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Guodian, Huaneng Plants Approved

Dec 11th, 2008
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Eric Ng, SCMP – Updated on Dec 11, 2008

China Guodian Group and Huaneng Power International have received approvals to build coal-fired power plants costing an estimated total of 7.5 billion yuan (HK$8.47 billion), despite concerns of oversupply next year.

China Guodian, the country’s fourth-largest power producer by capacity and parent of mainland-listed GD Power Development, got the green light to construct two 600-megawatt (MW) generating units in Xingyang, Henan province, the company said.

A prerequisite of their construction is the closure of small plants in the area as part of Beijing’s “build large, shut small” policy, aimed at raising fuel efficiency and cutting pollution in the power industry.

The 2.52 billion yuan, 600 MW phase two of Huaneng’s Jinggangshan plant, 200 kilometres from Jiangxi province’s capital, Nanchang, has also been approved by the central government, Huaneng said.

Dao Heng Securities analyst Fan Yunfeng and a Huaneng spokesman said the projects were part of a long pipeline of applications made much earlier and not part of Beijing’s 4 trillion yuan economic stimulus package.

The energy spending component of the stimulus plan focuses on expanding renewable power generation and power grids in which there has been insufficient investment.

Beijing has slowed approval of new coal-fired power projects in view of sharply lower demand growth due to the global economic downturn and its desire to steer the addition of new capacity to clean-energy projects.

Industry-wide output slumped a worse than expected 7 per cent year on year for all fuel types last month, and coal-fired plants showed an even steeper 14 per cent decline, according to a BOC International research report.

Coal-fired output tumbled 5.2 per cent in October, according to a Nomura Securities research report.

“We think the sharp deceleration in power demand for nine consecutive months heralds a significant industrial slump to be confirmed later, as downstream industries, like steel, metals mining and cement, among others, take time to clear inventory and close factories,” wrote Peter Yao of BOC International.

He expected power demand growth to rebound only in next year’s second half and projected it to average 4.7 per cent next year and 6.2 per cent in 2010, down from 8 per cent this year and 14 per cent last year.

Oversupply could see industrywide capacity utilisation fall to 53.5 per cent next year, close to the trough in 1999 and compared with 57.2 per cent last year, he added.

China Huaneng Starts 9.1b Yuan Solar Project

Dec 10th, 2008
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Eric Ng, SCMP – Updated on Dec 10, 2008

China Huaneng Group, the parent company of listed Huaneng Power International, has begun building the mainland’s largest solar energy pilot project at an estimated cost of 9.1 billion yuan (HK$10.26 billion).

The project in Yunnan province will be built in co-operation with Yunnan Provincial Power Investment, although shareholding details were not provided in a statement by China Huaneng.

“The project’s construction will provide a platform to develop large-scale photovoltaic power generation engineering, design and construction,” the group said.

The project will consist of 100 megawatts (MW) of solar power units to be used for research and development and 66 MW of “showcase” units targeted at students and tourists.

One megawatt can power 400 to 800 homes, depending on energy usage.

The mainland is targeting to raise renewable energy’s share in the consumption pie to 16 per cent by 2020 from 8 per cent.

Of the target, Beijing aims to raise the national solar energy generation capacity to 300 MW by 2010 and 1,800 MW by 2020, from 65 MW this year.

Part of this will be achieved by installing 20,000 roof-top solar power panels in the country’s coastal cities by 2020, with a total capacity of 1,000 MW.

Another 200 MW will come from large-scale panel installations in waste land in the country’s sparsely populated western regions, 300 MW from small-scale installations in remote areas in these regions and a further 200 MW from solar heat-generating units.

The remaining 100 MW will come from solar panel installations near telecommunications infrastructure, long-distance pipelines, railways and highways to tap the commercial market.

Solar power is virtually inexhaustible and is a free fuel with zero pollution, but analysts said the high cost of solar power generators meant large-scale commercial exploitation will not happen at least in the next decade on the mainland.

Low coal and power prices also present a challenge for developers.

Still, the mainland is the world’s largest consumer and producer of solar water heaters.

China’s Hydro Potential And UHV Transmission: John Kemp

Nov 12th, 2008
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John Kemp, Reuters – Wednesday November 12 2008

–John Kemp is a Reuters columnist. The opinions expressed are his own–

LONDON (Reuters) – China has two related (but somewhat distinct) power problems:

(1) The country is struggling to generate enough power overall as price controls encourage wasteful use of cheap electricity. China is unable to mine enough coal or transport it in sufficient quantities to meet demand, while the enormous volume of coal burning generates massive pollution.

(2) China suffers regional power shortages when generation drops in one province or region and the lack of long-distance power transmission capacity means that power cannot be routed in from other regions where there is surplus capacity.

The country has six distinct regional electricity grids – five managed by the massive State Grid Corporation of China (SGCC), and a sixth managed independently by China Southern Grid Corporation covering the provinces of Guangdong, Guangxi and Guizhou. Even within these grids, power transmission capacity is limited, and the links between them are weak.

The central government has made creation of a unified national grid system a top economic priority to improve the efficiency of the whole power system and reduce the risk of localised shortages. It will also enable the country to tap the enormous hydro potential from western China to meet booming demand from the eastern coastal provinces.

ULTRA HIGH VOLTAGE TRANSMISSION

The main problem is voltage drop when power is sent over very long distances from one region of the country to another. But SGCC believes long distance inter-regional transmission will be possible by using ultra-high voltages (UHV) of 800kV, based on an extension of technology already in use in other parts of the world.

Following research and testing, SGCC has announced construction of the first long-distance UHV line from Sichuan, which is rich in hydro-electric potential, to the eastern load centre of Shanghai.

Shanghai already receives hydro-electric power from the massive Three Gorges Dam on the Changjiang (Yangtze) at Sandouping in Hubei province. But the new DC 800kV UHV line would enable it to receive power from twice as far west from the Xiangjiaba dam on the Jinsha river (a tributary of the Changjiang much further upstream).

http://www02.abb.com/global/gad/gad02181.nsf/0/d5f1d8e0125e2870c12573b10051de66/$file/Xiangjiaba-Shanghai_176x268.jpg

(For more details see http://www.abb.com/cawp/gad02181/c0d40da9112e6856c12573b0004490f7.aspx).

Xiangjiaba will have total generating capacity of 6,400 MW. When completed, the nearby Xilodu Dam will add a further 12,600 MW (about 55 percent of the size of the planned Three Gorges output), making it the world’s third-largest hydro-electric dam, ranking after the Three Gorges and Brazil’s Itaipu.

Xilodu and Xiangjiaba are two of a series of massive new hydro projects that the government plans in south-western and western China to take advantage of the massive run off from the Himalayas and the Tibet plateau.

SGCC plans to bring a single pole of the Xiangjiaba-Shanghai line into commercial operation within two years (2010) and the second pole a year later (2011). SGCC plans to complete a total of 10 UHV projects by 2015 and 15 by 2020 (see http://www.sgcc.com.cn/ywlm/pnews/91705.shtml).

In most cases, these will bring power from massive new hydro facilities in south-western China to the industrial and residential centres of the east.

CHINA’S SOUTH-WEST HYDRO POTENTIAL

China has massive untapped potential for generating hydro-electric power. The government’s official survey data show the country could theoretically generate 694 GW from hydro sources, of which about 541 GW is technically feasible and 401 GW is economically feasible (see table https://customers.reuters.com/d/graphics/CN_TBL1108.htm).

By end-2005, the country had installed 130 GW of hydro capacity. But there was still another 270 GW of capacity which would be both technically and economically feasible to develop. Untapped economically feasible hydro potential is equivalent to 4.5 times the peak summer power demand of Guangdong province – the site of China’a massive export-oriented and often foreign-invested manufacturing hub.

Two-thirds of the untapped hydro potential is located in the two neighbouring provinces of Yunnan and Sichuan in the south-west, which could each generate an additional 87 GW of power from hydro sources. The key point is both provinces could be linked by UHV transmission lines to the major load centres at Guangdong on the south coast and Shanghai-Zhejiang on the east coast.

Dams and power lines are already under construction. Provided both technologies can be mastered, south China’s power problems could be solved within the next 4-7 years.

LIMITED RESOURCES IN THE NORTH

There are much smaller amounts of untapped feasible potential in the far west in Xinjiang (13 GW) and Qinghai (10 GW), though both provinces are largely empty and a long way from either industry or population centres.

The biggest hydro potential of all is in Tibet which could theoretically generate 201 GW alone but where conditions are so challenging that only 110 GW is technically feasible and only 8 GW would make any economic sense.

The untapped potential in the rest of China is much more limited – amounting to no more than 66 GW in total. Some 22 GW is located in other southern and central provinces – leaving about 40 GW of untapped but feasible potential across the rest of northern and north-eastern China.

Northern and north-eastern China relies heavily on thermal generation from the local coalfields. But the skewed distribution of untapped hydro resources suggests the country has substantial capacity to bring on new clean and cheap power in the south, while northern China will remain reliant on increasingly expensive and polluting thermal generation.

REINFORCING REGIONAL DISPARITIES

South China from the Changjiang valley down to the South China Sea was the first part of the economy to liberalise in the 1980s and 1990s and is home to much of the country’s most modern and often foreign-invested manufacturing industries. Northern and north-eastern China’s older industrial base has fallen behind, remains focused on the domestic economy and has suffered relative decline.

Top officials have repeatedly urged northern provinces to make greater efforts to modernise. But the distribution of hydro reserves suggests this divide could be reinforced in future. It is the northern provinces, not the south, that have been plagued by coal shortages and power rationing this summer.

It seems likely the cost of power will need to rise substantially over the medium term (2-5 years) to curb wasteful consumption and slow the rate of growth in electricity demand. In theory, the government could raise power costs by a similar amount across the whole of China in the interests of inter-regional equity.

But given that the power shortages are already in the north, while much of the new hydro potential is in the south, it is possible that energy charges will rise further and faster in the north, accentuating the existing regional imbalances further.

Beijing Defends Energy Policy After Scathing Report

Nov 9th, 2008
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Agence France-Presse in Beijing | Updated on Oct 28, 2008

Beijing on Tuesday defended its energy policy a day after three influential green organisations criticised its dependence on coal.

“The Chinese government attaches great importance to the development and exploration of clean energy,” foreign ministry spokeswoman Jiang Yu told reporters.

“It has been making great efforts to increase the share of clean energy in the energy mix.”

A report commissioned by Greenpeace, the Energy Foundation and WWF on Monday said China’s dependency on coal was creating hidden environmental and other costs worth more than seven per cent of its annual gross domestic product.

The unaccounted costs equated to an estimated 1.7 trillion yuan (US$250 billion), and would be even higher if the impacts in terms of climate change were included, according to the report.

China depends on coal for about 70 per cent of its booming energy needs, which is one factor in its huge increase in greenhouse gas output in recent years.

Ms Jiang said China had implemented a range of policies to tackle the problem.

“We have reissued a renewable energy law and encouraged development of all sorts of renewable energies, including green energy, solar energy, water and hydro energy, thermal energy,” she said.

“We also attach importance to the clean use of coal, and we have done a lot to control the emission of pollutants produced in burning coal.”

Still, China ranks alongside the United States as one of the world’s two biggest emitters of the gases that are blamed for climate change.

Ms Jiang said China would continue to step up efforts to develop renewable energy.

Reliance On Coal Hurts Climate Change Fight

Oct 30th, 2008
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Shi Jiangtao – SCMP | Updated on Oct 30, 2008

China’s reliance on coal for economic growth has made it difficult to curb growing greenhouse gas emissions, according to the central government’s first policy statement on climate change.

“Developing the economy and improving people’s lives are imperative tasks currently facing China,” the white paper, issued yesterday, says.

“However, its coal-dominated energy mix cannot be substantially changed in the near future, thus making the control of greenhouse gas emissions rather difficult.”

The paper highlighted the dilemma faced by China, with social ramifications if it curbed economic growth and the grave environmental consequences of fast development, such as frequent natural disasters, ecological degradation and shrinking harvests.

“Climate change has already brought real threats to China’s ecological system and economic and social development,” said Xie Zhenhua , deputy director of the National Development and Reform Commission.

The 44-page paper lists various adverse consequences of climate change on agriculture, river and sea pollution and social and economic sectors.

“Extreme phenomena, such as high temperatures, heavy precipitation and severe droughts, have increased in frequency and intensity,” it says.

If not alleviated, the consequences will reduce grain output, shrink lakes and wetlands, cause desertification of grasslands and livestock epidemics, and accelerate glacial retreat and sea-level rise.

However, it is unlikely that China will break its addiction to coal, the cheapest and most plentiful energy source in the country, any time soon. Coal still fuels about two-thirds of China’s energy needs.

The mainland has set ambitious targets to cut energy waste by 20 per cent and pollution by 10 per cent by 2010. Authorities have closed thousands of small coal mines and coal-fired power plants.

Last year, its use of renewable energy – including wind, solar and hydroelectric power – amounted to about 220 million tonnes of coal equivalent, which equals cutting 500 million tonnes of carbon dioxide emissions.

With the promotion of renewable energy, the proportion of coal in the energy mix has fallen by more than 2 per cent in the past three decades, the paper says.

Pollution-reduction Goals Still Far Away, Admits Official

Oct 29th, 2008
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Agence France-Presse in Beijing | Updated on Oct 29, 2008

Mainland is having trouble meeting energy efficiency and pollution-reduction goals, but the government remains determined to reach the targets, a top official said on Wednesday.

Vice-Minister of Planning Xie Zhenhua also said Beijing will consider controls on the greenhouse gas emissions of its worst polluting industries if the rich world will hand over clean technology to keep poorer nations competitive.

China has a target of reducing the amount of energy it consumes per unit of gross domestic product by 20 per cent over the five years to 2010.

It has also vowed to reduce sulphur dioxide emissions, a key air pollutant, and chemical oxygen demand (COD), a measure of water pollution, by 10 per cent each from 2005 levels.

“Our work over the next three years will be very difficult, but the [government] will not waver in assessing the situation in accordance with these goals,” Mr Xie said.Mr Xie also signalled Beijing’s first nod of approval to the “sectoral approach” to containing industrial emissions at the launch of a policy paper on how the country plans to tackle global warming.

Mainland officials have previously denounced the “sectoral approach” as a scheme for rich, high-tech nations to gain a competitive edge by imposing extra costs on rising challengers in sectors, such as steel, concrete and power.

But Beijing is pushing rich nations to transfer more pollution-cutting technology to poorer nations undergoing emissions-intensive industrialisation, and Mr Xie suggested a focus on polluting industries could satisfy both sides.

“China believes that using a sectoral approach is an important measure for implementing emissions reductions in every country. We can decide this for industries with high emissions levels and then transform the technology that these industries use to cut emissions,” Mr Xie said.

“But in whose hands is this technology? Most of it is in the hands of developed nations. If they take this technology and give it to developing nations, it will without a doubt be able to resolve a large amount of the greenhouse gas emission problem.”

Varying proposals for a sectoral approach to curbing emissions involve setting fixed caps, broader reduction guidelines or incentive systems for firms.

Mr Xie did not delve into such specifics or say which industries could be targeted.

But he stressed that up to a quarter of the country’s emissions bill came from manufacturing goods for export, and urged consumer nations to shoulder some responsibility for this pollution.

“Because we are at the low end of the industrial chain, transferred emissions from goods manufactured from exports stand at between 14.5 per cent and 24 per cent of the total.”

“We are footing other people’s bills,” added Mr Xie, who is vice-chairman of the energy and climate-change policy making National Development and Reform Commission.

Mr Xie said he would like rich nations to spend the equivalent of 0.7 per cent of their economy each year on funding cleaner technology to help poor countries skip the dirtiest phase of industrialisation and urbanisation.

He cited the complicated transformers and bearings used in wind turbines as an example of a key technology that could help mainland rapidly expand an already booming sector that makes a clear contribution to cutting emissions.

Ministers Announce 10-year Smart Meter Roll-out For Households

Oct 29th, 2008
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New Energy Focus – 29-10-08

The government announced yesterday that it will require all households to have smart meters installed over the next decade.

The decision was announced by the energy
minister Lord Hunt of Kings Heath as the House of Lords debated the Energy Bill yesterday afternoon.

The move to introduce smart meters – which will tell householders exactly how much gas and electricity they are using – was seen by peers as integral to the success of a new renewable energy feed-in tariff.

Announcing the mandatory smart meters roll-out, Lord Hunt said: “This is a major step forward; no other country in the world has moved to an electricity and gas smart meter roll-out on this scale.

http://www.newenergyfocus.com/resources/listimg/news/On-site/Metering_sm@body.jpg
The government is looking at a number of options for how to roll out smarter meters for UK households that could tell exactly how much energy is being used – or generated through small-scale renewable systems

“We anticipate a period of around two years to resolve the issues and to design the full detail of a domestic roll-out. Our aim is then to ensure that the subsequent roll-out happens over a period of 10 years. This would see delivery of smart meters by the end of 2020 to align with our renewables targets,” the minister went on to say.

Roll-out

The government plans to present an amendment to the Energy Bill at its third reading in the Lords, scheduled for next Wednesday (November 5), to make clear the legal powers needed to introduce smart meters.

An impact assessment analysis is expected to be completed by the end of 2008 before the full details of a national smart meter roll-out are revealed. This analysis should provide up-to-date figures on costs and benefits, Lord Hunt told fellow peers yesterday.

Ministers are keen for smart meters to be rolled out as soon as possible, although details like how the initiative would fit with European free trade rules will have to be considered.

Consultations will have to be carried out to seek the views of both industry and energy regulator Ofgem before proposals are presented to Parliament, Lord Hunt said, adding that Secretary of State Ed Miliband is “keen to make rapid progress in this area”.

Lord Hunt concluded: “Once the details of a roll-out are drafted into licensed modifications, we must lay them before Parliament so that the complete design of the roll-out can be scrutinised.”

Yesterday’s report stage debate on the Energy Bill saw the government’s deputy chief whip, Lord Davies of Oldham, suggesting there were a number of options available for a national roll-out of smart meters.

It could see a centrally-planned programme carried out by companies awarded certain regional monopolies, with energy suppliers co-operating to allow the smart meters to be fitted. Or, it could take the form of a fully competitive metering market.

Lord Davies said: “The government are working with a range of stakeholders to define and evaluate various market models, and we expect to be in a position to reach final conclusions in due course as part of our broader work looking at the possible implementation of a domestic rollout.”

Feed-in tariff

Conservative peer Baroness Wilcox, who prompted the government announcement on smart meters through a probing amendment to the Bill yesterday, welcomed the decision to bring in smart meters across the country.

She suggested the smart meters would be a step towards feed-in tariffs for small-scale renewable energy, where householders will be able to benefit from long-term contracts to sell excess energy to the grid at above-market rates.

Baroness Wilcox said: “Smart meters are not only critical for energy savings at home but will soon be inextricably linked with the feed-in tariff. The government are as alert as we are to the fact that we in this country are very late in protecting our energy supply and energy usage, but this concession by them is a great step forward.”

Biofuels “Better” Than Standard Jet Fuel, Says Boeing

Oct 27th, 2008
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NewEnergyFocus – 27-10-08

Aviation experts have said it is now “unequivocally” certain that biofuels could be used to fuel aircraft – and that they could even deliver better performance than standard kerosene.

The government is expected tomorrow (October 28) to include aviation within its proposed tougher climate change emission curbs being added to the Climate Change Bill.

But while airlines would be able to buy surplus carbon emission allowances from other sectors to comply with their new requirements, it now appears that direct emission cuts from greener fuels could be possible.

http://newenergyfocus.com/resources/listimg/news/Bioenergy/Boeing_Virgin_biofuels_test_Feb_2008_sm@body.jpg

Virgin Atlantic flight VS811P preparing for take-off in February this year: the 747-400 aircraft flew from Heathrow to Amsterdam powered by jet fuel that included coconut oil and babassu nut oil

Boeing has revealed that new technology available in the last 12 months has now opened the door to biofuels in aircraft.

Speaking at a conference earlier this month, Boeing Commercial Airplanes’ director of environmental business analysis, Darrin Morgan, said its work with Virgin Atlantic is now spurring the biofuels supply chain to consider the possibilities of aviation demand.

As a result, he predicted that aircraft manufacturers would now get “very involved” in the search for aviation biofuels.

Commenting on the latest tests on biofuels in aircraft, Mr Morgan told the Westminster Energy, Environment and Transport Forum: “Not only do they perform as well, but with some data that you are going to see roll out in the next couple of months from various initiatives and efforts, they actually perform better, just from a technical perspective, in the aeroplanes.”

Boeing’s trial with Virgin Atlantic in February this year saw a 747-400 aircraft flying from London Heathrow to Amsterdam using a blend of babassu nut and coconut oils blended with kerosene jet fuel. The project saw Boeing working with GE Aviation and Imperium Renewables as well as Virgin Atlantic.

The aviation industry had already been working to maximise fuel efficiencies in jet engines, with the greening of the fuel supply itself the next step, with liquid hydrocarbons like biofuels seen as the only option. “We can’t do plug-in hybrids,” said Mr Morgan.

Aviation is only responsible for 5% of global transport fuel demand, according to the Boeing director, but Mr Morgan suggested that a 20% proportion of biofuels within the sector’s jet fuel could be possible – which would represent 1% of global transport fuels switching away from fossil fuels.

Higher proportions of biofuels would be possible, although there are doubts about whether any more biofuels would be available without impacting on oils needed for food supplies.

Standards

Mr Morgan said Boeing was keen to link up with global standards to ensure there were no unwanted impacts from biofuel use.

He said: “We do believe that supply chain can happen in the next three to five years, so bring in the non-governmental organisations and the other public organisations, they are smart about sustainability.”

Groups including Friends of the Earth have been lobbying for aviation to be included within UK climate change targets, although the campaigners do not support biofuel use.

Boeing is now inviting airlines to sign up to a “sustainability pledge” to help further the drive towards renewable fuels, and has already signed up airlines representing 15% of jet fuel demand.

Cinderella Industries Await Their Prince

Oct 27th, 2008
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Potentially Lucrative Projects Devoted To Clean, Renewable Energy Languish For Want Of Financing

Eric Ng – SCMP | Updated on Oct 27, 2008

The United States’ property bust and the subsequent global credit crunch have many investors fretting that the mainland’s economic miracle is coming to an end. Yet, amid the gloom and doom, renewable energy, energy conservation and pollution control are being tipped to become the next wave of high-growth industries.

China, the world’s second-largest energy consumer and one of the most pollution-prone economies, has huge opportunities for projects devoted to energy efficiency improvement and the generation of clean and renewable energy. The question is how they will be financed.

The nation’s energy consumption per unit of economic output amounted to four times the world average, highlighting a dependence on industries that are energy-intensive but low in value addition and inefficient in their use of energy.

With 80 per cent of its electricity generated from air-polluting coal and with power generation capacity rising at alarming rates, the mainland has become the world’s biggest emitter of sulphur dioxide, which causes acid rain, and carbon dioxide, which contributes to the greenhouse effect.

According to the China Energy Conservation Association, electrical machinery on the mainland consume about 40 per cent more energy than their international counterparts, implying a vast market for solutions and products that improve energy efficiency.

The central government has targeted cutting the nation’s energy consumption per unit of economic output by 20 per cent between 2006 and 2010 and principal pollutants by 10 per cent mainly by ordering the phasing out of outdated and inefficient plants.

“This year is a turning point for the mainland economy’s development [given the drastic slowdown in exports], but I think a new growth area is the clean energy sector, which will become a pillar of growth,” said China Energy Investment Network chief executive Zhang Jie, an adviser to the central government on energy policies.

Beijing said last month it had earmarked 41.8 billion yuan (HK$47.4 billion) to fund projects for energy conservation and pollution reduction. Firms with energy-saving and pollution-cutting projects will also be eligible for reductions in profit and value-added taxes, although details are yet to be released.

This is a small drop in the pond. Lily Zhao Ming, secretary general of the conservation association’s committee on energy service companies, says the sector is estimated to require a whopping 1 trillion yuan of investment between 2006 and 2010 to meet government targets.

The committee implements energy conservation programmes on the mainland funded by the World Bank and Global Environment Facility. .

The mainland’s energy consumption per unit of gross domestic product fell 1.79 per cent year on year in 2006, 3.66 per cent last year and 2.88 per cent in the first half of this year. Given the 20 per cent reduction target between 2006 and 2010, it has a lot of catching up to do.

The lacklustre performance, in part, has to do with the tight control on energy prices at levels much lower than international ones to protect consumers and ensure social stability amid inflation that is the highest in a decade.

High prices have proven to be an effective way to drive conservation and efficiency gains, given experience drawn from the oil crises in the 1970s and 1980s in the US, Europe and Japan.

With inflation easing to a 15-month low last month, all eyes are on Beijing to introduce a new round of price increases for fuel and electricity to ease losses at energy producers. The mainland energy conservation industry’s output, measured as the value of contracts to save energy plus the cost of equipment installed, rocketed to 21.6 billion yuan last year from 1.7 billion yuan in 2003.

The industry is expected to see further explosive growth as more people discover its profit potential, Ms Zhao said on the sidelines of the China Power Oil & Gas conference in Guangzhou last month.

On the renewable energy front, the central government has estimated that it will take 2 trillion yuan of investment to realise its targets for generation capacity in 2020.

So far, wind power has seen the biggest growth, with installed generation capacity expected to surpass 10,000 megawatts this year and reach 20,000 MW by 2010, compared with 5,600 MW last year and 2,600 MW in 2006.

Given the mainland’s less developed markets for bonds, private equity and venture capital – and the fact that the equity market is primarily for companies with established track records of profits – bank loans are the main financing channel for energy efficiency and renewable-energy projects.

However, these are considered nascent, non-mainstream and more risky ventures that are not normally inside the comfort zone of bankers.

Daniel Zhu, president of Transpacific Resources China, an investor in renewable energy and energy efficiency projects, says companies are struggling to find enough funds to tap mushrooming market opportunities.

“At the moment, developers are scrambling to grab hold of projects, but their funding demand is far from being met,” he said. “There is a chicken or egg problem.”

Financiers are cautious about funding start-up projects, but if projects do not get funded, the sector cannot reach maturity.

Venture capital funds, a traditional capital source for start-ups, tend not to be keen to energy efficiency improvement projects because they prefer to invest in highly profitable projects that can be scaled up in size rapidly, Mr Zhu said.

Private equity funds and banks have taken greater interest. A multitude of domestic and overseas funds are seeking opportunities to invest in renewable energy and energy efficiency projects.

While some banks are willing to entertain loan requests, industry insiders say commercial bankers have yet to fully appreciate the business model of energy efficiency projects and tend to be cautious.

“Unlike the construction of fixed assets, such as railways and buildings, energy conservation is often intangible, and its risk and return are a new topic for bankers,” Ms Zhao said. Her association has provided seminars and training courses to commercial bankers to familiarise them with the nascent sector, spurring the likes of Beijing Bank, Huaxia Bank, Industrial Bank and Shanghai Pudong Development Bank to set up specialised departments to tap the sector, she said.

Even so, banks, the main supplier of funds to the sector, require guarantees and collateral based on future cash flows from projects.

Despite the general lack of understanding of energy efficiency projects among outsiders, industry practitioners say energy efficiency projects can be extremely lucrative. They say return on investment can reach as high as 200 per cent, although the norm is closer to 30 per cent.

“People say property is a sector with extravagant profits. I’d say profits in the energy conservation industry are even more extravagant,” Ms Zhao said.

Wang Shaohong, director of the Energy Saving Investment Promotion Centre, cited the mainland’s seventh-largest steelmaker, Shougang, as an example. He said the company spent less than 100 million yuan on nine energy-saving programmes but was able to save more than 118 million yuan a year on energy expenses.

Mr Wang said the fundamental problem with a lack of financing for energy efficiency projects lies in their complexity.

“As energy conservation virtually involves all industries, it is very difficult to find financial experts who also know the industries well,” he said.

In other cases, state banks are often constrained by blanket orders from Beijing not to lend to highly pollution-prone, energy-intensive industries and those with over-capacity problems, even though such companies may want to use the money to enhance energy efficiency.

Chan Ka-keung, head of Greater China investment for Climate Change Capital, a financier of clean-energy projects, said: “Mainland bankers may not be sophisticated enough to understand the ins and outs of energy conservation projects. Sometimes they just cut lending to the banned sectors entirely without taking into account energy conservation projects.”

This is partly mitigated by guarantee programmes provided by development agencies such as the International Finance Corp, a unit of the World Bank, and Asian Development Bank. These agencies act as guarantors whose participation supports the business case for commercial banks to lend to project developers.

There are other ways for companies engaging in renewable energy and energy efficiency improvement projects to apply for financial subsidies. One of them is the so-called Clean Development Mechanism (CDM), a United Nations-led scheme that allows polluters in developed nations subject to pollution caps to meet their obligations by providing funding to projects for the reduction of greenhouse gas emissions in developing nations instead of cutting their own emissions.

Project developers in developing nations can sell emission reduction credits to polluters in developed nations but must demonstrate that without the subsidies their projects would not be viable.

The emission rights trading industry is set for big changes. Reduction commitments under the Kyoto Protocol, to which the CDM is linked, are due to expire in 2012, and negotiators want to seal a new pact at a UN conference in Copenhagen in December next year.

James Graham, commercial director of Camco Group, a company based in Britain that finances and develops greenhouse gas emission reduction projects internationally, expressed optimism about progress towards a global deal.

“The US has indicated that it would like to see larger and industrialising developing nations such as China, India and Brazil make some form of commitment to emission reduction. It is still open as to what form the commitment will take, but hard negotiations are going on at the highest level of governments,” he said.

If China agrees to some form of self-imposed emission reduction target, it would be a boon to the growth of the domestic renewable energy and energy efficiency industry. Mr Graham believes the country will bargain for transfers of technology – such as carbon capture and storage know-how – in exchange for binding commitments, beyond voluntary emission cuts via CDM projects.

The driving forces for greater development of renewable energy and energy conservation projects – higher energy prices, increasing pressure to reduce emissions to avert climate change, and greater government incentives – appear to be in confluence. There could well be a silver lining in the dark clouds of the global economic slowdown.

eric.mpng@scmp.com

Winning Toy Designer Reinvents Light Bulb

Oct 25th, 2008
by AdminCTA.
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Peter So – SCMP | Updated on Oct 25, 2008

An environmentally friendly “sticker lamp” as thin as a magazine cover has won a local toy designer a top award in the Seoul Design Competition – Hong Kong’s first and only winner in the contest.

Keikko Lee Wing-lam, 26, came up with the idea of a lamp with electroluminescent material on one side and solar panels and sensors on the other. The electroluminescent material gives out light when an electric current is passed through it, in this case generated by the solar panels.

Users attach the lamp’s sticky solar side to a window to absorb sunlight, Ms Lee said. At night, it can be taken down and placed in a room to provide light. When the power runs out, the lamp can be returned to the window to recharge.

“No extra electricity is needed,” said Ms Lee, a graduate of Polytechnic University’s school of design.

The concept landed her the gold prize in the Seoul Design Competition, which was part of the international Seoul Design Olympiad 2008, held this month.

The aim of the contest is to encourage environmentally friendly and creative design solutions for a sustainable city life.

Since the lamp is very thin and light, Ms Lee said it could reduce complicated manufacturing procedures and save on raw materials.

“I believe not only the product itself has to be ecological, but the manufacturing process should be ecological too, in order to make our environment better. Pollution and [power] usage will be reduced correspondingly.”

Ms Lee said she found the electroluminescent material on the internet three months ago and wondered why such an ecological substance had not been put to wide use.

Although the idea had yet to become a finished product, Ms Lee was confident it would be workable.

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