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Chinese hydro projects to resume, according to the NDRC

Hydropower projects shelved in response to environmental concerns and community relocation issues last year have resumed in recent months in western China.

But the bulk of the nation’s planned hydroelectric dam projects are still on hold due to nagging cost gaps between hydro and traditional thermal power plants. Hydroelectric dams are expensive to build, and the industry says hydropower tariffs are too low.

Zhang Boting, deputy secretary of the China Water Engineering Association, said several hydropower project applications are sitting in the pipeline, waiting for decisions from the government’s chief planning agency, the National Development and Reform Commission (NDRC).

Most pending applications were scheduled for action during the nation’s 11th Five-Year Plan period, which ends December 31. But only 11 of 33 hydropower stations listed as key projects in the plan’s renewable energy development section had been approved by the end of 2009.

Since then, there has been at least some progress for three stations slated for construction on the Jinsha River in western China, according to a source at the state-owned power utility Huadian Corp., which will operate the plants.

The Ludila, Jinanqiao and Longkaikou projects were shelved by regulators last year. The Ministry of Environmental Protection (MEP) ordered the suspensions because construction work had started before environmental impact assessments were validated.

But the source said construction at Ludila resumed in the wake of a green light from MEP in August, although its NDRC application is still pending. Similarly, the Longkaikou project has MEP’s backing but so far no approval from NDRC. On the other hand, NDRC has approved the Jinanqiao project. “Construction of Ludila hydropower station has been under way for a while” and “is in the pipeline for approval by” NDRC,
said the source. “The environmental assessment has been accepted, and approval from NDRC is set in stone.”

Low Stream

But in general, China’s hydropower expansion program appears to be stuck in a slow lane.

“As there have been no major hydropower stations built since 2007, new hydropower capacity in China will decline remarkably after 2012, especially after 2015,” said a recent report by the brokerage CITIC Securities.

The nation’s installed hydropower capacity increased by a combined 14 million kilowatts between 2007 and 2009, the CITIC report said, which helped bring current capacity to about 200 million kilowatts. The national target calls for increasing installed capacity to 380 million kilowatts by 2020.

Thus, the report said the coming decade should be a golden era for dam and power plant builders before business dries up.

Pressure to reduce energy consumption and lower power plant emissions raised hopes for hydropower companies in recent years. Ouyang Changyu, deputy-secretary of the China Electricity Council, told an electric industry meeting November 30 the industry plans a “great effort to develop hydropower” during the period of the 12th Five-Year Plan.

In terms of investment returns, hydropower is considered a better option than renewable energy sources such as wind and solar power, said Ouyang. One reason is that hydropower technology is mature to the point where its costs are close to or only slightly higher than those for thermal power, whereas wind and solar power costs are much higher.

Zhang said there’s plenty of room for growth. China had developed and utilized only 25 percent of its hydropower-available water resources as of 2009, he said, far behind utilization rates of up to 80 percent in developed countries.”Hydropower is underdeveloped in China,” he said.

When the country’s five major electricity groups were incorporated in 2002, Zhang said, each was allocated a specific area for hydropower projects in China’s 13 major watersheds. These groups also took over existing hydropower companies.”Thirteen hydropower bases came under the monopolies of the five major groups,” he said.

Beyond the bases, though, each power group also turned attention to the unallocated Yarlung Zangbo River in Tibet Autonomous Region. Regulators later approved the power group Huaneng for building the first station, called Zangmu, which will have an installed capacity of 510,000 kilowatts.

Worth It?

Yet hydropower remains an expensive option for electricity companies compared to traditional coal-fired and other thermal plants, particularly in the face of environmental and relocation costs in affected riverbeds.

“How would it be possible to effectively address environmental and relocation issues with the price of hydropower so low?” asked Sha Yiqiang, director of research at the China Electricity Council. “A huge investment is required to resolve either of these issues.”

Another industry insider said no hydropower project can turn a profit during its first five years, especially given that tariffs for hydro-generated electricity have long been below thermal power tariff levels.

“A higher on-grid tariff will only squeeze the margin of power grid companies,” the source said. “End users will not be subject to a higher burden.”

Initial construction and auxiliary costs account for about 40 percent of a plant’s total investment. On top of that, relocation and environmental costs have been rising and now represent about 30 percent of a project’s cost.

Wang Jun, director of alternative energy at the National Energy Administration, recently criticized the government’s low-tariff policy for hydropower, blaming it for problems tied to relocation and environmental issues.

Wang called for an “indiscriminate tariff policy for thermal and hydropower” based on a market pricing that replaces the cost-based pricing pattern used for many years. Power generated by different means should be priced according to different period and consumer demand, he said.

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