems of the country.

The possible solutions for the peaking requirement ofChina are:

* Gas turbines (fueled by light oil or gas),* Hydro pumped storage,* Increased hydro capacity.

Each of the above alternatives has certain benefits andinvolves certain costs, which will be examined in the nextsection.

3. Alternatives for China’s peaking requirements

3.1. Gas turbines

Gas turbines are fast acting units that can meet dailyload variations. The initial capital cost is about $1000–1500 per kW (30% of which is for electrical andmechanical equipment), but, due to its high operatingspeed and temperature, the economic life of a gasturbine is much shorter than that of a hydro turbine.The Battelle Report suggested ‘‘If China begins produ-

cing advanced gas turbines early next century and

accelerates development of gas resources and infrastruc-

ture, natural gas could be very attractive in the booming

coastal provinces.’’ (p. ix). The fact is, however, theequipment cost is only a minor component in the overallcost. Because of high fuel prices and considerableoperation and maintenance costs, electricity from gasturbines is generally more expensive than electricityfrom conventional generation (see Fig. 7, US DOEdata). This is why most power utilities prefer to use gasturbines (single cycle) as a temporary source of power,until other sources can be found.

Fig. 7 comes from the WCD Thematic Review OptionIssues, Series IV.1 ‘‘Electricity Supply and Demand SideManagement Options’’, Section 3.4. It shows thedetailed operation and maintenance cost breakdownfor gas turbines. The cost data appear to be rather low,because the reliability of gas turbines, for both simplegas turbines and combined cycle units, are questionablefor long-term operation (Table 2).

At present most of the natural gas in China is used asfeedstock for chemical industries (fertilizer production).

Fig. 7. Average per kWh.


China is building an expensive gas pipeline, fromXinjiang to Shanghai. It is also planning to switchBeijing from coal burning to natural gas for domesticcooking and heating. Public transit in the major citieshas already changed over from diesel to liquefied naturalgas (LNG). With such high demand for natural gas, theproven reserves in China will not last 50 yr. If thisvaluable resource is also used for long-term productionof peaking energy for the country, the proven reserveswill not be able to sustain such operation for a longperiod.

3.2. Pumped storage

When there is excess base load energy (from coal-firedthermal or nuclear power plants), pumped storage isconsidered an attractive alternative to conventionalhydro plants in supplying peaking energy. Such plantsutilize the off-peak excess energy from thermal ornuclear plants to pump water from a lower reservoirto an upper reservoir. During peak demand periods orin the event of a system outage, water from the upperreservoir can be released to generate electric energy in avery short time. China already has experience withpumped storage facilities through existing plants. Theoldest pumped storage station is Gangnan, built in 1968.The 2000MW Guangzhou pumped storage Projects I &II (completed in 1996 for peak regulation of the DayaBay Nuclear Plant) and the 2052MW TianhuanpingProject (completed in 1998 as peaking supply for theload centers of Shanghai and Ningbo) are among theworld’s largest. No less important is the 800MWShisanling Project (completed in 1997), only 40 km fromthe load center, Beijing. Since no large reservoir isneeded, pumped storage appears to be more acceptableto most environmental groups.

In each step of changing energy from one form toanother, certain losses will occur. For the pumpedstorage scheme, the final result is a loss of efficiency ofabout 40% (20% in pumping and 20% in generating). If

the pumping energy is from a thermal plant, each kWhof energy from the pumped storage plant produces 40%more pollution than each kWh of thermal energy. TheE&M equipment (motor/generator and reversiblepump/turbine) is more expensive than for conventionalhydro. Due to the very deep setting (the vertical distancebetween the centerline of the pump/turbine and thetailwater) required by the pump/turbine during pump-ing, the cost of the civil work will also be higher than fora conventional hydro plant. Lastly, pumped storagerequires not one dam but two: one for the upperreservoir and one for the lower reservoir. This highercapital cost, together with the cost of off-peak energyand the loss of efficiency, makes pumped storage energymuch more costly to produce than conventional hydroenergy. Moreover, since there are no large reservoirs inpumped storage, the associated benefits such as irriga-tion, flood control and water supply are also absent.

3.3. Increase hydro capacity

In order to satisfy peaking requirements, there aretwo possible ways of increasing the hydro capacity:

* Increase the installed capacity of existing plants,* Build new hydro projects.

Until recently, most of the hydro facilities in Chinawere designed for energy production (base load) and notfor maximizing generating capacity (meeting peakloads); for these plants, it is possible to increase thecapacity by simply adding new units. This may be thequickest and cheapest way of increasing the peakingcapability of the system. Because no new reservoirswould be needed, it would also be more acceptable tothe environmental watchdogs. This approach requires astronger power grid and an adequate Power PurchasingAgreement with the intended consumer. Since most ofthe hydropower resources are far away from the loadcenters, a secure means of getting this peaking energy to

Table 2

Costs of gas turbine options

Plant Installed

capacity (MW)

Turnkey cost

(US$/kW)

Fixed OMR

cost (US$/

kW/a)

Variable OMR

cost (US$/

kWh)

Planned

maintenance

(days/a)

Forced outage

(% of time)

Efficiency full

load (%)

CC-GAS-100 98 750 3.8 0.20 37 5.0 47.5

CC-GAS-600 595 480 2.4 0,13 40 8.0 49.8

CC-LFO-100 98 800 6.4 0.26 37 6.0 45.3

CC-LFO-600 595 600 3.0 0.17 40 9.7 47.4

GT-GAS-033 37 350 3.1 0.12 25 7.0 32.9

GT-GAS-200 203 300 2.6 0.10 30 5.0 34.3

GT-LFO-033 37 400 3.5 0.14 30 7.0 31.1

GT-LFO-200 203 320 2.8 0.12 40 8.0 32.4

Note: CC=combined cycle, GT=gas turbine (simple cycle), GAS=natural gas, LFO=light fuel oil OMR=operation, maintenance and repair (w/o

fuel).


the consumer is necessary. The PPA is also veryimportant, as witnessed in the recent events followingthe completion of the 3300MW Ertan Project inSichuan.

Since most of the hydro projects in China are multi-purpose in nature, adding new generating units withoutnew reservoirs will not add any benefit to the othermulti-purpose components. In fact, by changing theoperating pattern of the power units, such additionsmay actually have an adverse effect on the otheroperations.

China will continue to build new hydro facilities,regardless of the objections raised by internationalgroups. For the hydro rich southwestern regions, whichdo not have the high-quality coal deposits of the North,this is the only viable cheap energy for their develop-ment. Hydro also provides the means to pay for neededirrigation, flood control, and water supply projects. Byexporting the surplus energy, these regions can alsobring in additional income for regional development.

4. Side benefits of hydro development

Most of the hydro projects in China are not developedsolely for power generation. In most cases, the primarypurpose is irrigation, and the secondary purpose is floodcontrol. Power generation is the means of paying forthose benefits. Without the dams, there would not besufficient water for putting in a second crop during thedry season. Without the regulating effects of thereservoirs, the flood protection dikes could only providea small degree of protection.

4.1. Irrigation

One of the major concerns of the Chinese governmentis feeding its growing population. With only 10% of itsvast territory suitable for agriculture, this is not an easytask. Nature does not help in this respect, either. Mostof China is subjected to a very uneven rainfall pattern,with most of the rain falling in a short 4-month period.Without the benefit of irrigation, only one crop per yearwould be possible. The government has to maintain adelicate balance between keeping the food price lowenough, so the general public can afford it, andmaintaining the farm income high enough to keep80% of the population in its rural areas. This can onlybe achieved by making extensive use of irrigation.

The problem with irrigation is the difficulty of gettingthe farmers to pay enough to cover the cost of theirrigation system, particularly when the farm holdingsare small and the number of farmers is huge. InThailand, the irrigation department has even given upon trying to collect water fees and just considers theirrigation water to be a gift from the king. One possible

solution is to treat irrigation as part of a multi-purposeproject, with hydropower paying for the capital invest-ment. In China, even when it is hydropower that ispaying for a project, irrigation is still considered thepriority during operation.

4.2. Flood control

Ideally, flood protection could involve non-engineer-ing approaches such as population relocation, floodplains management, flood forecasting, and insurance.These techniques cannot be directly applied to theChinese situation. In China, most of the people live onthe flood plains and it is not possible to relocate them.Flood forecasting can provide warnings to the popula-tion but will not reduce the damage. The Chinesegovernment spends billions of Yuans each year on theflood dikes, but the average annual damage amounts totens of billions. Who is going to provide insurance forthat?

Western environmental groups have always put theblame for flooding in China on population growth,increased urbanization, deforestation, etc. But the truthis that flooding is a fact of life that existed before writtenhistory in China, when the population was a couple oforders of magnitude less than what it is today. A list offloods in China from 1840 to 1992 shows that every yearthere has been at least one flooding incident involvingfatalities and property damage, with the major problemareas being the Yellow, Huai and Yangtze rivers. Thereis really no single cause and no simple solution to thiscomplex problem. All possible means of increasingprotection have to be utilized. One of the most effectivebut expensive ways is to use reservoirs to attenuate theflood peaks. As a means of flood control, it is difficult tofinance such dam building ventures, but if flood controlis considered part of the benefit of a hydropowerdevelopment, the construction cost can be paid for fromthe hydropower portion. This is exactly the situation forthe Three Gorges Project.

5. Major concerns of the Chinese government

The main priority of the Chinese government is tofeed its large population and maintain social order,while pushing ahead with economic development. Withabout 80% of its population still in rural areas, it is ofutmost importance that the government maintains thelevel of rural income relative to the more developedcoastal cities. Without this, there will be mass migrationfrom the villages to the cities, causing a collapse of foodproduction and social problems such as those seen incities like Manila, Lima, and Mexico City, with theirever-expanding shanty towns and their increasing crimerates. To keep the population in the rural areas, the


government has improved the living standard (by ruralelectrification, better housing and better flood protec-tion) and increased the income level (by irrigation, bettergrowing practices, cheap fertilizer, encouragement ofrural industry development, etc.). The control andproper utilization of the country’s limited waterresources have become important parts of this scheme.

So far, by taking small and cautious steps, the Chinesegovernment has maintained a balanced energy develop-ment program while gradually improving its environ-mental performance. Environmental groups that seeonly the negative aspects of China’s developmentprograms have caused much resentment among theChinese, and bring into question the real intentionsunderlying their objections.

6. The future of hydropower in china

Against the protests of Western environmentalgroups, China will continue to develop its hydropower

potential. Without external financing, the process maybe slower than what the country needs, but the directionwill not change. China will need help in certain areas ofhydropower development, such as:

* Economic evaluation,* Construction management,* Modern construction methods, particularly in under-

ground works,* High-voltage transmission technology,* Turbine technology.

With diminishing work in their own countries,Western governments and companies should be takingadvantage of this situation and providing help to theChinese, instead of giving unwarranted and unwelcomecriticism.


hydropower in china

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