Project Name China-Renewable
Energy Development Project
Region East
Asia and Pacific
Sector Energy
- Renewable
Project ID CNPE46829
Borrower People's
Republic of China
Implementing Agency:
State Economic and Trade Commission
26 Xi Da Jie, Xuan Wu Men
Beijing 100053
People's Republic of China
Tel: 86-10-6318-7932
Fax: 86-10-6851-6072
Date PID Prepared
March 3, 1998
Projected Appraisal
December 1998
Projected Board Date March
1999
Available
Project Documents
Background
1. Country and Sector Background
Development of renewable energy is regarded by the Government
of China (GOC)as an important means to reduce the power sector's
heavy reliance on coal, which is essential to reducing greenhouse
gas (GHG) emissions as well as emissions of TSP, NOx and SO2. Energy
is the largest source of GHG emissions worldwide, and China accounts
for 10% of global GHG emissions from energy use. China's
share will grow if rapid rates of economic growth continue well
into the next century, as predicted. However, macro-economic
and energy modeling work show that an aggressive program to promote
energy conservation and renewable energy could limit the increase
in GHG emissions between 1990 and 2020, under a high economic
growth scenario, from a three-fold increase to less
than two-fold .
Reducing local environmental damage is also important,
as annual health and agricultural losses associated with coal-related
air pollution in China are estimated to be as high as 6 percent
of GDP .
Renewable energy is also a critical component of China's long-term
energy strategy for rural development. China has strongly supported
small hydropower (<25 MW), biogas, and small wind turbines
over the past 35 years, to provide energy and electricity to isolated
rural populations. In 1995, the GOC voiced new commitment to renewable
energy, as outlined in the New and Renewable Energy Development
Program, 1996-2010, developed by the State Planning Commission
(SPC), the State Science and Technology Commission (SSTC), and
the
State Economic and Trade Commission (SETC). This program aims
at improving the efficiency of renewable energy technology applications,
lowering production costs and enlarging the contribution of renewable
energy to overall energy supply. The 1995 Electricity
Law also extends GOC support to solar, wind, geothermal and biomass
energy for power. Recognizing the need for a strategic orientation
to renewable energy development, the GOC, with Bank/GEF assistance,
has undertaken sectoral analyses which has culminated in a strategy
document and two detailed sector studies .
The project design is based on these studies, which conclude that
China needs a market-driven approach to renewable energy development
which: (i) focuses on promoting commercial or near-commercial
applications; (ii) combines international advances in technology
with demonstrated Chinese low-cost production capabilities; and
(iii) taps the large potential demand by lowering costs and improving
products, system reliability, and consumer service. Following
the recommendations of the above sector studies, the China Renewable
Energy Development Project would support the development of the
two most promising renewable energy technologies, windfarms and
solar photovoltaics (PV) for rural applications.
2. Objectives
The proposed project aims at developing state-of-the-art
wind and solar PV technologies to increase electricity supply
in an environmentally sustainable way and improve access
of dispersed rural households and institutions to modern energy. These
objectives would be achieved through stimulation of demand and
increased competition to reduce costs. The project would include:
(a) installation of 190 MW of grid-connected windfarms in four
provinces; (b) supply of about 200,000 photovoltaic
(PV) systems to households and institutions in remote
areas of four Northwestern provinces; (c) support for
technology upgrading to improve the performance and reduce the
costs of windfarm and solar PV technologies in China;
and, (d) assistance to strengthen institutional
capacity and market infrastructure for large-scale commercialization
of windfarms and solar PV.
3. Description
The Project consists of four components: Windfarm Development
Component: This component would develop 190 MW of wind
farms at up to 5 sites. Proposed sites include: Huitingxile,
Inner Mongolia; Zhangbei, Hebei Province; Pingtan,
Fujian Province; Chongming Island and Nanhui,
Shanghai Municipality. Each wind farm will be developed using
a commercial framework that includes power purchase agreements
and other legal documentation (to be developed during the project)
required to encourage private sector participation in future wind
power projects. Solar PV Component: This component would support
the sale of PV or PV/wind hybrid systems to about 200,000 homes,
businesses or community facilities in
Qinghai, Gansu, Inner Mongolia and Xinjiang (about 10 MWp of PV). The
aim is to catalyze development of commercial companies that will
offer customers high quality products and effective sales and
service arrangements. The companies will be encouraged to offer
payment mechanisms to customers to make PV systems
more affordable to customers. Competition will be encouraged
to improve products and lower costs. Only quality certified
products will be offered. Participating PV companies
will be provided with business
development assistance, as well as access to credit and direct
grants. Technology Development Component: This component
would accelerate technology upgrading to support local manufacturing
of components of wind turbines and PV systems in China, in order
to provide high quality products and performance as well as to
reduce costs. Beneficiaries of grant financing to improve
locally-manufactured products and to improve quality and reduce
costs would be selected competitively based on proposals submitted
by Chinese companies or
joint ventures. Projects would be cost-shared with
industry. Proposals would be evaluated by an expert
group comprised of GOC officials and technical experts
(which may include international experts).
Institutional Support Component: This component would provide
support for: (a) training of staff in windfarm and power companies
in technical, financial and legal aspects of windfarm project
development; (b) developing a windfarm project portfolio
to be offered to potential investors, including information on
contractual arrangements, wind resources, and site characteristics; (c)
collecting, analyzing and publishing information on wind turbine
performance on developed sites; (d) strengthening an existing
facility to act as a National Solar PV Testing and Certification
Center; (e) developing and establishing national solar PV component
and system standards; (f) quality
assurance, a consumer information campaign, and business development
assistance to solar PV system companies; and (g) project implementation
support for management, performance monitoring, and evaluation.
4. Financing (preliminary)
Million US $
IBRD 100
Global Environment Facility (GEF)
35
Government 15
Local Equity 140
Local Debt 118
Total
408
5. Implementation
A project leading group would provide overall policy guidance.
This group is chaired by a Vice Minister of SETC, and includes
representatives of government agencies responsible for renewable
energy development. A Project Management Office (PMO),
under SETC, would be responsible for project coordination,
assisted by other agencies at the central and provincial level
and research units. The PMO would manage all components of the
project, except the windfarm development component. State Power
Corporation (SP) would be the beneficiary of the Bank loan and
would be responsible for development of all windfarms, through
its fully or majority owned subsidiary companies.
6. Sustainability
Long-term sustainability of windfarms and solar PV systems for
rural use requires cost reduction, as well as strengthening institutional
arrangements, market mechanisms and business capabilities. For
windfarms, costs will be reduced by increasing the size of windfarms,
tendering equipment through international competitive bidding,
and promoting domestic production of high quality, low cost equipment. For
solar PV, sustainability requires improved product quality and
after-sales service, in addition to lowering of costs. The project
would require that suppliers meet quality standards for both products
and service. To reduce costs, the project aims to strengthen competition
among suppliers and, to support local production of high quality,
low cost modules and system components. Activities to strengthen
institutional capabilities are described under the institutional
support component above.[Note: Flag the factors critical
for the sustainability of project benefits.]
7. Lessons learned from past
operations in the country/sector
While energy sector projects in China have satisfactory or highly
satisfactory ratings, lessons built into the proposed project
design include: (a) the need to set specific and achievable
objectives for power sector reform; (b) the need for a systematic
approach to procurement including training of implementing agencies;
and, (c) the need for early government approval of projects.
Lessons drawn from successful international renewable energy projects
and incorporated into project design include:
PV systems. Lessons learned from successful international
projects have been taken into account in project design to: (a)
overcome first cost barrier to increase market size; (b) establish
responsive and sustainable PV sales and distribution networks;
(c) operate on a cost-recovery basis; (d) provide adequate
consumer information; and, (e) ensure adequate management skills
in local implementing organizations (see Best Practices for Photovoltaic
Household Electrification Programs, World Bank Technical Paper
No. 324).
Windfarms. The project design incorporates recommendations
of the China: Financial Incentives Policy for Renewable Energy
Technical Assistance. The study summarized the experience
of six leading countries in windpower development.
It indicated the importance of contractual frameworks that provide
a financial incentive based on production levels (e.g.. a premium
price) combined with competition, to encourage efficiency and
low costs.
Local adaptation and production of technology. The project supports
local technology development, to avoid problems such
as those created in India by local joint venture companies making
ad-hoc adaptations of Danish designs with insufficient attention
to local wind regimes and site conditions. Heavy reliance on imports
could also impede sustainability of renewable energy, as shown
by start-up experience in the Bank's Indonesia renewable
energy projects, which have been stalled by sharp cost increases
for imported equipment as a result of recent currency devaluations.
8. Poverty Category
While the project does not explicitly address poverty alleviation,
it is expected to provide electricity services to rural households
and institutions that would otherwise not receive services, in
four provinces with substantial minority populations and per capita
rural incomes well below the national average.
9. Environmental Aspects
In accordance with World Bank Operational Directive 4.01 (Environmental
Assessment), the Project has provisionally been assigned as a
Category B project. No adverse environmental impacts are expected
under the Solar PV Component. Environmental benefits
include avoided emissions of 8.5 million tonnes of CO2 from
the windfarm component, 4.3 million tonnes of CO2 from
the PV component, and associated avoided emissions
of TSP, SO2 and Nox. Each potential site
under the Wind Farm Development Component will be evaluated for
potential environmental impacts (including impacts on avian fauna,
as well as noise and visual impacts) during project preparation. Environmental
mitigation and management plans will be developed for the wind
farm sites as required.
No resettlement would be required for the Solar PV Component. Minimal,
if any, resettlement impacts are expected for the Wind Farm Component
because of the location of the sites. A World Bank resettlement
specialist will visit and evaluate the project sites during project
preparation. Activities for addressing resettlement
concerns (including potential benefit provision to indigenous
peoples in proximity to the wind farms) will be defined and carried
out.
10. Program Objective Categories
Environmentally Sustainable Development
Contact Point:
The InfoShop
The World Bank
1818 H Street, N.W.
Washington, D.C. 20433
Telephone No. (202)458 5454
Fax No. (202) 522 1500
Note: This is information on an evolving project. Certain activities
and/or components may not be included in the final project.
Processed by the InfoShop week ending May 15, 1998.
See China: Issues and Options in Greenhouse Gas Emissions Control,
Summary Report, joint report of the Chinese Government, UNDP,
and the World Bank, December 1994, p. 33.
Clear Water, Blue Skies: China's Environment in the
21st Century, East Asia and Pacific Region, World Bank, 1997.
China: A Strategy for International Assistance for
Accelerating Renewable Energy Development, 1997. China: Renewable
Energy for Electric Power, 1996; and China: Renewable Energy Development for
Thermal Applications, 1997.
The PV systems may be used in combination with small wind turbines
to create PV/wind hybrid systems, as such hybrid systems are expected
to be more cost-effective in some areas.
