Renewable Energy in China : Towards a Green Economy, Volume 3 [1 ed.] 9781623200503, 9781623200213

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Renewable Energy in China: Towards a Green Economy Volume 3 Renewable Energy in China: Towards a Green Economy presents a complete look at China’s efforts to become a “green” nation. This three-volume series provides a collection of essays from over 70 internationally renowned experts who offer in-depth coverage of the current renewable energy industry in China. The series also looks at the relevant international events (the Fukushima disaster) which can provide lessons for China, as well as the current geopolitical and economic factors (solar power subsidies, wind power costs) which will impact China’s growth as a “green” nation. The series also contains 25 case studies from industry leaders and business experts who provide concrete examples and theoretical analysis of the renewable energy industry in China and the West. With a preface from renowned statesman Cheng Siwei and an introduction from Nobel Peace Prize winner Mohan Munasinghe, Renewable Energy in China: Towards a Green Economy offers an authoritative look at China’s progress as a green economy including the nation’s current efforts to develop sustainable practices.

Editors Manhong Mannie Liu is Director of the Venture Capital Research Group at the Chinese Academy of Sciences’ Research Center on Fictitious Economy and Data Science. She is also the Director of Renmin University’s Venture Capital Research Center, as well as a Professor and mentor of PhD students. Professor Liu received her PhD from Cornell University in 1994 and she has worked as a research faculty member at Harvard University. Mike Henry is Associate Dean of the School of Business, MacEwan University. His career spans the public and private sectors. He received his education at the University of Ottawa, the University of Alberta, and

Renewable Energy in China : Towards a Green Economy Volume 3

Presents a Complete Picture of China’s Sustainable Development Efforts

the University of Southern Queensland. the director of the Center for Green Economy, Peking University HSBC Business School, Asian Chairman in the Ecological Development Union International (EDUI), and as supervisor at China’s Ministry of Land and Resources. China’s Energy Studies

Manhong Mannie Liu Mike Henry Huang Haifeng

Huang Haifeng obtained his doctorate at Humboldt University of Berlin. He is serving as professor and

Renewable Energy in China:

Towards a Green Economy Volume 3

Manhong Mannie Liu Mike Henry Huang Haifeng

Renewable Energy in China: Towards a Green Economy

Published by Enrich Professional Publishing (S) Private Limited 16L, Enterprise Road, Singapore 627660 Website: www.enrichprofessional.com A Member of Enrich Culture Group Limited Hong Kong Head Office: 2/F, Rays Industrial Building, 71 Hung To Road, Kwun Tong, Kowloon, Hong Kong, China China Office: Rm 309, Building A, Central Valley, 16 Hai Dian Zhong Jie, Haidian District, Beijing, China United States Office PO Box 30812, Honolulu, HI 96820, USA English edition © 2014 by Enrich Professional Publishing (S) Private Limited Translated by Barbara Cao, Janet Cheng, Vivian Hui, Vivien Lee, Caren Ng, and Phoebe Poon Edited by Janet Cheng, Glenn Griffith, and Phoebe Poon All rights reserved. This book, or parts thereof, may not be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system now known or to be invented, without prior written permission from the Publisher. ISBN (Hardback)

978-1-62320-021-3

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Enrich Professional Pubishing is an independent globally minded publisher focusing on the economic and financial developments that have revolutionized new China. We aim to serve the needs of advanced degree students, researchers, and business professionals who are looking for authoritative, accurate and engaging information on China. Printed in Hong Kong with woodfree paper from Japan

Contents Part V: Renewable Energy and Energy Efficiency Case Studies 5.1 Tsing Capital: Doing Well by Doing Good.................................................. 2 Tsing Capital 5.2 How Sinovel Establishes Itself in Wind Energy.......................................... 15 Tao Gang and Hu Wei 5.3 A Top Down Approach: Achievements of the Shandong Provincial ...... 52 Government in Promoting Energy Efficiency Policies Li Pengfei 5.4 China’s Bioenergy Pioneer: Henan Tianguan Group................................. 77 Zhang Xiaoyang and Feng Wensheng 5.5 A Chinese Dream for Generations: The Three Gorges Project ................. 89 Guo Jianxin and Yang Xianlong 5.6 Qingdao: The Development and Utilization of Ocean Energy................. 100 Sun Zhaoming and Wang Jishang 5.7 New Approach to an Old District: A Remarkable Accomplishment....... 115 by Shanghai Changning District Gao Yun and Ye Pengju 5.8 Venture Capital: Let GEM Fly........................................................................ 135 He Guojie 5.9 Linuo Power Group on Solar Energy........................................................... 146 Gao Yuankun 5.10 Private Hydropower in Sanchuan................................................................ 153 Ren Qi’nian and Lee Seung-Hee 5.11 The Solar City: Dezhou .................................................................................. 163 Yu Zhijun and Cheng Xuesong 5.12 China National Offshore Oil Corp. (CNOOC) Hainan’s........................... 179 Biodiesel Project: Annual Output of 60,000 Tons Li Yi and Liu Qiang 5.13 The Rise and Fall of Suntech ......................................................................... 183 Li Shi 5.14 Guangyuan: A Low Carbon City................................................................... 196 Zou Jin and Zhou Yong

5.15 The Success of Rayspower............................................................................. 208 Xue Liming 5.16 Forestry Carbon Exchange Practices in China............................................ 215 Lei Ziwen 5.17 A Venture Capital Practice of Investing in Wind Energy.......................... 224 Lu Bo 5.18 Renewable Energy Development in Alberta .............................................. 232 William X. Wei 5.19 An Energy Efficient Chinese Restaurant: Shunhe International Hotel ... 237 Ren Xingben and Guo Youyu 5.20 The Development of Offshore Wind Power Projects by ........................... 250 China National Offshore Oil Corporation (CNOOC) An Lei 5.21 Improved Domestic Energy Use Methods .................................................. 258 Steve Haupt 5.22 The Difficulties Faced by Sany Group to Enter........................................... 274 the Wind Power Market Liang Jiankang 5.23 Renewable Energy in Nanyang City............................................................ 281 Zhang Xiaoyang and Feng Wensheng 5.24 Huigu Agriculture District: Making Low Carbon a New Way of Life.... 291 He Wenjun and Li Yang 5.25 Foreign Wind Power Companies in China ................................................. 298 Li Ni

Part VI: The Future of China’s Renewable Energy 6.1 The General Principles of Economy: Categories of Goods ....................... 310 and Services Pierre Calame 6.2 Taoism and Renewable Energy .................................................................... 339 Manhong Mannie Liu

V

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Renewable Energy and Energy Efficiency Case Studies

RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

5.1 Tsing Capital: Doing Well by Doing Good Tsing Capital

Twelve years ago, I envisaged that cleantech investment would be a mainstream investment. Everybody told me it was impossible. Yet from as early as 2005 things began to change dramatically. Cleantech is going to be dominant, and that means Tsing Capital will be in a very good strategic position. Ye Dong, Founder and Managing Partner of Tsing Capital In 2000, Ye Dong returned to Beijing from the United States, with the vision that China’s status as the “world’s factory” would also bring about unprecedented issues with pollution. He founded Tsing Capital, China’s first cleantech-focused venture capital (VC) firm, in the belief that cleantech investment would become mainstream in the near future. He started off with a first funding of USD13 million. Today, 12 years later, his vision and perseverance have paid off. The cleantech market has blossomed worldwide with China at the core. Meanwhile, Tsing Capital has established itself as one of the most prominent VC firms in this space, managing six funds with over USD600 million in assets under its management. With multiple awards from both China and overseas, Tsing Capital became a role model for cleantech investment in other emerging markets. In 2009, Businessweek selected Ye Dong for its annual list of “China’s Most Powerful People.” That 40-person list also included former Chinese President Hu Jintao, retired NBA legend Yao Ming, and global film star Zhang Ziyi. Ye’s correct bet and the funds’ superior financial returns only define one half of the firm’s success as a global pioneer and leader of cleantech investment. In 2012, Robert B. Zoellick, President of The World Bank, described Tsing Capital as a great success story that “shows how commercial concerns linked to environmental and social standards offer win-win opportunities. Tsing Capital is raising environmental and social standards across the industry, and transmitting those standards into multiple companies.” Indeed, Tsing Capital was founded on the philosophy of “Doing Well by Doing Good” with a vision that sustainability would signal a fundamental paradigm shift in human activities and create the greatest economic opportunity of our time. As a socially responsible investor, Tsing has been recognized several times by corporate citizenship awards in China, and more recently in 2012 by PEAsia.com as the “Responsible Investor of the Year in Asia.” Tsing’s success did not come easily. As an industry pioneer, Ye spent the early years of the firm’s history as a lone wolf, often shunned and looked down on by the mainstream investment crowd. The term “cleantech” had not even been coined in 2001. There were only a handful of socially conscious investors to raise money

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from for the first fund. The immaturity of the private equity market in China meant entrepreneurs resisted investors’ governance, let alone socially responsible management requirements and methods. Tempted at times to walk away under the gravity of such challenges, Ye persevered to build Tsing into what it is today. The media used to describe Ye as the “Evangelist of Cleantech in China.” By 2009, he was listed as one of the “Most Powerful People in China” by PEAsia.com. Today, the cleantech investment market has grown to unthinkable proportions compared to a decade ago. The global VC community has poured in over USD50 billion over the past seven years, compared to less than USD10 billion in all the previous years combined. China has leapfrogged numerous developed countries to stand shoulder to shoulder with the United States in terms of clean energy investment by spending close to USD100 billion in the last two years alone. With a new Chinese government administration on board, many expect the next big wave of cleantech investment to be just round the corner. People will look to Tsing Capital to lead by example and contribute to improving the world’s sustainability for future generations.

The need for sustainable investment China has experienced tremendous economic development over the past three decades, but this development has incurred significant environmental and social costs. China’s Ministry of Environmental Protection estimated that environmental impacts cost China USD200 billion every year, which is around 10% of its GDP. In 2007, China overtook the U.S. to become the world’s top emitter of carbon dioxide. While China’s citizens and government increasingly recognize the need to reduce environmental damage, the priority is still economic growth. With 150 million people still living on less than a dollar a day, China must find ways to curb pollution while continuing to support strong economic development. Tsing believes that economic growth and environmental protection do not have to be in conflict. Instead, business can take the lead in sustainability by doing what it does best: innovating and creating opportunities for economic growth. “Doing Well by Doing Good” is Tsing’s core philosophy and it reflects the idea that investments in sustainability can bring financial benefits as well. For Tsing, true success in sustainability comes from the success of businesses which create both environmental and economic value. Since 2001, Tsing Capital has dedicated its funds to investment in innovative and dynamic enterprises with environmental benefits. They see beyond China’s role as a manufacturing hub to the potential for innovative research, development, and the application of environmental solutions.

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Tsing also integrates sustainability factors into each stage of its investment process, from initial assessment to ongoing engagement. This means that even as it looks to support enterprises that produce beneficial services and products, it also cares about whether these businesses operate in responsible and sustainable ways.

Sustainable investment landscape The global market for sustainable investment has been calculated by the European Sustainable Investment Forum (EuroSIF) to be USD7 trillion, with the majority of investments coming from Europe and the United States. In an estimated global investment market of USD95 trillion, sustainable investment makes up roughly 7% of the total market. Why is sustainable investment growing? Some investors consider environmental, social, and corporate governance (ESG) performance as a proxy for general management and as a demonstration of a business’s ability to identify risks and plan for long-term, strategic growth. Demand from clients for ESG integration is also on the rise, particularly from pension funds, and some investors view this as a way to create a competitive advantage and differentiate their firms. Other investors have explicit mandates to align their portfolios with social and environmental objectives, values, or beliefs. Finally, there is a growing sense among investors that at least some specific ESG factors are becoming more material to the financial success of businesses.

Sustainable investment in China China’s remarkable economic development in recent years is now being adapted to environmental and social values as the national government seeks to create a “harmonious society.” Sustainable investment has an important role to play, as a means of risk mitigation for the financial system, and also as a powerful lever for influencing corporate behavior. Chinese government policies such as the Green Credit Policy and Green IPO Policy are based on the premise that financial and environmental regulatory systems must be integrated in order to be effective, and these policies support growth in domestic sustainable investment. Meanwhile, a small group of market pioneers and innovators are exploring ways to integrate ESG factors into their investments, and inventing homegrown methodologies which align with material issues.

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Cleantech Investment According to Pernick and Wilder, authors of The Clean Tech Revolution: The Next Big Growth and Investment Opportunity, for the better part of the last century, cleantech was considered by many as a mere “alternative,” the province of “back-to-theland” lifestyle advocates, altruistic environmentalists, and lab scientists with research grants. Any clean technology at an early stage of development was too expensive, lacked widespread political support, and very few large, established companies were embracing the sector. Even at the start of the 21st century, the term cleantech had yet to be properly defined for the financial or business community.1 Mitigating and adapting to climate change will require sizeable investments — up to 1% of global GDP, as the Stern Report would suggest. Fortunately, figures are showing that cleantech has attracted increasing capital over the past seven years. Whether it is due to the urgency of the climate issue, technological innovation, lower costs or rising consumer awareness, investors are beginning to realize that the cleantech business can make a sound investment case. This can also be evidenced in the rise in global VC activity in cleantech, which rose from a mere USD0.9 billion in 2002 to USD8.4 billion in 2008 which resulted in a compounded annual growth rate (CAGR) of 46%. Fig. 5.1.1

Clean-energy capital investment in USD billion

600 500 400 300 200 100 0

2005

2006

2007

2008

2009

2010

2015

2020

2025

2030

Required investment to limit temperature increase to 2˚C above pre-industrial levels 1

Pernick and Wilder, The Clean Tech Revolution: The Next Big Growth and Investment Opportunity.

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Cleantech is applicable to many industries. As Ye describes, “Cleantech is not just a niche investment sector. It is actually [a] simple yet broad concept that touches all sectors of the economy. It is simple for it addresses only two areas: energy conservation and pollution reduction. Any technology, business or product that satisfies these features are cleantech: nanotechnology, new material, energy conservation, biotech, life science, and so on.”

Cleantech investment in China China has been experiencing more than 30 years of rapid growth since the start of Reform and Opening Up in 1978. During the global financial crisis, China’s Gross Domestic Product (GDP) still grew at 8.7% and reached CNY33.5 trillion (USD4.9 trillion) in 2009. However, China’s high-investment, low-efficiency development model has contributed to the rise of severe pollution issues. In 2003, China accounted for 4% of global GDP, but consumed 30%, 40%, and 31% of the total world outputs of steel, cement, and coal, respectively, and the losses caused by environmental pollution and ecological destruction equaled 15% of its GDP. In 2006, China overtook the U.S. as the world’s largest annual carbon dioxide emitter with 610 billion tons of emissions, an increase of 153% over 1990. Recognizing the drawbacks of this development model, the Chinese government placed “green” GDP as a priority agenda item. It set a number of targets in resource conservation and environmental protection in its 11th Five-Year Guideline. For example, in 2010, energy consumption per unit of GDP was to be reduced by 20% and the total discharge of major pollutants was to be lowered by 10%. It also set the goal of making renewable energy account for at least 10% of total energy consumption by 2010 and 16% by 2020. In November 2008, China announced a USD649 billion stimulus package that included USD218 billion in green stimulus money. At the 2009 Copenhagen Climate Conference, China committed to a 40%– 45% cut of carbon dioxide emissions intensity by 2020 with respect to 2005 levels, and by 2010, China was considering imposing an environmental tax. Ye highlighted the role of government policy on cleantech development in China: China’s cleantech fundamentals are different from that of the U.S., Japan, and Europe. It is heavily influenced by policy, and administrative organizations are also very powerful. If the government leaders’ key performance indicators (KPIs) don’t change, you can’t expect a high growth of cleantech in China. Fortunately, the policymakers, governors, mayors, and their KPIs have been amended to include factors reflecting cleantech performance. Carbon emission reduction is now a vital goal.

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China’s cleantech development began with the end-of-pipe pollution prevention and energy efficiency sector (P2E2) and gradually moved up into the high end of cleantech. Driven by policy support, increased funding, and technological innovation, China’s cleantech investment achieved an average annual growth rate of 67% between 2006 and 2008. Before 2005, Tsing Capital was the only active cleantech investment fund in China, and by 2009, total VC cleantech investment in China reached USD331 million. Ye commented on the rapid development: The market developed at such a phenomenal pace. In the earlier days of our fund, we would have enough time to study a deal, get to know the management team, negotiate, learn on the job and then make a decision. Nowadays there is no time to learn on the job. The VCs that are just entering the cleantech investment space have to manage without the luxury of time. When there are thousands of potential deals each year, you need to make quick decisions based on either your knowledge or cooperation with experienced players like us.

Tsing’s beginnings The early days were dark, so worrying and stressful that at times I wasn’t sure if we would make it. I kept faith because I knew this was just the night before the dawn. I knew daylight was just around the corner. Ye Dong Ye’s academic years were spent in Beijing in the University of International Business and Economics. He then moved to America in the 1990s to work in Silicon Valley and ended up in the VC firm WI Harper as Managing Director in San Francisco. Then in 2001 when Dr. Song Jun, the Chairman of Tsinghua Holdings, the asset management company of Tsinghua University, invited Ye to set up its VC arm in China, Ye decided to leave the U.S. and move back to his homeland. Ye founded Tsing Capital and decided to focus on cleantech investment. He recalled seeing a vast business opportunity in anticipation of China becoming one of the world’s top three economies (it was seventh at the time). However, he believed that investment in the technology, media, and telecommunications (TMT), and internet sectors would not be the way to capitalize on the opportunity, even though most venture capital money and interest was driven to the sector back then. Ye knew he had to target an emerging industry. Ye knew that China had to be the industry’s biggest marketplace, and the industry in China had to be the largest in the world, like Silicon Valley in the TMT boom. Inspired by hearing China described as the “world’s factory,” he realized that the country must also generate vast opportunities to address pollution. Based

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on the prediction that there must be some clean-up and remedies, he pictured that China would in due course have to develop the most advanced clean technology in the world. Tsing’s first fund was named China Environment Fund (CEF) in 2002 and it raised USD13 million from the Asia Development Bank (ADB) and a Hong Kongbased strategic fund of funds focused on investing in recycling, renewables, forestry, and organic food production. Based on the influence of these socially responsible investors, Tsing adopted a “Triple Bottom Line” philosophy of investment decisions that balance social, environmental, and financial returns. This differentiated Tsing from other VC funds in China right from the outset. Tsing Capital works intimately with portfolio companies to strengthen corporate governance, upgrade management capability, provide support in formulating and implementing strategy, and build a network to create synergies. One of Tsing’s earlier investments was Giant Hemu Technology Co., Ltd., a company involved in black liquor waste treatment. In the early 2000’s, the Chinese government shut down many small paper mills due to pollution — the process of making pulp produced a black liquid waste (called black liquor) that was being discharged into rivers. However, local villagers and governments would resume operations as soon as possible due to the tax and employment benefits. In Ye’s words, it is “a never-ending cat and mouse issue because of the conflict between doing good and doing well.” Giant Hemu solved this issue with its proprietary technology and turned the black liquor into organic fertilizer and lignin. Ye explained, “It created a solution benefiting all parties: the Central Government did not have to worry about the pollution, the local governments received taxes from the paper mills, and villagers got jobs.” Like a true pioneer, Ye endured many early hardships in the early years of his first fund. Hailing from an IT investment background, Ye had to pick up everything about cleantech from scratch. Ye had to understand the scope of investment and analyze business opportunities in sectors where few VC firms had ever ventured. He recalled, “The scope of cleantech spans much wider than IT. For IT, a degree in Electrical Engineering or Computer Science may be sufficient. But in cleantech, you need physical engineering, chemical, biotech and bio-engineering backgrounds. You even need a background in mechanical, thermal and material engineering.” Initially, deal flow opportunities were also hard to come by, with only 20 to 30 potential deals a year. The first CEF fund invested in only seven portfolio companies over a three﹣year period. Furthermore, given the immaturity of the cleantech market, Ye faced resistance from local entrepreneurs. He said: When I was in Silicon Valley, I dealt with PhDs, software engineers, talented scientists, and patent owners. In China, it was mostly local guys, less educated,

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small and early stage deals with dirty, disorganized and sometimes unpleasant smelling factories. I have been to many places, like landfills, incineration plants, and waste water treatment sites. Many people have not even heard of VC: “What is equity investment? We don’t need your money.” Or even when they have your money, they didn’t treat you equally as a shareholder. Due to weak government policies, many companies resisted the triple bottom line investment principle. Entrepreneurs could not understand why Tsing cared about matters such as welfare, child labor, and health and safety, when even the government did not devote much attention to them. They believed that their only obligation as an investee company was to provide the investors with a return on their investment. Opportunities were thus hard to come by for Ye and his team of six at Tsing. Much time was spent on research, although even when a prospective company was identified, it was tough to reach out to the decision-makers of the company. Such uncertainties and struggles exerted great pressure on Ye, who at times was forced to fund the operation from his personal savings.

The turning of the tide In 2005, the Chinese government unveiled its 11th Five-Year Guideline, placing new energy and the environment as part of the core focus. In the same year, Suntech Power became the first Chinese solar company to be publicly listed in the U.S. To Ye, this represented the daylight he was searching for. At that time, Tsing had just completed raising its second China Environment Fund, garnering USD30 million of capital from a combination of socially responsible and strategic investors. Tsing Capital was now in the perfect position to ride at the forefront of the upcoming wave of cleantech investment. Deal flow improved massively with potential leads arriving fast and furious at Tsing Capital. However, this did not deter Ye and his team from abandoning their research-driven approach to sourcing quality investment opportunities. The team had long identified upstream solar companies as a sector which offered a tremendous upside: these companies leveraged China’s cheap manufacturing resources via exporting to developed world markets with growing solar power demands. Ye said: We researched the solar sector thoroughly and recognized there was a great opportunity in the upper stream value chain of wafer and cell production. We then identified several companies that seemed to be at the right stage of development and ripe for investment. We cold-called these companies and investigated all channels to reach their decision-makers. We actually had

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an opportunity to invest in Suntech Power but at the time our first fund was too small and we haven’t yet completed our second fund’s closing. The timing with Suntech was unfortunate but their listing in 2005 offered great encouragement to our other solar investments in the same period. Eventually, Tsing invested in Chinese solar companies LDK and China Sunergy based in the Jiangxi and Jiangsu provinces, respectively. Both companies got listed in the U.S. within a couple of years of Tsing’s investment and provided the fund and its investors with exceptional returns. It was around this period when Ye created his famous tagline “Doing Well by Doing Good.” Its Chinese equivalent “ 利成于益” literally means making money from doing good things. Ye had a passion for “Doing Well by Doing Good”: “I don’t make too much money, but I have a great sense of achievement. Even if a business makes me money, I have to do something good to feel satisfied.” Besides sponsorships for major cleantech events, Ye and his team also actively promoted “Doing Well by Doing Good” and educated others about safety and environmental practices at conferences and industry events. The phrase soon became popular in the cleantech circle.

From niche to mainstream Towards the end of 2007, Ye embarked on fundraising for the third China Environment Fund. On the back of the funds’ recent successes, he targeted raising a larger fund of around USD100 million. He was blown away by the response. The third China Environment Fund ended up closing at USD230 million from a wide range of investors. “We not only had support from the SRI focused investors such as development finance institutions and family offices,” said Ye, “we now had traditional financial institutions and strategic multi-nationals on board. Cleantech was fast becoming a commercially proven mainstream investment area.” With a larger reserve of capital, Tsing could now invest in larger cleantech companies previously out of its reach. The sweet spot remains with early growthstage companies that have a market-proven business but which are not yet profitable. Ye believes this is where Tsing’s investment would be most capital efficient and create the largest impact. He explained: We identify opportunities that can potentially become big mainstream players no matter if it is an early stage or public company. We are definitely not stepping into private equity for that requires too much financial maneuvering, which is not our core competency. We prefer to work as VCs, to help companies formulate a strategy, create upstream and downstream alliances, find a solid team, and work together with them, mentoring, coaching, aiding and abetting. We employ all the means available to help a company grow instead of using

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significant leverage or parachuting in a Chief Executive Officer (CEO). No matter how large the investment is, we continue to manage our companies through this mentality and style. In the U.S., first round funding typically raised about USD3 to 5 million, but in China first round financing usually came later and the amount was larger. Ye explained, “In the U.S. you can raise money when you only have a business plan because people in the U.S. value intellectual property (IP), which is an intangible asset. At that stage, the owners can still hold a bigger share. But in China, people don’t rank IP high among the factors which lead to business success. So if they don’t have profit, their intellectual property rights alone will only lead to a very small percent of the company.” As Tsing Capital became well-known in the marketplace, leads started to come in from multiple sources: peers, independent financial advisors, conferences, and self-pitches, such as business plans received from its website. Among the over 900 leads Tsing Capital examined in 2009, half were from referrals. Ye explained the reason for the atypical trend: When our peers talk to a new company, it is like a traveler entering a jungle without a map. For Tsing Capital, we are at the hilltop with a clear view of the landscape. We know each tree’s position and the whole forest. This is our key strength when compared to other investors. There is no shortcut for the accumulation of technology knowledge over the past 12 years. We were fortunate to enter the industry at its early stage of development. Its growth was much slower than it is now, so we had enough time to build up our knowledge base. As cleantech became mainstream and a top priority for VC firms in China, Tsing Capital became a potential co-investor and source of knowledge for other VC firms who wanted to learn how to evaluate deals, conduct due diligence, and manage investments. Tsing Capital’s leading position in cleantech investment helped it win deals. Nobao Renewable Energy is a fast growing developer of energy efficiency solutions based in Shanghai. It utilizes ground source heat pumps, basically geothermal energy, to achieve up to 30% energy savings for heating, ventilation, and airconditioning systems of buildings. Such potential savings make the solutions extremely attractive to hotels and commercial building operators that have tremendous electricity bills. Moreover, Nobao adopts an Energy Management Contract (EMC) business model, wherein the upfront capital costs of the solution are borne by the seller in return for a portion of the long-term benefits from the energy saved. More than 30 investors had approached Nobao before Tsing met with the company. Sun Kwokping, the CEO of Nobao, recalled: I had met numerous investors who wanted to invest in my company and had

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shortlisted a few candidates. Then I met Tsing and we immediately connected. None of the other investors understood my business as well as Tsing did, their cleantech experience really shows that. They were investors of one of the first EMC companies in China and offered me valuable opinions on how Nobao should develop going forward. I decided I wanted to work with Tsing even though their investment terms were not as favorable as the others. Beijing Goldenway Biotech (BGB) is another company that recognized Tsing’s unique value-added impact as a socially responsible investor. BGB is a kitchen waste treatment company that was a 2008 Beijing Olympics vendor. Due to its culture of large-scale banquets, China produced a huge amount of kitchen waste. The city of Beijing alone produces 1,600 tons of kitchen waste every day, creating a serious problem for the local government. BGB developed a proprietary microorganism technology to process kitchen waste. Moreover, the end-products of its waste treatment, bio-feeds, and bio-fertilizers, helped address food safety and environmental issues in China. The bio-feeds enhanced the immunity of animals, greatly reducing or eliminating the use of antibiotics, the overuse of which had become a serious problem in China. Bio-fertilizers helped recover soil quality and reduce water pollution, two issues caused by the overuse of chemical fertilizers. Recognizing the advantage of BGB’s technology, the Ministry of Housing and Urban-Development made BGB’s high-speed, high-temperature microorganism process a major part of the “The Construction Industry Standard of the People’s Republic of China — Waste Bio-treatment Device” for national implementation. Zhang Xue, Vice-President of BGB, commented: A number of domestic and international investors approached us, but we finally chose Tsing Capital mainly because we identified with their investment philosophy. It puts S&E (safety and environmental) responsibilities ahead of financial responsibilities, which we understand well and which differentiate Tsing Capital from other investors who seek quick success and instant benefits. They invited the management team members of its portfolio companies to attend training. Topics included financing, corporate governance, understanding and building S&E systems, etc. There were many discussions and the content was rich. We all felt it was very helpful for our operation.

Sustainable excellence China confirmed its position as a cleantech superpower in 2009 when it topped the charts for global clean energy investment at USD39.1 billion,2 nearly double the amount of the second placed U.S. China only relinquished its lead briefly in 2

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The Pew Charitable Trust, “Who’s Winning the Clean Energy Race?” 2010 edition.

Renewable Energy and Energy Efficiency Case Studies

2011 back to the U.S., with the most recent 2012 report indicating it has once again stood above the rest with USD65.1 billion and almost double that of the nearest competitor (the U.S. again).3 Cleantech venture capital investment in China also reached new heights in 2010 by becoming the largest sector by investment amount and number of deals. Although North America still leads in this regard, Chinese companies have stood out over the past three years with the highest number of cleantech IPOs. 2009 was also the year that Tsing’s achievements began to be recognized by the public: Ye was named one of Businessweek’s “Most Powerful People in China” and Tsing was awarded “Best Corporate Citizen” by the 21st Century News Group. Today, Tsing Capital has six funds and nearly a billion dollars of assets under management, and has grown from a small team of six people to over 40 employees spread across offices in Hong Kong, Beijing, and Shanghai. “There’s a Chinese proverb that says ‘it takes 10 years to forge one sword,’” Ye remarked during Tsing’s 10th anniversary. “I have this sword now in Tsing Capital and I will use it to ‘Do Better’ by ‘Doing More Good.’” What Ye did not foresee was the significance and impact of Tsing’s successes being more wide-reaching than just its LPs and portfolios. Through “Doing Well by Doing Good,” Tsing demonstrated that sustainability and socially responsible investment was a viable and competitive strategy. Aron Cramer, CEO of Business for Social Responsibility, selected Tsing Capital in his book Sustainable Excellence: The Future of Business in a Fast-changing World as one of the 10 “Companies that would shape the world in 2020” amongst the likes of Google, Wal-Mart, and Schneider Electric. He said: The formation and success so far of Tsing Capital is a sign that the Chinese are seeing both the imperative of addressing sustainability problems and a market opportunity for domestic investors…Tsing Capital has set a course for Chinese private investment that will be vital to the sustainability of prosperity and growth both for China and for the world as a whole.4

3 4

The Pew Charitable Trust, “Who’s Winning the Clean Energy Race?” 2012 edition. Cramer, Sustainable Excellence: The Future of Business in a Fast-Changing World.

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

References Cramer, Aron. Sustainable Excellence: The Future of Business in a Fast-Changing World. Emmanus: Rodale, 2011. Pernick, Ron, and Wilder, Clint. The Clean Tech Revolution: The Next Big Growth and Investment Opportunity. New York: Collins Business, 2007. The Pew Charitable Trust. “Who’s Winning the Clean Energy Race?” 2010 edition. Accessed September 12, 2013. http://www.pewenvironment.org/ uploadedFiles/PEG/Publications/Report/G-20Report-LOWRes-FINAL. pdf. ———. “Who’s Winning the Clean Energy Race?” 2012 edition. Accessed September 12, 2013. http://www.pewenvironment.org/uploadedFiles/ PEG/Publications/Report/-clenG20-Report-2012-Digital.pdf.

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Renewable Energy and Energy Efficiency Case Studies

5.2 How Sinovel Establishes Itself in Wind Energy Tao Gang and Hu Wei

Introduction On August 5, 2012, the 11th tropical storm of the year, Typhoon Haikui, whose maximum wind force was up to scale 10 (28m/s), entered the eastern part of the East China Sea. The next day, the Office of Zhejiang Provincial Flood Control and Drought Relief Headquarters raised the emergency plan to level III. At 8 a.m. on August 7, the Marine Monitoring and Forecasting Center of Zhejiang Province issued the highest red alert for high waves. Typhoon Haikui first swept through locations such as Ningbo and Zhoushan where coastal wind power projects concentrate. Also, just 1 km from the Donghai Bridge which connects Lingang New City in Shanghai and the Yangshan Deep-Water Port, there is the largest offshore wind project in China and Asia — the Donghai Bridge Wind Farm. Undoubtedly, Typhoon Haikui was a test to the novel technology of offshore wind power. The Donghai Bridge Wind Farm is equipped with thirty-four 3 MW wind turbines. Its total installed capacity amounts to 100 MW and annual on-grid energy hits 258,510 MW. At midnight of August 8, Typhoon Haikui slammed into the East China Sea near Shanghai with the greatest force. The same day, Typhoon Haikui landed in Zhejiang Province with wind force up to scale 14. The coastal area of Shanghai and Yangshan Deep-Water Port were hit by gusts at scale 10 to 12. China’s offshore wind power capitalizes on the typhoons. China is one of the rare locations hit by typhoons all year round, especially during summertime. The Donghai Bridge Wind Farm is experienced in resisting typhoons. It was well-prepared with an emergency plan for Typhoon Haikui, whose force was the strongest in the past 50 years. The Farm was closed on the night of August 7. All staff and crew members had been evacuated. The Shanghai  Donghai Bridge Project Department of Sinovel also had an emergency plan and raised the emergency response level. It monitored the Donghai Bridge Wind Farm 24 hours a day to ensure operation safety. At 1 pm, the highest wind speed of Typhoon Haikui reached 40 m/s, only 2 m/s short of the standard for a severe typhoon. The eye of the typhoon was clearly visible in the cloud image. According to the data recorded by Sinovel at the Farm, the maximum instantaneous wind speed of Typhoon Haikui was higher than 40 m/s. During July 29 to August 8, the thirtyfour 3 MW wind turbines in Phase I and the 5 MW wind turbine in Phase II were all in normal operation. All wind turbines were successfully shut down when the

15

RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

speed of the typhoon exceeded the cut-out speed, and they resumed operation to generate electrical power when the typhoon subsided. The average availability was higher than 99%. Sinovel was the first company to produce 3 MW wind turbines in China. On August 31, 2010, the thirty-four 3 MW wind turbines of the Shanghai Donghai Bridge Project successfully passed the 240-hour pre-acceptance testing and have stayed connected to the grid ever since. As of August 2012, Phase I of the Donghai Bridge Wind Farm had cumulatively generated 495 million kWh energy. The Donghai Bridge Wind Farm is now the front-runner in China’s offshore wind energy industry. Fig. 5.2.1

Wind turbines at Donghai Bridge Wind Farm

Evolution of China’s wind power industry Although China had started to use windmills to pump sea water for manufacturing salt more than 2,000 years ago in the Han Dynasty, the development of modern wind power technology and industry did not begin until the 1960s. The development started with the research on off-grid small wind turbines. Between 1957 to 1959, small wind turbines with power under 10 kW and a wind wheel diameter under 10 m were put up in Jiangsu, Jilin, Liaoning, Anhui, and Xinjiang Provinces. Medium-sized wind turbines were in development during the 1970s. In 1972, Zhejiang Province successfully developed a prototype for 18 kW three-bladed wind turbines. In 1982, Fujian Province developed a 55 kW on-grid horizontal axis downwind wind turbine. In 1979, with the support from the Ministry of Water

16

Renewable Energy and Energy Efficiency Case Studies

Resources and Electric Power, a testing field with a few dozen wind turbines of various models and a 104-meter high anemometer tower was built in Badaling, Beijing. A lot of scientific research took place there and the testing field became a model and encouragement for the development of wind power energy in China. With the support from the Ministry of Science and Technology, local tertiary education institutions and research institutes researched and developed wind turbine technology. In 1990, Zhejiang Province successfully developed a 20 kW offshore wind turbine with a variable pitch system. In 1991, variable speed and variable pitch technology was applied for the first time to 20 kW wind turbines in Zhangjiakou, Hebei Province. In May 1986, the first demonstration wind farm in China was established in Malanwan, Rongcheng, Shandong Province. The wind turbine system was connected to the grid. Shandong Province and the Ministry of Aviation Industry invested in the construction of the wind farm. There were three Denmark 11 kW stall-regulated wind turbines with blade tip brakes. In January 1988, the first 200 kW wind turbine developed by China was installed in the Pingtan Offshore Wind Farm in Fujian Province. The downwind variable-pitch wind turbine had a turning diameter of 32 m and three blades. It was connected to the grid in 1991. In 1989, Dabancheng Wind Farm I in Xinjiang began operation. It was equipped with thirteen 150 kW and one 100 kW wind turbines gifted by the Danish government. The total installed capacity reached 2,050 kW, which topped Asia. In 1996, eight more wind turbines were installed in that wind farm thanks to sponsors from the German government. Two of the wind turbines had a capacity of 600 kW, which was the largest capacity of a single wind turbine in China at that time. The years 1977 to 1985 were when China explored and experimented with wind power generation. Practical off-grid small wind turbines with a capacity smaller than 5 kW developed at a quicker pace. They greatly improved the life and work conditions for the people in remote or border regions without electricity. Since then, more than 170 medium or small wind turbine manufacturers have been founded. Their production capacity allows the manufacturing of 800,000 wind turbines. In 2011, the annual sales reached CNY1.2 billion. It is estimated that more than 200,000 households have installed small wind turbine generators in West China, powering electricity for almost 1 million farmers and herdsmen. After 1997, the Chinese government launched a campaign to promote the development of on-grid wind power. Adopting the “market for technology” strategy, the State Planning Commission launched the “Ride the Wind Program.” The program introduced the European technology of manufacturing 600 kW and 66 kW stall-regulated wind turbines. Joint venture companies were set up to develop and manufacture wind turbines in mass production. Funding from the “Double

17

RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

Plus Project” (increased investment in technological reform and increased speed in enterprise restructuring) went to large-scale wind power projects in Xinjiang, Inner Mongolia, and Guangdong Province. The total installed capacity of the projects added up to 90,000 kW. In 1998, the total installed capacity in China surpassed 200,000 kW. It was also the first year when the annual installed capacity reached 100 MW. The actual large-scale application of on-grid wind turbine technology did not take place until after 2000. In the early 21st century, it was a difficult time for the manufacturing of large wind turbine systems. How fast a product could be put into mass production and out in the market after the prototype trial became the key to the success and development of the product. In order to accelerate the construction of wind farms, the former State Economic and Trade Commission encouraged the introduction and assimilation of foreign advanced technology to improve the domestic level of wind turbine technology. It launched the National Debt Wind Program to reduce the construction and operational costs of the wind farms and enhance the wind farms’ market competitiveness. This laid a solid foundation for the large-scale commercialization of wind power technology. As one of the key technology transformation projects, demonstration wind farms equipped with domestically manufactured wind turbines which added up to a total installed capacity of 80,000 kW were built in Chifeng, Inner Mongolia (30,000 kW), Yingkou, Liaoning Province (10,000 kW), Dalian (10,000 kW), and Xinjiang Province (30,000 kW). The project required all major parts of the wind turbines, including the blades, gear box, and generator, to be manufactured in China in stages. Preferential policies were implemented to provide discount loans to wind power technology projects. This motivated the fast construction of wind farms across China. These policies and measures provided the nascent wind power industry valuable support and favorable market conditions for further development. Wind power concession projects were launched by the National Reform and Development Commission with the objectives to lower the tariffs for on-grid wind power projects and to accelerate the construction of large-scale wind farms. The state provided basic construction conditions and preferential policies. The parties to carry out the construction of the wind farms were chosen by invitation to tender. Every wind farm should have the capacity of 100,000 kW. The selection criteria were low tariffs, high percentage of wind power equipment manufactured in China (at least 50% in phase I and 70% in phase II), and a technologically and economically well-developed project plan. The projects and the tariffs proposed by the selected tenderers are shown in Table 5.2.1.

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Renewable Energy and Energy Efficiency Case Studies

Table 5.2.1 Projects and the proposed tariffs Time

September 2003

September 2004

Projects

Proposed tariffs (/kWh)

Project type

Huilai Shi Bei Shan Wind Power Plant (Guangdong Province)

CNY0.501

Phase I concession projects

Jiangsu Rudong Wind Farm

CNY0.436

—

Huitengxile Windfarm Project (Inner Mongolia)

CNY0.382

—

Jiangsu Rudong Wind Farm Phase II

CNY0.519

—

Jilin Tongyu Wind Power Project

CNY0.509

—

The concession projects were successful. The total power of wind farms in China reached 1,000 GW. The tariffs for on-grid wind power projects were determined by market mechanisms and invitation to tender. By the end of 2004, there had been 43 wind farms in China, with a total installed capacity of 764 MW. A lot of stateowned, private, and foreign enterprises became interested in investing in on-grid wind power. This marked the beginning of the commercialization of China’s wind power industry. In 2005, the state announced the Renewable Energy Law. This provided the wind power industry with legal protection and catalyzed the development of the industry. The China Meteorological Administration established the Center for Wind and Solar Energy Resources Assessment. It reported that the total power of wind energy resources in China amounted to 1,000 GW based on the first and second national wind energy resources surveys conducted in the late 1980s and in 2004 to 2005. From 2007 to 2009, it conducted the third national wind energy resources survey. It was estimated that the potential of onshore wind resources at 50 m and at level 3 or above was 23,800 GW. In offshore areas within the 5 m to 25 m depth contours and at 50 m above sea level, the potential installed capacity was 2,000 GW. Further research has found that in two of the sites in East and West Inner Mongolia alone, the potential wind resources at 50 m reached 1,300 GW. More recent investigation has found that the potential onshore and offshore wind resources amounted to 26,000 GW. Based on the estimation that the installed

19

RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

capacity is 30% of the potential resources, the installed capacity was around 8,000 GW. In July 2008, the newly established National Energy Administration made the development of wind power a major task in improving the use of resources in generating electricity. In August, the tendering of Phase I 3,800 MW wind power equipment in the gigawatts wind power base in Jiuquan, Gansu Province was completed. It was a milestone in the development of China’s wind power energy. Later, the National Energy Administration quickened its pace to approve the plans for building gigawatts wind power bases in East and West Inner Mongolia, Xinjiang, Hebei, Jilin, and Jiangsu Provinces, where wind resources were abundant. This paved the way for the rapid development of wind farms and the manufacturing of wind turbines during the 11th Five-Year Guideline. Between 2005 and 2008, the wind power industry in China was surging. The growth rate in the installed capacity was as high as 153.35%. In 2006, China surpassed Italy and the U.K. and ranked sixth in the world in terms of installed capacity (2,604 MW), having 3.5% share of the total world installed capacity. In 2008, the cumulative installed capacity reached 12,210 MW. It achieved the goal of having the installed capacity reach 10,000 MW by 2010 as stated in the 11th Five-Year Guideline. The development of the wind power industry in China has caught the attention of the world. Demonstration wind power projects were not put into plan until the early 2000s. But, China has become the largest wind power market in the world. In the past five years, China has become a major force in the global wind power industry. China’s cumulative installed capacity ranked second in the world in 2009 and even overtook the U.S. as top of the world in 2010. In 2011, the cumulative ongrid wind power surpassed 50 GW. In that year alone, the on-grid wind power hit 14.5 GW. Both figures were ranked first in the world. In 2011, there were 30 provinces, cities, or autonomous regions which had their own wind farms. There were 10 provinces with a cumulative installed capacity over 1 GW and 9 provinces with over 2 GW. The front-runner was Inner Mongolia with 17.69 GW, followed by Hebei, Gansu, and Liaoning Provinces with over 5 GW each. The installed capacity of Inner Mongolia alone was only smaller than that of the U.S., Germany, and Spain. It was greater than that of India, which ranked fifth in the world.

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Renewable Energy and Energy Efficiency Case Studies

Fig. 5.2.2

Top 10 wind power developers in China by market share in 2011 Others 24%

China Guodian Corp. 22%

China Suntien Green Energy Corp., Ltd. 2% Beijing Energy Investment Holding Co., Ltd. 2%

China Datang Corp. 13%

China General Nuclear Power Corp. 3% China Resources (Holdings) Co., Ltd. 4% China Power Investment Corp. Guohua 5% Group 6%

China Huadian Corp. 6%

China HuaNeng Group 13%

Table 5.2.2 Top 10 wind power developers in China by new installed capacity in 2011 Rank Developer

New installed capacity (MW) Market share (%)

1

China Guodian Corp.

3,860.5

21.9

2

China Datang Corp.

2,235.1

12.7

3

China HuaNeng Group

2,229.0

12.6

4

China Huadian Corp.

1,104.0

6.3

5

Guohua Group

1,094.0

6.2

6

China Power Investment Corp.

866.3

4.9

7

China Resources (Holdings) Co.,Ltd.

796.1

4.5

8

China General Nuclear Power Corp.

527.0

3

9

Beijing Energy Investment Holding Co., Ltd.

372.0

2.1

10

China Suntien Green Energy Corp., Ltd.

343.6

1.9

Others

4,202.9

23.9

Total

19,630.9

100

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

The coastline of China spans 18,000 km, and there are more than 6,000 islands. Offshore wind resources concentrate in the Southeast coastline and the nearby islands. Preliminary investigation has found that the offshore wind power potential at an effective wind power density of over 300 W/m2, the water depth of 5 m to 25 m, and 50 m above the sea level amounted to 200 GW. At the water depth of 5 m to 50 m, and 70 m above the sea level, the potential increases to 700 GW. The economy of the coastal area of Southeast China is well-developed. The demand for energy resources is great and the structure of the grid is strong, and these make up the favorable conditions for on-grid wind power. This is also why China has an advantage in the development of offshore wind power. China’s offshore wind industry began in 2008. The first demonstration offshore wind farm — the 100 MW Donghai Bridge Wind Farm — completed construction in 2010. Since then, the development of offshore wind power has been on track. In January 2009, the National Energy Administration organized the National Offshore Wind Power Working Conference. This officially launched the planning for offshore wind projects. The planning for projects in Shanghai, Jiangsu, Shandong, Hebei, Zhejiang, and Guangdong Provinces has been completed. The projects in Liaoning, Fujian, Guangxi, and Hainan are in the planning stages at the time of writing. An offshore wind power system which is unique and different from the traditional European systems has emerged in China. Thanks to the special geographical conditions in the southeast coastline, some wind farms are built in intertidal zones. Conditions such as the depth contours, flood and ebb tide, and non-rock foundation promoted the industry in China to develop its own technology in the construction and operation of wind turbines in intertidal zones. In 2012, the Jiangsu Rudong 150 MW Intertidal Demonstration Wind Farm completed construction and was connected to the grid. It was the first offshore wind farm build in an intertidal zone. In the early days, the investors in wind farms were predominantly stateowned enterprises as the costs of equipment was high, the scale of the wind farms was small, and wind farms were a relatively new invention. Few investors had experience in this type of project and the risk was high. During the 11th Five-Year Guideline, the large central and local state-owned enterprises were the backbone of the development of China’s offshore wind farms. Of the wind power projects completed in recent years, 90% had such types of enterprises as investors. After the construction of gigawatts wind power bases and offshore wind farms began, the scale of wind power projects had continued to increase. The amount of upfront capital investment expanded. This raised the entry threshold for private and small and medium-sized enterprises to invest in the wind power industry. Since the beginning of the 12th Five-Year Guideline, the state decided to construct major wind power bases and adopt the dispersed development model. Some inland areas

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Renewable Energy and Energy Efficiency Case Studies

started to plan their wind power projects based on their geographical conditions. There are a lot of these smaller projects which offer investment opportunities to small and medium-sized enterprises. China’s new and cumulative installed capacity, 1994–2011

90,000

77,364.3

70,000

62,364.3

60,000 50,000

44,733.4

40,000

25,805.4

30,000

2010

2009

2008

2007

2006

2005

12,002.2 1,249.0 5,848.5 742.7 2,537.2 2004

545.8

2002

447.5

2001

373.2

2000

1999

1998

1997

12.9 24.0 47.3 132.0 203.9 254.2 331.5 1996

0

1995

10,000

2003

20,000

1994

Installed capacity (MW)

80,000

2011

Fig. 5.2.3

Year New installed capacity

Cumulative installed capacity

Source: Li, China Wind Power Outlook 2012.

After five to six years of rapid development, China’s wind power industry began to encounter challenges and difficulties. Some hidden conflicts started to show. First, the relatively high profits and smooth development of the industry attracted a lot of investors. Before 2000, there had been fewer than five large wind turbine manufacturers. In 2010, there were 80 manufacturers, which could produce wind turbines to generate more than 30 GW power in a year. The production of wind turbines was in excess. The market entered into a vicious competition. The development and efficiency of the companies engaged in the industry deteriorated. Second, the construction of wind farms finished earlier than scheduled but the grid did not. Most of the major wind power bases are located in the northwest and northeast regions where the power grids are not well-developed. Wind power grid integration has become a more prominent problem. During the early and rapid development phases, the wind power projects were concentrated in North China, Northeast China, Northwest China, and the coastal areas. Resources in those areas were abundant. In the northern regions, the conditions for construction were especially favorable and there was vast land for development. The area had always sparked keen competition among developers.

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

In comparison, the geographical conditions in some inland provinces were unfavorable with mountains, hills, and lakes, and wind resources were average. The costs and difficulties to build wind power plants there were great. As more largescale wind farm projects were to be launched, the competition among developers also became fiercer. Also, electric power transmission channels were insufficient in areas where wind power resources were abundant. Power rationing was imposed and wind power bases had to abandon some of their wind resources. According to the Chinese Wind Energy Association, in 2011, 10 billion units of wind power was not transmitted because of problems with wind power grid integration, which incurred a loss of CNY5 billion. In Inner Mongolia, wind curtailment stood at 50%, and that of Hulunbuir was the highest at 80%. The efficiency of some wind farms was significantly reduced. In 2012, the amount of abandoned wind power stood at 20 billion units. The front-runner, Longyuan Power, suffered a direct economic loss of CNY1.3 billion due to wind curtailment. Wind power contributes less than 2% to the total power generation in China. Its development has never been valued by the electric power industry. Also, because of the instability, intermittences, difficulties in controlling, and unfavorable policies, the development of on-grid wind power is more challenging and has little return in comparison to that of thermal power. China has become more aware of environmental issues and the carbon emission limits around the world. The government included wind power energy in its plan for national development strategy. It also imposed new requirements on the power grid. As wind power developed and policies were adjusted, the state actively participated in the policy-making and planning of the development of renewable energy. In 2011 and 2012, ultra-high-voltage (UHV) electricity transmission and smart grid had some progress in research and development. At the end of 2012, the most prominent power transmission and distribution enterprise — State Grid Corporation — included electricity generation from renewable sources as a priority in their work plan. These new development trends allowed wind farms in inland provinces to capitalize on their advantages. First, the population density and electrical load were high, and the conditions for grid connection were good. Second, the wind turbine technology in China has been advancing and the conditions for developing wind farms had improved. Operating wind farms would bring in considerable economic benefits. In 2011, the National Energy Administration proposed the combination of centralized and decentralized development. Grid-connected wind farms quickly developed across China. It was a new achievement to build highland wind farms such as the Yunnan Dali Zhemoshan Wind Farm, which is the world’s highest wind farm at 3,000 m above sea level.

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Renewable Energy and Energy Efficiency Case Studies

Apart from exploring sustainable development for wind power technology in highlands and the sea, the industry has expanded to the overseas markets. In 2010, investors and manufacturers in the wind power industry quickened their pace in participating in Asia, Europe, the U.S., and Latin America. They also started to bid on projects in emerging markets in India, Brazil, South Africa, Australia, Greece, and Romania. The rapid development of the wind power industry in China and China’s international market penetration alerted countries which were suffering from the financial crisis and wanted to reestablish their manufacturing industry. On December 18, 2012, the U.S. Department of Commerce determined final antidumping and countervailing duties on wind tower imports from China. China was being dumped at margins of 44.99% to 70.63%. The Department of Commerce also determined that producers or exporters from China have received countervailable subsidies of 21.86% to 34.81%. It argued that the wind turbines China exported were subsidized and priced at an unfairly low level that harmed the U.S. wind tower industry. If the European Union imposes similar measures on China’s PV products, China will be shunned from the Western wind power markets. Since 2011, China’s installed wind power capacity has not grown in multiples. The capital-intensive wind power industry entered into a period of adjustment, stable development, and slow growth. In 2012, due to the global economic downturn, the domestic banks contracted the monetary bases and the government subsidies were not granted soon enough. Abandoned wind power projects and wind curtailment were serious issues. Many wind power developers reduced their investment in wind farms because of capital constraints and a decline in benefits. Major manufacturers with a declining business performance adopted measures to reduce production and costs. Some even withdrew from the industry. Parts suppliers also searched for alternative opportunities as the demand and capital returns decreased. China’s wind power industry entered into a time of difficulties. Targeting the decline in the renewable energy industry, in the latter half of 2012, the central government and the National Energy Administration announced the 12th Five-Year Plan for Renewable Energy Development (2011–2015) in order to adjust the power supply structure and cope with climate change. The Plan outlines the development goals and plans and key projects to be achieved by 2015: • Installed capacity of operating wind power plant should reach 100 million kW; • Annual energy generation should reach 190 billion kWh; • Wind power should contribute more than 3% to the total electricity generation; • The total installed capacity of wind farms in East Inner Mongolia, West Inner Mongolia, Heibei Province, Jilin Province, Heilongjiang Province, Jiuquan in Gansu Province, Hami in Xinjiang, the coastal areas of Jiangsu and Shandong

25

RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

Provinces should reach 79,000,000 kW, and that of offshore wind farms should reach 5,000,000 kW. The National Energy Administration also issued the Notice on the Requirements for Strengthening Wind Power Grid Connection and Utilization and Notice on Decentralized Wind Power Development to encourage on-grid wind power. At the end of 2012, 12 more wind power projects were approved. The total power reached 5,210,000 kW. After a period of adjustment, with the support of government policies and the enterprises’ own effort, the wind power industry is expecting a prosperous time.

Past and present of the wind power industry Before 2000, the larger scale wind turbine generators were mostly small and medium-sized off-grid wind turbines which had a capacity from tens of watts to tens of kilowatts. At that time, wind power served mostly the farmers and herdsmen living in discrete and also border posts in remote areas with no coverage from municipal power grid lines. In the early days, the manufacturers of wind turbines were small- and medium-sized agricultural machinery manufacturing enterprises. The wind turbines were made up of wooden blades and universal asynchronous motors. Through developments, specialized molds were used to manufacture composite blades. Permanent magnet generators and technology became widely applied. The small- and medium-sized manufacturers experienced the beginning, development, competition, and elimination stages of their first 20 years. Few first-generation manufacturers survived. Small scale wind turbines can operate and generate electricity with light wind. After 2000, as technology advanced and the quality of products stabilized, the quantity and market expanded. Also, considerable number of foreign manufactures stopped manufacturing the products. These brought about new opportunities to China’s manufacturers of small and medium-sized wind turbines. Today, there are more than 150 manufacturers with a total production capacity of 800,000 wind turbines. Apart from satisfying the domestic and foreign demand, China had a 60% share of the international market. The origins of China’s small and medium-sized wind power technology can be classified into two types: The first type is the technology developed by China in the past 30 years. Representative enterprises include Anhui Hummer Dynamo, Baotou Tianlong Permanent Magnet Generator Factory, Guangzhou Hongying, Qingdao Anhua New Energy Equipment, Shanghai Ghrepower Green Energy, Shenzhen TYPMAR Wind Energy Technology, Zhejiang Huaying Wind Power Generator, and ZKenergy Science & Technology. The second type is technology imported from foreign countries including the U.S., Germany, Spain, and Japan through foreign direct investment or China-foreign joint venture investment.

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Renewable Energy and Energy Efficiency Case Studies

Representative enterprises include Beijing Boyuan, Urban Green Energy, Ningbo Air-Yunsheng Wind Turbine, CHTC Heavy Industry, Zhejiang Ruihua Machinery, Dezhou Luolongquan  Wind  Turbine Manufacturing, Shanghai Lift Wind Power Equipment, and Toyoda Technology. Before 2000, China’s on-grid wind turbine development remained at the nurturing and exploratory stages. International commercial wind turbine generators normally had a power capacity of 200 kW to 600 kW. In China’s wind farms, 95% of the wind turbines were foreign manufactured. There were numerous models and specifications. China almost became a testing field for the global wind turbine generators. There was little domestically manufactured equipment. The main wind turbine suppliers were Denmark’s Vestas Wind Systems and NEG Micon and Germany’s Nordex. The 250 kW wind turbine developed by Zhejiang Windey was the most popular domestically developed wind turbine. Before 2005, there were few major domestic wind power equipment manufacturers. Most of the equipment in wind farms was imported. With the implementation of incentive policies, as of 2007, domestic wind turbines had a market share of 55.9%. It was the first time that they had surpassed the imported products. In 2008, the market share of domestic wind turbines grew to 75.6%. There were more than 70 machine manufacturers. More domestic suppliers emerged, including Sinovel Wind Group, Goldwind Science & Technology, United Power Technology Group, Mingyang Wind Power, Dongqi, XEMC Windpower, Shanghai Electric Group, China Creative Wind Energy, CSR Zhuzhou Electric Locomotive, HE-GE Wind Energy, CSIC (Chongqing) Haizhuang Windpower Equipment, and Zhejiang Windey. The major domestic machine manufacturers hold a market share of 85% for upwind triple-blade horizontal-axis wind turbines with an overdrive gearbox and a doubly-fed induction generator. The technology of low speed, direct-drive permanent magnet generator is improving. However, due to recent government policies on rare earth control, the pressure of rising costs increases. Enterprises which focused on such technology are more heavily affected. The manufacturing of wind turbines requires the technology of air kinetics and hydromechatronics. The need for funding is great. The development of wind power in China depends on a few major power enterprises. Small manufacturers which rely on imported technology to assemble and produce wind turbines have a slim chance of success. At present, there are fewer than 30 small manufacturers in China. In fact, more than 80% of the market is shared by the top 10 manufacturers in China, of which 65% is shared by the top five. Nationalization and bulk production can capitalize on China’s industrial advantages. This has propelled China’s wind power industry into the top tier in the world in terms of production and market size. Of the top 10 wind power enterprises, 4 are from China. 27

RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

Fig. 5.2.4

Cumulative installation capacity share in the world in 2011 Others 18﹪

Vestas (DK) 21%

Mingyang (PRC) 1﹪ United Power (PRC) 2% Goldwind (PRC) 5%

GE (US) 12%

Sinovel (PRC) 5% Siemens (DK) 7% Suzion (IND) 8%

Enercon (GER) 11% Gemesa (SPA) 10%

Fig. 5.2.5 Market share of the top 5 and top 10 wind turbine manufacturers, 2007–2011

Market share (%)

99 80

71

65

2007 Top 5

28

87

79

2009

Year Top 10

2010

83 65

2011

Renewable Energy and Energy Efficiency Case Studies

Since 2005, the rapid development of the machine industry and nationalization of wind power equipment has motivated the advancement of the manufacturing of wind power components. The production includes components such as blades, gearboxes, generators, pitch and yaw systems, wheels, and towers. There were more than 100 blade manufacturers at the peak time, but fewer than 10 could actually supply blades. China Composites Group, China National Materials Group, and AVIC Huiteng Windpower Equipment were the largest suppliers. China’s huge market has attracted a lot of foreign enterprises, such as Vestas, Gamesa, Suzlon Group, General Electric Company, Siemens, and LM Wind Power. As wind power becomes the new growth point of the energy industry, the gearbox industry also expands. At present, more than 30 blade manufacturers have been engaged in the production of gearboxes. The major manufacturers are some major enterprises, such as Nanjing High-Speed & Accurate Gear Group, CN GPOWER Gearbox, Dalian Huarui Co., Ltd. General Reducer Factory, China National Erzhong Group, and Taiyuan Heavy Industry. Foreign enterprises which have established their business in China include Winergy Drive Systems (Tianjin), Hansen Industrial Gearboxes, and Bosch Rexroth. It is estimated that China’s production capacity of megawatt wind turbine gearboxes has reached 30,000. Table 5.2.3 Number of domestically manufactured wind turbine gearboxes Year

Number of wind turbine gearboxes

Total installed capacity (MW)

2005

600

500

2006

1,250

1,200

2007

3,000

3,500

2008

6,000

77,590

2009

8,000

11,000

2010

10,000

15,000

While China capitalized on the imported technology to satisfy the huge domestic demand, the domestic technological advancement and innovations should not go unmentioned. One of the main factors that affects the power generation of a wind turbine is the swept area of the blades, which is directly in contact with the winds. The relationship between the swept area and the radius is: Area=πr2. The longer the blade, the higher the unit’s power. Also, the costs of manufacturing, logistics, installation, and operation are not directly proportional. Theoretically, the higher the unit’s capacity, the lower the cost of a unit of electricity. The continuous expansion of the scale of wind turbines substantiates this theory. In 2005, variable-

29

RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

pitch and variable-frequency megawatt wind turbines gradually became the preferred model in foreign countries. In China, few manufacturers could produce 600kW, 750kw, or 850kW wind turbines. Variable-pitch and variable-frequency technology was still at the experimentation stage. International manufacturers did not actively promote the megawatt wind turbines in China as the costs of imports were extremely high. Introducing foreign technology into domestic production is an effective measure to balance the demand and supply relationship. However, resources are dispersed over the vast land of China. Some foreign technology cannot be applied under the extreme geographical and environmental conditions in China, such as the sandstorms, low temperature, and snow in the Northwest, high humidity and freeze in the plateaus, and thunder and typhoons in the coastal and offshore areas. The assimilation of technology and innovation are essential to the sustainable development of the wind industry in China. Since the introduction of megawatt wind turbines from Europe in the early 2000s, with government support, domestic enterprises have developed and widely installed 1.5 MW, 2.0 MW, and 3.0 MW wind turbines which can adapt to the unique geographical and environmental conditions in China. Fig. 5.2.6

Sinovel’s wind turbine

Offshore wind power assumes advantages including abundant resources, stabile wind speed, little conflict of interests with other development projects, and the possibility of large-scale development. Regions with a well-developed economy which consume a greater amount of electricity are mostly located in

30

Renewable Energy and Energy Efficiency Case Studies

the coastal areas. Offshore wind power grid eliminates the problems of longdistance transmission and grid construction. It has caught the attention of wind power developers for a long time. In 2008, the first 100 MW wind farm in China — Donghai Bridge Wind Farm — installed 34 domestically manufactured 3 MW offshore wind turbines. Operation has been stable and the farm survived several typhoons. The success in the development of offshore wind power expanded its market space. The outlook for offshore wind power is favorable. The development of 5 MW and 6 MW large offshore wind turbines was also successful. As of 2012, there were three developers which had successfully developed wind turbines with a unit capacity of 5 MW or above. Sinovel has always been a frontrunner in the research and development of large-scale wind turbines. Its 3 MW, 5 MW, and 6 MW models topped China in the prototype trials. Fig. 5.2.7

Average wind turbine generators power

2,000

Power (kW)

1,500 1,000 500 0 2004

2006

2008 Year

2010

2012

Average WTG size

Table 5.2.4 Average wind turbine generators power Year

2005

2006

2007

2008

2009

2010

2011

Average wind turbine power (kW)

849.7

919.5

1,052.2

1,217.1

1,362.6

1,466.8

1,545.4

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

Table 5.2.5 Unit power and development status of wind turbine models Enterprise

Model

Unit power (kw)

Development status

SL3000

3,000

Installed

SL5000

5,000

Prototype

SL6000

6,000

Prototype

—

10,000

In development

GW3000

3,000

Prototype

GW6000

6,000

In development

DF3000

3,000

In development

DF5500

5,500

In development

UP100

3,000

Prototype

UP100-DD

3,000

Prototype

—

6,000

Prototype

SCD3.0

3,000

Prototype

SCD6.0

6,000

In development

SE3600

3,600

Prototype

SE6000

6,000

In development

XE115-5000

5,000

Prototype

H5000

5,000

Prototype

—

6,000

Development abandoned

China Creative Wind Energy

CCWE3000

3,000

Prototype

CSR Zhuzhou Electric Locomotive

WT2500

2,500

Prototype

Zhejiang Windey

WD2500

2,500

Prototype

Zhejiang Huayi Electronic Industry

HY3000

3,000

Prototype

E6000

6,000

In development

Sinovel

Goldwind Dongqi

United Power

Mingyang Shanghai Electric XEMC Windpower CSIC (Chongqing) Haizhuang Windpower Equipment SANY Group

Envision Energy

China’s promotional policies of wind power In recent decades, due to the tight supply of energy resources and the aggravated pollution problems, the concept of sustainable development is no longer only

32

Renewable Energy and Energy Efficiency Case Studies

discussed on the level of environmental protection but also economy and even the overall human development. In 1987, the World Commission on Environment and Development (WCED) published Our Common Future. It defines sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”1 In 2004, former Chinese President Hu Jintao presented the Scientific Development Approach during the Central Government Symposium on Population, Resources, and Environment. He pointed out that sustainable development was to promote the harmony between humans and nature; coordinate economic development with the population, resources, and environment; encourage production; live an affluent life; care for nature; and to guarantee development in every generation that followed. Also, climate change has an increasing impact on energy development. The global community demands the reduction and restriction on the emission of greenhouse gases. Low-carbon and carbon-free energy is becoming a hotspot. In 1992, the United Nations Conference on Environment and Development (UNCED) passed the United Nations Framework Convention on Climate Change. Later when the Kyoto Protocol was signed, a lot of countries began to adjust their energy strategies and devised new energy development policies. Addressing the issues of climate change, restrictions on fossil fuel consumption were imposed, and energy conservation and clean energy were promoted. The limited resources, environmental pollution, and climate change have become pressing issues in global energy development, which is the major motivation behind the development of energysaving technologies and alternative energy sources. Wind power technology and industry are still in a period of growth. The cost of wind power is much higher than that of thermal power. Therefore, in the long run, the development of wind power requires strong political support. It is very important to devise suitable policies. The Chinese government has been supportive of wind power. Before the largescale development in 2005, the national and local incentive policies focused on the technological advancement, application, and demonstration of wind turbines. Subsidies were granted to research institutions and enterprises to develop new products and promote the products to farmers and herdsmen. Intensive introduction of supportive and directing policies occurred after 2000. The most significant policies of wind power were announced in 2005. In 2006, the Renewable Energy Law came into effect. It stipulates that the development of renewable energy resources is a priority in energy development. It encourages all types of economic agents to participate in the development. More importantly, the state would implement a full acquisition program of renewable energy generation and 1

UN, “Towards Sustainable Development.”

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

feed-in tariff scheme. In order to establish and expand the wind power market, the Chinese government learned from the experience of the European Union, the U.S., and Australia by adopting supportive policies such as financial support, tax preference, and grid protection. Financial support is the major measure adopted around the world to boost the wind power industry. The Chinese government has also taken it as an important part of the system to aid the different phases of development of the industry. The measure provides protection to capital management through cost-sharing and reduced tariff, as well as technological research and advancement and experimental demonstration. Corresponding laws and regulations are imposed by the legal and financial departments. The Renewable Energy Law stipulates that the Ministry of Finance was to set up a renewable energy fund. Funding comes from various sources such as the special funds assigned by the state’s budget and additional renewable energy surcharge levied according to law. The Ministry of Finance issued the Interim Measure on the Management of Special-Project Funds for Industrialization of Wind Power Generation Equipment. It states that in order to support the research and development of wind power equipment and to boost the development of the industry, the Ministry of Finance has decided to substitute subsidies with rewards. The first 50 MW wind turbines of qualified enterprises would be subsidized with CNY600/kW. Machine manufacturing enterprises and parts manufacturing enterprises both take up half of the number of enterprises. The parts manufacturing industry receives extra subsidizes for research and development of new products. The financial support is a manifestation of the state’s attention to the wind power industry. This is also a way to direct the development of the industry. Tax incentive policies are the most direct and effective measure in encouraging the development of the wind power industry. In 2005, the National Development and Reform Commission included wind power projects and the manufacturing of wind power equipment into the Guidance Catalogue on Renewable Energy Industrial Development. In 2008, the Notice of the Ministry of Finance and the State Administration of Taxation about Policies regarding the Value Added Tax on Products Made through Comprehensive Utilization of Resources and Other Products was issued. Products of wind power received a 50% rebate of the value-added tax (VAT) upon collection. Foreign investment enterprises also enjoy preferential policies such as tax reduction or exemption. The effect of tax policies on investment returns is the most direct. Preferential income tax and value-added tax policies reduce the burden of investment enterprises and the economics of the projects. Investments in wind farms are oneoff and involve high risks. Because of non-performing loans and depreciation, the early operation of wind farms usually incurs losses. The VAT of the equipment the

34

Renewable Energy and Energy Efficiency Case Studies

wind farms purchase is deducted during the sales of electricity. This reduces the VAT burden of the wind farms to zero and increases their cash flow during early operation. The current tax incentive policies are effective on investment enterprises and greatly motivate the development of the wind power industry. The state has revised its policies on electricity tariffs several times. The fixed feed-in tariff scheme reduced the fluctuation in the electricity prices. The development of China’s policies on wind power electricity tariffs can be divided into six phases: cost covering, debt servicing, approval, tendering and government approval, and fixed feed-in tariff and tendering. After these phases, the wind power electricity price has become more reasonable. On July 24, 2009, the National Development and Reform Commission announced the Circular on the Establishment of Feed-in Tariffs for On-grid Wind Power Projects. This signified the beginning of the fixed feed-in tariff phase. The fixed feed-in tariff stabilized the market for the wind power industry and eliminated the factors which could affect the electricity prices. Investors in wind farms and the wind power equipment manufacturing industry were able to estimate the profitability and evaluate the prospects before entering the market. There would be less blind investment. This reduced the risk of electricity price fluctuations. In 2006, the National Development and Reform Commission announced the Regulations on the Administration of Power Generation from Renewable Energy. Power grid enterprises were required to research the design of power grids and improve their power grids based on the progress and needs of renewable energy generation projects. This was to ensure all renewable energy could be connected to the grids. Medium- to large-scale projects like wind power directly transmitted to the grid were invested in by power grid enterprises. The Renewable Energy Law and the relevant regulations stipulated the rights and duties of power grid enterprises and wind power investment enterprises. Unfortunately, as most wind farms with abundant wind resources were located at the end of the power grid far from the load centers, and wind power could be random and intermittent, it was difficult for dispatching and peak modulation. In 2010, amendments were made to the Renewable Energy Law. The renewable energy fund and the feed-in tariff scheme were improved. Additional renewable energy surcharge and funds for renewable energy development were assembled to form the Special Fund for Renewable Energy. The Fund subsidized the power grid enterprises for the cost of renewable energy electricity which could not be covered by sales. The Fund also supported research on renewable energy, information systems, and demonstration projects. The full acquisition program was reformed as the full protection of acquisition program. The relevant departments set a target percentage of renewable energy electricity of total electricity to be achieved.

35

RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

Since 1986, the central government has promulgated 55 comprehensive policies and regulations on new and renewable energy, most of which were announced after 2005. In 2012 alone, 18 were announced. Thirty-seven concerned wind power energy, and there were 21 relevant new regulations and amendments in that regard in 2012. Since the announcement of the Renewable Energy Law in 2005, China’s wind power market and wind power manufacturing industry have grown rapidly. The focus gradually changed from being on quantity to quality. Research institutes and the standard system were improved and needed new developments. The government began to increase its input in research institutes. In 2010, the National Energy Administration licensed 16 national research and development centers. It also broke the tradition that national research centers were only established at national research institutes and universities. The research and development of largescale wind power technology depends on the major institutes, such as the National Wind Power Operation Technology Research and Development Centre, National Offshore Wind Power Technology and Equipment Research and Development Center, and National Wind Turbine Research and Development Center, which are established by major enterprises including China Longyuan Power Group, Sinovel, and Xiangtan Electric Manufacturing Co. They have laid a solid foundation for China’s wind power industry to become more innovative and competitive. This shows the government’s attention to the research and development of wind power equipment technology. With the help of industrial incentive policies, the development of wind power sped up 100% annually from 2005 to 2011. There was significant improvement in research and development, production, and the supply process of the wind power enterprises in China in order to cope with the huge demand. China has fully grasped the technology of megawatt wind turbines. The quantity of megawatt wind turbine production significantly increased. Megawatt wind turbines are now mainstream products in the wind power market. The average power of wind turbines with added installed capacity is climbing. Also, it only took China a few years to catch up with the 20 plus years of development of the West. China has become one of the largest wind power countries.

Outlook for China’s wind power industry In Hu Jintao’s report to the 18th National Congress of the Communist Party of China convened in late 2012, he advocated the establishment of a “beautiful” China. Economic development remained as the major development strategy in those 20 to 30 years. Given energy resources and environmental constraints, China needs a

36

Renewable Energy and Energy Efficiency Case Studies

lower growth rate of fossil energy and large-scale development of clean energy to achieve a high economic growth rate. As the mainstay of economic development, reform of electricity supply is inevitable. China will stop providing unlimited supply of energy. Instead, it will control and guarantee total supply. The industry will be forced to transform and the structure will be adjusted. China should coordinate the development of energy and the environment. It should stop being over-dependent on fossil energy and gradually rely more on new and renewable energy. Economic growth should rely on sustainable resources and be bearable for the ecology. The research institute of the State Grid Corporation of China predicted that by 2020 China’s energy consumption will reach 4 to 5 billion tons of standard coal equivalent (3.2 billion tons of electric coal) and electricity consumption will reach 8.6 trillion kWh. In September 2009, the Chinese government promised the world that non-fossil energy will contribute 15% of the total primary energy consumed by 2020. The 12th Five-Year Guideline proposed that the contribution of non-fossil primary energy consumption should rise from 8.3% in 2010 to 11.4% in 2015. At present, wind power is the renewable energy with the most developed, commercialized, and the best promotion prospects. The significance of this is huge in terms of China’s development of wind power electricity to adjust the energy structure, ensure energy security, cope with climate change, and promote the sustainable development of the economy and society. According to the National Energy Administration’s Development of Wind Power Technology under the 12th Five-Year Plan issued in July 2012, by 2015, the cumulative installed capacity of on-grid wind turbines shall reach 100 million kW and the annual generation capacity shall surpass 190 billion kWh, of which 5 million kWh shall be generated by offshore wind power units. A comprehensive and internationally competitive wind power equipment industry shall be established. By 2020, the cumulative installed capacity of on-grid wind turbine shall reach 200 million kW and the annual generation capacity shall surpass 390 billion kWh, of which 30 million kWh shall be generated by offshore wind power. Wind power will become an important source of electricity. As of the first half of 2012, the cumulative installed capacity had reached 67,774 MW. The annual new installed capacity for the coming three years is expected to be around 15,000 MW. Based on the current price of wind turbine equipment, the annual investments in the wind turbine equipment market amounts to CNY60 billion. The target installed capacity of offshore wind power during the 12th Five-Year Guideline is 5,000 MW, and the investments are estimated to reach CNY19 billion. The National Development and Reform Commission’s China Wind Energy Development Roadmap 2050 outlines the long-term prospects of China’s wind power

37

RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

industry. The installed capacity of wind turbines is expected to reach 200 GW by 2020, of which 30,000 MW would be contributed by offshore wind power. The investment in installed capacity during the 13th Five-Year Guideline is estimated to be CNY400 billion, of which CNY110 billion would be invested in offshore wind power. By 2030 and 2050, the installed capacity would reach 400 GW and 1,000 GW. Wind power would become one of the five major energy sources. It would satisfy 17% of the demand for electricity in 2050. Fig. 5.2.8

Annual wind power development

70,000 60,000

MW

50,000 40,000 30,000 20,000 10,000 0 1990

1995

2000

Year

2005

2011

2016

Europe Americas Asia Rest of the world

World

Source: BMT Consult, World Market Update 2011. Note:

Actual figures for 1990–2011 and estimated figures for 2012–2016.

The wind power industry in China had begun to study wind power technology during the 10th Five-Year Plan. The industry quickly advanced and established the basic industrial layout during the 11th Five-Year Guideline. However, in the first two years of the 12th Five-Year Guideline, due to the downturn of the macroeconomy and the development of the industry itself, wind power in China entered a period of adjustment and integration. It was a low point in the development of wind power. Based on the needs of the development and transition of the industry, the National Energy Administration began to actively guide the development of the industry. It proposed the integration of concentrated and distributed development. It encouraged the planning for distributed development and adopted a corresponding

38

Renewable Energy and Energy Efficiency Case Studies

management approach. The construction and maintenance of the power grid was reinforced to ensure better performance. Wind farms and electricity systems which were better suited to the power grid were built. Technology of wind power prediction and large-scale energy storage, and control and management of power system operation were developed. Ultra-high-voltage and smart power grids were constructed. China attempted to achieve optimization of wind power. Wind farms were scattered across areas close to the load center with low wind speed, complex terrains, and at high altitude, where wind resources were scarce. Wind power was consumed locally. In areas with scarce wind and land resources in the eastern and central provinces, distributed development was implemented. Wind power was developed in areas which were more accessible to the power grid. It can be expected that the proportion of wind farms scattered across inland areas would increase. In 2011, the state approved the first wind power projects during the 12th Five-Year Guideline. All the projects together contributed 26.83 million kW of wind power. In 2012, approved wind farm projects totaled 24.97 million kW. The percentage share of projects in South China climbed from 8% in the previous year to 18%. A similar trend was seen in projects in East and Central China. On the contrary, the percentage share of projects in the North dropped from 33% to 5%. Recently, concentrated and distributed development has been simultaneously underway. This improves the quality of management of the wind farms. This mode of development will become more widely adopted. China’s development of offshore wind farms is steadily progressing. The 100 MW Donghai Bridge Wind Farm and the 182 MW Jiangsu Rudong Wind Farm have been established. According to relevant regulations of the state, until 2015, the development of the offshore wind farm would concentrate in the shallow waters within 25 m in depth. China should have a grasp on the basic techniques of the construction and operation of offshore wind farms by 2015 and mastered the techniques by 2020. The development of wind farms in the deep waters shall begin in 2020 and the construction of the first offshore wind farm in the deep waters is targeted to begin before 2030. Looking at the pattern of past developments, commercially sensitive investment companies would begin the preparation or even start the project earlier than planned in order to obtain more benefits. China’s wind power equipment manufacturing enterprises, in the early stages, grew more rapidly than expected as the wind power market expanded in an unexpectedly high rate. As the growth rate of the market dropped and the impact of the global financial crisis hit, excess supply of wind power in the industry has brought about keen competition among manufacturers and negative effects on the industry.

39

RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

The industry would experience a difficult time of adjustment and integration during the 12th Five-Year Guideline. Enterprises need to improve their technology and quality, establish more financing channels, and explore new markets in order to survive. Diversity and large capacity of a single turbine are the trends for the development of offshore wind power technology. Before 2015, the dominant wind turbines would have a power of 3 MW or below. They would satisfy the market which is in demand for 15 GW to 20 GW new installed capacity. Wind turbines with a capacity of 3 GW to 6 GW would be used in onshore and some offshore wind farms. They would satisfy an annual demand of 8 GW installed capacity. Between 2015 and 2020, 5 MW wind turbines will be utilized in offshore wind power projects to generate 1,000 MW to 1,300 MW of power on average each year. Between 2020 and 2030, China’s offshore wind power would enter a stage of largescale development, and 5 MW to 10 MW wind turbines would become prevalent. As technology advances and experience builds, wind turbines will have a larger unit capacity, higher efficiency, reliability, and operation ability. The development and supply of key components has advanced as the wind turbines increase in capacity and adaptability. The length of the blade increases in order to attain a large unit capacity. The focus for the future 10 years of development of wind turbine blades is on maximizing the load, reducing the weight, improving adaptability, and the ease for transport and installation. The examination and control, new structure, and the use of carbon fiber, high strength and high modulus glass fiber, and recyclable thermoplastic resin as the matrix in the blades are also possible directions of development. As the unit capacity of wind turbine expands, technological breakthrough is needed for the current high-speed and low-speed (direct drive) transmission chain in the aspects of speed, power split, load balancing, and reduction of noise. This would resolve the problems with the bearing life, carrying capacity, reliability, and maintenance. The direction of development of wind turbine generator technology would be to improve the grid performance and reduce the weight and costs. The use of superconducting materials and medium and high voltage technology would be applied more frequently. The rapid development of electronic components materials and technologies, as well as semiconductor power devices and modules of higher power, would motivate the increase in the power density and reliability of conductors. Wind farms in Northeast and Northwest China are in a large scale and distant. Those wind farms are better suited to less developed regions with a smaller power system and lower wind power consumption ability. The development of wind power focuses on flexible and effective connection to the power grid, for dispatching, transmission, and consumption. Technological innovation and institutional reform

40

Renewable Energy and Energy Efficiency Case Studies

of the power system would begin. Grid-friendly technology, power forecasting, optimal scheduling, long-distance transmission, and large-capacity storage would be the focus of future technological development. Based on the history and prospects of wind power, especially in recent times, the political environment is a major factor in determining the stability of development of the industry. China has established a political frame work which encourages the development of renewable energy, including fixed feed-in tariffs, preferential tax, and cost-sharing policies. These policies focus on supporting the equipment manufacturers and the enterprises which are engaged in the industry. However, there is a lack of system which allows power grid enterprises to voice their demands to the government or grid dispatch under the current market conditions. Government regulations alone can hardly maintain a healthy, sustainable, and balanced relationship among different parties. In order to further encourage the development of renewable energy, as well as to coordinate the generation, transmission, and consumption of electricity, the government introduced the quota system. Under the current conditions, main participants of each process would impose their own mandatory requirements to encourage the development of renewable energy. Requirements are defined in terms of indicators which can quantitatively assess consumption, transmission, and production agents. They implement a full acquisition program. The local governments are the assessable representatives of electricity consumption. They have to satisfy quotas. Grid companies are responsible for the transmission of electricity. They are responsible for imposing quotas as directed by the local governments. Thermal power enterprises of a certain size should shoulder some social responsibilities and propose appropriate quota requirements to make renewable energy a more attractive industry. Another phenomenon which is worth attention is that as wind farms usually suffer losses in the early stages, they need not pay income tax. The preferential tax policies benefit the wind farms so that they usually need not pay any taxes for the first few years. This reduces the revenue and also the incentive of the local governments. Some local governments attempt to use wind resources to attract local manufacturers to invest in the region so as to retain the VAT. Therefore, the state should take into account the benefits of the local government when it refines tax policies. The state has proposed a reasonable control of total energy consumption, a transition from unlimited supply to limited, controlled supply, and a change of the binding targets of energy development from purely quantitative to both quantitative and qualitative. Renewable energy consumption should be eliminated from “controlled energy consumption.” Incentive policies based on the development

41

RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

and consumption of renewable energy should be used to encourage the local governments to promote local consumption of renewable energy. Only through motivation can the industry exercise its full potential so that the full acquisition program can be implemented. The recent economic downturn does not put the development of renewable energy on hold. Actions on climate change mitigation continue. The central and local governments are expected to adopt more incentive policies to ensure the stable development of China’s wind power industry, as well as to encourage the industry to participate in international climate change mitigation. Wind power effectively reduces the emission of greenhouse gases, which in turn benefits the wind power industry. China’s wind power industry will continue to play a major role in the international community.

Development of Sinovel Wind Group Sinovel Wind Group Co., Ltd. (Sinovel) was founded before megawatt wind turbine generators were invented. It was the first new high-technology company founded in China which specializes in wind power. It develops, designs, manufactures, and sells its own wind turbines which can adapt to different wind resources and environmental conditions, including land, sea, and intertidal zones. As of 2011, the cumulative installed capacity of the Sinovel wind turbines had reached 12,989 MW, ranking first in China and second in the world.

Years of steady development Since its establishment in 2006, Sinovel has become a frontrunner in China’s machine manufacturing industry. Its management and research headquarters are in Beijing. It has established production facilities in Dalian, Yancheng, Jiuquan, and Baotou. Sinovel was the first wind power company in China to introduce megawatt wind turbine technology and develop the 1.5 MW series of wind turbines which can adapt to different environmental conditions around the world. When wind power enterprises were enjoying the high returns brought about by kilowatt wind turbines, Sinovel has begun to introduce 1.5 MW wind turbine technology, which was prevalent in Germany. It assimilated the technology and innovated its own wind turbines. In June 2006, the first domestic 1.5 MW wind turbine generator was produced. It was connected to the power grid in September. In April 2007, the first domestic megawatt wind farm — Huaneng  Weihai  Power Plant (Phase I) — installed 13 Sinovel 1.5 MW wind turbines. The wind turbines passed the acceptance test at the first attempt. 42

Renewable Energy and Energy Efficiency Case Studies

The production and installation of the 1.5 MW series offered a glimpse of the technological capabilities of Sinovel. Sinovel continued to improve its independent research and development as it garnered a larger share of the market. The returns of independent research and development have been surfacing as large-scale products launched in recent years. In 2008, the first 3 MW wind turbine with independent intellectual property rights in China was outputted. In December, the first offshore 3 MW wind turbine was produced and scale production began. On March 20, 2009, the first offshore 3 MW wind turbine was successfully installed. Soon after, Sinovel completed Phase I of the Donghai Bridge Wind Farm. On October 12, 2010, the first 5 MW (largest capacity at that time) wind turbine with independent intellectual property rights in China completed production. On September 6, 2011, Sinovel successfully installed the 5 MW wind turbine offshore. This is the offshore wind turbine with the largest capacity which was independently developed in China. It has successfully passed the 240-hour test. From production to installation and operation, the Sinovel 5 MW offshore wind turbine is a role model for offshore wind turbines in China. On May 18, 2011, the first Sinovel 6 MW offshore wind turbine completed production in the Sinovel Yancheng Base. On October 8, 2011, the 6 MW offshore wind turbine was successfully installed. At present, the 6 MW offshore wind turbine is the wind turbine with the largest unit capacity in Asia. It was also the first grid-friendly wind turbine which was independently developed and protected by independent intellectual property rights. It was another breakthrough for large wind turbines in China after the 5 MW wind turbines had been utilized in commercial operation. In order to improve the management of the company as the industry quickly progressed, on January 13, 2011, Sinovel became listed on the A-share board in the Shanghai Stock Exchange with a stock symbol of 601558.

Resolution in independent innovation In November 2009, Sinovel began to invest in and construct the National Energy Offshore Wind Power Technology and Equipment R&D Center. It was approved by the National Development and Reform Commission and the National Energy Administration. Sinovel was responsible for the construction of the only nationallevel research and development Center which specializes in offshore wind power. The Center has developed advanced 3 MW, 5 MW, and 6 MW onshore, offshore, and intertidal wind turbines. Sinovel is currently developing wind turbines with a capacity of 10 MW or above. It leads China’s as well as the world’s wind power technology development. There are seven large-scale testing platforms in the 43

RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

Center. The most advanced 15 MW wind turbines, with the largest power and capacity, are tested there for their equipment including the gearbox, generator, blades, and bearing. This lays a solid foundation for the development and testing of the key components of large-scale offshore wind turbines. The Center recruited both domestic and internationally renowned scholars and specialists. There are more than 800 technicians with experience in wind turbine development. They study aerodynamics, mechanics, hydraulics, and develop self-control systems and other software. The development of offshore wind power has become inevitable. As the unit capacity of wind turbine increases, the transportation and installation costs of offshore wind turbines will drop. Therefore, the development of 10 MW wind turbine is essential to the future development of offshore wind power. Even the European Union’s Strategic Energy Technology Plan emphasizes the development of 10 MW to 20 MW large offshore wind turbines. A lot of Sinovel products were developed and manufactured by the National Energy Offshore Wind Power Technology and Equipment R&D Center. The SL5000 series applied world leading technology such as the variable-pitch and variablespeed systems, and the double-fed generator. The global mainstream SL3000 series can fulfill the different conditions of onshore, offshore, and in intertidal zones. In November 2009, the series was awarded the 2009 China International Industrial Fair gold award. In February 2011, it was awarded the first prize in the 2010 Jiangsu Provincial Science and Technology Awards. Currently, it is a major strategy of the state to reinforce the development of wind power and other renewable energy. It is essential to the sustainability of China’s society and economy. The growth rate of China’s wind power market tops the world. The smart power grid and the consumption of wind power have become deciding factors in the healthy and sustainable development of the wind power industry in China. Large wind farms far away from the power grid experience difficulties in the connection to the grid and have to abandon wind resources. The state has yet to come up with a solution. As a frontrunner, Sinovel and the State Grid Energy Research Institute signed a technical cooperation agreement to jointly develop wind power projects. Two research topics were “Study on the Development and Market Consumption of Wind Power in China” and “Study on the Development of Wind Power Technology under the Smart Power Grid.” The former study studies the characteristics of wind power in major wind power development locations. It analyzes the consumption capabilities of wind power at each level and proposes measures which encourage wind power application and consumption. It provides references for the planning of wind power development. It is highly practical. The latter analyzes the smart power grid technology, proposes strategies for the future

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development of smart power grids in China, and comments on the prospects. It also makes recommendations on the protective measures of the wind power manufacturing industry. It is forward-looking. The studies were completed in early 2012. They offer reasonable and reliable solutions to the problems the wind power industry experiences at present. On March 29, 2011, the project “Localization of 5 MW Wind Turbines” organized and conducted by Sinovel for the Beijing Municipal Science & Technology Commission successfully passed the evaluation by the expert group of the Commission. The project commenced in January 2010 by Sinovel, Tsinghua University, and the China Electric Power Research Institute. There were three major studies under this project: “Key Technology in the Development and Industrialization of 5 MW Wind Turbines,” “Key Technology in Grid-friendly 5 MW Wind Turbines,” and “Testing Technology and Standards of Low-Voltage Ride Through of High-Power Wind Turbines.” Sinovel developed all the equipment for a 5 MW triple-blade, horizontal axis, variable-pitch, variable-speed, and doublefed wind turbine with independent intellectual property rights. This involved technologies such as machinery and heat exchanger design, the compact drivetrain system, load sharing system, anti-corrosion system against salt mist, and safety and operation under complicated sea conditions. The localization rate of the wind turbine exceeded 85%. It has become a global trend to increase the capacity of wind turbines. The National Energy Administration and the Ministry of Science and Technology stated in the 12th Five-Year Plan for National Energy Technology Development (2011–2015) and 12th Five-Year Plan for Wind Power Generation Science and Technology Development that enhancing the capacity of wind turbines is the direction of development. It is stated in the latter document that offshore wind turbines with a capacity larger than 10 MW and their components should be developed. Offshore wind farms should be equipped with large-scale wind turbines. Sinovel began the development of 10 MW offshore wind turbines in 2011. Patent is an indicator of innovation. The number of applications for patent and patent granted are quantifiers of the technological development of an industry or an enterprise. Sinovel has always valued technological innovation. As of 2012, it had been granted 209 patents for its wind power products.

Undertaking major projects As a major international wind turbine manufacturer, Sinovel not only strives to expand its market, but it also undertakes major national construction projects.

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Table 5.2.6 National projects Sinovel undertook Time

Location

Type of national projects

Developer

Capacity (kW)

Remarks

Second round wind power concession project

Huaneng New Energy Industrial Co.

200,000 The project was awarded the Outstanding Project Award in the 2009 China Power Quality Engineering Award

November Dongtai, 2006 Jiangsu Province

Third round wind power concession project

Guohua (Dongtai) Wind power Co.

200,000

—

December 2006

Fuxin, Liaoning Province

National project

Huaneng New Energy Industrial Co.

500,000

—

October 2007

Zhangbei, Hebei Province

Wind power concession project

—

700,000

—

December 2007

Huitengliang, Inner Mongolia

Fourth round wind power concession project

North United Power Corporation

300,000

—

December 2007

Donghai Bridge, Shanghai

National offshore demonstration project

—

May 2008

Tongliao, Inner Mongolia

Fifth round wind power concession project

July 2008

Gansu Province

Wind power concession project

February 2009

Beiqinghe, Tongliao, Inner Mongolia

Fifth round wind power concession project

June 2006

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Tongyu, Jilin Province

Huadian Power International Co., Hebei Construction Investment —

Huadian Power International Co.

100,000 The first offshore demonstration project 450,000

—

1,800,000 The capacity of the whole project was 3,800,000 kW 300,000

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(Cont’d) Time

Location

April 2009

Inner Mongolia and Hebei Province

July 2010

Heilongjiang Province

Type of national projects Wind power concession projects —

Developer —

Capacity (kW)

Remarks

2,000,000 The capacity of the whole project was 5,250,000 kW

Huaneng New Energy Industrial Co.

200,000 China’s first onshore largecapacity 3 MW wind farm; a demonstration project

—

Offshore wind power concession project

—

600,000 China’s first offshore wind power concession project; the capacity of the whole project was 1,000,000 kW

November Hami, 2011 Xinjiang

Wind power concession projects

—

800,000 The capacity of the whole project was 1,800,000 kW

Wind power concession projects

—

550,000 The capacity of the whole project was 1,500,000 kW

October 2010

Zhangjiakou, Hebei Province

Sinovel manufactured thirty-four 3 MW offshore wind turbines for the first wind power demonstration project, the 102 MW Donghai Bridge Wind Farm in Shanghai. It was also the first offshore wind farm outside Europe. On August 31, 2010, the thirty-four 3 MW wind turbines completed the 240-hour acceptance test at one go and have since been in operation. As of August 2012, the cumulative generating capacity of Phase I of the wind farm had reached 495,000,000 kWh. In the first three quarters of 2011, the generating capacity and the on-grid electricity reached 194,000,000 kWh and 188,000,000 kWh. The annual utilization rate stood at 95.05%. The Sinovel 5 MW offshore wind turbines, with the largest capacity at present, to the west of the Donghai Bridge, completed the 240-hour acceptance test on August 17, 2012. They are now operating. The utilization rate is 99.5%.

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In September 2011, Sinovel won the bid of the Lingang Offshore Wind Farm Demonstration Project (Phase I). Sinovel 6 MW SL6000 wind turbines would be adopted in this project. This was a milestone of Sinovel. The 100 MW Phase I project only required 17 Sinovel 6 MW wind turbines. Technological advancement in large-capacity wind turbines reduces the costs and raises the efficiency of constructing offshore wind farms. This was the first time 6 MW wind turbines were used extensively in commercial projects in the world.

Refined establishment in China Within a few years, Sinovel had established the largest — and stable and developed — production chain. It refined its organizational structure with Beijing as the headquarters of management and research and development, and had production facilities in Dalian, Yancheng, Jiuquan, and Baotou. The Dalian and Yancheng bases are the major production and export bases at present. Phase II of the Yancheng base in Jiangsu Province is under construction at the time of this writing. It would have a testing capacity of 600,000 kW and undertake the testing of 3 MW to 5 MW offshore, onshore, and intertidal wind turbines. Since 2011, with advances in technology, low-speed wind farms have gotten attention by capitalizing on their advantageous geographical location for wind power consumption. Hoping for a breakthrough, during the 12th Five-Year Guideline, the state would stop “constructing large bases and incorporating large power grids” and adopt the combination of concentrated and distributed development. It would develop low-speed wind farms and promote their connection to the grid. As a frontrunner, Sinovel had begun the development of low wind speed technology and capacity allocation before the 12th Five-Year Guideline was announced. In March 2011, Sinovel signed a development contract with Haujie, Guizhou Province, which was located in a region with low wind speed. It would invest in and construct the modern Sinovel Guizhou Industrial Park, which specialized in producing high-altitude wind turbines. Research and development, production, sales, and staff training would take place in the industrial park. The main construction was completed and the industrial park began operation in August 2011. Mostly 1.5 MW wind turbines were produced in the industrial park together with some 3 MW wind turbines. The production capacity of the industrial park stood at 300 MW. The annual output value is estimated at CNY2 billion. In 2012, Sinovel increased its investment in capacity allocation and satisfying the market demand. In April, Sinovel’s production base in Chuxiong, Yunnan Province was established. It focused on the development of high-altitude wind turbines. Research and development, production, sales, and staff training would

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be conducted in the base. Its annual production capacity was over 1.5 million kW. On May 26, the construction of Sinovel’s comprehensive industrial base in Datong was begun. CNY1.5 billion was invested in the project. The completed base would be dedicated to the research and development of 1.5 MW, 3 MW, and other large capacity wind turbines. It would also be a base for production, sales, maintenance, and staff training. The annual production capacity is estimated to be above 1.5 million kW. Based on the plan of the state to establish wind farms with a capacity of a million kilowatts, its distributed development of wind power, and the market demand, Sinovel has established wholly owned subsidiaries in Inner Mongolia, Fujian, Heilongjiang, Qinghai, Ningxia, Yunnan, Jiangxi, Guizhou, Shanxi, Liaoning, Shandong, Jilin, and Jiangsu Provinces. This basically covers all the major wind power markets in China.

Expansion overseas The overseas market is a major development focus of Sinovel. Through consolidating the traditional markets and exploring new markets, Sinovel establishes a global sales network. It has won the bids of wind power projects in or received orders from countries such as the U.S., Brazil, Sweden, Turkey, India, and South Africa. In June 2011, Sinovel signed delivery and cooperation contracts with Swedish CRC Vindkraft AB (a wind power company) and Brazilian Desenvix (a power development company). All supplies have been delivered. Turkey is one of the recent locations where the development of wind power has picked up. The lack of traditional energy resources prompted Turkey to explore new energies. Sinovel entered Turkey’s market in May 2011. In November and December of that year, it signed two delivery contracts with a Turkish renewable energy development company. Bereket Enerji Üretim A.Ş. Sinovel would supply 72 wind turbines with a total installed capacity of 108 MW for the two projects: Yalova WPP 54MW and Uşak WPP 54MW. The contracts were fulfilled in mid-April 2012. It was expected that testing and grid connection would be completed by the end of 2012. In April during the Turkish Prime Minister Recep Tayyip Erdoğan’s visit to China, Sinovel signed an agreement with Ağaoğlu regarding a 600 MW wind power project. This was a major breakthrough of Sinovel’s business in Turkey. Sinovel sees Turkey as a strategic emerging market and the center of its expansion to nearby regions in Europe. Sinovel entered the North American market in 2011. At the same time, it actively explored emerging markets in Mexico, Japan, and Thailand.

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At this time, how China’s wind power industry should adapt to the situation and develop is a question for wind power enterprises. Wind power has evolved from a sought-after and emerging industry to a competitive one. Practitioners in the industry are becoming more rational. As wind power enters into a period of adjustment, the development industry becomes more close-knit with government policies and the market demand. In the last two years, as industry consolidation has continued, survival of the fittest has quickened, assessment of the technological level has become more refined, the overall strength of enterprises has increased, and decisions were made with greater consideration than before. In the future, only the enterprises with outstanding management, constant technological innovations, ability to explore new markets, and sufficient financing channels (i.e., low cost of production, high efficiency, and huge capital) would be able to survive. Given the foundation of a rich technological reserve, Sinovel has quickly adapted to the global climate change and government policies, monitored the domestic and foreign supply chains, and capitalized on the financial institutions’ interest in the industry. It remains confident about sustainable development as the industry is about to enter into a period of adjustment. Its analysis of the situation allows it to optimize organization and improve quality to fit the markets’ needs. It would keep track of national policies, study the development trends of technology, and set development goals to enhance its overall strength as an enterprise. It strives to be a role model in the wind power industry and make China a powerhouse in the global wind power industry.

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References BTM Consult. World Market Update 2011. China Institute of Energy Economics Research. Zhongguo xinnengyuan he kezaisheng nengyuan zhengce fagui huibian 中國新能源和可再生能源政策法規彙編 (Compilation of China Policies and Regulations on New Energy and Renewable Energy). 2012. China Wind Energy Association. Fengdian Zhongguo 30 nian 風電中國30年 (Thirty Years of Wind Power in China). 2010. Chinese Wind Energy Equipment Association. Zhongguo fengli fadian jizu xuanxing shouce 中國風力發電機組選型手冊 (China Wind Turbine Selection Guide). 2011. Energy Research Institute of the National Development and Reform Commission. Zhongguo fengdian fazhan luxiantu 2050 中國風電發展路線圖2050 (China 2050 Wind Power Development Roadmap). 2011. Li Junfeng 李俊峰, ed. Fengli 12 zai Zhongguo 風力12在中國 (Wind 12 in China). 2005. ———. Zhongguo fengdian fazhan baogao 2007 中國風電發展報告 (China Wind Power Outlook 2007). China Environmental Science Press, 2007. ———. Zhongguo fengdian fazhan baogao 2008 中國風電發展報告 (China Wind Power Outlook 2008). China Environmental Science Press, 2008. ———. Zhongguo fengdian fazhan baogao 2009 中國風電發展報告 (China Wind Power Outlook 2009). China Environmental Science Press, 2009. ———. Zhongguo fengdian fazhan baogao 2010 中國風電發展報告 (China Wind Power Outlook 2010). China Environmental Science Press, 2010. ———. Zhongguo fengdian fazhan baogao 2012 中國風電發展報告 (China Wind Power Outlook 2012). China Environmental Science Press, 2012. United Nations. “Towards Sustainable Development.” In Our Common Future: Report of the World Commission on Environment and Development. UN Documents. A/42/427. Accessed August 20, 2013. http://www.un-documents.net/ ocf-02.htm#I.

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5.3 A Top Down Approach: Achievements of the Shandong Provincial Government in Promoting Energy Efficiency Policies Li Pengfei

On September 26, 2011, the State Council commended the local government provinces with outstanding performances during the 11th Five-Year Guideline. The Shandong government surpassed every target and was praised for its efficiency. The Shandong government pays a lot of attention to energy conservation and upholds the Scientific Development Approach and constantly innovates. It encourages society to conserve energy, beginning with the industrial sector. The state adopted some of the methods of the Shandong government. Therefore, there is the name “Shandong Method.”

The Shandong Method of energy conservation Background of energy conservation in Shandong Shandong is one of the largest industrial provinces, as well as the largest heavyindustry province in China. The province’s primary energy consumption accounts for 8% to 9% of the total primary energy consumption in China, outweighing every other province. Same as across China, energy conservation in Shandong Province began more than 30 years ago. However, due to the constraints of the industrial structure and the concepts of development, it did not receive enough attention. Shandong is a major economic and industrial province. Industrial enterprises are the major consumers of energy. In 2005, the 1,000 key enterprises in Shandong province consumed a total of 155 million tons of standard coal, which was 66% of the total consumption of the whole province. The enterprises had long treated energy as ordinary raw materials and lacked the initiative to reduce energy consumption. In society, there was no clear goal or administration to conserve energy. Even though there had been improvement every year, it remained far off from the target. The root problem of energy conservation is that some enterprises and local governments mistakenly think that economic growth would increase energy consumption and that energy conservation would impose constraints on production. This stems from their lack of understanding of economic transition and structure. Especially during the 11th Five-Year Guideline when the U.S. Subprime

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Crisis occurred, it was the primary mission of governments at every level to maintain economic growth. It was the biggest obstacle to energy conservation.

The Shandong Method In recent years, Shandong Province has continued to explore and put into practice the methods of energy conservation. It established a management system based on institution, legislation, regulations, and science. It explored the endogenous power of enterprise and encouraged them to consume energy according to the regulations in a controlled manner. This reform in the industrial sector was extended to the public construction and transportation sectors. This improved society’s use of energy.

Establish and refine the organization structure and legislative structure and institutional innovation as the foundation for energy conservation management In 2006, the provincial government established the energy conservation and emission reduction leading group (a coordinating and decision-making body). The same leading groups were set up at the city-level and county-level governments. The groups were led by the Governor, who was assisted by three Vice Governors. The groups were each formed by the main officials of 34 departments. The offices of the groups were in the Economic and Information Technology Commission offices. Shandong Province was the first province in China which had energy conservation and emission reduction leading groups set up at all provincial-, city-, and county-level governments. In 2007, it established a regulatory body — Shandong Energy Conservation Supervision Team. Detachments were set up in 17 cities and two-thirds of the counties (districts). In order to guarantee success of the energy conservation tasks during the 11th Five-Year Guideline, in May 2010, the Provincial Headquarters of Energy Conservation and Improvement. It was led by Vice Governor Wang Junmin. The team comprised 11 departments and 40 members. They worked in a centralized office. Branches were established in every city. On this basis, laws and regulations were announced and implemented, including the Shandong Province Energy Conservation Ordinance, Shandong Province Cleaner Production Promotion Regulations, Shandong Province Comprehensive Utilization of Resources Regulations, Shandong Province Building Energy Conservation Regulations, Shandong Province Management of Energy Conservation in Public Organizations, and

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Shandong Province Energy Conservation Supervision Measures. These had helped Shandong Province establish a management system of energy conservation before the state implemented a comprehensive and operable regulatory system. At the same time, Shandong Province also issued a series of policy documents. In 2007, the Provincial Party Committee and provincial government announced the Advice on Further Reinforcing Energy Conservation and Emission Reduction. This signified that energy conservation had become a task of the Party Committees and governments. In 2006, a special fund was set up at provincial and city-level governments to give more support to energy conservation. CNY150 million was allocated to the special fund every year. On December 29, 2006, the Shandong provincial government announced the Shandong Province Assessment Methods of Energy Conservation Target Responsibility. The assessment methods of the state were based on those of Shandong Province. The state refined the assessment system of fixed asset investments and the management of new or renovation projects.

Set up national energy conservation standards and adopt a scientific approach to energy conservation In 2006, Shandong Province announced the Shandong Province Statistical System for the Energy Consumption Per Unit of Product of One Thousand Key EnergyConsuming Industrial Enterprises. The data of the energy consumption of 103 key state enterprises and 1,000 provincial key enterprises was collected. In 2012, the data of the 1,188 enterprises which joined the Energy-Saving and Low-Carbon Implementation Program were assembled. A report system of energy utilization was established. Key enterprises are required to report on their energy utilization annually, including consumption, efficiency of utilization, progress of conservation, analysis of efficiency, and conservation measures. In 2007, Shandong Province established the Energy Standardization Technical Committee. On June 30, 2008, the Committee announced the Requirements for Energy Management System (DB37/T1013). It stipulates the first energy conservation standards in China. Since the 11th Five-Year Guideline, 203 regulations regarding energy conservation standards have been announced, of which 52 were standard limits. Standardization of energy conservation encourages the use of a scientific approach. The standards were benchmarked with the efficiency of the industries. Innovative management measures, including the signing of agreements, also led the enterprises towards the scientific management of energy use.

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Appendix I: Adoption of Innovative Management System to Achieve Economic Growth and Energy Conservation Interview with Zhu Hui, Leader of the Shandong Energy Conservation Supervision Team Energy conservation supervision is a form of law implementation as well as a support for and implementation of the governments’ energy conservation work. Since its establishment, the Shandong Energy Conservation Supervision Team has achieved breakthroughs constantly. It has set up an efficient law implementation system and regulations to monitor energy conservation. The enterprise energy management system it established, the setting up of the position of the energy management division, and regulations on energy conservation have been used as references for the state and other provinces. Some provinces even copied the systems. The leader of the Shandong  Energy  Conservation Supervision Team Zhu Hui has been engaged in energy conservation for a long time. He thinks that the development of energy conservation supervision benefits from the solid foundation, the attention given by the government, and constant innovation. Energy is conserved without sacrificing economic growth. Zhu said that the law implementation of energy conservation had been systematic since the beginning. Without existing regulations or experience as reference, the enforcement body explores and learns by trial and error. Measures proven effective in practice are adopted the next year. The goal is to inspire enterprises to voluntarily conserve energy consistently. The Shandong Energy Conservation Supervision Team was formerly the Shandong Province Energy Technical Service Center founded in 1981, which later became the Shandong Province Energy Use Monitoring Center. In 2007, as energy conservation became more a pressing issue, the state and provincial governments paid a lot of attention to it. Shandong Province established a provincial regulatory body and regulated energy conservation began. Regulatory bodies are the agents of supervision by the government according to law. It is essential to have a capable team to impose supervision. In 2007, the Shandong Energy Conservation Supervision Team was established. As of the time of writing, branches of the Team have been set up in 17 cities and two-thirds of the counties (districts). The Team continues to expand. The State Council and the National Development and Reform Commission have required county-level governments to set up regulatory bodies. Shandong Province’s rate of establishing

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county-level regulatory bodies ranked among the top in China. The three-tier (provincial, city-level, and county-level) regulatory system is becoming more refined. This lays a solid foundation for the energy conservation law implementation in Shandong Province. The innovations of energy conservation in Shandong Province can be categorized into the following areas: First, it actively established administrative law implementation regulations and a policy system for energy conservation. This provided the supervision of energy conservation with a legal basis. Different than law implementation in other areas, energy conservation was not bound by laws at the state level. The Shandong Province Energy Conservation Supervision Measures was the first announced regulations. However, due to the amendments to the Energy Conservation Law in 2007, many of the regulations became incompatible with the higher law or unsuitable to the new circumstances. The then existing laws and regulations related to energy conservation supervision were unable to be executed. After a few years of exploration, Shandong Province refined the local legislation regarding energy conservation. It amended the Shandong Province Energy Conservation Ordinance. It stipulates the legal authority of the regulatory bodies. In order to regulate the supervision of energy conservation, a long-term mechanism was established and a Shandong Province Energy Conservation Supervision Guide was drafted. The Guide was later adopted by the state. This helped refine the supervision system and provided a legal basis for supervision. Second, it was the first to set up energy conservation standards and adopt a scientific approach to supervision. Standardization is important to energy conservation supervision. The Shandong Province Energy Conservation Office and the relevant departments issued standardized indicators of energy conservation for all key industries. Since the start of the 11th Five-Year Guideline, more than 200 standards have been launched, of which 52 were standard limits. They covered every industry. In 2011, there were around 20 national limits on energy consumption, and Shandong Province had the most standard limits. Through standardization and benchmarking, supervision has become more scientific. This encourages enterprises to voluntarily conserve energy and consume energy in a more sensible manner. Third, it was the first for the industry to explore new operation models, steadily and constantly strive towards its goals, and eliminate conflicts between energy conservation supervision and economic development. The goals of energy conservation are unified and measures are adopted across the province. Every year, plans are devised for energy conservation supervision. The provincial government plans, coordinates, directs, and regulates energy conservation supervision of the province. It adopted macro-management and systematic supervision over the key 56

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areas, industries, and projects according to the plans. It chooses an aspect for special monitoring annually. Based on the three-tier system, the government directs the works in every location in the province. It encourages enterprises to voluntarily conserve energy through recommendations, reform, communications, regulations, and enforcement. Fourth, it was the first to explore the innovations of the enterprise infrastructure and a long-term energy conservation mechanism in enterprises. It began research on the system of energy management in industrial enterprises. It organized pilot projects to experiment with energy management systems. It established a system that oversees every process of the utilization of energy. It also worked on national projects. Key energy consumption enterprises are forming a strong and highquality energy conservation team. Shandong Province began a series of implementation of rules and regulations to ensure the targets of energy conservation were met. This laid a solid foundation for the sustainability of energy conservation. It is estimated that during the 11th Five-Year Guideline, Shandong Province issued notice of the deadline for ratification to 1,905 units and recommendations and advice to 3,405 units. It made more than 17,000 recommendations and imposed administrative penalties on 131 units which had violated energy conservation regulations. After this ratification, it is estimated that 17.95 million tons of standard coal would be conserved. This played a positive role in helping Shandong Province achieve the energy conservation targets during the 11th Five-Year Guideline. A comprehensive and legally-bound energy conservation system was initially established. Innovation in energy conservation supervision forms a virtuous cycle. There are four major changes: first, enterprises are more aware of energy conservation; second, the efficiency of energy use is raised; third, legal and reasonable energy use has become more common; and fourth, energy conservation is becoming a culture.

Establish an energy conservation management system and regulate the energy use of enterprises Pilot energy conservation management systems began their trial period in eight enterprises in August 2008. In July 2009, an evaluation meeting was called. Representatives and specialists from organizations including the National Development and Reform Commission, Ministry of Industry and Information Technology, and Certification and Accreditation Administration concurred: The innovations and pioneering work in energy conservation management based on standards are eligible to be the conditions and management ideas and methods of the state. They should be widely promoted.

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The Requirements for Energy Management System of industrial Enterprises (DB37/ T1013) was revised in the second half of 2009. The Shandong Province Implementation Opinions on the Energy Management System, implementation guides, assessment and evaluations guides, and the standards for the iron and steel enterprises were issued. Consultation teams were assembled to provide advice to enterprises. In order to assemble teams with professional energy conservation management knowledge, in December 2009, Shandong Province became the location for the pilot scheme of Certified Energy Manager (CEM). On August 10, 2010, the first 58 CEMs passed the examinations. Vice Governor Wang Junmin handed them the certificates in person. As of 2012, 5,849 individuals have obtained the qualifications of CEMs. The regulation of energy conservation management has brought about social and economic benefits. The energy consumption indicators of enterprises have been declining. This exerts positive and linkage effects. The energy management system, CEMs, and the Energy Control Center work together for energy conservation. The energy conservation work of Shandong Province has been a reference and influence in the decisions of the State Council and the provincial government. This can be seen in the State Council’s Comprehensive Working Program for Energy Conservation and Emission Reduction and the National Development and Reform Commission’s Energy-Saving and Low-Carbon Implementation Program.

Appendix II: Certified Energy Manager as a System In 2008, Shandong Province was the first in China to hold pilot Certified Energy Manager (CEM) examinations. The examinations became official in 2010. The first 58 CEMs passed the examinations in 2008. As of 2012, 5,849 individuals have obtained the qualifications of CEMs. The leader of the Shandong Energy Conservation Supervision Team Zhu Hui was involved in the whole process. He said that the CEM qualifications were part of the system design. They were to assemble a team of qualified, professional, and stable energy conservation management talents. He said that CEM originated from Japan. After the first oil crisis in 1973, Japan began to train CEMs. China had been aware of this but never put it into practice. At first, energy conservation management in Japan was different from that of China. In Japan, the management of thermal energy and electrical energy was separated. But, now the management is combined. The CEM system in Shandong Province is comprehensive of both thermal and electrical energy. It has put emphasis on management from the start, which was a correct decision judging from the current situation.

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It is difficult for local governments to set up a system to offer professional qualifications. However, the pressure from energy conservation and reduction in emission promoted Shandong Province to innovate. It became a need to develop a CEM system. The state approved Shandong Province’s CEM system in various aspects, including the design, the professional orientation of CEMs, examination requirements, and recognition of the certificate. It was granted persimmon to test out the system along with Tianjin. At the end of 2009, the then Vice Governor Wang Junmin demanded that the CEM system be implemented as soon as possible. Soon after, the Shandong Province Energy Conservation Office began to design the system in detail, compiled teaching materials, and training and examinations were held. The compilation of teaching materials was a huge task. The editorial team comprised 100 members, including university lecturers, researchers, and representatives from enterprises. It took four months to edit the teaching materials which contained 2.45 million words. Those were the first systematic energy conservation management teaching materials in China. As technology advances and standards change, work on a new edition is underway. Training and the examination system pertains to the credibility of professional qualifications. The Shandong Province Energy Conservation Office designed the system with reference to the National Higher Education Entrance Examination. An examination committee and a question bank were set up. Training and examinations were separated. Examiners are required to sign a confidentiality agreement. Application for examinations, appeal, and the checking of results can be done online. Zhu said that the Shandong Province Commission of Economy and Informatization was established to determine a transparent and uncorrupt system to protect the credentials of the CEMs. Three years has passed since the CEM system was launched, none of the CEMs obtained his qualifications through informal relationships. Examination candidates are mainly individuals engaged in the industrial sector. In 2012, the content of the training and examinations was expanded to public organizations and intermediary agencies. They were further expanded to the transportation sector and hotel schools. According to Zhu, the largest change brought about by the CEM system was the increase in awareness of abiding by the standards and regulations. For example, it is the legal responsibility of enterprises to report on their energy utilization. This regulation was not enforced in the past. Now, it is the CEMs’ duty and responsibility to ensure that the reports are truthful, professional, and delivered on time.

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It can be seen from studies that CEMs have made an impact. CEMs are responsible and innovative. They make reasonable recommendations and are better skilled at management. Enterprises value CEMs. In 2010, Weichai Power trained four CEMs, who have since improved energy utilization of the company and ensured energy was conserved. They are given a badge and are authorized to give a ticket to any employees who do not conserve energy. CEMs have become part of Shandong Province’s human resources strategy. It is expected that there would be 10,000 CEMs by the end of the 12th Five-Year Guideline. This is a huge talent pool for enterprises.

Profile: Chen Biao, CEM Chen Biao is a member of the Energy Conservation and Environmental Protection Department of Jinan Iron and Steel Co. under the Shandong Iron and Steel Group. He passed the CEM examinations in 2012 and obtained the qualifications of a CEM. Chen has been in the department since 1987. The department has transformed from the energy conservation division to energy management department, energy conservation and environmental protection department, and was later integrated into the manufacturing department. In 2010 after the financial crisis, the Energy Conservation and Environmental Protection Department was established. The original team members specialize in three areas of energy: thermal, electric, and hydro. After a professional management organization was founded, the management of the three types of energy was unified. Environmental protection became an area under the department’s management in 2010. Jinan Iron and Steel Co. was founded in 1958. It paid attention to the high efficiency in energy and resources utilization, improvement of environmental conditions, and the transformation in the development. It has explored the circular economy. It was awarded the China Quality Award and chosen as one of the first circular economy pilot units. It was also one of the key demonstrative enterprises of the circular economy during the 11th Five-Year Guideline, a National Environmental Friendly Enterprise, a National Model City for Environmental Protection, and a cleaner production and environmentally friendly unit in the iron and steel industry. The coke dry quenching technology it developed and its highly efficient cascade utilization of thermal energy were awarded the National Science and Technology Progress Award (Second Class). Chen said energy management brought about innovations in enterprises. The first year the department was founded, it brought about CNY50 million profits. In 2011, it helped the group earn CNY500 million.

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Energy management of Jinan Iron and Steel Co. has gone through three phases: decline in energy consumption (the 1990s), cleaner production (the 2000s), and circular economy. Through the highly efficient use of secondary energy in cleaner production, it achieved distributed generation. Converter gas recovery was over 100 m3/ton of steel, which was larger than the energy consumed. In 2012, the comprehensive energy consumption per ton of steel dropped to 590 kW/kg standard coal equivalent. In the past, 28% of the blast furnace gas was emptied. The figure dropped to 2.47% in 2011 and to under 1% in 2012. In 2008, the Shandong Province Economic and Information Technology department conducted studies about the qualifications of CEMs. It participated in seminars and was involved in the review of the teaching materials (first edition). Chen made recommendations on the obsolete terminology and technology and the lack of content about waste heat technology. He believed that teaching materials should provide theoretical support to the application of technology. They should be specific and practical. The teaching materials are now used in operations. In 2001, Chen graduated with a Master of Engineering from the East China University of Science and Technology. In 2010, he applied for the CEM examinations and successfully passed the examinations in 2012. His biggest gain was the expansion of knowledge. He had a strong grasp on relevant techniques, technology, and rules and regulations. The CEM system has improved the management quality of the energy conservation personnel. There are 45 CEMs in the enterprise. The Energy Conservation and Environmental Protection Department is authorized to punish acts of energy wastage. The CEMs are responsible for energy management in the enterprise. Chen said, “The system is like a railway. The CEMs are the drivers. The energy center is the control system.” Jinan Iron and Steel has an annual production of 400 million tons. By the end of the 12th Five-Year Guideline, the figure would climb to 600 million tons. Chen believed that energy management should only be handled by CEMs and energy evaluation or assessment should be conducted by qualified professionals. Based on the ratio of 10,000 tons to one CEM, there is a lack of human resources.

Accelerate the development of energy conservation techniques and new energy industries, promote energy conservation and economic growth through technological advances Shandong Province explored the establishment of a resource-saving society and a technology support system revolving around the improvement in innovation capacity. A special project was launched to set up scientific research institutes and universities for research and innovation and technological intermediary agencies for providing

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technological services. Provincial technological research centers were founded to develop technologies in cleaner production, clean energy, circular economy, and sustainable resources. Shandong Province promoted the industrialization, technological development, and application of energy conservation. It encouraged the traditional industries such as metallurgy, coal, electricity, chemical engineering, materials, paper, and brewing to develop technology with independent intellectual property rights. In 2007, Shandong Province was the first in China to launch the “Promotion for the Sustainable Development of Technology Campaign.” The “10 Demonstration Projects of Sustainable Development of Technology in Shandong Province” began. Key technology in the areas of climate change, environmental protection and management, energy conservation, cleaner production, circular economy, and low-carbon economy was developed.

Success of the Shandong Method In the first half of 2006, energy consumption dropped for the first time in Shandong Province. The total energy consumption per unit of GDP and the energy consumption per unit of GDP of scale industries both decreased, better than the nation as a whole. In 2006, the Shandong provincial government set the goal of a 22% drop in energy consumption per unit of GDP during the 11th Five-Year Guideline, 2% more than the national target. Audited by the state, the energy consumption per unit of GDP has decreased from 1.32 tons standard coal in 2005 to 1.02 tons in 2010, a 22.09% fall (compared to 19.1% of the state). The energy consumption per unit of GDP of the scale industries fell from 2.15 tons standard coal in 2005 to 1.40 tons in 2010, a 34.63% drop that was greater than the national target. In 2011 and 2012, the two figures dropped to 3.77% and 4.55%. This completed 45.6% of the target of the 12th Five-Year Guideline. More importantly, enterprises have begun to understand the importance of energy conservation. Under government supervision, violations in energy utilization in the industrial sector have decreased. This provides favorable conditions for the development of energy conservation and economic development. Shandong Province’s efforts in energy conservation are widely acknowledged. The U.S. Energy Foundation and Shandong Province have established long-term cooperation. The Energy Foundation has witnessed the energy conservation work of Shandong Province since the 11th Five-Year Guideline. In 2012, the State Council’s assessment team conducted a field study in Shandong Province and expressed the hope that Shandong Province would continue to lead energy conservation work in China.

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Practice and promotion of energy conservation management Innovative supervision and management and a comprehensive government management system of energy use A long-term energy conservation supervision system should be established. Local energy conservation organizations are invited to cooperate. Studies about the responsibilities, scope, and methods of regulation of the regulatory bodies should be conducted. The monitoring projects of the government are detailed in Table 5.3.1. Table 5.3.1 Monitoring projects of the government on energy conservation Year

Monitored subjects

2006, 2007, 2009, and 2010

Hotels, supermarkets, business clubs, business premises, and hospitals

2007–2010

Use of energy conservation facilities which were deemed to be eliminated by the state

2008

Energy consumption of the key 1,000 enterprises, the setting up of and the recruitment for the positions of energy conservation personnel

2010

Energy consumption of the key 1,000 enterprises, the execution of laws and regulations, and the implementation of energy conservation standard

2007

Coal-fired industrial boilers and distribution transformers of small and medium-sized enterprises

2012

Transportation enterprises

The government also began monitoring energy conservation of fixed assets investment projects. In 2007, the government monitored energy conservation of 211 fixed assets investment projects. In 2009, there was comprehensive monitoring of the 3,400 key provincial fixed assets investment projects. Between 2011 and 2012, the government monitored the implementation of the energy audit of new energyconsuming enterprises. It investigated some enterprises. The government also monitored industries with energy consumption limits. In 2010, high energy-consuming industries such as electric power, iron and steel, nonferrous metals, petroleum and petrochemicals, chemicals, and construction materials, industries which used over 5,000 tons standard coal equivalent annually, and key energy-consuming industries were monitored for not exceeding the energy utilization limits. Energy utilization has greatly improved since then.

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In 2010, energy conservation work during the 11th Five-Year Guideline entered into the sprint stages. Provincial, city- and county-level regulatory bodies cooperated in the monitoring of the key enterprises. It was discovered that more than 70 of them had exceeded the energy consumption limits. The Provincial Headquarters of Energy Conservation and Improvement ordered those enterprises to rectify the problem. A punitive tariff was imposed on 17 of them. Implementation of early warning and control system and a refined government management system Shandong Province has upheld its belief that economic development and energy conservation are not mutually exclusive. It strictly imposes the standards and regulations. It has established a relationship with enterprises on the matter of energy conservation. The government follows the following principles: • Do not affect the daily life of the public; do not affect the public utilities; do not affect the safety of production in enterprises. • Enterprises should measure themselves against their peers and policy benchmarks and improve themselves. • The government should discuss and come to consensus with enterprises regarding period, scope, and method of regulation. The subjects of regulation are: enterprises which exceed the limit on energy consumption per unit of output; enterprises which failed to reach the energy conservation targets stated in the 11th Five-Year Guideline; enterprises which use energy-consuming facilities or technology deemed obsolete by the state; products which are highly energy-consuming, cause serious pollution, and are low valueadding; fixed assets investment projects which have not been assessed for energy conservation; and industries to be eliminated as required by the state. An early warning and control system has been founded to issue reports to enterprises. The regulatory circumstances of every city are reported each week. The analysis of the energy and electricity consumption of every city and the province is issued once a month. The government would arrange special site supervision and meetings with cities which exceed the energy consumption limits. In 2010, the early warning and control system was extended to a cumulative 1,087 enterprises, which reduced the consumption of 16.85 million tons of standard coal. At the same time, the government encourages enterprises to sign voluntary agreements on energy conservation. Since 2005, courses on voluntary energy

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conservation were held more than 20 times and 546 industrial enterprises have signed agreements with the local governments. Promote technological advances to motivate energy conservation Apart from establishing demonstration bases and experimental areas, the government encourages technological advancement. Technological advancements which have won awards are shown in Table 5.3.2. Table 5.3.2 Technological advancements and awards Industry

Enterprise

Technological advancement

Award

Jinan Iron and Steel

Distributed generation systems for waste heat and energy during metallurgical processes

2007 Shandong Province Major Energy Conservation Achievement Award

Laiwu Iron and Steel Group

Substitution of coal combustion with low heat value blast furnace gas

2008 Shandong Province Major Energy Conservation Achievement Award

Xinwen Mining Group

Substitution of coal with waste rocks in green mining

2007 Shandong Province Major Energy Conservation Achievement Award

Yanzhou Coal Mining

Kiloton multi-nozzlemounted water slurry gasifier

2008 Shandong Province Major Energy Conservation Achievement Award

Textile

Lu Thai Textile

Half-tank dyeing energy saving process

2010 Shandong Province Major Energy Conservation Achievement Award

Construction materials

Shandong Hongyi Technology

HY-1 composite cement grinding aids

2006 Shandong Province Major Energy Conservation Achievement Award

Shandong Institute of Advanced Ceramics

Energy-efficient highspeed microcrystalline ceramic dehydration

2007 Shandong Province Major Energy Conservation Achievement Award

Iron and steel

Coal

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY (Cont’d) Industry Mechanical

New energy

Enterprise

Technological advancement

Award

Xin Feng Guang Electronic Technology

High-power induction motor speed control technology

2006 Shandong Province Major Energy Conservation Achievement Award

Shifeng Group

Eco-cylinder engine

2006 Shandong Province Major Energy Conservation Achievement Award

Yantai Moon Group

Series screw type cold water chiller

2009 Shandong Province Major Energy Conservation Achievement Award

Linuo Group

Solar photovoltaic solar thermal products

2007 Shandong Province Major Energy Conservation Achievement Award

While developing technology, the government also coordinated the 10 major energy conservation projects, including the transformation projects of coalfired industrial boilers (kilns) and regional cogeneration projects. By the end of the 11th Five-Year Guideline, there had been more than 600 cogeneration units in the province. Energy conservation projects related to residual heat and pressure utilization, conservation and substitution of petroleum, motor systems, energy system optimization, construction, green lighting, and energy conservation monitoring were underway. In 2007, the provincial government granted CYN4.7 million for the construction of energy conservation monitoring centers. In 2007, the provincial government began to execute 100 energy conservation technology projects, 100 energy conservation facilities projects, and 100 energy conservation demonstration projects. These projects play an important role in motivating energy conservation work in Shandong Province. Reinforce structural adjustment, develop new industries, and explore new economic growth Shandong Province conducted a study in 2006 which found that with the energy consumption of tertiary industry unchanged, a drop of 1% in the energy consumption of secondary industry and a rise of 1% in the service sector would drive the energy consumption level of the whole province down by 0.92 percentage points. From

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2006 to 2010, Shandong Province strongly supported the development of the tertiary industry. In 2010, the value added of services reached CNY1.44 trillion, an increase of CNY850.9 billion and 1.44 times compared to 2005. The contribution of the service sector to the total output value grew 4.3 percentage points to 36.6% compared to 2005. The effects of structural adjustments in energy conservation were prominent. The ratio of primary to secondary to tertiary industry in terms of total output value was 10.4 : 57.5 : 32.1 in 2005 and 9.1 : 54.3 : 36.6 in 2010. During the 11th Five-Year Guideline, the new energy, energy-saving, and environmental protection industries obtained considerable progress. There were more than 2,000 companies in Shandong Province which were engaged in those industries and contributed CNY130 billion of added value. Wind power, biomass power, pumped-storage hydroelectric power, and residual gases generated 3.6 million kW of power, accounting for 5.7% of the total installed capacity of the province. Solar thermal utilization area reached 15 million m2. More than 1.2 billion m3 biogas was used. Around 650,000 tons of coal-based fuels were used. Gashol was promoted in seven cities and almost 5 million tons was sold. Shandong Province also quickened its plan to eliminate obsolete industries. During the 11th Five-Year Guideline, the production of 75.96 million tons of cement, 8.22 million tons of iron, 5.27 million tons of steel, 4.70 million tons of coke, 87,000 tons of calcium carbide, 1.37 million tons of paper, 301,000 tons of alcohol, 34,000 tons of monosodium glutamate, 745,000 sheets of leather, 34,000 tons of electrolytic aluminum, 900,300 tons of metal alloys, 401 million meters of printed and dyed textile, and 5.7 million weight cases of flat glass was reduced. Develop a circular economy and promote economic transition In 2005, the provincial government issued the Opinions on the Development of Circular Economy and A Resource-Saving Society. It believed that the development of a circular economy was a key to economic growth, energy conservation, and the establishment of a resource-saving and environmentally friendly society. It was hoped that this would promote economic and scientific development in Shandong Province and allow the province to play a leading role in the circular economy. In October 2005, Shandong Province was chosen by the six national ministries as one of the circular economy pilot provinces. Since then, Shandong Province has launched the “123 Project”: the establishment of circular economy in 10 cities, 20 circular economy parks, and 300 circular economy enterprises. It also diminished the share of energy-consuming industries, including iron and steel, electrical, chemical, coal, paper-making, gold, brewing, construction materials, nonferrous metals, and light industries.

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Promote cleaner production and efficient use of resources In 2005, the Shandong Province Interim Measures for Cleaner Production Audit was announced. The Shandong Province Interim Measures for Cleaner Production Audit Inspection was announced in 2008. In fact, the audit reports of cleaner production have been publicized in 2007. During the 11th Five-Year Guideline, 949 units passed audit inspection, of which 494 voluntarily participated in the process. Shandong Province has achieved remarkable progress in remanufacturing. Sinotruk Jinan Fuqiang Power Co. and Weichai Power Remanufacturing Co. were chosen as national automotive parts remanufacturing pilot companies. Shandong Fumei Science & Technology Co. and two other companies were chosen as remanufacturing pilot companies by the Ministry of Industry and Information Technology. In 2010, 5 million laser toner cartridges were remanufactured. Comprehensive utilization of resources is a major part of cleaner production. In 2010, the province acknowledged more than 800 companies which used resources comprehensively. They utilized 52.9 million tons of industrial solid waste, 20.4 billion m3 of exhaust gas, 12.86 million tons of wastewater, and 6.2 million tons of fuel wood in secondary forests and three residues. Together, they generated an income of CNY35 billion. Coordinate the development of energy conservation in key areas and extend energy conservation to the whole society Building energy conservation 1. New constructions Beginning in 2006, urban planning areas in cities above the county level were required to conserve 65% of energy in construction. Public constructions were required to save 50% of energy. Since 2010, the energy conservation requirement for new constructions has been adjusted to 96.6%. During the 11th Five-Year Guideline, a cumulative total of 220 million m2 energy-efficient construction projects have been completed. 2. Heating metering in existing residential buildings and renovation for energy conservation During the 11th Five-Year Guideline, 38.82 million m2 of area was renovated for energy conservation, of which 17.57 m2 was renovated in 2011. 3. Building with renewable energy In urban planning areas, residential buildings with fewer than 12 floors are required to install solar water heaters. There were 34 national renewable energy demonstration construction projects and 18 national solar thermal

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energy demonstration construction projects. Qingdao, Yantai, Weihai, Dezhou, Jimo, Ynazhou, Kenli, and Juye were selected as national renewable energy demonstration construction cities (counties). 4. Wall materials innovation Fifty locations, including all designated cities, counties, and some designated towns, prohibited the use of solid clay. During the 11th Five-Year Guideline, more than 2,700 new wall materials have been promoted and 167 billion standard bricks made of new building materials have been produced. Energy conservation in transportation 1. Adjustment of capacity and optimization of transportation organization Old vehicles and vessels were eliminated. Energy-saving, efficient, and environmental friendly vehicles and vessels were promoted. Logistics information platforms were established. Intensive and network management of transportation was implemented. Land and sea drop and pull transport between China and Korea was adopted. A pilot project of drop and pull transport took place in Bohai Bay. 2. Low-carbon energy transport project Electronic toll collection was implemented on highways. Vehicles using renewable fuels were promoted. As of the end of 2010, in the province, there were 244 pure electric vehicles, 1,786 pure gas vehicles, 3,159 hybrid electric vehicles, and 30,815 hybrid gas vehicles. Such vehicles mainly served as public transport vehicles and rented vehicles. Energy conservation in public organizations Notice on Strengthening the Current Provincial Authorities on Resource Conservation Work, Advice on Further Strengthening the Provincial Authorities on Energy Conservation Work, Notice on Perfecting the Major Tasks of Establishing Energy-Saving Organizations, and Advice for the Provincial Authorities on the Establishment of Energy-Saving Organizations were announced, printed, and distributed. Selected energy-saving organizations are officially recognized every year.

Key factors in the Shandong Method The Deputy Director of the Shandong Province Energy Conservation Office Zhao Xudong believed that the success of Shandong Province in energy conservation can be attributed to the following factors:

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Attention given by the Party Committee and government The then Governor of Shandong Province Jiang Daming said in the first provincial plenary session that the binding targets determined whether the officials should be fired. This showed that the Party Committee and governments valued energy conservation highly. Governor Wang Jumin greatly supports energy conservation. Shandong Province is attentive to details in their energy conservation work. In 2009, in the discussion of the revision of the Shandong Province Energy Conservation Ordinance, Wang remarked that solar panels should be designed to suit the residents. Continuously refining the organization structure The provincial, city-level, and county-level energy conservation teams are expanding. Their capabilities are improving. Constant innovation There are constant institutional, managerial, and technological innovations. External support Support is garnered from leaders in the Party Committees, national and international organizations, as well as other provinces and cities. Cooperation among functional departments The Economic and  Information  Commission and Energy Conservation Office of Shandong Province are both authorities over energy conservation, including industrial energy conservation. They are one of the best in China. Self-motivation Since the 11th Five-Year Guideline, the major energy-consumption units have become more voluntary in terms of energy conservation. More demonstration projects have been launched.

Goals in the 12th Five-Year Guideline: establishment of a long-term energy conservation mechanism The Deputy Director of the Shandong Province Energy Conservation Office Zhao

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Xudong led the team to investigate the establishment of a long-term energy conservation mechanism. The mechanism should not be overly dependent on administrative measures (e.g. government intervention) but rely on the market mechanisms to stimulate the energy-consuming units to conserve energy. It should be able to promote energy conservation. Zhao believes that the mechanism should be able to predict and control energy conservation. It should be able to predict the short-term changes and long-term trend of energy consumption. It should be able to control the total energy consumption and energy intensity. It should also lower while balancing the intensity parameters including the unit GDP energy consumption, energy consumption per unit added value, and energy consumption per unit of output. In other words, the intensity parameters should be lowered steadily annually. For example, the target of the 12th Five-Year Guideline is to reduce the national unit GDP energy consumption by 16%. The figure should drop 3.34% every year in order to hit the target. Preferably, the drop in each month should be similar. “Emergency” should not be allowed in energy conservation. Any fluctuation is unfavorable for industrial and economic development. The unit energy consumption should be reduced steadily without relapse. The proportion of high energy-consuming industries should constantly decrease in terms of GDP and added value. The total energy consumption of society should not rebound. The energy consumption indicators and economic development indicators should be well related. There are two levels of a long-term energy conservation mechanism. On the microscopic level, an energy conservation management system should be established as the backbone. Management should be sophisticated. Laws and regulations should be set up and there should be a control system to monitor energy conservation. Technological advancement and public awareness are also concerns. Energy consumption should continue to decrease and energy utilization efficiency should increase. On the macroscopic level, an energy consumption monitoring system and an energy-efficiency trading system should be adopted to control unit energy consumption, total energy consumption, and especially the energy consumption of highly energy-consuming industries. Shandong Province set their energy conservation targets during the 12th FiveYear Guideline as follows: • Set up regulations, a policy support system, regulatory system, and technical service system; • Refine the long-term energy conservation mechanism; • Optimize the industrial structure; • Improve the energy consumption structure; and

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• Increase energy utilization efficiency. By 2015, the energy consumption per unit of GDP shall drop to 0.85 tons of standard coal equivalent, 17% lower than 1.02 tons in 2010, more than 35% lower than 1.32 tons in 2005. The specific measures and work include the following: First, accelerate structural adjustment. Blind development of highly energyconsuming industries should not be allowed. The development of new industries, hi-tech industries, and the service sector should be promoted. The goal is to optimize the structure of the tertiary industry with a focus on the development of the service sector. The government should promote the upgrading of traditional industries, optimize product structure, extend the industrial chain, reduce energy consumption, and improve energy consumption structure. Low-carbon production should be encouraged. The government should try to establish an energy-saving and environmentally friendly society to promote sustainable economic growth in the province. Second, adopt more penetrative energy conservation policies and measures. Pricing and tax policies should be devised to encourage energy conservation, and more government funds should be devoted to energy conservation. Awards instead of subsidies should be given to energy-conserving units. National energysaving policies should be implemented. Tax rebate or exemption is granted to certain energy-saving projects or products. Differential electricity pricing, as well as residential electricity price ladder and heating metering, should be adopted more thoroughly. Third, refine the energy conservation market mechanisms. Policies related to the energy-saving service sector should be adopted. Contract-based energy management and energy-saving product certification should be implemented. Government preferential procurement and mandatory procurement of energysaving products should be adopted. The government should encourage voluntary energy conservation and explore the trading system of energy efficiency. Fourth, implement a control system which monitors energy intensity and total energy consumption. Fifth, accelerate energy conservation technological advancement. A marketoriented and research-based technological advancement system with a focus on the energy-consuming units should be established. New technology, facilities, and products should be announced regularly so that they would be applied more quickly. The government should guide the investment orientations of energy-consuming units and financial institutions. Highly energy-consuming and polluting industries and facilities should be eliminated. The product structure and technological level should be raised so that the competitiveness of industries would be reinforced.

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Sixth, laws and regulations on energy conservation should be more strictly enforced, including the Energy Conservation Law, Circular Economy Promotion Law, Shandong Province Energy Conservation Ordinance, and Shandong Province Cleaner Production Promotion Regulations. The formulation of supporting policies should be accelerated. The Shandong Province Energy Conservation Supervision Measures should be revised. Limits on energy consumption and technological and managerial standards should be refined. The monitoring system should be reinforced. The linkage system among provinces and work systems of general and specific monitoring should be reinforced. A monitoring system which also helps improve technology and a long-term monitoring system should be established. Seventh, assessment of energy conservation should be rigorous. The assessment standards should be refined. Monitoring and energy statistical work should be reinforced. The use of assessment reports should be improved. The first responsible person system, vote veto system, and reward system should be implemented. Eighth, increase promotional work. The public should be involved in energy conservation effort. The knowledge of energy conservation should be brought into society, classrooms, households, companies, organizations, and military camps. Volunteers are recruited to promote awareness of energy conservation. Ninth, strengthen organization and leadership. The head of the department or unit should be responsible for optimizing the functions of energy conservation departments and coordinating departments. A linkage system and specialization should be adopted. Associations and intermediary agencies should act as bridges. Consulting companies should launch research about energy conservation and relevant policies and offer advice on energy conservation management.

Appendix III: Records of Energy Conservation in Shandong Province Table 5.3.3 Records of energy conservation in Shandong Province 1. Organizational structure June 2007

Established an energy conservation and emission reduction leading group (a coordinating and decision-making body). Its office is in the provincial Ministry of Industry and Information Technology.

May 2006

Established the first Energy Conservation Office in China, which has offices in all cities and counties in the province.

May 2010

Established the Provincial Headquarters of Energy Conservation and Improvement. Vice Governor Wang Junmin assumed the role of director. There were 11 departments and 40 members. Sub-headquarters were set up in all cities in the province.

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2. Legislation and legal system June 6, 1997

July 24, 2009 July 30, 2010 April 6, 2001 November 29, 2012 April 13, 2009 August 29, 2005 July 6, 2009 In progress In progress

Announced the Shandong Province Energy Conservation Ordinance, which came into effect on September 1, five months earlier than the Energy Conservation Law. It was the first regional energy conservation regulation in China.

Based on the revised Energy Conservation Law, the Shandong Province Energy Conservation Ordinance was revised and announced, which came into effect on November 1. Announced the Shandong Province Cleaner Production Promotion Regulations, which came into effect on November 1.

Announced the Shandong Province Comprehensive Utilization of Resources Regulations, which came into effect on June 1. Announced the Shandong Province Building Energy Conservation Regulations, which came into effect on March 1, 2013.

Announced the Shandong Province Management of Energy Conservation in Public Organizations, which came into effect on May 20. Announced the Shandong Province Energy Conservation Supervision Measures, which came into effect on November 1.

Announced the Shandong Province Recycling Management Approach toward Renewable Resources, which came into effect on September 1. Shandong Province Energy Conservation Supervision Regulations Shandong Province Circular Economy Promotion Regulations

3. Policy system

2006

March 2006 December 29, 2006 June 25, 2007 June 27, 2007 December 21, 2007 June 18, 2012

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Proposed the Shandong Province Statistical System for the Energy Consumption Per Unit of Product of One Thousand Key Energy-Consuming Industrial Enterprises. In April 2008, the provincial government forwarded the Implementation of Statistical Monitoring and Assessment of Energy Conservation to relevant departments. A special energy conservation fund was set up. It received CNY150 million annually.

The provincial government proposed the Shandong Province Assessment Methods of Energy Conservation Target Responsibility, which later became the blueprint for the national assessment methods. Refined the assessment methods for energy conservation of fixed asset investments. Shandong Province Implementation of Comprehensive Energy Conservation and Emission Reduction Work

The Shandong provincial Party Committee and government proposed the first energy conservation policy document in China — Advice on Further Reinforcing Energy Conservation and Emission Reduction. Established an office for the projects which benefit the public. Those projects included the promotion of energy efficient products and the efficient lighting model village.

Renewable Energy and Energy Efficiency Case Studies (Cont’d)

4. Energy audits and energy utilization reports

2006

Launched energy audits. Energy audit was conducted at 103 national key enterprises and 1,000 key enterprises in Shandong Province. In 2012, energy audit was conducted at 1,188 enterprises which participated in the Energy-Saving and Low-Carbon Implementation Program.

June 12, 2012

Established an energy utilization report system. Key enterprises were required to report on their energy utilization, including energy consumption, utilization efficiency, and progress of conservation, analysis of efficiency, and conservation measures.

5. Energy conservation monitoring 2007

Established the Shandong Energy Conservation Supervision Team, published the Shandong Province Energy Conservation Supervision Guide to regulate energy conservation supervision.

2007

Supervised the elimination of obsolete industries and technology, including coal-fired industrial boilers and distribution transformers of small and medium-sized enterprises. Supervision continued for the next four years.

Since 2006

Supervised energy conservation of hotels, supermarkets, business clubs, business premises, and hospitals four times. Supervision was extended to transportation enterprises in 2012.

Since 2007

Supervised the energy audits of 211 fixed asset investment projects. Supervised the energy audit of 3,400 key projects of the provincial government in 2009. Supervised the energy audit as well as evaluated the energy conservation personnel of new energy-consuming enterprises in 2011 and 2012.

2008

Reinforced supervision over key energy-consuming enterprises. Supervised the recruitment of energy management positions and the equipment of the 1,000 key energy-consuming enterprises. In 2010, comprehensive supervision was imposed on the energy utilization and enforcement of energy conservation regulations in the 1,000 key energy-consuming enterprises.

2010

Imposed energy consumption limits. Monitored the implementation of energy consumption limits in major energy-consuming industries such as electric power, iron and steel, nonferrous metals, petroleum and petrochemicals, chemicals, and construction materials, industries which used over 5,000 tons standard coal annually.

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6. Exploration and establishment of energy conservation management systems Began planning the energy management system and developing the standards. Announced the regional standards in Requirements for Energy June 2008 Management System. Those were the first set of standards in China. Began energy efficiency benchmarking. A training session for energy efficiency benchmarking for the cement industry was held in Yantai. The Opinions on the Implementation of Energy Efficiency Benchmarking in Key Energy-Consuming Enterprises was published in March 2009. In May 2009, energy efficiency benchmarking was implemented in the July 2008 cement industry. The Shandong Province Energy Efficiency Benchmarking Guide for Cement Enterprises was released in November. Enterprises actively participated in benchmarking. The outcome was remarkable. The Shandong Province Energy Management System Pilot Program was launched. Pilot projects were launched in eight enterprises in August. In July 2009, an evaluation meeting was held. The National Development and Reform Commission, Ministry of Industry and 2008 Information Technology, and the Certification and Accreditation Administration concurred: The innovations and pioneering work in energy conservation management based on standards are eligible to the conditions and management ideas and methods of the state. Revised the Requirements for Energy Management System of industrial Enterprises. Proposed the Shandong Province Implementation Opinions on the Energy Management System, Implementation Guide to Industrial Energy Management System, Audit Guide to Industrial Energy Management August 2009 System, and Implementation Guide to Energy Management System for the Iron and Steel Industry. The book — Industrial Energy Management System — was written. A team of consultants was recruited to provide advice to enterprises. The 1,000 key enterprises in the province reduced the use of 21.72 million tons of standard coal equivalent (targeted at 17.50 million 11th Five-Year Guideline tons), of which the 103 national key enterprises reduced the use of 14.08 million tons (targeted at 5.26 million tons). Voluntary energy conservation agreements were signed. The State Economic and Trade Commission decided to launch pilot programs of voluntary energy conservation at Jinan Iron and Steel Co. and Laiwu Iron and Steel Group. The pilot programs successfully November 2002 passed the national assessment two years later. Since 2005, training sessions for voluntary energy conservation agreements have been held more than 20 times, and 546 enterprises have signed the agreements with their local governments. Energy-saving product certification was implemented. The provincial government proposed the Opinions on Energy-Saving Product Certification. The provincial Economic and Trade Commission, Quality Supervision Bureau, and Energy Conservation Office designed an 2009 introduction program for energy-saving product certification. As of the time of this writing, 1,234 energy-saving product certificates have been given out to 68 enterprises, and 19 water-saving product certificates were given out to 4 enterprises. May 2007

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5.4 China’s Bioenergy Pioneer: Henan Tianguan Group Zhang Xiaoyang and Feng Wensheng

Henan Tianguan Group Co., Ltd. (Tianguan Group) is the oldest and most representative ethanol production enterprise in China. In the late 1990s, the Group finished industrial structural adjustment. It was the first to adopt “non-grain alternatives” and clean production and became a well-known biofuel manufacturer. How did the Group achieve that? Was it due to policy adjustments or competition in the industry? Meeting Zhang Xiaoyang,1 it became clear that the motivation was to establish a green company. Tianguan Group believes that a green company is a competitive and sustainable company established without negative effects on the environment. It is a prevalent concept around the globe. A green company must have the concept of green development. Tianguan Group began in the 21st century to develop based on the concepts of green, recycling, and sustainability. It adopted the strategy of simultaneously developing the biorefinery, biochemical, and bioenergy industries. Also, the entire production process should be clean, low-carbon, and environmentally friendly. It substituted traditional fuels with non-grain alternatives and recycled residues and wastes. Resources are derived from nature, used for nature, and returned to nature.

Tianguan Group In the early stages of the Second Sino-Japanese War, Tianguan Group was founded to produce combustible biofuels for anti-Japanese groups. Henan Tianguan Group Co., Ltd. (Tianguan Group) was founded in 1939. It is the oldest and most representative ethanol production enterprise in China. It is one of the major enterprises of China’s new energy base and appointed ethanol fuel manufacturers. It is also the only enterprise in the bioenergy industry which has a nationally-recognized enterprise technology center, a state key laboratory for biofuel technology for vehicles, and a postdoctoral research unit. It is the earliest enterprise in China to research and 1

Zhang joined Tianguan Group in the 1960s. He has worked as a garage technician and supervisor, liquor director, alcohol factory deputy director, director, and general manager. An experienced employee, in 1988, he was promoted to the director of the factory. He devised the development strategy based on deep processing of alcohol. He led the enterprise from originally only producing alcohol, liquor, and biogas products to the current production which involves bioenergy, biochemical, the total solvent, wine brewing, industrial gases, and feeds. He inspired diversified production and green development in Tianguan Group.

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utilize biogas, fuel ethanol, wheat straw ethanol, and industrial emissions of carbon dioxide. Tianguan Group currently has the largest annual capacity of fuel ethanol production in China at 600,000 tons, the largest biogas project in the world with a capacity of 150 million m3 per year, the first supercritical biodiesel demonstration line in China with a capacity of 30,000 tons per year, 10,000 tons of wheat straw ethanol per year, the largest biodegradable plastic production line in the world with a size of 5,000 tons per year using carbon dioxide, and a gluten powder production line of 7.5 tons per year. The products of Tianguan Group can be classified into seven categories: bioenergy, biochemicals, organic chemicals, fine chemicals, industrial gases, electricity, and alcoholic beverages. There are 40 main products, including fuel ethanol, alcohol, biogas, biodegradable plastics, biodiesel, gluten, DDG feed, the total solvents, polyols, carbon dioxide, liquor, and beer. The total size of products surpasses 1 million tons, which generates more than CNY6 billion. Since 1997, Tianguan has been cooperating with tertiary institutes including Shandong University, Zhejiang University, Zhengzhou University, and Henan Agricultural University, in the research on the production of wheat straw ethanol. In 2003, a 300-tons-per-year production line was launched and has since then been in operation. There were a lot of technological breakthroughs. In 2005, the capacity of the production line was expanded to 600 tons per year. In 2007, the first demonstration production line with a capacity of 3,000 tons per year in China began construction. This was a milestone in the wheat straw ethanol industry. The capacity further expanded to 5,000 tons per year in 2008. Based on these projects, at the end of 2009, Tianguan began to build a wheat straw fiber ethanol production line with a capacity of 10,000 tons per year. Large-scale production was realized. A raw materials collection system was implemented. It established a processing line of raw material pretreatment, cellulase production, cellulose hydrolysis, and by-product utilization. It also mastered key technologies which have independent intellectual property rights, of which most are close to or surpass the foreign standards. On December 21, 2011, the production line passed the acceptance test of the National Energy Administration. The specialists concurred that Tianguan’s wheat straw ethanol technology could be industrialized and promoted.

Green concept In recent years, as new industrialization deepens, China has paid more attention to the scope of benefits brought about by development. It has made construction of ecological civilization a basic national strategy; more actively encouraged energy conservation, reductions in emission, and environmental protection;

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and promoted the green concept and sustainable development. As oil and fossil fuels are becoming more scarce, the world has begun to consider the use of green energy to replace traditional energy in every aspect. Various forms of renewable energy are continuously developed. Bioenergy, as a form of renewable energy, has a production chain established and is quickly developing. It is motivating the adjustment of energy structure. As early as in the early 1990s, Tianguan Group predicted the trends in bioenergy through scientific analyses. It was the first in China to research into and develop bioenergy. It actively recommended bioenergy to the central government and played a crucial role in the central government’s decision to use bioenergy. This vision of Tianguan Group stemmed from its belief of a green company. Its belief is illustrated in ethanol carbon cycle. Natural waste is hydrolyzed into hexoses. Biological fermentation of hexoses produces ethanol. Ethanol replaces fossil fuels in gas stations. Carbon dioxide produced by the combustion of fuel ethanol is absorbed by green plants during photosynthesis to produce hexoses. When the plants die, the carbon goes through the cycle again. Fig. 5.4.1

Ethanol carbon cycle Dead plants Solidification

Hydrolysis

Hexoses Hexoses Fermentation

Ethanol

Photosynthesis Nature

Vehicles

Carbon dioxide Combustion

Implementation of the green concept: clean production Tianguan Group is an old state-owned enterprise which mainly produces alcohol. In response to the problem of heavy pollution of the traditional alcohol

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manufacturing, Tianguan Group made technological development and innovation based on its rich experience. It began to use non-grain alternatives and carried out cleaner production. As early as in the 1960s, the former generation of technicians in Tianguan Group had begun to research about the use of anaerobic fermentation of ethanol to produce biogas. They invented a bioenergy mixing device, which was awarded the State Technological Invention Award. The Group built two anaerobic fermentation tanks, each had a capacity of 5,000 m3, which was the largest in China at that time. This turned the alcohol discharge of the company into production materials. It was also that first company in China to produce biogas using ethanol and acted as a model for the utilization of high concentration organic wastewater. Clean fuels were produced for more than 40,000 households in Nanyang. Nanyang has since become a well-known biogas city in Asia. Biogas has brought about economic and social benefits to the city. The planned economy was in transition in the 1990s. Crisis dawned on the alcohol industry. The business of most of the manufacturers was going downhill. A lot of backbone enterprises were closed down or turning to other industries. They believed that the alcohol industry had become a sunset industry and there was little room for development. However, Tianguan Group believed that alcohol was indispensable in the national economy. Alcohol is a production material of a lot of chemical products and light industrial products. More importantly, it is a constituent in the green cycle. It is a valuable resource for human beings. As technology and society progressed, the industry should revive. While a lot of manufacturers were experiencing a hard time, Tianguan Group adopted the development strategy based on deep processing of alcohol. It also began the research about and utilization of alcohol. Alcohol discharge was turned into production materials in cleaner production and brought about extra benefits. As the state paid more attention to environmental protection, Tianguan Group introduced both domestic and foreign advanced technology to improve its wastewater treatment. It adopted secondary anaerobic treatment and built a 3,000 m3 UASB reactor for primary treatment and a 5,000 m3 UASB reactor for secondary treatment. This reduced the amount of waste to discharge. Thanks to these new environmentaly-friendly technologies and facilitates, the parameters for sewage discharge of Tianguan Group were lower than the national class II standards for the alcohol brewing industry. The concentration of wastewater was lower than 60% of the national standard. At the same time, Tianguan Group performed better than its peers in the realms of efficiency, energy conservation, and environmental protection. It was recognized as one of the model enterprises for comprehensive utilization of resources in China. As the largest

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research and development and utilization alcohol enterprise in China, its green production ideology took shape during that period of time.

Expansion of the green concept: development of bioenergy In order to improve comprehensive development and utilization of alcohol, the traditional alcohol industry should think outside the box and take nature and society into consideration. As fossil fuel is being exhausted in the world, the use of green renewable energy to substitute for traditional energy has become a goal of Tianguan Group. In the 1990s, the supply of primary resources in the world became very limited. Oil prices continued to climb and there were few resources available. The living environment was deeply harmed by industrial waste. Also, food production in China greatly increased. A lot of products were stocked. The state had to pay a lot of money for food storage every year. Despite the growth in harvest and production, farmers did not receive more revenue. The enthusiasm for growing grain thawed. Having analyzed the problems of the depletion of oil resources, food surplus, and atmospheric pollution and in order to expand the room for the development of traditional alcohol products, Tianguan Group began to research into and apply ethanol fuel in 1992. It undertook the clean fuel project, which was part of Beijing’s application to be the host of the 2000 Summer Olympics. After achieving major breakthroughs in large-scale ethanol production, it began to research into cellulosic ethanol in 1997. It incorporated its advanced technology into society and other technology. Through innovation, it successfully developed ethanol fuel products. In March 2000, it was the first to propose the production of ethanol fuel to the state to resolve the problems of oil resources, food surplus, and atmospheric pollution. Its proposal was valued by the state and contributed to the decision of promoting ethanol fuel for vehicles. The first step of Tianguan Group in the production of ethanol fuel was to reform the old factories. In 2000, the Group refined and expanded the old alcohol production line. It installed internationally advanced ethanol dehydration facilities. It also developed its own composite adsorbent. In April 2001, the first ethanol production facility with a capacity of 200,000 tons was completed by altering the old production facilities. The Group began the construction of a 300,000-ton project at the same time. The 300,000-ton ethanol fuel project was one of the major projects in the 10th Five-Year Plan and structural adjustment projects in Henan Province. The total investment in the project was CNY1.28 billion, of which CNY750 million was

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bank loans. Investors included Tianguan Group (60%), Sinopec (20%), and Henan Construction Investment Corporation (20%). Construction began on February 5, 2004, production debugging began in June 2005, which produced 121,000 tons of ethanol that year with the highest daily output of 1,027 tons. Not only did it match expectations of the design but also the expectations on profits. Based on optimization of the old production facilities, the scale of production of ethanol fuel expanded. All production technology and equipment was nationalized. A variety of technology and equipment was developed by Tianguan Group. The standard was very high and internationally competitive, especially for the production technology. Following the philosophy of the circular economy, the production of ethanol fuel used aged wheat flour, separated bran, gluten, and 1/3 grains (tubers). Carbon dioxide produced was recycled to be used in the production of DDGS feeds and biogas. Deep processing and complete utilization was manifested in the production process. Innovative and advanced technology with intellectual rights was applied, such as gluten separation and extraction, flash distillation during liquefaction and saccharification, single-tank continuous high gravity fermentation, simultaneous fermentation and ethanol extraction, dual differential pressure distillation, and dehydration using biomass adsorption. Around 30% of energy was conserved. Since the trial production of ethanol fuel, Tianguan Group has been using non-grain alternatives and utilizing materials comprehensively. First, technology has been refined. A raw materials pretreatment line was built for fresh tubers, dried tubers, and corn. During the harvest of tubers, fresh tubers are used as raw materials in the production of ethanol fuels. One thousand tons of fresh tubers are processed daily. Second, the pretreatment process was refined. Multi-functioning was enhanced, and the proportion of non-grain alternatives was raised to 40%. The diversity of raw materials has improved. At present, Tianguan Group adjusts the proportion of raw materials based on the market prices and the demand and supply. Third, pilot raw material bases were established and contract farming was launched. In Nanyang, a 50-acre virus-free sweet potato base and a 200-acre corn base were built. In order to guarantee the supply of raw materials, Tianguang Group rented 50,000 acres of land in Laos on which to build a cassava base. It is expected to supply 1 million tons of cassava annually. Tianguan Group holds the propriety rights of the 300,000-ton ethanol fuel project — one of the major structural adjustment projects in China’s industrial sector and symbolic project in Henan Province. When Premier Li Keqiang was still the Governor of Henan Province, he greatly supported every stage of the project. The development of ethanol fuel not only propelled the enterprise into a new level

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but also improved the corporate philosophy and strategies. The core strategies of deep processing and complete utilization have been incorporated into nature, society, and economy as part of the green concept and sustainable development. At present, Tianguan Group has a production capacity of 600,000 tons of ethanol fuel. As of the end of 2012, it had produced cumulatively 4 million tons of ethanol fuel. The ethanol fuel is supplied to 31 cities in Henan, Hubei, and Hebei Provinces. It had effectively substituted 4 million tons of gasoline. Its contribution to the research of green energy and adjustment of the national energy structure is enormous. At the same time, as ethanol fuel becomes more popular, the emission of vehicle exhaust gas has been reduced. It was measured that in areas where ethanol fuel was promoted, the average level of carbon monoxide and hydrocarbons had dropped 30.8% and 13.4%, respectively. The reduction of carbon dioxide was huge, and air pollution was under control. The benefits brought about by green energy were prominent, especially in Nanyang, the head of the central route of the South– North Water Transfer Project. Tianguan Group’s green concept and development in bioenergy attracted the attention of the State Council, National Development and Reform Commission, State-Owned Assets Supervision and Administration Commission, and society. The Xinhua News Agency, People’s Daily, and China Central Television have covered the news of the enterprise multiple times. On April 30, 2007, Hu Jintao, General Secretary of the Central Committee of the Communist Party of China (CPC), visited Tianguan Group. Hu said that Tianguan Group’s success in bioenergy development should be recorded in the history of the CPC as well as the history of science and technology in China.

Extension of the green concept: sustainable development After the success in ethanol fuel, Tianguan Group began the research on cellulosic ethanol, biodiesel, and biodegradable plastics. They obtained some technological breakthroughs and refined the bioenergy production chain, which provided a platform for the development of bioenergy in full scale as well as a foundation for the systematic processing and conversion of agricultural products. The state is supporting the major enterprises which specialize in food processing and conversion in major grain producing areas. Based on its own technological advantage, Tianguan Group has modified its development strategies. Agricultural products are the base. Bioenergy and chemical processing are the main technologies, which allow complete utilization and deep processing of agriculture products. The green cycle and sustainable development remain as the core of the strategies. It attempts to optimize, improve, and expand the current production in terms of the scale, system, and recycling through maximizing the use of resources and developing

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products based on a value-based  hierarchy. At present, the state has approved that Tianguan Group’s bioenergy would be applied in the only national new energy hi-tech industry base in China. Tianguan Group has devised a 3 million– ton agricultural byproduct processing and conversion plan. The Tianguan EcoIndustrial Park is under construction. When the plan is executed, Tianguan Group would become a world-class agricultural byproduct processing and conversion enterprise group. It would help to promote agricultural industrialization and the upgrading of traditional agriculture in China.

Development of the industry In order to gain a breakthrough from the constraints of limited grain raw materials, Tianguan Group researched cellulosic ethanol. Based on its experience in alcohol production, it proposed a production chain of cellulosic ethanol. Fig. 5.4.2 Straw

Production chain of cellulosic ethanol Enzymatic hydrolysis

Pretreatment

Fermentation

Ethanol

There are several problems to resolve in the process. First, after pretreatment and enzymatic hydrolysis, the substrate would contain more pentose, which is difficult to be fermented by yeast to produce ethanol. The energy conversion rate from straw to ethanol is low. Second, the concentration of inhibitors in the substrates is high and unfavorable for the metabolism and proliferation of yeast. The concentration of ethanol produced would be low, usually lower than 5% (v/v). Separation of ethanol would therefore need a large amount of steam. Third, the amount of inhibitors left in the distillage is large. Little biogas would be generated and wastewater discharge would be difficult. To resolve the problems, Tianfguan Group developed new production technology based on the premise of raising the energy conversion efficiency. Fig. 5.4.3

Straw

Conceptual production chain of cellulosic ethanol

Pretreatment

Cellulose Hemicellulose

Biogas

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Enzymatic hydrolysis and fermentation

Distillation

Clear liquid

Anaerobic fermentation

Ethanol Solids Lignin

Renewable Energy and Energy Efficiency Case Studies

In the pretreatment of straws, hemicellulose, cellulous, and lignin are separated. Hydrolyzed hemicellulose is directly fed into the anaerobic fermentation tanks to generate biogas. Cellulose undergoes enzymatic hydrolysis to produce ethanol. The residue of distillation is concentrated and dried. It becomes the fuel of biomass boilers or raw materials for chemical products which have a high added value. Based on this production chain and Tianguan’s bioenergy biochemical research, a new conceptual production chain is formulated (See Fig. 5.4.4). Fig. 5.4.4

New conceptual production chain of cellulosic ethanol Carbon dioxide

Straw

Carbon dioxide–based biodegradable materials and other chemical products

Cellulose

Ethanol

Vehicle fuel

Hemicellulose

Biogas

Compressed vehicle fuel, power generation, etc.

Lignin

Ethylene

Biomass boiler fuel, polymer composite materials, and materials for mushroom cultivation

Based on Tianguan Group’s production of 10,000 tons of cellulosic ethanol per year in its demonstration line, 7 tons of straws can produce 1 ton of ethanol, 600 m3 of biogas, and 2.5 tons of lignin. The energy conversion efficiency of the three products can reach 80%. Based on the analysis of the full lifecycle, only including fossil energy during collection and storage (3.25 × 105 kcal), briquetting (1.08 × 105 kcal), and production (9.00 × 106 kcal), the energy output-to-input ratio is 2.07. Straws are excluded from inputs as they are waste. If lignin is used in the production, without any fossil energy input, the system energy output-to-input ratio increases to 22.2. Carbon dioxide produced during the process can be used in carbon dioxide–based biodegradable materials (e.g., Polypropylene carbonate) and other chemical products (e.g., Dimethyl carbonate). Tianguan Group introduced new facilities and equipment into production and maximized the utilization rate of raw materials. First, the raw materials are completely utilized. The production of ethanol fuel generates gluten, carbon dioxide, dried distillers grains with solubles (DDGS) protein feed, biogas (methane), and polypropylene carbonate (PPC) plastics as byproducts. This is multi-level

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development of products and generates added value. Second, waste is recycled. Alcohol stillage and waste contributes to the largest biogas production in the world which had a capacity of 500,000 m3 of biogas per day. The biogas is supplied to 100,000 households (around 400,000 residents) used in coal bed natural gas projects to produce vehicle fuels and power generation. There is a demonstration biogas power generation project in China, which is also the largest in the world. Third, the utilization efficiency of energy is high. The 100,000-ton cassava production line only use bioenergy without any fossil energy. It is a self-sufficient production line. It is a role model for the sustainable development of ethanol. The green development strategies of Tianguan Group transformed the enterprise from a traditional alcohol manufacturer to a bioenergy company. This also brought about rapid growth in benefits and the size of the enterprise. In the 10 years after 2000, the size of Tianguan Group had expanded 871%, annual sales income 1,114%, tax 251%, and profit 1,272%. The average growth rates of the four parameters were 25.5%, 28.36%, 13.36%, and 29.93%, respectively. Tianguan Group has become the largest and most representative bioenergy enterprise in China.

Corporate planning and future development Other than the current products, an enterprise should also further develop the related production processes to improve efficiency. According to the theories of industrial economics, there are two ways to increase the economic benefits: horizontal integration (increase the market size of one product) and vertical integration (become involved in the other products in the production chain). Tianguan Group has chosen a more complex path. It expanded the capacity and explored the potential of the production lines. At the same time, it established new production lines to utilize the various byproducts of ethanol fuel production. The multiple forms of raw materials are utilized. It strives towards a green economy while increasing economic benefits.

Development layout of Tianguan Group Upon its advanced bioenergy and chemical technology, Tianguan Group integrated several industrial productions. It focuses on the development of the energy chain below (See Fig. 5.4.5).

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Fig. 5.4.5

Bioenergy chain of Tianguan Group

Straws and eco fibers

Vehicle fuel

Dehydration

Bioethanol

Polymerization

Ethanol industry chain Polyethene

Plastic

Fermentation Pentoses

+

Glucose

Bioethanol

Ethylene oxide

Fermentation Glucose

CO2, PPC and other subproduct production chain Byproducts

Power Household generation use

Butanol Vehicle biofuel Chemicals

Polyethylene terephthalate

PET products

Basic chemical raw materials, solvents, and medicines

Biogas

Fermentation

Ethylene glycol

Biodegradable plastic Food and industrial applications

Carbon dioxide Esterification

Byproducts

DMC

Biofuel production chain

Forest biofuel

Byproducts

Fermentation Pylene glycol

Application of reaction Simple application

Adhesive, organic slow release fertilizers, lignin composites, etc.

Lignin

Glycerol

Wrapping materials

Polymerization

PTT polymer

Biofuel

Vehicle fuel

Surfactants PTT garment fabric

Straws and eco fibers are the base of the entire industry. Pentose and glucose are hydrolyzed. Pentose generates biogas for power generation and household use. Glucose is fermented to form ethanol and other byproducts, which would be involved in the biofuel and butanol production chains. Bioethanol has become part of the core production chain at Tianguan Group — the ethylene chemical industry chain. Byproducts of fermentation such as carbon dioxide and PPC formed their own sub-product chain.

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Goals and plans of key industrial development of Tianguan Group Table 5.4.1 Development goals and product utilization Development goals of cellulosic ethanol

By 2015, the production of cellulosic ethanol shall reach 500,000 tons per year, and that of related biochemical products shall reach 520,000 tons per year.

Plans Develop cellulosic ethanol production at different scales, with different technology, and different applications of byproducts in Nanyang. Launch demonstration projects of fermentation of pentoses and hexoses and extraction of ethanol. Establish a production and supply base of cellulose with a capacity of 500,000 tons per year and a demonstration project of cellulosic ethanol with a capacity of 150,000 tons per year in Nanyang. Establish a 100,000-ton cellulosic ethanol demonstration unit in Zhumadian and Kaifeng which generate alcohol, biogas, electricity, and fertilizers. Concentrate the production of furfural and xylose (alcohol) in Puyang and Xinxiang. Build a 100,000-ton cellulosic ethanol demonstration unit which generates furfural, xylose (alcohol), and electricity.

Related biochemical products and comprehensive utilization of products Development focused on propylene carbonate, dimethyl carbonate, polystyrene, and insulators. Carbon dioxide–based Establish a demonstration project of carbon dioxide–based biodegradable materials biodegradable materials with a capacity of 100,000 tons per year in Nanyang. Bio-ethylene and downstream products

The production of bio-ethylene shall reach 100,000 tons per year. Development focused on downstream products of ethylene, including PET, high purity polyethylene, and other products with a high added value.

Development and Develop adhesives, organic slow release fertilizers, lignin utilization of lignin with composites, and cement humectants. The application of lignin a high added value shall reach 300,000 tons per year. Biobutanol

Complete a 20,000-ton cellulosic butanol demonstration project.

As the state proposed the development plan for cellulosic ethanol, and Henan Province began the development of bioenergy and become a model province for the chemical industry, Tianguan Group will play a leading role in industrialization of cellulosic ethanol production and large-scale biogas development. In the long run, Tianguan Group will continue to develop its production chain in the circular economy on the foundation of biorefinery. It aims to completely substitute fossil energy with bioenergy and strike a balance among the development of industries, society, and nature.

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5.5 A Chinese Dream for Generations: The Three Gorges Project Guo Jiaxin and Yang Xianlong

In July 2012, the last generator (no. 27) in the underground power station of the Three Gorges was installed. This signified that all generators in the underground power station were in operation. The Three Gorges Dam became the largest hydropower and clean energy production base in the world. As of December 31, 2012, the power station had been in safe operation for 2,328 days and generated cumulatively 629.14 billion kW electricity. It is equivalent to the reduction of 496 million tons of carbon dioxide emissions and 5.95 million tons of sulfur dioxide emissions. Not only does the Three Gorges Project generate a large amount of power for China, but it also contributes to energy conservation.

Launch of the Three Gorges Project As the largest power station in the world, the Three Gorges Dam took almost 80 years to launch. As early as August 17, 1924, Sun Yat-sen pointed out that there was abundant hydropower resources in the Three Gorges and that the development of hydroelectric power was essential. In the early 1930s, the Ministry of Industry and Commerce of the Nationalist government began planning for the construction of a hydroelectric plant in the upstream of the Yangtze River. They had proceeded to gather relevant data and charts. Two years later, the construction committee assembled a hydroelectric survey team. However, the plan was abandoned when war broke out. After the establishment of the New China, with support from the State Council, large-scale surveying, planning, design, and research of the Three Gorges began. Since the 1950s, every Party leader has inspected the Three Gorges. After the 3rd Plenary Session of the 11th Communist Party of China Central Committee, the Three Gorges Project was on the agenda again as a backbone project of the Four Modernizations. In mid-July 1980, the Vice Chairman of the CPC and the Vice Premier of the People’s Republic of China (PRC) Deng Xiaoping inspected the Sandouping damsite, Gezhouba damsite, and Jingjiang levees. He later discussed Three Gorges Project with other leaders in the State Council. On November 24, 1982, Deng Xiaoping listened to the State Planning Commission’s reports on the Three Gorges Project and pointed out that the state

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should have determination to implement the Three Gorges Project once the decision is made. The main leaders in the Central Committee at that time, including Chen Yun, Li Xiannian, Hu Yaobang, Zhao Ziyang, and Wan Li, approved the plan for constructing low dams. In February 1984, the financial group of the State Council called a meeting in Beijing to discuss the Three Gorges Water Control 150-Meter Dam Feasibility Study Report handed in by the State Planning Commission. In March 1985, in the 3rd Plenary Session of the 7th Chinese People’s Political Consultative Conference, the Three Gorges Project was one of the major topics of discussion. There was intense debate. As the public had different opinions on the Three Gorges Project, the central government and the State Council issued the Notice on the Issues with the Three Gorges Project Feasibility Studies in June 1986. The following were stated in the Notice: The Ministry of Water Resources should assemble specialists and professionals to review the Three Gorges Water Control 150-Meter Dam Feasibility Study Report and submit a revised report. The State Council Three Gorges Project Review Committee to review the revised report. The report should obtain approval from the Central Committee and the State Council before being handed in to the National People’s Congress (NPC). The Ministry of Water Resources immediately set up a Three Gorges Project review team. During July 6 to July 14, 1990, the State Council held a meeting with the Three Gorges Project Review Committee in Beijing to review the feasibility of the Three Gorges Project. The 178 attendees of the meeting include leaders of the Central Committee, members of the State Council, officials from regions near the upstream of Yangtze River (e.g., Hunan and Hubei Provinces), and professionals. The majority of the attendees agreed that the Three Gorges Project should be implemented, the sooner the better. It was concluded that the revised report could be handed in to the State Council Three Gorges Project Review Committee for review. In December 1990, the State Council Three Gorges Project Review Committee decided in the first meeting to assemble a team to review the report, which was to be completed by June next year. In July 1991, in the second meeting, the Committee decided to hand in the revised report to the State Council. The report was forwarded to the NPC for deliberation. On April 3, 1992, during the 5th Plenary Session of the 7th NPC, the Resolution to Proceed with the Three Gorges Project was passed. At the meeting, there were 2,633 attendees, of which 1,767 voted for, 177 against, and 689 abstained. The State Council was to implement the Project.

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Into the Three Gorges Project The Three Gorges Project included a concrete gravity dam, a sluice, a dyke, a hydroelectric power station, a permanent navigation ship lock, and a shiplift. The constructions of the Project could be divided into three components: the dam, hydropower plant, and navigation structure. The crest of the dam spans 3,035 m and is 185 m above sea-level. There are 14 generators on the north side and 12 on the south side of the dam, each has a capacity of 700 MW. The total installed capacity is 18,200 MW. The hydroelectric power station is expected to generate 84.7 billion kWh of electricity a year. The navigation structure is on the north side. The permanent navigation structure includes two series of five-stage ship locks and a vertical shiplift. There were three phases in the 18-year construction plan. Phase I was between 1992 and 1997. Apart from preparation, it was also the time for building cofferdams and diversion channels. A temporary navigation ship lock (120 m) was built on the north side while the construction of the permanent navigation ship lock, shiplift, and the dam on the north side commenced. Phase II was between 1998 and 2003. The major projects were the construction of secondary cofferdams, the hydroelectric power station on the north side and the installation of generators. Meanwhile, the construction of the permanent navigation ship lock and shiplift continued. Phase III was from 2003 to 2009. The construction of the south side of the dam began. The construction of the hydroelectric power station and the installation of generators continued. The Three Gorges Reservoir spans 600 km in length. Its widest point is up to 2,000 m and its area is 10,000 km2. The water surface is calm. The Three Gorges Project is the largest water resources and hydropower project in the world. The Three Gorges Dam also serves the functions of flood control, power generation, navigation, and water supply. The construction of the dam was completed in 2006. As of the end of August 2009, the cumulative investment in the construction’s completion was around CNY151.47 billion. Since the water level of the Three Gorges Reservoir has been reduced to 135 m in 2003, the hydroelectric power station has generated cumulatively 350 billion kWh of power. More than 300 million tons of cargo have passed through the ship lock, more than that of the 22 years of the Gezhouba ship lock. It was the initial realization of power generation and shipping efficiency. After 17 years of construction, the Three Gorges Project was considered successful. As the trial of raising the water level in the reservoir to 175 m was a success, the construction work of the Three Gorges Project was in the final stages. On October 26, 2010, the water level in the reservoir was officially raised to 175 m. It was the first time that the water level reached maximum levels as designed. This signified that the construction and operations satisfied the

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requirements of the design. The Three Gorges Project was basically completed in 2009. The underground power station and ship lift are to be completed during the 12th Five-Year Guideline. By then, the Three Gorges Project would be fully completed.

Overall benefits of the Three Gorges Project The Three Gorges Project was a milestone and played an essential role in developing the Yangtze River. The major benefits are flood protection in the middle and lower reaches of the Yangtze River, especially in the Jingjiang River, the generation of electricity for Central and East China and eastern Sichuan Province, and the improvement in the navigation conditions in the Chuangjiang River.

Flood protection It is said that the Jingjiang River is the most dangerous stretch of the Yangtze River. The Jingjiang River runs through the Jianghan Plain and Dongting Lake Plain. The fertile lands produce grain, cotton, sea oil, fish, and rice. It is one of the most productive and affluent regions along the Yangtze River and an important grain, cotton, and aquatic base in China. Flooding of the Jingjiang River is one of the most serious and prominent issues in the middle and lower reaches of the Yangtze River. The normal water level of the Three Gorges Reservoir is 175 m. The Reservoir has a flood control capacity of 22.15 billion m3. It effectively controls 95% of the flood of the Jingjiang River and two-thirds of the amount of flood from Wuhan. After the completion of the Three Gorges Project, the standard improved from 10-year to 100-year flood protection in Jingjiang. The standard will be further improved to 1,000-year flood protection after the completion of the Three Gorges Project. The reservoir is able to withstand floods similar to that in 1870. Together with the flood diversion project, it protects the Jingjiang River against disasters. Against floods like the ones in 1931, 1935, and 1954, the reservoir can hold off 10 to 20 billion m3 of floods and save the 250 to 300 acres of farmland from being flooded in the middle and lower reaches. The threat of flooding in Wuhan has been alleviated. Flood protection in the middle and lower reaches of the Yangtze River is reinforced.

Power generation The Three Gorges Power Transmission and Transformation Project was a major energy project approved by the National People’s Congress. The total investment reached CNY34.86 billion. The total length of cables was 6,519 m. They pass

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Table 5.5.1 Comparison of flood discharge of the world’s dams

Nation

Project

River

Storage capacity (100 million m3)

Annual runoff (100 million m3)

Flood discharge capacity (m3/s)

Year of completion

Venezuela Guri Dam

Caroni River

1,380

1,537

30,000

1986

Soviet Union

Krasnoyarsk Dam

Yenisei River

733

885

12,000

1967

China

The Danjiangkou  Project

Han River

209

379

49,000

1973

China

The Three Gorges Project

Yangtze River

393

4,510

100,000

2009

Source: China Three Gorges Corporation. Note: The major benefit of the Three Gorges Project is flood protection.

through 160 county-level administrative regions in Central, East, South, and Southwest China. It is the largest and most technologically complex AC/DC Hybrid Transmission System in the world. As of the end of 2010, the Project had safely transmitted cumulatively 449.23 billion kWh, which is equivalent to the amount of power generated by 162 million tons of standard coal. The 20 plus years of planning and construction of the Project was completed in February 2011. The total installed capacity of the hydroelectric power station in the Three Gorges is 18.2 million kW. It can generate on average 84.7 billion kWh annually. If abandoned water is also used to generate power (the underground power station is located on the south side of the dam), the utilization rate of water resources in the Yangtze River will be increased. After the six generators in the underground power station are put into operation, together with the 26 generators on both sides of the dam, the total installed capacity of the power station reaches 22.5 million kW. The annual maximum generating capacity is 100 billion kWh. On July 4, 2012, the Three Gorges Power Plant — the largest hydroelectric power station in the world — was connected to the power grid and began power generation. It became the largest clean energy base in the world. At present, all 32 generators are in operation and have generated cumulatively 564.8 billion kWh. It greatly relieved the power shortage in China.

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Fig. 5.5.1

Power transmission area of the Three Gorges Power Plant

Three Gorges Dam Hydroelectric Power Station Yangtze River

Yellow River

Beijing

Lanzhou Zhengzhou Chongqing

Yichang

Shanghai

Gezhoubei damsite

Kunming

Source: China Three Gorges Corporation.

500km

Taipei

1,000km Haikou

Navigation The Three Gorges Project took place in the strategic meeting point of the upper and middle reaches of the Yangtze River. It can canalize the reaches from Sandouping to Chongqing as well as increase the runoff in the channels in the middle reaches below the Gezhouba dam during dry seasons. The navigation conditions between Chongqing and Wuhan can be improved. It can meet the long-term development needs of the shipping industry in the upper and middle reaches. The shiplift is on the north side of the Three Gorges Dam. Its function is to act as an elevator for vessels. It connects the two series of five-stage ship locks and raises the vessels’ efficiency in passing the dam. It is expected that the freight volume of the Chuangjiang River would reach 50 million tons in 2030. At present, the through capacity is only 100 million tons. The main reason behind that is that the water current of the Chuanjiang River waterway is swift due to the steep slope. There is a 120-meter difference between the 660-kilometer waterway from Chongqing to Yichang. There are 139 rapids and 46 single-line control segments. After the Three

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Gorges Project is completed, the navigation conditions have improved that 10,000ton fleets can directly travel to Chongqing. The transportation cost was reduced by 35% to 37%. Without the Project, by only renovating the channels and railway, the 50-million freight volume standard could be met, but the issues with the steep slope and swift water current in the Chuanjiang River would not be resolved and the larger vessels could not travel to Chongqing directly. Transportation cost could not be reduced to a large extent.

Gezhoubei

The Three Gorges Dam

Yichang 0

Sandouping 45

Badong, 113

Wushan 171

Fengjie 210

Yunyang 272

Zigui

The Three Gorges Dam (m) 180 140 100 60 20 0 Zigui 84

Mushan

Fengjie

Yunyang

Wanzhou Bayangxia

Badong

5% line of the natural water surface

Riverbed Wanzhou 337

Zhongxian 421

145m Fengdu 485

Peiling 536

Normal water-level after the construction of reservoir

Water surface of low-flow conditions before the construction of reservoir

155m Changshou 538

Chongqing 660

175m

Fengdu Lanzhubei Zhongxian

Benefits of shipping brought about by the Three Gorges Project

Changshou Wangjiatan Peiling

Jiulongbo Chongqing Tongluoxia

Fig. 5.5.2

Source: China Three Gorges Corporation.

Sustainable development of the Three Gorges Project Hydroelectric power is a form of renewable energy and does not cause pollution. The development of hydroelectric power is an effective way to cope with the issues with water resources, energy, food, and environment in the sustainability of the economy and society. It can optimize energy structure, guarantee energy supply, conserve energy and reduce emissions, and promote a low-carbon economy.

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Moreover, hydroelectric power is favorable for peak modulation and energy storage. It is a foundation for sustainable development.

Motivational effects of the Three Gorges Projects First, the Three Gorges Project brought about market opportunities. When the Three Gorges Project was completed in 2009, 1.4 million residents in China were resettled. Static compensation investments stood at CNY40 billion. It was the largest resettlement project in the world. Large-scale construction works of the Project offered the Yangtze River regions, the whole of China, and even the world market opportunities and challenges in aspects such as technology, engineering, energy, and communications. The total dynamic investments in the Project was CNY180 billion. The investments injected energy into the market and encouraged sustainable development. When the Project began, it generated huge demand in multiple fields such as raw materials, equipment and facilities, and transportation. The 26 sets of 700,000 kW turbine generator units, 15 rounds of 500 kV EHV AC/DC power transmission project, and two series of five-stage ship locks and the shiplift  with a capacity of 3,000 tons are world-class. Domestic and foreign manufacturers and investors were interested in the projects. When the Three Gorges Project was completed, the Three Gorges area became the largest hydroelectric power base in China. It promoted the sustainable development of transportation, logistics, electricity, metallurgy, chemical industry, tourism, industry, agriculture, and the market in nearby regions. Second, the Three Gorges Project propelled the economic development of the regions along the Yangtze River. After the completion of the Project, the threat of flooding to the middle and lower reaches was reduced. The lands along the Yangtze River became more fertile for the production of grains, cotton, and sea oil. This encouraged industrial and agricultural development. The 1,085 km2 reservoir and hundreds of tributaries provided opportunities for fisheries, forestry, aquaculture, animal husbandry and tourism. The resettlement of 1.4 million residents was crucial to the Project. It had always received attention and support from the central government, regional governments, and government departments across China. A large amount of funds were invested in hi-technology and industries in the areas along the Yangtze River so that they could achieve sustainable development in the machinery, building materials, supplies, transportation, commercial, and tourism industries which could support the Three Gorges Project. As towns were relocated, residential buildings were built. The living standards and cultural standards were improved. During the construction and operation of the dam and the reservoir, a lot of advanced technology and talents were imported. This stimulated the

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economic development in the dam and reservoir areas. As society and technology progress, the completion of the Three Gorges Project strongly promotes sustainable development in the regions along the Yangtze River. Lastly, the Three Gorges Project motivated the economic takeoff of China. The Project generated economic, social, and environmental benefits such as flood protection, drought protection, power generation, and shipping. After the completion of the Project, the threat of flooding to the middle and lower reaches was reduced. The lands along the Yangtze River became more fertile. Power supply to Central, East, and South China, and eastern Sichuan Province improves the energy structure in those areas. Sustainable development was enhanced. When the Project was completed, the China Three Gorges Corporation used its income from power generation to build hydroelectric power stations in the upper reaches of the Yangtze River at Xiangjiaba, Xiluodu, Baihetan, and Wudongde. More hydroelectric power stations were built further upstream such as at Tiger Leaping Gorge. The total installed capacity surpassed 40 million kW. With Yichang and Yibin as the center, electricity is transmitted eastward. This formed a power transmission and transformation network and was a step towards establishing a unified power grid in China. Interbasin transfer of water and the use of thermal and hydropower in electricity generation could be realized. Large vessels and fleets could sail directly to Chongqing after the construction of the Three Gorges Reservoir was completed. The channel from Yichang and further upstream was greatly improved. This promoted the development and foreign exchange of the Yangtze River region and Southwest China. The gap between rich and poor in East and West China was reduced. The Yangtze River became worthy of the name “Golden Waterway.” The Project signified the large extent of economic growth in China. Economic development required energy to be supplied from the Three Gorges Project as well as brought in human, financial, and material resources. The success of the Project and the development in the upper reaches promoted the sustainable and further development in not only the Yangtze River regions but the whole of China.

Negative impact of the Three Gorges Project Negative impact is an inevitable part of any human activity which transforms and develops the natural environment and utilizes resources. During the Three Gorges Project, issues such as the resettlement of residents and relics, recreating landscapes, and lower water quality in the reservoir area came up. In the Three Gorges Project Environmental Impact Report, it pointed out the issues mentioned above: The construction of the reservoir flooded farmlands.

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Resettlement of towns and residents sharpened the conflict between humans and the land. This could deteriorate the quality of the vegetation. Soil erosion and ecological deterioration would be aggravated. At that time, the annual volume of industrial and domestic wastewater emission in the reservoir areas had surpassed 1 trillion tons. The regions along the Yangtze River had gradually become polluted areas. After the reservoir was built, the water current flowed more slowly in the reservoir areas. The reoxygenation rate and diffusion capacity dropped, which further aggravated water pollution. The Project also disturbed the ecological system in the reservoir areas and the middle and lower reaches of the Yangtze River. Some rare and endangered species would experience worsening living conditions. The reproduction of fish was affected. When the Three Gorges Reservoir was in operation, scouring and silting in the middle and lower reaches of the Yangtze River increased, which caused the gleization and swamping of the low-lying farmland in the river plains in the middle and lower reaches. Seawater intrusion at the downstream estuaries might increase. After the Three Gorges Dam was completed, the water level of the reservoir was raised and the surface was increased. Heritage sites along the Yangtze River would be submerged. The natural scenery of the Three Gorges would change. When the Project was finished, sedimentation and poorer water quality could happen in the section of the river near Chongqing. The drainage system would be affected. Overall, the Project had negative impact on the geography and the people in the nearby regions. On May 18, 2011, the State Council issued Subsequent Planning of Three Gorges Project. The initial projects were completed on time. Benefits such as flood protection, power generation, shipping, and utilization of water resources were prominent. It pointed out that there were urgent issues to resolve, such as the resettlement, environmental protection, and prevention against geological disasters. Also, shipping, irrigation, and water supply in the middle and lower reaches were affected by the Project. These issues were expected in the planning or construction stages but were unresolved due to various constraints or new demands posed by socioeconomic development. Subsequent planning would ensure the long-term safe operation of the Three Gorges Project and better utilization of the benefits. In turn, the national economy and society would gain from it. More people would be able to enjoy a wider scope of benefits. In order to minimize the negative impact for the better progress of the Project, planning must be comprehensive. Effective measures should be adopted, environmental analysis, regular assessments and evaluations, and follow-up work are essential. The damage on the natural environment and pollution should be minimized. The Three Gorges project should be able to conserve water, prevent water damage, develop and utilize water resources, protect the environment,

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benefit the people, promote sustainable development of the Yangtze River areas and China’s economy.

Outlook As a crucial project in the protection against flooding of the Yangtze River, during the flood season in 2012, the Three Gorges Dam successfully intercepted floods with a peak flow of 50,000 m3 of water per second four times. The maximum amount of reduction in peak flow was 28,200 m3 per second. The reduction rate reached 40%. A total of 22.84 million m3 of water was intercepted. Flood protection was effective. Before the flood season, the buildings, land, sediment, and reservoir banks in the Three Gorges were in normal operation. They satisfied the water demand for local production and living. During the falling stage and the flood season, the China Three Gorges Corporation began sedimentation reduction and eco-testing at the reservoir tail. The sediments were reduced to the standard of the backwater area. Hydrologic and hydraulics conditions were created to suit artificial propagation of the fish in the section of the river from Yichang to Yudu. After several years, the China Three Gorges Corporation has become more knowledgeable about the operation of the Three Gorges Reservoir. Adjustments were made and management improved. In 2012, the Prototype Observation of the Hydrology and Sediment of the Three Gorges Project was launched. This offered technological support to sand peak adjustment. Raw data was collected from the navigation channel between the Gezhouba dam and the Three Gorge Dam. After the flood season, many of the power stations in the upstream of the Yangtze River were storing water. The China Three Gorges Corporation devised a plan for water storage. October 30, 2012, marked the third year of maintaining the water level at 175 m. This laid a foundation for utilizing the benefits of the Three Gorges project. The Three Gorges Project utilizes the abundant water resources in the Yangtze River to generate benefits such as flood and drought protection, power generation, and shipping. It was a manifestation of humans’ transforming and developing the natural environment and utilizing resources. The Project would promote China’s western region development program and sustainability in the Yangtze River regions. Its contribution to China’s energy and economic development is also the greatest protection given to the ecosystem and natural environment in the Yangtze River regions. It is a sustainable project. It will continue to contribute to global environmental protection.

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5.6 Qingdao: The Development and Utilization of Ocean Energy Sun Zhaoming and Wang Jishang

Introduction Qingdao is located in the southeast of the Shandong Peninsula. Its eastern and southern sides face the Yellow Sea. It has a moderate climate and beautiful scenery. It is a coastal city with unique characteristics. Its total area is 1.06 × 104 km2, and its sea area is ​​1.22 × 104 km2. Its coastline spans 863 km. There are 49 bays and 68 islands in Qingdao. The resident population in the city stands at 8.72 million. Qingdao is a major city on the eastern coast line of China. It is an important port city, tourist city, and national historical and cultural city. It is also a gateway city to and a regional central city in Shandong Province and the Shandong Peninsular. Qingdao’s economic growth rate has been maintained at over 14% for the past two decades. In 2012, its GDP reached CNY735 billion, and its GDP per capita surpassed USD10,000 for the first time ever. Qingdao has well-established infrastructure. The industrial technological level is high. It has one of the leading marine economies in China. The added value of the marine industry was greater than CNY110 billion. A city that relies on energy import, Qingdao’s final energy consumption of coal, oil, natural gas, and electricity were in the proportion of 28.42%, 46.98%, 6.25%, and 4.21%, respectively. In 2010, Qingdao consumed 39.68 million tons of standard coal. Renewable energy only contributed 0.6% to its total energy consumption. As the economy and society progress, the supply of traditional energy is limited. It endures heavy pressure of environmental protection, energy conservation, and emission reduction.

Background of the development and utilization of ocean energy in Qingdao The ocean is a large reserve of renewable clean energy. Ocean energy first caught the attention of coastal countries in the 1970s. Since the beginning of the 2000s, fossil fuels have become increasingly scarce and the pressure of the global climate change mounted. The interest in ocean energy was revived. Countries began to make ocean energy part of their future energy strategy. Abiding by the United Nations Framework Convention on Climate Change, China promised that the carbon dioxide emissions per unit of GDP in 2020 should be reduced to 40% to 50% of the

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Fig. 5.6.1

Qingdao Laoshan Scenic Area

Fig. 5.6.2

Qingdao First Bathing Beach

amount in 2005 at the Copenhagen Summit in 2009. This was one of the targets in the medium- and long-term planning of the national economy and society, and the utilization of ocean energy would play an important role. China is a major maritime country. Its mainland coastline spans 1.8 × 104 km. There are more than 6,000 islands with a mainland coastline of over 500 m2. Ocean energy is abundant within its sea area. It is estimated that the total installed capacity is over 2.75 × 107 kW, three times the amount in 2009. Overall, China has rich tidal current energy and thermal energy resources. Its energy density ranks among the top in the world. Its tidal energy resources are at the world’s middle level. Wave energy, offshore wind energy, and marine biomass resources have huge development potential. The development of ocean energy can ease the energy shortage in the eastern coastal area of China, especially on the islands. It would strategically help to optimize the energy structure, promote the development of clean energy, cope with climate change, and develop a low-carbon economy.

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Since the 1960s, China has begun to conduct large-scale ocean energy resources survey and tidal power station construction work. Research on the development and utilization of wave energy, tidal energy, thermal energy, and salinity gradient energy was launched. China’s tidal power technology is relatively advanced. There are wave energy technology inventions which have been granted patents. The development of tidal current energy and thermal energy has some breakthroughs. In recent years, the state has provided stronger support to the development of ocean energy. In the 11th and 12th Five-Year Guidelines, ocean energy technology was selected as one of the major projects. Project 908 launched ocean energy resources surveys and evaluations. The development and utilization and the amount of reserves in China’s sea area was studied and assessed. Demonstration tests on the development and utilization of ocean energy were set up on offshore islands. Independent power supply demonstration systems using mutually reinforcing wave energy, solar energy, and offshore wind energy were established on offshore islands. The 863 Program supported projects of fundamental research of ocean energy and the use of ocean energy in power generation. Continuous research reinforced the innovative capability in ocean energy, which laid a solid foundation for the development of the industry. The announcement of the Renewable Energy Law provided a legal basis for the development and utilization of ocean energy. Qingdao is well aware of the strategic and practical value of the development of ocean energy. As a center of marine research and education in China, Qingdao is called the “city of marine science and technology.” There are more than 28 research and education institutes, including the Ocean University of China, First Institute of Oceanography of the State Oceanic Administration, and Qingdao Institute of Bioenergy and Bioprocess Technology of the Chinese Academy of Sciences. There are more than 1,700 professionals in marine sciences, which accounted for 30% of the whole country. Around 70% of academicians of the Chinese Academy of Sciences and Chinese Academy of Engineering in marine sciences are based in Qingdao. Of the 17 marine projects in the 973 Program (National Basic Research Program), the chief scientist and unit in charge of 14 of the projects are based in Qingdao. At present, Qingdao is occupied with the construction of the China National Deep Sea Center, Qingdao Institute of Marine Geology, and National Laboratory for Marine Science and Technologies. The National Ocean Energy Test Facility is going to be established in Qingdao. In 2012, the development of the Shandong Peninsula Blue Economic  Zone became part of the national strategies. The forging of the “Blue Silicon Valley,” which is based on the development of a marine economy, was included in the 12th Five-Year Guideline. A series of support policies were adopted to enhance the development of ocean energy in Qingdao and the integration of research and industry in the aspects of the

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utilization of resources, nurture and recruitment of talents, research, and economy and finance. The Qingdao government expressed its intention to formulate a development plan for the ocean energy industry in their 2013 government report. It aspired to play a leading role in the utilization of ocean renewable energy in China. At the same time, it intended to adopt an investment scheme for emerging industries. Including the new energy projects, there were more than 150 projects with more than CNY100 million invested. By establishing a platform, the results of scientific and technological research were put into practice. The integration of research and industry would benefit Qingdao in its development as an ocean energy equipment manufacturing base and ocean energy research and test base.

Development and utilization of ocean energy in Qingdao Ocean energy refers to the renewable energy carried by the tides, waves, currents, temperature difference, and salinity difference. In a broader sense, ocean energy also includes offshore wind energy, solar energy, and marine biomass energy. Tidal energy, marine current energy, and wave energy are mechanical energy. Ocean temperature difference energy is thermal energy. Salinity gradient energy is chemical energy. Qingdao has been engaged in the research, development, and application of ocean thermal energy, wave energy, marine current energy, and marine biomass energy.

Ocean thermal energy Ocean thermal energy is the thermal energy from temperature differences at shallow and deep waters. The water surface transforms most of the solar energy to thermal energy and stores the energy in the shallow waters. The waters close to the freezing point at less than 1,000 m in depth flows slowly towards the equator from the polar regions. The abundance of ocean thermal energy ranks top among ocean energy in China, accounting for 90% of the total amount of ocean energy. The exploitable energy surpassed 1.3 × 109 kW. The temperature of the deep water in the South China Sea (500 m to 800 m) remains constant at 4℃ to 5℃. The temperature difference between the shallow and deep waters is around 20℃ to 24℃ without periodic fluctuations. It is the sea area with the greatest intensity and abundance of ocean thermal energy. The Xisha Islands in the middle of the South China Sea and Taiwan in the sea area to the east of Taiwan are under strong sunshine. The temperature of the shallow water is stable. The cold water layer is close to the shore. The submarine topography is steep and suitable for the development of

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ocean thermal energy. These are the areas where ocean thermal energy was first developed in China. Ocean thermal energy conversion is multidisciplinary systems engineering. In August 2012, the First Institute of Oceanography of the State Oceanic Administration successfully developed a 15 kW ocean thermal energy power generation unit, which was the first in China. This made China the third country in the world to master the technology of power generation using ocean temperature differences after the U.S. and Japan. There were breakthroughs in thermodynamic cycle research and ammonia turbine technology. The efficiency of the use of the thermodynamic cycle to generate power electricity reached 5.1%, which was higher than the 3% of the Rankine cycle used in the U.S. and the 4.9% of the Uehara cycle used in Japan. The gap between China and developed countries in power generation technology was narrowed. This also provides a basis for the wide application of the technology. The power output of the ocean thermal energy power generation unit is stable. Such units can be installed in independent power supply plants on far off islands in the South China Sea where ocean thermal energy is abundant. They can also be installed as mobile power generation units at offshore oil platforms and work together with the deep sea mining system. Apart from power generation, ocean thermal energy is also involved in other developments. Deep cold seawater can condense the steam generated by the hot seawater to form condensate to achieve desalination. The cold seawater emitted by the power generation system can be used as a cooling source in air-conditioning or off-season farming and aquatic products breeding. Ocean thermal energy can also produce freshwater and provide suitable living and production conditions for offshore power plants, desalination plants, marine cities, marine mining, or sea ranching. It is suitable for utilization in naval defense. Fig. 5.6.3

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China’s first 15 kW ocean thermal energy power generation unit

Renewable Energy and Energy Efficiency Case Studies

Wave energy Wave energy refers to the kinetic and potential energy carried by the waves on the sea surface. It is the least stable ocean energy, but it is the most widely distributed one and has the highest energy flux density. The annual average wave power density in most of the coastal areas in China ranges between 2 kW/m2 and 7 kW/m2. The amount of exploitable resources have a capacity of around 1.3 × 107 kW, of which 30% concentrates in the coastal areas of Taiwan, 40% in Zhejiang, Fujiang, and Guangdong Provinces, and 10% in Shandong Province. Wave energy is mainly used in power generation to supply electricity to marine farms, marine lightship, offshore islands, meteorological buoys, and offshore oil platforms. Wave energy can also be used to deep sea water extraction and in oxygen replenishment, which would improve the nutrients of marine ranches and farms, reduce marine pollution, propel ships and vessels, and be used in desalination, hydrogen production, and element extraction. The comprehensive utilization of wave, wind, and solar energy is the new direction of development. The Institute of Ocean Technology (Tianjin) of the State Oceanic Administration built an 8 kW pilot pendulum wave power station in Xiaomaidao in Qingdao during the 8th Five-Year Plan (1991 to 1995). It successfully generated power during the testing. A 30 kW pendulum wave power station was built and successfully began operation in Daguandao in Jimo, which was under the jurisdiction of Qingdao, from 1997 to 1999. It was the first pendulum wave power station in China and the largest wave power project. The total investment was CNY2.25 million. The power station supplied electricity to more than 30 households on the island and generated more than 800,000 units of electricity annually. Three hundred and fifty tons of coal were conserved every year. The power station was closed down in 2005. In April 2009, the Institute of Ocean Technology (Tianjin) signed a strategic cooperation framework agreement on the development and utilization of ocean energy in Daguandao with the Jimo government. A demonstration hybrid power station which used wave, wind, and solar energy to generate electricity was built. Its total installed capacity was 105 kW (wave: 30 kW, wind: 60 kW, and solar: 15 kW). It began operation in April 2011. It was the first hybrid power plant in China. Five tons of seawater were desalinated each day. Having the experience in in 2013, a 100 kW submersible pendulum wave energy power station began construction. The previous projects have been a good demonstration for the use of wave energy in power generation.

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Fig. 5.6.4

Hybrid power station project on Daguandao

Source: National Marine Technology Center.

Marine current energy Marine current energy is the kinetic energy carried by water currents in the sea. It mainly refers to kinetic energy of the more stable current over the seabed and straits and the periodic and relatively smooth water flow caused by tides. The capacity of exploitable marine current energy in China is around 1.4 × 107 kW. Over half of the waterways, 37, are in the coastal areas in Zhejiang Province, and 42% are in the coastal areas in Fujian, Liaoning, and Shandong Provinces, and Taiwan. Marine current energy is mainly used in power generation. Power generation facilities can be fixed on the seabed or at the bottom of a floating object. The principle behind tidal power generation is similar to that of wind power generation. As the density of seawater is 835 times that of the air density, and the devices are installed under water, there are problems with maintenance, electricity transmission, corrosion, safety, turbine design, and environmental loads. China was one of the earliest countries to experiment with tidal power generation. At present, demonstration experiments of tidal power are conducted under real sea conditions. As one of the six key projects in ocean energy development and utilization, the research and demonstration of 150 kW tidal power station is included in the National Medium- and Long-Term Program for Science and Technology Development (2006 to 2020). In 2010, the Ocean University of China, CNOOC Research Institute, and Harbin Engineering University launched the 500 kW Independent Ocean Energy Power System Demonstration Project. In the 0.5 km2 sea area near Zhaitangdao (water depth at 35 m and highest current speed at 0.17 m/s), an independent 500 kW tidal-solar-wind hybrid smart energy system was set up. The project includes the following:

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• A tidal power generator unit with an installed capacity of 300 kW, which includes two 100 kW floating tidal power devices and two 50 kW submarine horizontal-axis generating devices; • 50 kW solar generating devices; and • Three 50 kW wind power generating devices. In order to obtain a stable electricity output and maximize operational efficiency, more diesel generator and storage devices were installed to reinforce the reliability and regulation performance of the system. In addition, a smart management system was installed. Based on short-term weather forecast, the system can predict the power generation and electricity load. Sub-systems were also able to control power generation and storage, and load switching. Safety control was also performed. In Phase I of the project, CNY55 million was invested. The power station would become the largest marine current power generation plant in China. The establishment of the ocean energy test base in Zhaitangdao has a strong demonstration effect on the development of tidal energy. Fig. 5.6.5

500 kW Independent Ocean Energy Power System Demonstration Project on Zhaitangdao

100 kW tidal power generator unit 100 kW tidal power generator unit 50 kW tidal power generator unit 50 kW tidal power generator unit

100 kW solar power generator unit Cables Submarine cables

100 kW wind power generator unit

Consumer Distribution line

Energy conversion and energy centralized control system

Consumer

Source: Courtesy of the Ocean University of China.

Marine biomass energy Marine biomass energy is the chemical energy carried by the organic compounds formed during photosynthesis using light and carbon dioxide by marine organisms. The marine organisms are mainly algae, including macroalgae (e.g., kelp, seaweed, and undaria) and microalgae (unicellular organisms or filaments with a diameter less than 1 mm). After processing, marine algae can be used in

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the production of liquid biofuels, including fuel ethanol, butanol, bio-diesel, and kerosene. By cultivation or fermentation, marine algae can be used to produce gaseous fuels such as hydrogen and methane. As a non-grain biomass resource, algal biofuels have caught the attention of many countries. They launch technology research, demonstration projects, and industrialization of algal biofuel. Support policies such as subsidies, funding, preferential tax, and mandatory consumption are adopted. China has the longest coastline and largest area of territorial waters. Algal resources are abundant, which is favorable for the research and development of marine biomass energy. China began extensive surveys on marine biomass resources as early as in the 1950s. Techniques were developed to culture kelp, seaweed, and undaria. The large-scale selection, culture, and industrialization of microalgae such as spirulina, dunaliella, and chlorella were launched. China established the largest algal (including both marine microalgae and macroalgae) production base in the world. Research and education institutes including the Ocean University of China, First Institute of Oceanography of the State Oceanic Administration, Institute of Oceanology of the Chinese Academy of Sciences, Yellow Sea Fisheries Research Institute of the Chinese Academy of Fishery Sciences, and national and key laboratories attracted 70% of specialists in marine sciences in China to form the largest algae technology team. Qingdao has become the core base of China’s research and development of marine biomass resources and energy. It has outstanding research achievements in the selection of algae, cost-effective culture of algae, high-efficiency conversion of biomass energy, and comprehensive utilization of biomass energy. The Chinese Academy of Science, Shandong Province, and Qingdao cofounded the Qingdao Institute of Bioenergy and Bioprocess Technology (QIBEBT). The development of algal energy is strategically important. With a team of almost 100 researchers, QIBEBT studies algae species, functional genomics, metabolomics, metabolic engineering of cyanobacteria, cultivation, bioenergy conversion, and system integration. It has obtained breakthroughs in key technologies: • Discovered filamentous algae which produce oil and are resistant to predators and pollution and alga strains which produce tetracosanoic-cis-15-acid; • Constructed the genome and metabolome of oculata; • Established a high-efficiency culture device with an open pool and optically coupled reactor, mastered the techniques of extraction of algal oils from wet algae under subcritical water conditions, and launched a 480 m2 pilot test; • Mastered technologies with independent intellectual rights, including the semiadherent culture method and the design of reactor with optical dilution; and

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• Achieving a production rate of the yield per unit area of microalgae of 50 to 80 g/m2/d, which is three to five times greater than that of using traditional methods, and 90% of water was reduced. Mastered the microalgae culture technology using flue gases. Furthermore, QIBEBT developed economic and high-value microalgae products. For example, cost-effective adherent culture of spirulina and chlorella is in pilot testing. The yield of microalgae was increased three times and the cost of production was halved. The cost is expected to be further reduced and the techniques to be applied to the production of algal protein feeds. The DNA technology of schizochytrium is considered internationally advanced. It is being industrialized. At present, QIBEBT is in cooperation with Boeing, British Petroleum, Shell, Foxconn Technology Group, Tongwei Group, Xinjiang Kingho Energy Group, and Qingdao Langyatai Group for technological research. Fig. 5.6.6

Open pool and optically coupled reactor pilot system

Source: Courtesy of QIBEBT.

Seawater heat pumps The working principle of the seawater heat pump system is to extract heat from seawater for heating and cooling. It takes advantage of the compressor system and only a small amount of electricity is consumed. In the winter, it extracts the low-grade energy carried by the seawater to provide heating for buildings. In the

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summer, it absorbs heat in the buildings and releases the energy to seawater to regulate the indoor temperature. This system uses seawater as a heat and cold source. It can partially or even entirely substitute the boilers and chillers in the traditional air-conditioning system. The seawater heat pumps are driven by electricity. The coefficient of performance (COP) is greater than four. The transport distance for heat energy is short. The operation of the heat pumps is stable. It effectively conserves energy. There are few parts in a seawater heat pump. The heat pumps are compact and have a high degree of automation. This incurs low operating costs. Water resources are abundant in Qingdao. The temperature of sea water in spring, summer, fall, and winter is 14℃, 26℃, 13℃, and 3℃, respectively. Seawater is used in the heating systems in winter and air-conditioning in summer in the coastal areas. Qingdao has mastered the technology of filtration, heat exchange, and water extraction in seawater heat pumps. Demonstration projects have been in progress and they have obtained initial results. Thanks to their convenience and relatively low technical threshold, seawater heat pumps are used in coastal hotels, shopping malls, office buildings, schools, upscale residential districts, and mariculture farms. In 2004, the Qingdao Power Plant completed the first seawater heat pump project in China. The canteen in the power plant, with an area of over 6,000 m2, is the first building in China which relies only on seawater for heating and cooling. As a co-host city of the 2008 Beijing Olympics, Qingdao constructed the 8,138 m2 Qingdao Olympic Sailing Center. The seawater heat pump system provided all the heating and cooling in the media center. In residential buildings, Millennium Dragon Garden was the first in China to use the seawater heat pump system for airconditioning. A total of CNY20 million was invested. The system covered 65,000 m2 floor area. The kindergarten and club house which occupy of 7,000 m2 area use the seawater heat pump system for heating, cooling, and the supply of domestic hot water. It is charged CNY22/m2, 30% lower than the standard price in winter in Qingdao. The office buildings in the “Blue Silicon Valley” in Small Harbor  in Qingdao were used in the pilot testing of the seawater heat pump system. Offices that had a total area of 10,000 m2 conserved 33% of energy after switching to the seawater heat pump system. The system is also used in air-conditioning in the districts of Hutchison Whampoa commercial and residential areas in Small Harbor, the Champagne Coast in Jiaonan, Good Hope Building, and the fitness area in the Old Stone Man Sightseeing Garden. The seawater heat pump system is currently mainly used in summer cooling. The large amount of initial investment has been the obstacle in the promotion of its use. Also, there is a lack of technical standards and regulations. The degree of industrialization of the system is relatively low. The anti-corrosion, anti-

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algae, filtration, and anti-freezing technologies await further development. Reinforcements in support policies, design and manufacturing of equipment, system design, and operational management would be beneficial to the promotion of the use of the system. Fig. 5.6.7

Seawater heat pump room in the media center of the Qingdao Olympic Sailing Center

Source: People’s Daily Online, 2008.

Tidal energy and offshore wind energy Tidal energy is the potential energy carried by water generated by the rise and fall of sea levels. Tidal power is similar to hydropower in electricity generation. According to China’s regional planning of marine resources, there are 424 coastal dam sites which are suitable for the construction of tidal power stations. The theoretical total installed capacity is around 2.2 × l07 kW. Water with an average tidal range of 3 m can be used in power generation. The tidal power energy technology is basically established. Despite that, its development in Qingdao is slow for the following reasons: first, the energy density of tidal energy in Qingdao is low; second, the construction of a dam for tidal power damages the environment; and third, shoal aquaculture in shallow waters is well-developed along the coastlines, which increased the opportunity costs of the development of tidal power. The capacity of offshore wind power is around 7.5 × 108 kW, three times that of onshore wind power. Wind resources are most abundant in the coastal areas in Fujian, Jiangsu, and Shandong Provinces. The technological requirements for offshore wind power are high and the investment amount is huge. At present, there are only the Donghai Bridge Wind Farm in Shanghai, Weihai Wind Farm in Shandong Province, and the intertidal wind farm in Jiangsu Province. Qingdao is

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one of the three regions with the most offshore wind resources. Plans for offshore wind power have been formulated. There are more than 40 manufacturers of wind power equipment in Qingdao, including large-scale machine manufacturers as well as some international manufacturers of component parts. Products include the whole machine, control systems, blades, gearbox, generators, variable pitch and yaw system, wheels, and towers. Qingdao is equipped with the basics for the manufacturing of wind power equipment. The industry is growing stronger. A production chain of wind power equipment is being formed. The implementation of the Planning for the Qingdao Blue Economic Zone would further consolidate the industry.

Outlook According to the plans of the State Oceanic Administration, by 2015, the following should be achieved: • The utilization rate and development rate of China’s ocean energy would reach the levels of developed countries. • Power generation using ocean energy would reach a certain scale, and the technology of ocean energy power generation should be applicable. • Large-scale tidal power technology should be promoted internationally. • The core technology of offshore wind power should be mastered. • Offshore wind power should be localized and in mass application. • Breakthroughs should be achieved in the key technology of tidal energy. • Wave energy technology which can adapt to the waves in China should be developed. • Research on the utilization and application of ocean thermal energy and marine biomass energy should be reinforced. At present, the State Oceanic Administration is formulating the Marine Renewable Energy Development Plan. It states that the development strategy is to “obtain breakthroughs, motivate industrialization, rely on demonstration projects, and give priority to islands.” Qingdao’s development and utilization of ocean energy resources is among the top of China. However, the degree of industrialization is small. In order to encourage development and utilization of ocean energy resources, Qindao has done the following: • The government is actively formulating support policies and a support system; • Refine the regulatory system over the utilization of marine resources, the management system of the ocean energy industry, and provide a favorable environment for the development of ocean energy;

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• Through self-innovation and international cooperation, gather ocean energy technology enterprises to work together to accelerate the application and industrialization of technology; • Reinforce the promotion of seawater heat pump, continue to launch large-scale testing of wave energy, water current energy, and ocean thermal energy, and explore the combined utilization of multiple forms of energy (wind, solar, tidal, or wave); • Expand the research on and development of marine biomass energy and make Qingdao the test base for combined utilization of ocean energy in China; • Convert technological advantages into industrial advantages through promoting the research on specific equipment and application of research results; and • Reinforce the research, manufacturing of equipment, construction works, and operational management of the ocean energy industry and establish an industrial base of ocean energy equipment.

Acknowledgements We extend our gratitude to the following professionals for their information and support: Wave energy Shi Hongda, Professor and Head of College of Engineering, Ocean University of China Water current energy Wang Shujie, Professor, Ocean University of China Ocean thermal energy Liu Weimin, Researcher, First Institute of Oceanography of the State Oceanic Administration Marine microalgal biomass energy Liu Tianzhong, Researcher, Qingdao Institute of Bioenergy and Bioprocess Technology

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Reference “Haishuiyuan rebeng” 海水源熱泵 (Seawater Heat Pump). JPG. People’s Daily Online, March 28, 2008. Accessed August 20, 2013. http://scitech.people. com.cn/GB/25509/58105/118897/7059125.html.

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5.7 New Approach to an Old District: A Remarkable Accomplishment by Shanghai Changning District Gao Yun and Ye Pengju

Shanghai is one of the municipalities in China. After Reform and Opening Up in the last century, its economy has soared and its industries have been transitioning to tertiary industries. At the turn of the millennium, China has begun to implement energy conservation and emission reduction extensively. The unique implementation of energy conservation in Changning District, one of the areas where tertiary industries concentrate in Shanghai, acts as a role model.

Background of Changning District Overview of Changning District Changning District is one of the central districts in Shanghai. Located in the west, it has a total area of 37.19 km2. There are nine streets and one town under its jurisdiction. As of the end of 2011, the population stood at 700,000. The transportation options in the district are outstanding. The Hongqiao Integrated Transport Hub includes air and sea transportation routes, high-speed rail, intercity rail, rail transits, and highways. It also has a “three vertical and three horizontal” transportation network. It is an important transportation hub which connects Shanghai to domestic and foreign locations and serves the Yangtze River Delta.

Economic conditions in Changning District Changning District has been one of the important windows to Shanghai since Reform and Opening Up. In 1986, the Hongqiao Economic and Technological Development Zone (Hongqiao ETDZ) in the district became the first and only state-level development zone approved by the State Council which was dominated by tertiary industry and trade. With the Hongqiao ETDZ, the economy of the district grew steadily. In 2011, the total output value was CNY72.07 billion which represents an 8.1% year-on-year growth. Its fiscal revenue was CNY22.11 billion, a 15.1% year-on-year growth. Its function as an international trade hub entered into a new stage. Both international business and trade developed rapidly. Its commerce further blossomed. In 2011, the total retail sales of social consumer goods reached CNY23.37 billion, an 11.1% year-on-year growth; the total sales of commodity goods was CNY294.18 billion, a 13.5% year-on-year growth; the total imports and exports

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amounted to USD4.04 billion, a 26.7% year-on-year growth of which USD1.6 billion was exports. The development trend of economic concentration looks prosperous. In late 2011, the tax payment of the Zhongshan Park Business Center, Hongqiao International Trade Center, and the Hongqiao Linkong Economic Zone contributed to more than half of the total tax revenue in the district. After construction of some commercial buildings was completed, the allocation of commercial and business resources in the district will be further optimized. At present, Changning District has developed into one of the best central districts in Shanghai that offers transportation, environmental, residential, and cultural conditions, and integrated functions.

Industrial structure of Changning District After years of development, thanks to the Hongqiao ETDZ, the tertiary industry in Changning District expanded and improved. There were breakthroughs in industrial transition, and the industrial structure was further improved. In 2011, the year-on-year growth of the added value of the tertiary industry was 9%. The added value of the tertiary industry accounted for 93% of the total added value in the district, 0.5 percentage points higher than in the previous year. The tax revenue from tertiary industry accounted for 95% of the total tax revenue of the district, an increase of 3 percentage points from the previous year. The dependence of the economy on real estate continued to be reduced. The percentage share of real estate in total revenue dropped from 40% at the beginning of the 11th Five-Year Guideline to 20% at present. Within the tertiary industry, the modern service industry is the most prominent. In the past 10 years, it has maintained a double-digit growth every year and contributed to more than two-thirds of the total revenue of the district. Within the modern service industry, information service, financial service, and aviation logistics continued to grow rapidly. While the economy is under difficult conditions, the information service and aviation logistics industry did not falter but maintained a double-digit growth. The financial service maintained a high growth rate in the past two years and contributed to almost 10% of the total revenue in the district.

Background of energy conservation in Changning District Energy conservation work began seven years ago at the beginning of the 11th FiveYear Guideline. The foundation has been laid.

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Establishment of a solid foundation to promote energy conservation Following the state and Shanghai’s planning and requirements, for the past seven years, energy conservation in Changning District has grown extensively in the following areas: • Established an energy conservation team led by the head of the district; • Formulated implementation plans for energy conservation and assessment of energy consumption per unit of GDP; • Promoted energy conservation in industries, construction, transportation, organizations, and residential areas; • Set up an energy conservation special fund with management guidelines; • Promoted the establishment of low-carbon areas in the district, applied to be part of the Energy Conservation Project Phase II of the Global Environment Facility of the World Bank, and the district was approved to be a low-carbon practice area in Shanghai; and • Reinforced promotion, education, and public awareness of energy conservation. By the end of the 11th Five-Year Guideline, the energy consumption per unit of GDP dropped 21.3%. The energy conservation operational and policy systems were effective, which provided a strong foundation for further energy conservation work.

New requirements for energy conservation in the new round of urban planning Changning District depended heavily on the tertiary industry. After the industrial structure was adjusted and obsolete industries were eliminated during the 11th FiveYear Guideline, the industrial potential has been exhausted. During the 12th Five-Year Guideline, Shanghai imposed energy efficiency goals on the district: a 17% drop in the unit added value and that the increase in energy consumption should be under 190,000 tons of standard coal. In order to adapt to the socioeconomic development in the district, during the 12th Five-Year Guideline, the district concentrated its energy conservation work in the tertiary industry and in buildings. Through modifying the building structure and facilities such as the air-conditioning and elevators and improving the management of buildings, the district managed to conserve more energy and improve energy consumption efficiency.

Urgent need to raise energy efficiency and added value As a central district, there is very limited undeveloped land in Changning District.

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As urbanization deepens, there are fewer available resources. The number of new commercial buildings continues to drop every year. The support they offer to the economy weakens. At the same time, the macreconomic conditions are unfavorable. It is becoming more difficult for Changning District to attract investment, especially from strong and hi-tech enterprises. Therefore, during the 12th Five-Year Guideline, the district aims at reducing the proportion of low-value-added industries to improve the utilization efficiency of economic carriers. It supports the expansion of the enterprises, hoping to transform the resource-led economy into an economy led by capital, technology, and knowledge. It enhances its energy conservation works to raise the utilization efficiency of resources and improve the volume of output. This should maintain the economic growth rate and quality and relieve the pressure of energy conservation in Changning District.

Attention given to innovations in the low-carbon areas in Changning District The establishment of the demonstration low-carbon area is an important project of energy conservation in Changning District. It was included in the planning of the district government during the 12th Five-Year Guideline. The establishment of the “green district” is also one of the “three districts” proposed by the district committee. The promotion of the low-carbon area not only helps the district with the deepening of energy conservation, reducing energy consumption, and raising the utilization efficiency of energy, but it also helps the state and Shanghai to promote low-carbon development. It has attracted a lot of attention and should act as a role model for other districts to follow. First, the Hongqiao area is the core location of the pilot project. It is a historical district of a major city. Commerce and business is well-developed there. The area also includes commercial buildings, convention and exhibition venues, hotels, and residential buildings. The results of the pilot project could be used as reference for formulating the plans for low-carbon development in built-up areas in both domestic and foreign large cities. Second, buildings’ energy conservation is a major part of the low-carbon demonstration area project in Changning District. Energy conservation work is comprehensive and systematic and covers transportation and distributed energy supply. Apart from buildings’ energy conservation efforts, and the more rigorous requirements in energy conservation on construction work, there are also measures to improve the “soft environment” for low-carbon development specific to the current issues with buildings’ energy efficiency. They include the establishment of a comprehensive management system of the project, a commercial operational

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approach and financing system, an incentive mechanism, and support policies. More specifically, stricter mandatory requirements for energy conservation are imposed and incentive schemes and subsidies are offered. These measures can be adopted to promote low-carbon development in built-up areas in both domestic and foreign large cities.

Overview and execution of the low-carbon area project in Changning District Overview Changning District applied for the Global Environment Facility (GEF) of the World Bank’s Energy Conservation Project. Its project — Green Energy Schemes for a Low-Carbon City in Shanghai — was launched in Changning District to promote low-carbon development. Low-carbon is the direction of development in urban areas. It is mainly promoted in new districts. Changning District concentrates on low-carbon development in built-in areas, which is not common in China and the world. At present, industries, buildings, and transportation account for almost 40%, 30%, and 20% of energy consumption in Shanghai, respectively. After the energy conservation adjustments during the period of the 10th Five-Year Plan and 11th Five-Year Guideline, the room for energy conservation in industries has become increasingly small. Therefore, during the 12th Five-Year Guideline period, energy conservation in Shanghai has focused on buildings and transportation. Changning District was the first to promote low-carbon energy conservation in buildings, energy supply, and transportation through demonstration projects. The Hongqiao ETDZ was set up in the 1980s. It was dominated by tertiary industry. The buildings are old. The buildings use a larger amount of energy than the new buildings and, therefore, have a smaller potential in reducing carbon emissions. Surveys have discovered that, in the Hongqiao ETDZ, hotels and office buildings consume 10% to 15% more energy than newer buildings with a similar function in the rest of Shanghai. The figure is even higher at 30% for shopping malls. Low-carbon development should be promoted urgently to serve the tertiary industry in the area. Low-carbon renovation work in Changning District has a strong demonstration effect. In recent years, Changning District has conducted surveys and analyses on energy consumption of 102 buildings in Hongqiao. It has launched a monitoring platform and completed the installation of energy consumption sub-metering devices in 100 buildings. This gave the district an

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overview of the energy consumption of buildings in the area. At the same time, the Changning Low Carbon Project Management Office and the New Changning Low Carbon Investment Management Ltd. were established to promote low carbon development. Shanghai made Changning District a key district in the promotion of low-carbon development. The district should implement renovation of buildings, launch demonstration projects, apply green energy, develop low carbon transportation options, and a low-carbon zone. It should introduce low-carbon development to nearby districts and eventually the whole city. Its demonstration projects are part of the transformation of Shanghai into being a low-carbon city. Shanghai also expects Changning District to explore operational policies on low-carbon renovation, market-oriented energy conservation mechanisms, and new financial products, which would be promoted in Shanghai and across China. With guidance from the specialists from the World Bank, Changning District conducted comprehensive surveys of the consumption and potential of conservation of energy. Based on the surveys, the cost curve for energy conservation in Hongqiao (taking into account the emission reduction potential, the net cost of emission reduction per unit, and technical difficulties) and the baseline for energy consumption in various types of public buildings were formulated. Also, based on the energy conservation or emission reduction potential curves, the low-carbon development of each area was analyzed. Each area had its own goals for lowcarbon renovation. Moreover, projects on green transportation and renovation of public buildings have been launched. Incentive schemes of buildings’ energy conservation, energy conservation assessment, monitoring, market development and guarantee mechanism of the World Bank Loan Project, and the creation of the environment for low-carbon energy and green transportation encouraged low-carbon projects in various fields. The projects have attracted USD250 million of investment. More than 70,000 tons of standard coal equivalent were conserved, which is equivalent to the reduction in the emissions of more than 160,000 tons of carbon dioxide. Changning District acts as a role model for other areas in Shanghai.

Buildings’ energy conservation Buildings’ energy conservation projects can be categorized into low-carbon investment projects funded by loans (including loans from the World Bank) and projects funded by the grants from the GEF.

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Energy conservation in existing buildings As there are a high number of small-scale renovation projects of existing buildings, it is difficult to manage the projects according to the standards of the World Bank. This is especially true for procurement management. Changning District, with the support of the Project Office, introduced two commercial banks to execute energy conservation projects. First, this simplifies management but abides by the World Bank’s requirements as project procurement can be conducted in a commercial mode of operation. Second, the competition in credit limit and lending rate between the two banks is favorable for the preferential interest rate of the World Bank’s loans, the owners of the buildings or the contract energy management companies. This encourages the banks to launch sub-projects. There is huge potential in developing contract energy conservation management as the new mechanism. Contract energy conservation management companies are required to invest a relatively large amount initially, and the return period is long, which could reduce the liquidity of companies. They may not be able to invest in new projects or expand. Their development could be restricted. Targeting at the features and needs of companies, the two commercial banks and the authorities of the energy conservation projects accelerated the launch of low-carbon economy financial products, including the “future income rights pledge financing for contract energy management” and “contract energy management factoring.” Through low-carbon renovation, every building managed to reach the energy conservation target of 50% imposed by the state. Renovation of existing public buildings for energy conservation The air-conditioning systems, lighting systems, and control systems of hotels, shopping malls, commercial buildings, and public buildings within 500 m2 from the center of Changning District have to undergo renovation for energy conservation. The first 10 buildings of the low-carbon investment projects are undergoing initial renovation as advance constructions. In the advance construction projects, Ji Qi Building, Shanghai International Trade Center, Shanghai Changning District Central Hospital, and Xinghua Hotel are undergoing typical technical transformation with a well-planned program. They act as key model projects in the low-carbon investment projects. Feature: Jia Du Building Jia Du Building identified eight areas in comprehensive renovation, taking into account the energy conservation facilities, safety, the exterior, and quality of the

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building. The owners’ meeting agreed to promote and direct the renovation. The Low-Carbon Office invited design units to propose a renovation plan for the building’s lighting and exterior. The plan was approved by the officials of the district. In mid-September 2012, the building called the second owners’ meeting, which the Low-Carbon Office attended. The plan was explained and discussed in the meeting. The project would be executed by the owners’ committee. Owners were required to fund the project in the proportion decided by the area they owned. The district government subsidized the project. At present, a large part of the construction work of the project has been completed. All construction work except for the elevator is expected to be completed by May 31. Fig. 5.7.1

Jia Du Building before renovation

Fig. 5.7.2

Jia Du Building after renovation

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Renovation of existing schools for energy conservation Renovation of building envelope, lighting systems, and air-conditioning systems of more than 50 schools in Changning District has been confirmed. Photovoltaic power generation system devices are intended to be installed on the roofs.

Energy conservation in new buildings The project of “Energy Conservation in New Buildings” aims at constructing buildings which outperform the energy conservation standards imposed by the Shanghai government and buildings which have almost no emissions with the assistance of incentive schemes and market developments. New buildings in Changning District are required to follow the energy conservation standards imposed on new buildings by the Shanghai government. Buildings in upscale business areas and public buildings are required to follow stricter standards. Changning District has completed the technological and economic analysis of the new buildings which follow the stricter standards of the district. Drawing on the GEF research, the feasibility of different relevant incentive schemes (funding and financing support) and management approaches has been considered to effectively promote the construction of new buildings which follow stricter standards or have no emissions, as well as promote the implementation of distributed energy supply systems. With the help of the project, all new buildings can hit the energy conservation target of 65%, and the exploration of buildings without emissions is continuing. New buildings which follow stricter standards or have close to zero emissions There are seven new buildings which follow high energy efficiency standards (an energy conservation rate of 70%) in Changning District. Their air-conditioning systems consume 70% less energy than similar buildings in the 1980s. Their gross floor area reached 200,000 m2. There is one new building with almost no emissions (annual carbon dioxide emissions per unit of floor area is lower than 20 kg). Its floor area is around 15,000 m2. Distributed energy supply system There is a plan to set up one distributed energy supply system in Changning District. Initial planning is underway, together with the planning of other renovation projects in the district. 123

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Transportation energy conservation A green transportation system aims at achieving low-carbon travel. Its system is to optimize non-motorized transportation (walking and cycling) and gives priority to public transportation. It encourages the use of clean and efficient transportation and improves the management and organization of traffic. It is a comprehensive solution which reduces the emissions of pollutants and carbon. The goal of transportation development in Hongqiao is to establish an “accessible, pleasant, coordinated, and low-carbon” green transportation system. With reference to the issues in the area and both domestic and foreign experience, the green transportation system in Hongqiao was built to optimize regional transportation, connect underground passageways, and establish a nonmotorized transportation system. Fig. 5.7.3

Overview of transportation in Changning District

Golden Hongqiao Commercial Plaza 320pcu/h

Tianshan Road Project in Green Town by SOHO City Center of Shanghai III 110pcu/h Shang Jia Center 150pcu/h

Optimization of public transportation As the distance between urban rail transit stations and commercial buildings is long, according to surveys, 50% of the respondents in the area favor shuttle buses. In the area, commuters working in commercial buildings such as the Wan Du Center and City Center of Shanghai III have a stronger demand for shuttle buses.

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At present, there is an initial design of the shuttle bus routes in the area. The routes would be direct services which mainly serve commuters who travel between urban rail transit stations and major office buildings. The Loushanguan Road Station would be the main stop based on the features of the passenger flow and the future needs of the Yili Road Station. Table 5.7.1 Prediction of passenger flow in the Hongqiao area Construction area per post (m2) Unilateral passenger flow (persons per post per day)

Morning peak hour factor Car and taxi traffic split rate Car and taxi passenger load factor

Fig. 5.7.4

Business office Commercial retail property

25–35 80

Business office Commercial retail property

1.5 1.3

30% 15% 1.5

Improvement plan for the non-motorized transportation system

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Connection of underground passageways There is a lack of road space in the Hongqiao area. The network of underground passageways is based on the idea of connecting the underground areas of urban rail

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transit station to the surrounding public areas. The space underneath the ground is developed to build public facilities such as parking garages. The long-term goal is to build a network with double axes, multiple stations, north and south hubs, and multiple tiers.

Improvement in the environment for walking Reform of non-motorized transporation first began on selected streets. The optimization of spatial structure would expand the space for non-motorized transportation and public transportation and encourage people to travel by nonmotorized transportation methods. The optimization of motor vehicle space would also prevent traffic congestion and guarantee to satisfy the traffic demand in the area. First, the environment for walking should be improved. Waiting areas are assigned to pedestrian crossings. The pilot demonstration point was at the intersection between Loushanguan Road and Ziyun West Road. The east-west traffic flow was light. However, the turning radius was too long and the speed of vehicles is high. It was inconvenient and unsafe for pedestrians to cross the road. The new design reduced the turning radius and improved the crosswalk. The larger space is reserved for environmental and leisure facilities. Second, the problem of narrow sidewalks is resolved by pedestrians sharing the road with non-motorized vehicles. The demonstration pilot area is located on Zunyi Road. The narrowest point of the sidewalk is only 0.5 m. Pedestrians have to walk sideways. By enforcing on-street parking and restoring non-motorized vehicle lanes, pedestrians are able to share the non-motorized vehicle lanes. Walking has become safer and more convenient. More innovative designs can be applied to certain streets. The section of Zunyi Road where Shang Jia Center is located is where traffic is slowed down in the area to the north of West Yan’an Road in the Hongqiao area. The area hosts the most upscale commercial buildings (LV headquarters in the Shang Jia Center) and the largest public space (Hongqiao Park). Renovation of this section of road was based on the transportation project in Brighton, England. There is no differentiation among pedestrian lanes, non-motorized vehicle lanes, or motor vehicle lanes. The Hongqiao Park and Sha Jia Center are planned to form a huge recreation complex and become a new landmark of west central Shanghai. In addition, the right of way of non-motorized vehicles should be protected. The lanes of non-motorized and motor vehicles should be separated not only by a line but physical barriers. Parking violations of motor vehicles should be punished in order to improve safety. Physical barriers should help lessen parking violations.

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Third, the design of road intersections should be improved. The turning radius should be reduced, pedestrian waiting areas should be assigned, and doublecrossing for pedestrians should be implemented. Double-crossing for vehicles could be implemented in intersections to reduce the chance of collisions. Through reorganization of the road spaces in the area, the space for nonmotorized traffic was expanded, which also helped with organization of motor vehicle traffic. The structure of motor vehicle traffic would be significantly improved. The proportion of departure traffic should rise and that of transit traffic should fall. This should increase the traffic volume, which supports the socioeconomy of the area. The transportation environment of certain sections of roads has been improved. The vehicle speed has not risen but fallen. The increased traffic volume in some sections is within the capacity of the roads. Accessibility is guaranteed.

Content of energy conservation During the preparation stage of the Green Energy Schemes for Low-Carbon City in Shanghai project, the government of Changning District enlisted a research organization and requested for help from the World Bank and other international consulting firms to survey the buildings in the Hongqiao area. The cost curve for reduction in carbon dioxide emissions was formulated to study the potential and feasibility of various abatement plans (See Fig. 5.7.5). They set targets based on three scenarios (lack of progress in technology, meeting the standards of the central government, and reaching beyond the standards of the central government). That was the first time that the cost curve, top-up research, and the feasibility of abatement options have been used in the selection of investment projects of carbon dioxide emission reduction. The formulation and study of the cost curve acted as a basis for setting the target and choosing the development direction of emission reduction in China. In the report to the World Bank, the major concerns of reduction of carbon dioxide emissions in the next five years in the Hongqiao area are as follows: Existing buildings Renovation of existing buildings includes modification of the exterior, energy efficiency investments outside the windows, air-conditioning system, lighting system, the use of solar thermal and solar photovoltaic energy, and roof greening. The renovation projects are executed based on the actual situation during implementation, analysis of the comprehensive cost, and the will of the property owner. 127

128

Cost of emission reduction (CNY/ton of carbon dioxide)

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

Fig. 5.7.5

0

30,000

60,000

Standby power consumption of Distributed energy Optimization of residential properties supply systems air-conditioning Special training Air side free cooling Ground source heat pumps Replace lithium bromide with Elimination of transformers electricity in refrigeration Installation of energy efficient lighting Smart transport system Online temperature monitoring Replacement of oil boilers with gas boilers Variable frequency control of escalator Screw machine heat recycling Temperature resetting of chilled water

Free cooling from the cooling tower Visualized monitoring technology Condenser cleaning balls

90,000

Operational control of the cooling tower

120,000

Solar thermal collector systems in residential buildings Total heat exchangers Replacement of electricity boilers with gas boilers Energy efficiency management and establishment of databases Energy feedback of escalators Smart control of street lighting systems

Renovation of the exterior of public buildings

Smart control of exhaust fans of underground garages Group control of escalators

Automatic-start/stop escalators Sub-projects Energy conservation through behavior change Water pumps Wind turbines Brightness enhancement film reinforcement of fluorescent signs in shopping malls Temperature control of water systems

All-electric vehicles

Hybrid-powered vehicles District bike-renting systems

External shading of public buildings

150,000

Green walls Buildings with zero energy consumption Power generation of the amorphous thin film of glass curtains Renovation of the outside window of public buildings New buildings Photovoltaic power generation Renovation of the exterior of residential buildings Installation of smart electricity meters in residential properties Roof greening Residential cooling heating and power systems Hybrid wind-solar power street lighting Renovation of the outside windows of residential buildings Natural lighting in underground garages and shopping malls LED street lighting Enforcement of energy conservation standards of new buildings Energy efficient air-conditioning in residential properties Purchase of green electricity

Cost curve and feasibility of abatement options in the Hongqiao area in 2015

RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

Renewable Energy and Energy Efficiency Case Studies

Distributed energy supply In recent years, distributed energy supply has become prevalent in low-carbon areas and ecological parks. The smart micro-grid technology sparked innovations in the distributed energy supply system. It helps to achieve optimization and dynamic balance between the consumption and supply energy, protects the whole life operability of equipment and facilities, and resolves the issues with the interaction of energy information. Changning District analyzed the characteristics of the energy management of smart micro-grid in the distributed energy supply system. A plan was formulated for the design of a multi-functional (utilization of renewable energy and cryogenic technology) and mutually reinforcing smart microgrid. It analyzed and solved the issues with distributed energy access, utilization of renewable energy and cryogenic technology, interactive scheduling control of the consumption and supply of energy, whole life operability  of equipment and facilities, and monitoring of energy consumption. This provided support for the application of smart micro-grid technology to at least one of the distributed energy supply systems in Changning District. Promotion of the utilization of new energy In existing construction, the utilization of new energy still faces technological and policy constraints. This is especially true for solar photovoltaic energy. It is hoped that the pilot projects in Changning District could explore new policies and encourage the development of new energy technology. Changning District launched pilot projects of the utilization of new energy. Low-carbon technology such as solar photovoltaic energy and ground source heat pumps were installed in the Bosch building in the overhead area in 2011. This conserved 65% of energy. The solar photovoltaic street lighting system was installed in Tianshan Road in 2011. In 2013, an underground wind tunnel was built under the Ming Ji Building. Together with LED lighting, solar photovoltaic energy, and roof greening, the building’s energy efficiency reached higher than 70%. The pilot projects show that an incentive scheme and technological advancement could improve the economic feasibility of new energy technology. Changning District has laid a solid foundation for the application of new energy technology in the future.

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Approach and experience in energy conservation in Changning District The energy conservation work of Changning District has garnered support from the state and city, as well as research organizations, since the very beginning. It has led to some achievements, but it is also experiencing more pressure.

Innovative management approach The leading group of energy conservation and emissions reductions in Changning District coordinated the energy conservation work of the district. It established the Changning Low Carbon Project Management Office to promote demonstration projects in the low-carbon area. It recruited specialists to manage the energy conservation work. The New Changning Low Carbon Investment Management Ltd. was also founded to promote low-carbon projects. At the same time, lending through financial intermediaries was adopted in the low-carbon demonstration projects and projects funded by the loans from the World Bank. Offering both topdown guarantee and counter-guarantee, two commercial banks were brought in to act as the executive organizations of the Green Energy Schemes for Low-Carbon City in Shanghai project. A competitive funding pool was established. Under the condition that both banks had the same line of credit, they had to compete for clients. The two banks select projects to launch, implement, manage, and assess the projects, and manage their funds. The competition between the two financial intermediaries is beneficial for the market mechanisms. The funds from the World Bank are more efficiently used in better projects.

Active use of external assistance On the one hand, the Green Energy Schemes for Low-Carbon City in Shanghai project, as a project under the GEF of the World Bank, channeled funds, as well as international technology and experiences, into the energy conservation work in Changning District. Specialists from the World Bank have visited the district several times to advise on the design, technology, fund management, and operational management of the low-carbon demonstration area. On the other hand, in order to promote the low-carbon projects, the committee of Changning District enlisted the help of professional organizations to survey the energy utilization and energy conservation potential of buildings in the Hongqiao area. More than 10 studies were launched based on the survey. The emission reduction curve, energy conservation potential graphs, building energy conservation baseline, technical solutions, and policy measures were formulated. Incremental costs analyses and

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economic benefit analyses were conducted. These studies explored the low-carbon technology, policies, and innovative mechanisms in the district. Not only were the studies the basis for the implementation of low-carbon projects in the district, they also provide references for similar projects in the state and Shanghai.

Establishment of a monitoring network The district statistics bureau analyzed the energy consumption in the district with a focus on the change in energy consumption of key energy-consuming bodies. A warning mechanism was set up based on the change in energy consumption. Targeting at buildings’ energy conservation, Changning District was the first in Shanghai to establish a monitoring platform. At present, 102 buildings have been connected to the monitoring system, which oversees a total installed capacity of 500,000 kW. The data is used as reference in the management of the consumption of millions of units of electricity. Through real-time monitoring and quantitative evaluation of operating efficiency, excessive use of energy in buildings can be detected. The problems are dealt with by corrective measures. The property owners or management would be offered energy conservation recommendations based on quantitative data analysis. After technical and operational improvements were made, the energy conservation rate can reach 17%. The monitoring platform was recognized and praised by the state, officials of Shanghai, and specialists from the World Bank for its outstanding and comprehensive functions. The monitoring platform is being extended to cover major public buildings. It is also being refined and expanded through the use of technology such as networking and wireless broadband. In order to fully utilize the monitoring platform, since 2013, taking into account the energy conservation assessment, energy conservation management, and the low-carbon demonstration projects, and the specific needs of each energyconsuming body, the monitoring platform has formulated tailor-made analysis reports for each energy-consuming body. This acts as a basis for the deepening of energy conservation in the district.

Refined energy conservation policies Establishment of a sound energy conservation policy system Changning District has basically established an energy conservation policy system in order to direct and encourage society to conserve energy. It has announced and revised the Management Approach Towards the Energy Conservation Special Fund of Changning District. The special fund was set up to encourage the improvement of

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energy conservation of existing facilities and infrastructure and support projects which cannot be sufficiently funded through existing financial channels. The projects it supports include buildings, transportation, contract energy management, and energy conservation technology.

Concentration on the reinforcement of policies of low-carbon demonstration projects As a comprehensive and systematically organized project, the Changning lowcarbon demonstration area involves a handful of stakeholders. The relationships among stakeholders are complicated, the sources of funding are diverse, the amount of funds is huge, and administration is complex. In order to promote the low-carbon demonstration area, Changning District set up a special fund for lowcarbon development. The loans from the World Bank and the special fund play a directive role in the low-carbon demonstration projects. Market participants are encouraged to be engaged in buildings’ energy conservation and low-carbon projects. The efficiency of the utilization of funds is raised. Based on research studies, Changning District is in the process of formulating a policy system in the low-carbon demonstration area. At present, the Measures for the Promotion of Comprehensive Renovation in Public Buildings for Energy Conservation and the Management Approach Towards the Low-Carbon Development Special Fund have been drafted. They are more specific and forceful than the energy conservation support policies. At the same time, the district is formulating incentive policies. First, renovation standards are imposed and individual renovation plans are devised based on the characteristics of different buildings. Second, the district is requesting help from the relevant departments of the Shanghai government. It also attempts to introduce the feed-in tariff scheme and launch pilot projects of carbon emissions trading in the Hongqiao area and restricts the energy consumption of buildings.

Effectiveness of energy conservation In the past two years, Changning District has concentrated on improving energy efficiency. Several pilot energy conservation projects were launched with moderate success. Some of the projects and their effectiveness are listed below in Table 5.7.2.

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Table 5.7.2 Effectiveness of recent energy conservation projects in Changning District Project

Energy conserved (TCE) or energy conservation efficiency (%)

Contract Energy Management of Shanghai Mart Co., Ltd.

118 TCE

Optimization of Smart Control of the Central Air Conditioning System of Multimedia Life Plaza

113 TCE

Energy Conservation Renovation of Changfang International Plaza

348 TCE

Energy Conservation Renovation of Shanghai International Trade Center

176 TCE

Technological Transformation for Energy Conservation of Hongqiao Tiandu

270 TCE

Technological Transformation for Energy Conservation of Zhao Feng World Trade Building

248 TCE Over 65%

91 Zhoujiaqiao District (new construction) Lighting Installation of the R&D Building of Shanghai Wenyang Automobile.

126.8 TCE, 70.4%

Energy Conservation Renovation of Shanghai Mart

166 TCE

Outlook for energy conservation in Changning District Future planning During the 12th Five-Year Guideline period, the building of the low-carbon demonstration area has been a major project of Changning District. It includes the construction of green buildings, establishment of distributed energy supply systems, development of green transportation options, reinforcement of energy conservation, and refining of the low-carbon environment. The progress of the construction of the low-carbon area is systematic and would help to launch more energy conservation projects in the district. Buildings’ energy conservation is a major concern and optimization of the energy structure is the direction of development. Innovative mechanisms are being set up to offer protection. Market mechanisms are given a larger role to play in resource allocation. Energy conservation is promoted in the areas of industries, buildings, transportation systems, organizations, and neighborhoods. Energy conservation management should help the district achieve all the targets set by Shanghai for the 12th Five-Year Guideline.

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Prospects The low-carbon demonstration area is funded by the loans from the World Bank and supported by policy measures. By the end of the project, more than 70,000 tons of standard coal will have been saved in construction and more than 160,000 tons of carbon dioxide emissions will have been reduced. It would be a model low-carbon area where building energy efficiency is high, energy structure is optimized, the performance of the transportation system is high, and the policy system is wellestablished. The energy conservation work of Changning District would advance to a new level. The people should become aware of energy conservation. The green district should blossom into a prosperous neighborhood with a beautiful environment.

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5.8 Venture Capital: Let GEM Fly He Guojie

Background In September 2005, Guangdong Technology Venture Capital Co., Ltd. (GTVC) invested CNY13.64 million worth of shares in Shenzhen Green Eco-Manufacture Hi-Tech Co., Ltd (GEM, 002340.SZ), and in 2006 spent another CNY8 million to become its second largest shareholder. GTVC helped GEM not just in resolving their financial problems, but also in providing high value-added services. As of August 6, 2012, GEM had a market capitalization of CNY8.5 billion. Starting in 2012, GEM began raising funds for a three-year capacity expansion plan, which included: (1) Developing a recycling system for cobalt and nickel resources such as waste batteries in 15 of Hubei’s cities, centering on Wuhan. The system is expected to increase the company’s collective capacity to more than 5,000 tons; (2) Launching a new 20,000-ton production line for the recycled cobalt and nickel, which will create production capacity of 2,000 tons of cobalt and nickel power, 600 tons of nickel alloys, and 400 tons of zinc per year. Making maximum use of recycled cobalt and nickel with optimal and diverse utilization capabilities, the company can achieve higher profitability, and thereby grow into being a world-class manufacturer of cobalt and nickel powder; (3) Building a Hubei Engineering Center  for Secondary Non-Ferrous Metal Processing. The center will expand technical support and strengthen engineering and technical development capabilities. With recycling and R&D facilities in Guangdong and Hubei, the company will be guaranteed a favorable position in the industry, as well as increased profitability and core competence. On January 22, 2010, GEM celebrated its listing on the SME board at the Shenzhen Stock Exchange. The IPO raised CNY750 million, setting the stage for the company’s rapid development. In December 2011, GEM raised another CNY1 billion through a private offering approved by the China Securities Regulatory Commission (CSRC). The money funded electronic waste recycling and processing plants in Wuhan, Jiangxi, and other provinces, and bolstered the company’s research, manufacturing, and integrated recycling capabilities in Jingmen, Hubei Province. These facilities were cited by the Ministry of Environmental Protection as model projects for the circular economy. Rated a top-tier listed company engaged in urban mining and low-carbon manufacturing in the circular economy, GEM’s range combines circular economy,

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

low carbon manufacturing, and new materials production. GEM’s IPO marked the entry of A-Shares into the circular economy. GEM is also a technological pioneer and leader in cobalt and nickel recycling. The company has built a business by remaking cobalt and nickel waste into high-end, high value-added ultrafine powders, nickel alloys, and wood-plastic composites. As China’s largest and most competitive manufacturer of ultrafine powders of nickel and cobalt, GEM led the creation of 12 national and industrial standards on nickel and cobalt recycling and reuse. While the Chinese economy continued working towards a circular, low-carbon, and sustainable future, GEM sees potential for growth in urban mining. GEM will pursue fund-raising opportunities in the share market. With a vision to bring new innovations to China’s circular economy, the company has been devoting efforts to sharpen its innovative capabilities, thereby building up a nationwide recycling network, molding the company into a world-class recycling facility for cobalt and nickel waste, and making it an example for other recyclers around the country. GEM has announced breakthroughs in core technologies in recycling and waste utilization. It currently owns 58 patents, and has helped craft 22 national and industrial standards. Its products are world-class, and have been universally adopted as a substitute for those made from ore deposits.

Early beginnings and highlights Founded in 2001, GEM is a private high-tech company. In May 2002, company founder Dr. Xu Kaihua started the company as one of the first business incubators in the Taohuayuan Science and Technology Innovation Park in Bao’an District, Shenzhen. The company’s first initiatives were developing lead-free soldering materials and ultrafine powders of nickel and cobalt. In November 2004, GEM built and rented a 6,000 m2 workshop, and 1,500 m2 of offices, R&D facilities, and living quarters. The production line makes use of a combination of cobalt and nickel waste — including waste batteries, wastewater from electroplating, and battery scrap — and multiple processes to produce ultrafine powders of cobalt and nickel. The production line was the first in Shenzhen to introduce renewable resources and cleaner production. In early 2004, GEM and Hubei Jinggong Cement Co.,Ltd. formed a joint venture company called Jingmen Green-Eco Manufacturing Co., Ltd (Jingmen GEM), which adopts an export-oriented enterprise set-up. With market and R&D support in Shenzhen, low-cost manufacturing facilities in Hubei, government support in Jingmen — and by using its cost, geographical, and network advantages in Hubei — Jingmen GEM has evolved into a constantly competitive and low-cost production

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line, and one of China’s industrial bases characterized by circular technologies. After the early struggles, GEM has arisen through technological and market explorations, and has maintained a capacity reserve and market standing. The company and its subsidiary, Jingmen GEM, have installed an annual production capacity of 600 tons of ultrafine and oxide powder and of cobalt and nickel. In early 2005, GEM proposed a financing plan, which sought to attract venture capital, unlock the financial bottleneck, achieve economies of scale by expanding the operation scale, enhancing the brand’s presence in the domestic market, accelerate business growth, and improve shareholding structure.

GTVC’s investment and value-added services GEM is the second venture for Dr. Xu. Based on the rapport he has  established with GTVC during his first venture, GEM presented the financing plan to GTVC. A comprehensive feasibility study and evaluation was then initiated.

Judgment GTVC saw the following strengths in GEM: Sustainable economic model and market-focused products China is currently the world’s largest processing base and resource consumer. The processing and use of resources resulted in a large output of renewable materials. China’s yearly waste from civil consumables and various industries — including electronics, metallurgy, petrochemistry, machinery, and batteries — were estimated to contain 10,000 tons of cobalt and 150,000 tons of nickel. Faced with medium and high consumption rates, high pollution levels, and limited resources, the country began taking a conservation-led approach to economic development. The circular economy highlights the importance of high-efficiency utilization and the recycling of  resources, and adheres closely to the 3Rs. GEM’s different processing technologies of renewable cobalt and nickel resources fits the concept of a sustainable economy. Its waste treatment plants, by neutralizing hazardous waste into harmless materials, facilitate a stable supply of renewable resources. This provides GEM with resource advantages over its competitors — nickel and cobalt smelters and refineries, which rely heavily on ore deposits. Free from ore dependence, GEM has broader sources of raw materials at lower costs. GEM currently processes about 1,500 tons of industrial waste per year. Its hi-tech products are highly profitable, costing 10% to 20% less than traditional options.

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The wide variety of GEM’s products includes ultrafine nickel and cobalt powder, nickel cobalt oxides, hydroxides, as well as commonly demanded, high quality automotive parts, military equipment, tools, and molds which contain about 10% cobalt. Advanced technologies China’s supplies of ultrafine powder of nickel and cobalt used to be controlled by large foreign exporters. Due to technological limitations, the imported nickel and cobalt materials are generally low quality, primary products. GEM is among the very few domestic producers using higher-end technologies. The quality of its products is comparable to international brands. GEM adopts an international environmental management system. Recycled materials are extracted, refined, converted into hi-tech materials and products, reused, discarded, and again recycled. GEM has made more than 10 research achievements of international merit, nearly 20 patents, and has participated in various projects under the 863 Program and Torch Program. Its laboratories are accredited by the  China  National Accreditation Board for Laboratories  (CNAL) and certified by the Metrology Accreditation Certificate (CMA). The laboratories are now open to the public and are used as public test centers. Its multi-functional production lines are capable of producing a series of different products. Excellent team In addition to Dr. Xu, GEM has an excellent team of academicians, PhD advisors, and professionals from around the world, such as respected ecomaterials scientist Professor Yamamoto Ryoichi, Chinese ecomaterials expert Professor Wang Tianmin, and Professor Guo Kaiyi, visiting Professor at the University of Tokyo. They ensure that GEM stays ahead of the latest technologies. GEM also has a team of talented management professionals. Its potential quality customers include China Tungsten and Hightech Materials, Heyuan Fuma Cemented Carbide, Shanghai Jinqiao Export Processing Zone Development, BYD, and China BAK Battery. GTVC sees strong prospects for GEM ahead, and is confident with its competitiveness, profitability, marketing capabilities, technological expertise, and management competency.

Equity investment GTVC and GEM’s original shareholders reached a consensus on development

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strategies and conditions for business cooperation. A GEM shareholder had left the business due to differences of opinion with the majority. The stake was acquired by GTVC and the original shareholders. After the acquisition, GTVC further increased its investment in GEM.

Provision of value-added services GTVC’s investment changed GEM’s shareholding structure, and laid a foundation for future financing. GTVC played an active role in the company’s operations and management, and offered assistance where problems in governance and financial management arose: 1. GTVC established standardized procedures in the Board, and, as director and supervisor of GEM and Jingmen GEM, devised and liaised on better development plans and strategies. 2. GTVC participated actively in the preparations for GEM’s split-share structure reform, and contacted advisory bodies for financial and legal compliance audits. 3. GTVC recommended a CFO to enhance financial management and strengthen operational supervision. The CFO directs various aspects of financial stewardship, such as payments and reimbursement, and fixed asset management, and oversees the company’s business dealings, connected transactions, cost accounting, tax planning, and other operations. 4. To further integrate GEM’s interests with those of Jingmen GEM, GEM increased its stake in Jingmen GEM after the new share issuance. For this purpose, GTVC made a shareholder loan to GEM from an entrusted loan. Meanwhile GEM’s CFO, together with GTVC, took the initiative to apply for loan facilities and government funds. Their exploration for financing alternatives would help with future financial planning.

Economic efficiency and changes caused by investment GTVC’s investment relieved GEM from its financial embarrassments. GEM started to demonstrate its long-held potential by expanding production to a large scale. GEM’s ultrafine nickel and cobalt powders are excellent value for money. Produced via the company’s own technologies, their performance is comparable to that of imported brands or those made from ore, and therefore give longer battery life and higher alloy strength. In 2006, GEM’s spherical and needle-shaped ultrafine recycled cobalt powder, and low-density porous recycled cobalt films were recognized by the national and Guangdong provincial governments as “key new products.” The renowned GEM

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cobalt metal powder was awarded Established Brand in Guangdong in Hubei. The company has established a nationwide sales network in the strongest markets, and has secured stable cooperation with the five biggest consumers in the hard alloy and powder metallurgy sectors. With its loyal customer base, the proportion of output sold for each GEM product is over 95%. Cobalt powder is one of GEM’s major products, with an annual production of 550 tons and a market share of 7.34%; followed by nickel powder, with an annual production of 250 tons and a market share of 2.63%. GEM has the second highest market share for cobalt and nickel powders in China. Table 5.8.1 Revenue and net profit growth, 2005–2007 2005

Sales revenue Net profit

2006

2007

Amount (in CNY10,000)

Growth

Amount (in CNY10,000)

Growth

Amount Growth (in CNY10,000)

4,116

—

10,367

152%

21,949

112%

426

—

1,205

183%

3,672

205%

GEM is now a pilot enterprise for the circular economy, a “key high-tech enterprise” under the Torch Program, and a “model enterprise” for the circular economy in Shenzhen and Hubei. It is also awarded “IPR Advantaged Enterprise” in Guangdong and Shenzhen. Its ultrafine recycled nickel and cobalt powders are awarded second prize of the Guangdong Award for Technology Advancement in 2007. Its research on high performance core recycling technologies for obsolete nickel and cobalt materials is funded by the 863 Program in 2007. The company has undertaken national high-tech pilot projects supported by the National Development and Reform Commission, which are also considered resource-saving and environmentally friendly under China’s industrial policies. The company has also led the creation of five national standards and three industrial standards, as well as helped to craft three national standards. GEM is aided by policy resources and support, as well as the booming capital market. In early 2008, the company completed pre-listing tuition and, on March 28, filed a listing application to the CSRC for its A-Shares on the SME Board. Since GTVC invested in GEM, the company has experienced accelerated growth. Its registered capital soared from CNY20 million in 2003 to CNY70 million in late 2009. The company has grown from a small innovative business to a joint stock company pending listing, with an annual revenue of over CNY360 million, and net profits of over 57 million.

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Pursuit of social efficiency and circular economy How much pollution can a used up and discarded button-cell battery cause? According to environmental experts, if thrown into a plot of farmland, it could devastate two mu (畝, 1 mu = 666.67 m²) of crops. Every single day, thousands of batteries are tossed into trash cans. Back when there was no developed technology and process to treat waste batteries, they were too often handled like typical waste, and this resulted in high amounts of pollution. Battery pollution endangers the environment Cell phones, cameras, and other electronic devices are everywhere these days. But these necessities of life are generating electronic waste every present moment. Government estimates suggest that the average person in China now consumes six to seven batteries a year which means that the country has an annual consumption of seven to eight billion batteries which results in over 500,000 tons of obsolete nickel-metal hydride, nickel-cadmium, and lithium-ion batteries, and battery scrap that needs to be collected to be recycled and disposed. The commonly used nickel-metal hydride and nickel-cadmium batteries contain more nickel than others, which, if disposed of in normal trash, would do tremendous damage to the environment. Heavy metals and used electrolyte solutions from disposed batteries can travel through the food chain, polluting our atmosphere, water and soil, and ultimately cause human diseases, livestock poisoning, and other potential threats. A thousand exhausted cell phone batteries can cause as much pollution as a small paper mill. The toxic heavy metals contained therein, such as lithium and chromium, can explode if incinerated like normal waste, or contaminate groundwater and soil if buried. The developed world has concentrated its efforts  on  battery recycling and detoxification. Their rigid rules and strict standards have proved remarkably successful: The U.S. set a legal target to recycle 90% of nickel-cadmium batteries sold by 2005; the recycle ratio reached 95% in Denmark in 1997, and 66% in Sweden in 2004. Whereas in China, there is not yet an organized collection and treatment system for spent batteries, nor a legalized franchise system for collection at local businesses. In the last decade, with China becoming the world’s biggest battery manufacturer and consumer, there has arisen an immediate need for battery treatment; sadly, recycling technology has come to a bottleneck. The annual generation of battery wastes is increasing at 20% in line with production.

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Scarcity and recycling of nickel and cobalt Rare metal raw materials such as cobalt and nickel are of high strategic importance in the electronics, metallurgical, petrochemical, mechanical, and battery industries. Their consumption is increasing year after year. Take cobalt for example: China’s cobalt consumption exceeded 7,000 tons in 2004. With the booming communications and automobile markets demanding more, China is no longer just a manufacturing hub and a major re-exporter of  resources, but now also a giant consumer. The country has, however, almost exhausted its nickel and cobalt supplies due to excessive exploitation and consumption. At the same time, 10,000 tons of cobalt waste and 150,000 tons of nickel waste are being generated every year. About 8 billion batteries are discarded every year, and less than 2% of these are collected for recycling. In recent years, Japan and Western countries have made efforts at developing recycling technologies to effectively utilize renewable resources and reduce pressure on wild resources. The development and implementation of recycling technologies for nickel and cobalt will be a critical enabler in overcoming China’s cobalt and nickel shortage and sustaining modern industrial growth. Industrial wastes contain a lot of non-ferrous metal such as nickel and cobalt. Waste batteries are like a non-ferrous metal mine: Nickel-metal hydride batteries contain about 30% nickel, 4% cobalt, and about 10% light rare earth metals; nickelcadmium batteries contain more than 20% nickel, 1% cobalt, and 20% cadmium; lithium-ion batteries contain about 20% cobalt, 7% copper, and 3% lithium, and they are made from the finest grade of nickel and cobalt ore. China’s minimum industrial grade of sulfur nickel is 0.3%. Cobalt does not form a deposit on its own; it is usually found associated and recycled along with cadmium and copper. Compared to mining and smelting processes, the treatment of waste batteries cost a lot less. It also serves a critical role in the protection of cobalt and nickel resources, and in the business development of non-ferrous metals. Enterprise value and social responsibility Until recently, only Canada and a few other countries had mastered the technology for extracting cobalt and nickel from renewable wastes. GEM has worked together with the University of Tokyo and the Central South University to bring the technology to China. To adopt cleaner production practices and prevent secondary pollution during the recycling process, operation is ensured at a circulation rate of over 80% and metal utilization rate of over 98%. Currently, the company recycles over 3,000 tons of batteries and other electronic forms of waste every year, which are sorted, purified, and reprocessed into over 1,000 tons of cobalt and nickel

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powder. The process saves about 50,000 tons of ore resources. If released into the environment, the waste would have contaminated 5 km2 of land. GEM’s work has promoted the recycling of renewable resources, increased environmental public awareness, eased the pressure on cobalt and nickel resources, and set an example for alternative cobalt and nickel sources. During the 11th Five-Year Guideline, the recycling of waste batteries and other disposable items is given a high priority in policies for renewable resources. GEM’s business approach is directed by the recent policies which promote a circular economy. The Chinese government is also continuing to work for better policies and regulations for energy conservation, emissions reduction, and a resourcesaving and environmentally friendly society. Starting in 2006, the National Development and Reform Commission and provincial governments have kickstarted pilot programs in enterprises across different provinces, in order to create political and policy contexts for the development of the recycling industry. GEM is among the second batch of pilot enterprises of the circular economy in Hubei and Shenzhen. Local government support for the company will help build up a nationwide recycling network for cobalt and nickel resources.

Implications: the role of venture capital in GEM’s rapid ascension Priority lies in the quality of entrepreneurship Venture capitalists look more closely to the people that are doing the project, rather than the project itself. An enterprise leadership and its entrepreneurial team serve a critical function in the implementation of the project. Entrepreneurial talent and general quality forms a valuable part of the enterprise’s intangible asset. These involve not only how much technology the entrepreneurs possess, but also their ability in securing business opportunities, leading their people, and conquering hardships and failures by uncompromising persistence. Dr. Xu’s profound technical knowledge in materials chemistry and his keen sense of product strategy and market awareness made a lasting impression on many venture capitalists. GTVC cast an eager eye when Dr. Xu sold all his shares and retired from his first business to start a second, along with his entrepreneurial team. Based on the quality of the entrepreneur and his management team, GTVC immediately and actively began research for business cooperation. This investment is an example of how the quality of entrepreneurship comes into a bigger role than that of the project.

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Venture capital: the wings beneath business success Money is the oil of development in high-tech industries. GEM began a rapid expansion in less than a year after GTVC’s investment in 2006. Continuous venture capital investment has effectively helped the company through its financial struggle. Banks’ support for privately-held technology SMEs was far from meeting their demand for expansion. Businesses were once again faced with a shortage of liquidity for maintaining operations. GEM’s management proposed a proposal to expand its capital base for the liquidity shortage and Jingmen GEM’s second phase of construction, as well as for the company’s expansion and growth needs. After careful study, GTVC considered the capital expansion necessary for GEM’s entry into the capital market, and began the actual discussions and preparations. GTVC provided various forms of financial support, in addition to shareholder funding. GTVC took an active role in the fund sourcing by recommending GEM to banks with which it had existing relations and, where guarantee support was needed, offering substantial support that strengthened GEM’s relationships with commercial banks. Helping the company grow Dr. Xu has so often said: When downstream sectors undergo changes due to the fluctuating prices of raw materials in the upstream driven by changes in global market trends, challenges can be expected in production and sales. GTVC, as a venture capital firm, is under the control of the provincial government. Its strong ties with the local authorities have been of tremendous help to GEM in applying for various government industrial and technological funding. When former Shenzhen Mayor Li Hongzhong was appointed to Hubei in 2007, he urged the provincial director of environmental protection to offer support for GEM’s construction of a battery recycling facility in Hubei. Strategic vision: leading the company through its next phases of growth Development strategy is a broad long-term policy perspective for attaining business goals, and therefore is the next step after survival. The quality of a venture capitalist is defined by one’s strategic vision and adaptability to uncertain environments and the company’s development needs. Right from the start, GTVC’s management has shown exceptional strategic thinking and ability. In 2005, after discussions between the shareholders and the management on the company’s future direction, He Guojie suggested buying up land in Jingmen. A number of shareholders and members of

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the management expressed doubt on the need for extra land and the adequacy of funds. To encourage others to be ambitious, He contributed a good amount of working capital for the purchase of 200 mu of land at an incredibly affordable price, and thus cleared the way for the company’s later expansion. GTVC has very early noticed the difference in stakeholders of GEM and Jingmen GEM; this could pose risks related to business structure and integrated management. GTVC submitted to GEM shareholders a detailed analysis based on its many years of experience in the business. Under pressure from GTVC, GEM acquired shares from a number of Jingmen GEM shareholders to make Jingmen GEM its wholly-owned subsidiary. This acquisition gave GEM access to a more complete supply chain and business structure, thereby reducing legal risks during the listing process and security concerns with investment and management of IPO proceeds. Restructuring and listing: exploring a road to capital management SMEs require substantial financial support to become progressively larger, and more mature and international in operations. Public offering is the best and least costly way for a company to raise enough funding to fuel its growth. After several years of operation, GEM has seen solid growth; but its market size and productivity are still not in a competitive range for competitors around the world. In 2006, the company decided to launch a joint-stock reform and seek financing channels in the securities market. With  the company’s effort and cooperation from its shareholders, GEM had restructured itself into a limited company by the end of the year. After that, the company proposed a placement to fulfill its 2008 business targets as well as IPO reporting requirements. GTVC’s ties and presence in the business attracted many subscriptions by institutional investors which made the placement a success. On July 11, CSRC issued feedback to GEM’s sponsor Shanxi Securities. GTVC complied with CSRC’s latest restrictions on share transfers, and agreed to retain its shares for at least three years. This inspired confidence in the company. GTVC’s substantial investments, comprehensive value-added services, efficient operation, and many years of experience in the business and the capitalist market have guided the company’s capital management on its path to prosperity. Acknowledgement: The original article was compiled with the help of Chen Suibin, former GTVC employee.

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5.9 Linuo Power Group on Solar Energy Gao Yuankun

China’s largest solar park opened in eastern Jinan City, Shandong Province on September 13, 2012. The park boasts China’s largest cluster of solar photovoltaic and solar thermal appliances and manufacturing and research facilities. This celebration was attended by representatives of the China Renewable Energy Society, Provincial Development and Reform Commission, Provincial Economy and Information Technology Commission, and the Jinan Municipal Government, as well as financial experts from the China Construction Bank, Agricultural Bank of China, and Bank of Communications. Fig. 5.9.1

Office buiding of Linuo Group in the Linuo Solar Technology Park in Shandong

The day also saw the launch of Linuo Power Group’s 10,000 Solar Roofs Program, and the signing of a rooftop solar power plant project of about 60 MW. The mission of the Program is to facilitate the commercialization of technological innovations, encourage pilot projects on vertical integration, and to expand diversity in the solar market for photovoltaic and solar thermal electricity generation. The solar park has aroused interest in solar energy applications and, on top of that, has led experts to see some promising potential for solar energy systems in the domestic market. Even more impressively, the Program cleared a path to lead the solar power industry out of its slump by turning to the domestic market. The EU recently announced the preliminary determination of the antidumping and countervailing probe of solar products originating from China. This, 146

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added to the weakness in the global market which had negatively impacted the industry. The changes brought by the completion of the solar park will, together with government policies, usher in a boom-time for the solar power industry.

A glimpse into Linuo Power Linuo Power was founded in September 1994 and based in Jinan, Shandong Province. Jinan is the first cradle of the Chinese solar power industry. There are now about 120 solar power and related companies in the area. Located in the economic center of Shandong and surrounded by its most populous cities, Linuo Power has shaped a strong industry base with a very comprehensive industry chain. One of China’s leading companies, Linuo Power has a strong industrial base and a very comprehensive industry chain, with investments totaling nearly CNY10 billion. The Group focuses on solar technologies and human health. Its many markets include solar-powered devices, Chinese and Western pharmaceutical products, special glass materials, and industrial organic chemicals. The Group owns production bases in Shandong, Hubei, Anhui, and Henan, and subsidiary companies and offices in New York, Frankfurt, and Johannesburg. Linuo technologies and products have earned a great deal of international acclaim. When it comes to solar thermal applications, Linuo has been awarded China’s first and only second prize National Award for Technology Advancement, founded China’s first and only National Enterprise Technology Center, National Base for Industrialization of Housing Construction, and Specialized Industrial Base for the Torch Program. The Group has also undertaken projects supported by the Torch Program and the 863 Program. Linuo is also a proud supplier of automotive paints, neutral borosilicate glass, and state-approved, patented new drugs such as muscone. Linuo’s product-specific research centers are constantly developing new technologies and innovations to bolster the Group’s global competitiveness. Linuo now has over 400 patents, 4 “Well-Known Trademarks” (Linuo-Paradigma, Twin Tigers, Hongjitang, and Linuo), and more than 20 “Pronvincial Well-Known Trademarks.” The Group is working with Global 500 clients such as IBM, BASF, Siemens, Coca-Cola, OSRAM, Honeywell, JSJ, MEMC, and Philips.

Linuo Solar Technology Park The Group has three manufacturing facilities which specialize in photovoltaic systems, solar thermal appliances, and electrical engineering, and the facilities produce 8 million m2, 700 MW, and 100 MW pf photovolataic systems per year. 147

RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

The technology park houses almost every market option, such as a 10 MW ground power station, a 1.6 MW rooftop power station, various designs of solar trackers, solar streetlights, solar traffic lights, solar-powered transportation facilities, and solar-powered parking spaces. Fig. 5.9.2

A 1.6 MW rooftop power station

Also in the park stands the Linuo Solar Wings. The photovoltaic power plant has the look of a steel gantry, and measures 120 m long and 30 m high. Fig. 5.9.3

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Linuo Solar Wing in the Linuo Solar Technology Park

Renewable Energy and Energy Efficiency Case Studies

It is equipped with 240 kWp photovoltaic modules to generate an annual energy yield of 262,800 kWh, with a resulting reduction of 105.1 tons of standard coal equivalent consumption, and 73.58 tons of dust, 197.1 tons of carbon dioxide emissions, 191.1 tons of sulfur dioxide emissios, and 13.14 tons of particulates emissions each year. Fig. 5.9.4

On-grid solar power station in the Linuo Solar Technology Park

This on-grid solar power station  comprises 27,460 hundred-and-ninety-watt monocrystalline modules and 22,200 two-hundred-and-thirty-watt Polycrystalline modules leading to an actual power output of 10.32 MW. The system is divided into 10 one-megawatt photovoltaic power generation units, connected to a grid via a 0.27 KV/10 KV distribution transformer. The completed power station will have an annual yield of 12.78 million kWh. Assuming it continues operating for 20 years, there will be a cumulative energy output of 256 million kWh. Approximately 102,400 tons of standard coal equivalent will be saved, thereby reducing 61,000 tons of dust, 195,000 tons of carbon dioxide, 6,800 tons of sulfur dioxide, and 1,100 tons of particulates emissions.

Solar-powered traffic systems A highlight of the park is its lighting system. The lights are energy-efficient, easy to install and move, and free of security risks. The technology park now has 906 solar street lights, 292 solar traffic lights, and 34 solar-powered bus shelters. For an annual generation of 267,000 kWh, 106.9 tons of standard coal equivalent are

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

saved, and 200.5 tons of carbon dioxide emissions are prevented. These are the most common photovoltaic products installed in the world today. Fig. 5.9.5

Energy-efficient lights in the Linuo Solar Technology Park

The solar-powered parking lot is an integrated power generation, solar charging, and on-grid power supply system. The parking lot is 84 m by 72 m, thus having an area of approximately 5,208 m2 to accommodate 150 electric cars. Its 3,810 m2 rooftop is equipped with 500 kWp photovoltaic modules to generate an annual energy yield of 63,800 kWh, with a resulting reduction of 255.2 tons of standard coal equivalent consumption, as well as a reduction of 178.64 tons of dust, 478.5 tons of carbon dioxide, 19.14 tons of sulfur dioxide, and 31.9 tons of particulates emissions each year.

Solar thermal applications Linuo invented a CPC medium-temperature solar thermal industrial heating system. An innovation in energy saving and emissions reduction, the system combines solar power and an engine to produce a heat source. On the 7,800 m2 warehouse’s rooftop lays an array of solar collectors covering 8,400 m2, 5,200 m2 of which are dedicated to CPC medium-temperature collectors. The collectors, operating at an average efficiency of 60% in the local climate, preheats 138 tons of water to 203oF (95oC) on a daily basis to provide 10% of the heat needed to run a 10 ton boiler. The solar collector, operating at an average efficiency of 60% in the local

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climate, preheats 138 tons of water to 203oF (95oC) on a daily basis to provide 10% of the heat needed to run a 10-ton boiler. It is expected to earn back its investment cost in four years. The system should save around 1,156 tons of standard coal equivalent, and reduce 2,600 tons of carbon dioxide emissions per year. The energy-saving Carbon-Free House occupies 172 m2. It is insulated outside by a 5 mm polyphenylene layer, and double glazed windows. The solar cooling system is equipped with 105 m2 of Linuo’s own CPC medium-temperature solar collectors, operating between 176–302oF (80–150oC). With a 17.5 kW single-effect lithium bromide refrigeration unit, the system enabled solar cooling in the summer, solar heating in the winter, and water heating for daily living needs in spring and autumn. The Carbon-Free House is supported by leading-edge technologies with independent intellectual property rights. The park is getting about 100,000 visitors a year. An effort is made to nurture and develop the market for solar-thermal appliances. In the near future, solar-powered appliances will eventually help every household lower their energy spendings, and adopt a low-carbon lifestyle.

Technological innovations: leading the market Linuo has worked with Tsinghua University and Shanghai Jiao Tong University to develop and discover innovations including hot water, heat, and thermoelectric appliances. Linuo’s solar thermal industrial heating system was on the National Development and Reform Commission’s List of Key Energy-Saving Technologies. During the 12th Five-Year Guideline, the Group’s Industrial Green Power campaign was placed as a priority on the Shandong provincial government’s Solar Energy Industry Development Plan, together with the use of solar energy in industrial applications. Advances in research over recent years have led to a mature technology for solar-powered air conditioning. Based on the technology, Linuo has built a solar-powered, low-consumption room. This has set a shining example for residential solar air conditioning systems. With its best-in-class technology, Linuo has worked closely with Tsinghua University, and has together announced China’s first four-meter high power generator tube. The product has been well received in overseas markets. Linuo, as China’s first industrial scale manufacturer of high power generator tubes, has laid a solid foundation for a world-class solar thermal-powered brand.

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Business innovations: responding to the market While the market is under ever changing, force majeure circumstances — such as drastic price drops — Linuo is cultivating competitiveness  to capture the end-user market by cutting costs, improving the cells’conversion efficiency and general quality, and putting more resources in its power stations, both in China and overseas. The effort is to minimize possible loss from the declining market and prices. In 2011, Linuo completed a 50 MW photovoltaic power plant and a 30 MW EPC.1 In 2012, Linuo was approved for a 180 MW EPC ground power station project. The power station had 80 MW capacity in construction, and 12 MW capacity completed. Linuo has since then become China’s sixth largest photovoltaic power plant developer.

1 EPC is an acronym that stands for engineering, procurement, and construction. Engineering functions include designing the plant, overall project planning, and on-site implementation. Procurement functions include purchasing necessary equipment and materials for not only standard construction, but more particularly for the power plant. Construction functions include building activities, equipment installation and commissioning, and trial operations. Under an EPC contract, the owner or project sponsor hands the “keys” to a commissioned project to the contractor for a contracted scope of work and responsibilities.

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5.10 Private Hydropower in Sanchuan Ren Qi’nian and Lee Seung-hee

Starting a business in a difficult time The company’s name “San Chuan,” means steep mountains, multiple peaks, and steady streams. The Sanchuan Holding Group has developed from a company in the Jingning She Autonomous County (Jingning County) — the home of hydropower in China — to a notable small and medium-sized enterprise (SME) in the private hydropower industry. It has more than 20 years of experience in the industry. The founder of Zhejiang Sanchuan Hydropower Co., Ltd., Lin Jianhua, was born in a remote village in Yingchuan, Jingning County, Lishui, Zhejiang Province, in 1965. He entered the town’s cultural station as an entry-level staffer in 1984. He later entered the business world and became a successful private entrepreneur. In 2003, Zhejiang Sanchuan Hydropower cofounded the Zhejiang Zhongda Sanchuan Hydropower Development Co., Ltd. with the Zhejiang Zhongda Group. Since halfway through the 8th Five-Year Plan, every session of county committee and government of Jingning County has adopted the economic development strategy of strengthening the electricity industry. The hydroelectricity industry was regarded as a mainstay industry. The County Small Hydro Constructions and Management Measures, Remedies for the Land Acquisition, Resettlement, and Demolition of Buildings Induced by Small Hydro Constructions, Opinions of the Acceleration of the Development of Small Hydro Resources in the County were announced. Such preferential policies encouraged the whole of society to be engaged in and external investors to invest in power generation in Jingning County. The government formulated policies, the relevant departments provided services, and the owners made investments. During the 9th and 10th Five-Year Plans, the county committee and government continued to develop hydroelectric power according to the plans. Jingning County relied on the hydroelectric power industry to stimulate economic growth and aspired to become the “home of China’s hydroelectric power.” It allowed the operation of multiple power supply companies and encouraged the utilization of different sources, layers, and format of hydroelectric power generation. Ownership of power supply companies was defined by investments, and voluntary partnership and risk and profit sharing were advocated. A lot of power supply companies later became stock corporations. At present, investments in small hydro projects are made through joint-stock or partnership systems. The main funding methods are joint ventures, loans, and sole

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proprietorships. The investment model in Jingning County is called the “triangular mode”: The entire amount of funds of a project is contributed by the major shareholders in proportion to the shares they hold. Each major shareholder collects funds from several small shareholders. Some small shareholders collect funds from smaller shareholders. Apart from corporate and individual investments, small hydro projects borrow bank loans. Some power stations obtain their funds through investment companies. As the county committee and government announced preferential policies favoring new small hydro enterprises, Lin Jianhua borrowed CNY15,000. He became the contractor of a 500 kW small hydropower station and obtained a mortgage. He managed the operation and maintenance of the station. In 1995, he founded the Zhejiang Sanchuan  Hydropower Co., Ltd. and began planning the construction of Phases I and II of the 4,520 kW Yanhu Hydroelectric Power Station. Later, it constructed the 1,600 kW Huangyangkou Hydroelectric Power Station and 10,000 kW Longchuan Power Station. It has gained capital, experience in operation and management, and production technology through the years.

Group management Of the investment enterprises which are engaged in small-scale hydropower, the more prominent enterprises are water resources and hydroelectric power companies which specialize in upgrading regional companies. In China, there are more than 10 listed water resources and hydroelectric power companies, but none of them specializes in small hydropower. Regional enterprises are active in Jingning County. However, the size and organization of the enterprises cannot satisfy the needs for inter-regional development. The enterprises do not have enough understanding of the industry in other locations. Few of them have a strategy department to formulate small hydro investment plans or study the operational, managerial, or investment issues. Similar to companies engaged in other industries, private small hydro companies in Jingning County experienced fierce competition during their expansion. Zhejiang Sanchuan Hydropower was the first to adopt the method of group management. Under the leadership of Lin Jianhua, Zhejiang Sanchuan Hydropower capitalized on the macroeconmic opportunities to establish itself as a leading enterprise in the small hydro industry. In March 2003, Zhejiang Sanchuan  Hydropower, together with the Zhejiang Zhongda Group and two more enterprises, invested CNY139 million to form the Zhejiang Zhongda Sanchuan Hydropower Development Co.,

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Ltd., now the Sanchuan Holding Group.1 Sanchuan Hydropower took the initiative to invite Zhejiang Zhongda Group to hold the controlling stake so that the company would have a higher potential for development. Zhejiang Zhongda Group is a well-known conglomerate. Its experience in branding, business, and operational management, and its financial situation were advantageous to the development of hydroelectric power in West China. It could quickly garner support from the government, enterprises, and society. The brand effect could help to accelerate the development of the industry. This mutually-beneficial partnership was between a state-owned enterprise and a private SME, a conglomerate and a specialized company, and used both state assets and private capital. In the coming years, the Sanchuan Holding Group plans to acquire or collect assets which can aid resource development and expand its business to clean energy, such as wind, solar, and bioenergy. The Sanchuan Holding Group has been in talks with consortiums in Zhejiang Province to improve its financial situation. Its market competitiveness and ability to resist risk have been reinforced. It has led the small hydro industry in Jingning County onto the road of group management.

Leapfrog development and international cooperation As small hydro is undergoing industrialization and increasing in scale, private financing and the operational approach of small business have incurred risks such as the cutting off of capital chains and management mistakes. The Sanchuan Holding Group aspires to improve its developments, expand in size, and develop across regions. In Zhejiang Province, there are developable water resources with a capacity of 8.26 million kW, 1.58% of the total amount in China. The resources are almost exhausted. In Yunnan Province, there are abundant water resources with a capacity of 103 million kW, 19.76% of the total amount in China. In West Zhejiang in locations such as Lishui, the development potential of small hydropower has been exhausted. New development opportunities have to be sought outside Zhejiang Province. According to statistics, since 2002, there has been a frenzy of power stations being built in Jingning County. Companies in the county have invested in 92 projects outside the county. The total installed capacity reached 965,400 kW, and the total investment stood at CNY4.66 billion. Some of the projects were located in 1

In January 2009, Zhejiang Zhongda Group withdrew from the Zhejiang Zhongda  Sanchuan Hydropower Development. Zhejiang Sanchuan Hydropower purchased all shares held by Zhejiang Zhongda Group (34% of the total number shares) at CNY58.6 million and became the largest shareholder of Zhongda  Sanchuan  Hydropower Development. At present, the registered capital of Zhongda Sanchuan  Hydropower Development is CNY139 million. Zhejiang Sanchuan Hydropower holds 69% of the shares, Li Jia holds 26%, and the KEFA Group and Shanghai holds 7%.

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51 cities in 10 provinces, including Jiangxi, Anhui, Hunan, Hubei, Fujian, Guizhou, Yunnan, Guangxi, Shaanxi, and Qinghai. There are 104 small hydropower stations under construction or in the process of being constructed. The total installed capacity reached 910,800 kW, and the total investment amounted to CNY4.44 billion. Fig. 5.10.1 Total installed capacity and total investment of the projects in Central and West China which received investments from Jingning County 250,000 200,000 150,000 100,000 50,000 0

Jiangxi

Anhui

Hunan

Hubei

Total installed capacity (kW)

Fujian

Guizhou

Yunnan

Guangxi

Shaanxi

Qinghai

Total investment (CNY)

Source: People’s Bank of China (Lishui).

Fig. 5.10.2 Distribution of projects and their locations across provinces in Central and West China which received investments from Jingning County Qinghai

Shaaanxi Guangxi Yunnan

Guizhou Fujian Hubei

Hunan Anhui

Jiangxi 0 5 10 15 20 25 Number of projects Source: People’s Bank of China (Lishui).

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As the state adopted the strategy of “continuing to develop the East and beginning to develop the West,” Lin Jianhua began his plan to develop small hydro in Central and West China. Aided by regional investment policies, Lin explored the potential of Yanjin County, Zhaotong, Yunnan Province. In August 2003, he invested CNY200 million to form the Yunnan Zhongda Yanjin Power Generation Corp., Ltd. He acquired six operating state-owned power stations, including the Shangqinghe Power Station and Pu’er Power Station, with a total installed capacity of 18,500 kW, as well as the rights to develop hydroelectric power in the Baishui River Basin. The level I power stations, each with an installed capacity of 15,000 kW, and the 48,000 kW level III power stations are in operation. It was the largest investment project in Yanjin County. It promoted the development of energy industries, increased tax revenue, and satisfied the increasing demand for electricity in the county. The local government hoped that as the infrastructure of the hydroelectric power projects began construction, more enterprises from East China would invest in the county. Lin was praised by the local Party committee and government for stimulating the local economy. In 2006, the Zhaotong government awarded Lin the title of “Outstanding Entrepreneur.” In recent years, influenced by both domestic and foreign conditions, China’s SMEs have experienced unprecedented difficulties in financing. A lot of enterprises were closed down because of a cut-off in the capital chain. The Sanchuan Holding Group, however, entered into the stage of international finance and energy industry. At present, the Group utilizes its international financing channels and cooperates more extensively with top international banks and investment companies. Thanks to the investment markets of energy resources and agricultural infrastructure in China, the market potential of small hydropower has attracted considerable foreign capital. In 2006, the Sanchuan Holding Group renovated a group of three run-of-the-river hydroelectric power plants on Beishui River, Yanjin County. The total investment in the project amounted to CNY600 million, and the total installed capacity was 78,000 kW. The project obtained USD22 million of loans from the International Finance Corporation, USD13 million of loans from the German Investment and Development Corporation (DEG), USD10 million of loans from PROPARCO partly under the French Development Agency. These loans contributed to 60% of the total investment in the project. The loan period was 15 years. The lending rates were 20% to 30% lower than that in China during that time. This was the first time the International Financial Corporation (IFC) had lent to private renewable energy projects in China. In September 2008, the Sanchuan Energy Development  Co., Ltd. (hereinafter Sanchuan Energy) was founded in Kunming. It was a Chinese-foreign joint venture

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with registered capital of CNY1 billion. Subsidiaries have been set up in Qiangdao Lake, Jingning County, Kunming, Yanjin County, Tengchong County, and Yanling County. There are 21 power stations with a total installed capacity of 245,700 kW and total assets of CNY2.2 billion. The shareholders of the company were the Sanchuan Holding Group, the Asia Development Bank (ADB), IFC, and the Singapore FE Clean Energy Fund. The Sanchuan Holding Group has gained financial strength and management experience through cooperating with international banks and investment companies. This helps to optimize the structure of the enterprise and promote the development of the enterprise as a whole. In order to adapt to the needs of sustainable development, the enterprise had to take on a larger role in directing development. Lin Jianzhua graduated with an EMBA in June 2005. His broadened management knowledge laid a foundation for future development of the company. For the Sanchuan Holding Group, 2010 was a year when some persistent operational and managerial issues were resolved. The Sanchuan Holding Group values the training of leaders and middle management personnel and provides an incentive mechanism for employees. Lin believes that training would help to improve the effectiveness of management, which in turn improves the quality of work. He encouraged the managers to adopt the same beliefs and implement the same method to train their subordinates. Also, in order to strengthen the sense of belonging, the Group refined the compensation system and continued to provide better benefits to its employees.

Investment analysis The Sanchuan Holding Group purchased a controlling stake of 51% of the shares of the Jingning Longchuan Hydropower Station with CNY4,609,880 (See Table 5.10.1). The station is located at the boundary of Longnan Township in Longquan and Yingchuan Town in Jingning County. Situated on the small streams of the Ou River system, the upstream of the Yingchuan Stream, and the Daigen Tributaries, the station has a total installed capacity of 10,000 kW, which was considered middle to high level. On June 4, 2004, the station was connected to the power grid and successfully began operation. The return on investment was steady between 2005 and 2011. The actual total investment was CNY61.59 million. The power discharge was 1.97 m3/S. Annual average generating capacity was 25.27 million kWh and the annual average grid electricity was 24.41 million kWh (See Table 5.10.2). The revenue from electricity sales is the main income of small hydropower stations. As long as there is normal power generation, the return on investment is stable. The similarities among stations which obtain a profit are that their actual

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annual utilization hours are close to their designed utilization hours, the price of electricity is higher than the cost of generating electricity, and the loss in electricity sales is low. Analysis of the return on investment in the Longchuan Hydropower Station is presented below. Table 5.10.1 Equity structure of the Longchuan Hydropower Station Investment ratio (%)

Funds (CNY10,000)

Equity (CNY10,000)

Financing (CNY10,000)

Sanchuan Energy2

51.222

460.998

3,154.668

1,403.49

Guangning Chikeng Town Wanggan Hydropower Plant

37.365

336.285

2,301.217

1,041.93

Jingning Mountain Area Hydropower Development Co., Ltd.

11.413

102.717

702.865

290.95

Name

Source: People’s Bank of China (Lishui).

Table 5.10.2 Income of electricity generation by the Longchuan Hydropower Station Year

Electricity generation (10,000 kWh)

Grid electricity (10,000 kWh)

Income (CNY10,000)

2005

2,452.173

2,380.75

985.86

2006

2,157.036

2,094.21

875.55

2007

2,488.542

2,416.06

1,021.67

2008

2,181.169

2,117.64

911.47

2009

2,601.141

2,525.38

1,105.56

2010

3,232.511

3,138.36

1,341.05

2011

2,483.783

2,411.44

1,050.82

Source: People’s Bank of China (Lishui).

Cost and price The electricity price of small hydropower facilities is governed by local policies. The price is a major factor in determining the return on investment in small hydropower 2

In January 2009, Zhejiang Zhongda Sanchuan Hydropower Development transferred the equity of Jingning Longchuan Hydropower Development Co., Ltd. and four other hydropower companies to the Sanchuan Holding Group.

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facilities. The price of small hydroelectricity in rural areas is determined by the market in the area. The investment frenzy of small hydropower in Zhejiang Province was caused by a rise in the on-grid tariff. The change in the on-grid tariff is shown in Table 5.10.3. Table 5.10.3 Time

Change in the on-grid tariff in Zhejiang Province On-grid tariff (CNY/unit)

Before 1991

0.373

1991–1993

0.398

1994–1996

0.433

After 1996

0.450

Designed utilization hours and actual utilization hours The utilization hour of installed capacity is a ratio between the average annual generating capacity and the installed capacity. The annual utilization hour of installed capacity reflects the utilization rate of the facilities in the station. The actual generation of small hydroelectricity is the major factor which determines the cost and price per unit of small hydroelectricity projects. It is also the most important constraint on economic return. The amount of electricity generated is the sum of all electricity output from all the generators in the station. As it directly affects the sales income of a small hydroelectric power station, a gap between the designed utilization hours and the actual utilization hours affects the expected return on investment. The small difference between the two parameters is why the investment returns on the Longchuan Hydropower Station are stable.

Electricity generation and electricity sales China’s small hydroelectricity power systems can be categorized into two types: First, the small hydropower stations are connected to the state power grid and act as peaking power plants. They are mainly located in Southeast China. Second, small hydropower stations are connected to the local or independent power grid to supply electricity to rural areas. They are mainly located in Central and West China. All power grids in Jingning County are connected to the state power grid. The electricity sales are calculated by subtracting self-usage and line losses from the amount of electricity generated. Power loss is usually represented by the ratio between electricity generation and electricity sales.

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Repayment to society Lin Jianhua actively repays society as a gesture of gratitude to the government and society. He has been involved in disaster relief and improving rural public welfare, mentored disadvantaged college students, and sponsored cultural and sports events. He has donated more than CNY1 million. The Party committee of Yanjin County awarded him the titles “Outstanding Party Worker” and “Outstanding Individual in Earthquake Relief.” To repay his hometown, he set up the Sanchuan Bursary Fund at the county charity federation, built a bridge, organized the Sanchuan Basketball Club and a basketball camp for primary students. Fig. 5.10.3 Presentation ceremony of scholarship and bursary award

Source: Sanchuan Holding Group.

Development direction 2012 was the most crucial year for the Sanchuan Holding Group. Lin Jianhua pointed out that a working atmosphere of “harmony, coordination, and practicality” should be established so as to build a “strong and cohesive” team. He also proposed three goals to be achieved in the following three to five years: build an international team, become a listed company, and each industry should earn CNY100 million in profits. Lin thinks that Tibet has the last remaining high quality water resources. The company began to develop hydropower in Tibet in 2011. It aspires to build hydropower stations with a total installed capacity of over 1 million kW and become the leading enterprise in China’s small hydropower industry by 2016. Sanchuan Energy increased the amount of registered capital from CNY763 million to CNY1

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

billion. It aspires to increase the total installed capacity of all its hydroelectric power stations to 500,000 kW in three years and become listed. Fig. 5.10.4 Locations of hydroelectric power stations of the Sanchuan Holding Group

Tibet

Hunan

Zhejiang

Yunnan

Source: Sanchuan Holding Group.

Since 1995, the Sanchuan Holding Group has had a specialized team in small hydropower development and operational management. Amidst keen market competition and scientific research, it grasped the favorable opportunity to develop clean energy. It cooperates with international financial institutions and clean energy institutions. It nurtured a number of scattered small hydropower companies of different forms of ownership and grew into a large, competitive hydropower group enterprise. Its goal is to expand in size, increase in strength, and provide high quality services in small hydro industry. Its initial development has been promising. The 12th Five-Year Guideline points out that China should continue to develop hydroelectric power and adjust the energy structure. China’s hydroelectric power industry shall develop rapidly in the coming five years.

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5.11 The Solar City: Dezhou Yu Zhijun and Cheng Xuesong

Energy is the foundation for the existence and development of modern society. As the global economy develops, energy consumption increases. At present, global economic growth is dependent on fossil energy. However, this type of nonrenewable energy source has almost been depleted. For sustainable development, the large-scale development and utilization of renewable energy has become a major part of the energy strategies of a multitude of nations. Solar energy is the most developed new energy across the globe thanks to its universality, high conversion efficiency, and huge supply. China has vast land with abundant sunlight. Currently, solar energy is utilized through solar thermal conversion and photoelectric conversion in China. China’s ownership of solar water heaters accounted for 60% in the world. It is the largest producer and consumer in the world. Dezhou is located in the downstream of the Yellow River in the northwest of Shangdong Province. It is the northern gateway to the economically prosperous province and is equidistant from two major cities, Jinan and Tianjin. There are one district, two cities, eight counties, and two economic development districts under its jurisdiction. Its total area is 10,300 km2 with a population of 5.6 million. Dezhou’s contribution to solar energy in China is remarkable. Solar energy first began to develop in Dezhou in the 1990s. Dezhou capitalized on the trend and announced the Strategic Advice on Accelerating the Establishment of the China Solar City, Advice on Accelerating the Development of Bioindustries, Opinions on Accelerating the Application of Solar Energy in Construction, and Notice on the Acceleration of the Promotion of Solar Energy to support the development of new energy. It formulated development plans and adopted preferential policies towards the solar energy industry. Support was also given to technological research, financing, and international cooperation. In 2005, Dezhou was awarded the title of “China Solar City” by the Chinese Solar Energy Society (now Chinese Renewable Energy Society). In July 2008, the Chinese Renewable Energy Society awarded the title “China Solar Valley” to the “Himin Solar Valley.” With the success in solar energy, the International Solar Cities Initiative (ISCI) selected Dezhou to host the Fourth ISCI World Congress in 2010.

Advantages for the development of solar energy in Dezhou Dezhou assumes exceptional geographical advantage in the development of solar energy. Dezhou is located in the downstream on the north bank of the Yellow

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

River in the northwest region of Shandong Province. It has a temperate continental monsoon climate. There are four distinct seasons, and the wet and dry seasons are obvious. Sunlight is adequate. The annual average sunshine hours are 2,724.8 hours; the average annual total solar radiation is 1,265,999 kcal/m; the annual average temperature is 55.2oF (12.9oC). Cold years account for 25.1%, warm years 28.5%, and normal years 46.4%. There are abundant solar thermal energy resources. Shandong Province is one of the overall strongest provinces in terms of solar energy. Linuo Power, Himin Solar, and Sangle Solar Energy are leading enterprises in the industry. There are a number of second-tier companies such as Haier, Tianfeng Solar Energy, and Golden Solar. Dezhou, together with Jinan, are two core production bases. There are the most complete solar thermal energy industry chains in China. Shandong Province has the most experience in the production and application of solar energy. This also attracted a pool of talents to Dezhou. The extensive use of solar energy also created a huge market in the city. From the viewpoint of the industry chain, Linuo Power owns a quartz sand mine which will be exploitable for 100 years, and Linyi is the “home of quartz sand” in China. The supply of raw materials is sufficient. Also, Linuo power produces 51% of the blank tubes in the entire market and 70% of the coated tubes in the high-end market. Companies such as Himin Solar, Sangle Solar Energy, and Tianxu Solar Energy have expanded their production capacity. Linuo Power, Himin Solar, and Sangle Solar Energy together produce 16% of the solar water heaters in the market. The exceptional natural conditions, production conditions, and existence of a complete solar energy industry chain allowed Dezhou to become a top city in terms of solar energy.

Development of the solar industry in Dezhou With multiple advantages, Dezhou has achieved great success in the development of solar energy.

Development of solar thermal energy in Dezhou By 2008, the ownership of solar water heaters in Dezhou grew to 16% that of China. The total sales of solar energy enterprises in the city was over CNY5 billion. The enterprises obtained 600 patents for solar energy technology and handled more than 10 solar research projects of the 863 Program. The industry chains of solar thermal, solar photovoltaic, and other side products are relatively complete and in a large scale. Especially for solar water heaters, research and development, production, and promotion links have been established. There are internationally

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Table 5.11.1 Overview of the backbone enterprises in the solar energy industry in Dezhou in 2008 Business performance Sales income (CNY100 million)

Profit tax (CNY100 million)

Himin Solar Energy Group Co.,Ltd.

Water heater, solar collector systems, vacuum tube, solar boilers, integrated application of solar Solar water energy to buildings, heaters: 180 million m2 high-temperature thermal power generation, and photovoltaic power generation

22.100

4.800

Dezhou Kehui Solar Energy Co., Ltd. 

Residential solar water heaters and large industrial solar hot water projects

Solar water heaters: 40,000 m2

0.200

0.020

Shandong Sangle Solar Energy Co., Ltd.

Solar glass vacuum tubes

6 million units

1.000

0.020

Guoqiang Hardware Group Co., Ltd.

Inorganic highefficiency new heat pipe solar water heaters, industrial boilers and waste heat recovery boilers, and solar bathing products

Solar energy: 25,000 m2 Waste heat recovery: 2,000 tons

5.020

0.720

Dezhou Zhongli New Energy Science & Technology Co., Ltd.

RPTX split heat pipe solar water heaters, solar air conditioning, and solar photovoltaic equipment

20,000 m2

0.430

0.100

Dezhou Xuguang Solar Photoelectric Co., Ltd. 

LED AC/DC street lighting system, solar photovoltaic power plants, and solar panels

LED solar street lamps: 5,000 units LED neon tubes: 20,000 m

0.330

0.070

Enterprise

Major new energy products

Production capacity

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

(Cont’d) Business performance Sales income (CNY100 million)

Profit tax (CNY100 million)

135 tons

0.340

0.125

Solar LED lights, LED lighting, solar water heaters

Solar water heaters: 80,000 m2 Solar lighting equipment: 500 units

0.400

0.040

Dezhou Honglei Solar Energy Co., Ltd.

Solar seals

30,000 units

0.200

0.010

Dezhou Denuo Solar Manufacturing Co., Ltd.

Solar water heaters

9,000 units

0.100

0.040

Quartz crucibles Shandong Tenglong and single crystal New Energy PV Co., Ltd. silicon

Quartz crucibles: 80,000 units Single crystal silicon: 500 units

1.050

0.220

Dezhou Tianqu Solar Energy Co., Ltd.

Solar water heaters

10,000 units

0.100

0.030

Yucheng Haoran New Energy Source Co., Ltd. 

Solar water heaters

15,000 units

0.240

0.030

Dezhou Hongri Solar Energy Co., Ltd. 

Solar water heaters

15,000 units

0.230

0.040

0.040

0.007

Enterprise

Major new energy products

Shandong Jingweite Electronic Technology Co., Ltd. 

Semiconductor materials, silicon solar cells, polycrystalline silicon rods, 4”–8” silicon rods

Dezhou Elecrtric Tools Manufacture

Production capacity

Qingyun Chuanmao Inorganix solar heat Thermal Technology Co., 5,000 units pipes Ltd. Xiajin Ruikang Glass Product Co., Ltd.

Blank tubes, vacuum tubes, solar water heater equipment

—

0.200

0.020

Dezhou Yaohui Solar Co., Ltd.

High borosilicate glass tubes

—

0.630

0.010

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Renewable Energy and Energy Efficiency Case Studies

(Cont’d) Business performance Sales income (CNY100 million)

Profit tax (CNY100 million)

Solar water heaters, solar cookers, and — other solar energy equipment

0.180

—

Solar water heaters and solar cookers

0.870

0.00

33.660

6.3070

Enterprise

Major new energy products

Ningjinxian Daliuzhen Liangping Water Boiler Manufacturer Xiajinxian Honghao Solar Manufacturer Total Note:

Production capacity

—

Some enterprises did not provide data and therefore reference data are adopted for those enterprises.

renowned enterprises such as Himin Solar, Ecoo Solar, Zhongli  New Energy Science and Technology, and Boyuan Heat Energy Technology. They have mastered some core technology and hold a large market share. There are more than 100 companies which utilize solar energy or are engaged in the industry. Each year, more than 3 million m2 of solar water heaters are produced, accounting for 10% of total production in China. The sales are over CNY5 billion. The output of solar water heaters grows by 20% annually, which is among the highest around the world. Based on the statistics of 19 major solar manufacturing enterprises, in 2008, their main business income and profit tax totaled CNY3.37 billion and CNY631 million, respectively. Two brands were granted “well-known trademark” and two products were granted “China top brand.” Dezhou is garnering support from the State Intellectual Property Office for Himin Solar and Ecco Solar’s construction of the State Solar Patent Industrialization (Dezhou) Pilot Base and the State Patent Technology Exhibition and Trade Center. Moreover, in Dezhou, there are the internationally advanced solar thermal technology and the first automated production line of vacuum tubes in the world. There is a group of supporting industries for the industrial production of solar thermal products. Dezhou is also the host of the largest, finest, and most complete solar energy testing center and the Shandong Research Centre for Solar Thermal Utilization and Engineering Technology. Ninety-five percent of the products and technology have their own intellectual property rights. Research and development and production chains of solar water heaters, together with vacuum tubes, solar modules, photovoltaic systems, solar lighting systems, solar traffic lights, energysaving glass, and the integration of solar energy on construction are established. Of

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the leading enterprises, Himin Solar has the largest production base of solar water heaters in the world. Its products have gained the labels of well-known trademarks, China top brands, and State Inspection Exemption Products. The brand value reaches CNY5.1 billion. There are eight series and more than 100 types of products, including solar water heaters, large solar water heating systems, all-glass vacuum tubes, solar boilers, solar photovoltaic lighting systems, and solar air conditioning systems. The annual output of solar water heaters is more than 2 million m2. Ecco Solar specialized in the production of all-glass vacuum tubes, solar water heaters, and supporting products. Its products have gained the labels of China top brands and State Inspection Exemption Products. Shandong Boyuan Heat Energy Technology developed four series of products, including balcony hanging solar energy and solar hot water systems, industrial spiral finned tubing for waste heat recovery, and inorganic high efficiency heat pipes, based on the inorganic heat transfer technology. All products are produced on a large scale. It is the supporting provider for Haier, Linuo Power, and Tsinghua Solar. It supplies 40,000 inorganic superconducting heat pipes each year. The innovative capability of enterprises to develop new solar thermal energy is growing. The application of solar thermal energy covers the production of solar water heaters and hot water systems, building integrated solar energy systems, high-temperature solar thermal power generation, energy-saving glass, solar air conditioning, and desalination. Key technology such as solar vacuum tube collector technology, air conditioning technology, shading techniques, desiccant air conditioning technology, boiler technology, photovoltaic technology, building integration technology, solar tracking systems, reflective mirror self-cleaning technology, and heat conversion technology have been developed. Almost 600 products or technological items have been granted patents (more than 20 invention patents). The three-layer interference coating technology is considered internationally advanced. It raises the absorption ratio — an important indicator of the solar collector tube — to 96% (the international standard is 85%). The metalcoated tube is suitable for high-temperature application, It remains stable at 1,292oF (700oC). It is widely applicable to high-temperature solar thermal power generation. The inorganic high-efficiency heat pipes developed have the ability to disperse heat 150 times that of the traditional products. The pipes are internationally advanced and widely applicable to solar water heaters, solar heating systems, heat transfer, and heat recovery. Dezhou has become the largest research and production base of solar energy in China. The development of solar water heaters and building of integrated solar energy is among the top of the world.

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Development of solar photovoltaic energy in Dezhou The solar photovoltaic energy industry has launched and developed rapidly. Shandong Tenglong New Energy PV (hereinafter, Tenglong) and Shandong Jingweite Electronic Technology have an annual production capacity of 140 tons of 5.5”–8” silicon rods. Tenglong’s CNY390 million projects of high purity graphite machining and silicon slices have been completed. It is now into the second phase of the project. It hopes to expand production so that the sales would reach CNY580 million and the output volume would be in the top three in China. Xiajin County Aode New Energy applied foreign technology in its photovoltaic project, which has been completed. An annual 150 MW of electricity and CNY3.6 billion sales can be generated when the photovoltaic plant goes into operation. Solar street lamps produced in Dezhou are installed in a lot of cities, including Shanghai, Hulunbeier, Zhengzhou, and Yongxing Island. Dezhou is also going to export photovoltaic lighting systems to Rome. Moreover, Lin Yi Yu Ying Optical Instruments began research experiments of solar energy utilization in optical systems. It focuses on the research and development of Fresnel lens for photovoltaic cells, line-focus collectors, and light guiding, and lampshades. In August 2010, construction of the first rooftop high-temperature solar thermal power station — Himin Linear Fresnel Type Medium and High Temperature Solar Power Plant — began in the China Solar Valley. The power plant has an installed capacity of 2.5 MW. It is expected to generate annually 52.5 million kWh when it comes into operation. Compared to traditional thermal power plants, 2,100 tons of standard coal equivalent can be conserved. There would be an emission reduction of 5,234 tons of carbon dioxide, 163 tons of sulfur dioxide, 79 tons of nitrogen oxides, and 1,428 tons of particulates. It is the largest megawatt solar power generation project in Asia.

Development planning for the solar energy industry in Dezhou The “China Solar City” is a city brand which Dezhou worked hard for. In the beginning of 2005, the city party committee and government engaged the whole city in establishing Dezhou as the “China Solar City” and the expansion and improvement as the primary goals of the new energy industry. It can be said that Dezhou earned the title because of the rapid development of the solar thermal energy industry. In recent years, the new energy industries, especially the solar energy industry, have been growing quickly. They have the foundation and conditions to develop at an even faster pace. In the future, solar energy will

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continue to be a major new energy industry. It will continue to expand, improve, become more efficient, and make Dezhou the real “capital of new energy.” Dezhou highly values the development of the new energy industry. It is one of the four major emerging industries. It adopted strategies to make the city an industrial city and the “China Solar City.” It also established a system with organizations such as the Strategy Promotion Committee to develop a series of protective measures and policies. At present, Dezhou has the city brands “China Solar City,” “China Solar Valley,” and “National Torch Plan New Energy Industry Base.” This creates a favorable atmosphere for the development of the new energy industry. The recent Opinions on Accelerating the Development of the New Energy Industry further refines the support policies. The Million Solar Roof Plan, Thousand Villages Bathroom Project, and the 5555 Solar Photovoltaic Demonstration Project were implemented. A policy support system has been established. In June 2009, Dezhou announced the Dezhou New Energy Industry Development Plan. According to the plan, the future developments of solar energy would concentrate in the following four areas: First, to continue refining solar water heaters and explore technological breakthroughs in new products. Second, building integrated solar energy is a major focus for development and technological breakthroughs. Third, there is the goal to concentrate on the application of high-temperature solar energy in power generation, heating and cooling, and desalination, as well as in industrial and agricultural systems. Industrialization and market promotion should be implemented. Fourth, to refine the production chain and promote industrial agglomeration of the photovoltaic energy industry. The development of the photovoltaic energy industry in Dezhou is to expand the monocrystalline production, focus on application, and encourage industrial agglomeration. The development and production of products such as monocrystalline silicon, monocrystalline silicon slices, photovoltaic cell chip, photovoltaic modules, building integrated photovoltaics, solar lights, LED lamps should be accelerated. Industrial and enterprise agglomeration and a complete photovoltaic industry chain should be encouraged. The spillover effects of the leading enterprises should unite the solar thermal, solar photovoltaic, and optoelectronics industries to uphold the titles of the “China Solar City,” “China Solar Valley,” and “National Demonstration City of Solar Enegy Utilization.”

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Table 5.11.2 Overview of major solar energy projects in Dezhou in 2012

Project

Responsible unit

Total investment (CNY100 million)

An annual output of 1.5 million units of vacuum tubes and solar water heaters

Expected economic benefits in 2012 Product capacity

3.4 million m2

An annual output of 300,000 m2 high-efficiency air collector

300,000 m2

An annual output of 100,000 m2 mediumtemperature heat collector

100,000 m2

A production line with an annual output of 100,000 sets of solar assistance systems for biogas

Sales Profit tax income (CNY100 (CNY100 million) million)

Himin Solar

100

An annual output of 100,000 meters of metal heat collectors

120.00

18.000

100,000 units

100,000 m2

Industrialization of the hollow modules of crystalline silicon photovoltaic cells

10 MV

Solar water heater production line and LED lighting production line

Dezhou Kehui Solar Energy Co., Ltd.

0.2

80,000 m2

5.00

0.050

Industrialization of Semiconductor (LED) lighting

Dezhou Xuguang  Solar Photoelectric Co., Ltd. 

0.58

20,000 sets

1.74

0.370

Expansion project of 100,000 units of inorganic high-efficiency solar heat pipes

Guoqiang Hardware Group Co., Ltd.

1.9

200,000 m2

6.00

1.500

An annual output of 100,000 units of split type flat-plate solar water heaters with RPTX heat pipes

Dezhou Zhongli New Energy Science & Technology Co., Ltd.

1.95

200,000 m2 per year

6.45

1.500

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

(Cont’d) Expected economic benefits in 2012

Responsible unit

Total investment (CNY100 million)

Product capacity

Expansion project of inorganic heat transfer products and solar water heaters

Qingyun Chuanmao Thermal Technology Co., Ltd.

1.5

150,000 sets

6.00

1.500

LED street light series

Dezhou Elecrtric Tools Manufacture

0.1

1,000 sets

0.20

0.050

0.60

0.030

Project

Solar controllers

Dezhou Solar automatic production Honglei Solar  Energy Co., Ltd. line Bathroom masters and thermostatic valves

Dezhou Saijia New Energy Technology Co., Ltd.

0.02

10,000 units 80,000 units

Sales Profit tax income (CNY100 (CNY100 million) million)

0.15

200,000 sets

0.40

0.020

4.50

—

Demonstration and production base of solar connecting pipes

Dezhou Fangyuan Solar Power Project Co.

3.5

Solar hightemperature equipment: 180,000 m2 Solar connecting pipes: 150,000 units

Solar modules encapsulation line

Dezhou Jieyang New Energy Co., Ltd.

0.06

10 MW–50 MW

0.50

0.030

Solar photovoltaic lens

Lin Yi Yu Ying Optical Instruments Co., Ltd.

0.01

10,000 units

0.01

0.001

Solar water heater production and transformation projects

Dezhou Denuo Solar Manufacturing Co., Ltd.

0.3

40,000 units

0.87

0.050

6

Square quartz crucible: 80,000 units Round quartz crucible: 80,000 units Monocrystalline silicon: 2,000 slices

40.00

3.000

Expansion of production of quartz crucibles and monocrystalline silicon

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Shandong Tenglong New Energy PV Co., Ltd.

Renewable Energy and Energy Efficiency Case Studies

(Cont’d)

Project

Expansion in the production of monocrystalline silicon

Responsible unit

Shandong Jingweite Electronic Technology Co., Ltd. 

0.8

Monocrystalline silicon and slices: 200 tons

1.02

0.36

165.00

50.000

—

—

—

—

Product capacity

Sales Profit tax income (CNY100 (CNY100 million) million)

Photovoltaic cell production line and photovoltaic power generation systems (includes the industrialization of LED PV lights)

Xiajin County Oder New Energy Co., Ltd.

9

Photovoltaic cells: 300 MW Photovoltaic power generation systems: 300 MW

20 MW solar power station in Economic Development Zone.

Beijing Tianheng Huayi Technology Development Co., Ltd.

10

20 MW solar power station

Industrialization of new energy bus

Zhongnan Group Qilu Bus Company

2.6

15,000 buses

Sichuan Sanen Solar Co.,Ltd

10

Photovoltaic cells: 120 MW Photovoltaic modules: 120 MW

40.00

7.000

Shandong Qianlima Lithium cells and solar cells Power Supply Co., Ltd.

3.4

800 units

5.50

1.100

0.56

20,000 units

0.87

0.220

1.2

Solar water heaters : 300,000 units Photovoltaic lamps: 100,000 units

6.00

1.000

Sanen solar cell project

Epitaxial graphene on monocrystalline silicon carbide Expansion of the production of solar water heaters and photovoltaic electrical appliances



Expected economic benefits in 2012

Total investment (CNY100 million)

Shandong Yuwang Ceramics (now Shandong Guojing New Material Co., Ltd.) Dezhou Tianqu Solar Energy Co., Ltd.

The solar thermal industry should expand and improve the production of solar thermal heaters, innovate new products, and promote the integration of solar

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

energy in construction according to the requirements for market development. The industry should focus on nurturing and reinforcing the projects of the leading enterprises. The leading enterprises should lead and support the development of the industry. Himin Solar should become listed as soon as possible so that it can act as a bridge between small and medium-sized enterprises (SMEs) and the leading enterprises which have good quality control, market credibility, and technological development ability. The leading enterprises as the backbone of the industry should motivate the leading SMEs in quality improvement of the whole industry. Dezhou should encourage the development of new products and obtain more state and provincial brands. New products of a higher quality and greater variety should be produced. The upgrading or substitution of products should be at a quicker pace so as to satisfy the market demand better. While improving the production of solar water heaters with vacuum tubes, support should be given to the expansion of the production of flat-plate type solar water heaters as well. Enterprises with sufficient conditions should develop split-type solar water heaters. China’s solar water heaters should be integrated better into buildings to provide better bathing comfort. Leading enterprises should be encouraged to launch demonstration projects of high-temperature solar energy utilization systems, including power generation systems. Industrialization and marketing should begin gradually. The goal in 2012 was to generate 5 MW of power by solar energy. For the photovoltaic industry, according to the statistics of the China Renewable Energy Society, the photovoltaic power subsidy should be in the range of CNY0.45 to CNY0.5 per unit after discussion. It was expected to be CNY0.6 per unit by the market. Without a doubt, this would bring negative effects to the recovering photovoltaic market. As of January 18, 2013, of the 16 listed companies which had photovoltaic business as a major business and had offered a preview of their business performances in 2012, 8 obtained a profit and 7 suffered a loss. Zhejiang Sunflower Light Energy Science & Technology which manufactures downstream components estimated a loss of CNY200 to 300 million, and Risen Energy expected a loss of CNY180 to 260 million. Since the prices of the components of solar energy products and polysilicon plummeted, a lot of large manufacturers in the West were closed down. The situation is similar in China. Many manufactures are on the verge of going out of business. The difficulties the photovoltaic industry faces are beyond expectation. It is almost impossible for the enterprises to eliminate losses and obtain profits on their own as the dire situation is expected to persist. Government and society should join forces and save the industry together. In light of this situation, Dezhou encourages the more qualified enterprises to develop and produce crystalline silicon material and photovoltaic cells. It also actively invites foreign investments in the production of photovoltaic cells. At

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the same time, the city also encourages enterprises to improve their technological development and introduce advanced technology, reduce the thickness of battery slices, and develop photovoltaic cells of high efficiency and functionality. The advanced power consumption standard of producing 1 kW of photovoltaic equipment component is 725 kWh. The average standard is 1,275 kWh. As the production scale in China is small, the technology is less advanced, and extensive management is adopted, 3,275 kWh to 5,450 kWh of power is spent, which is three to four times more than the foreign standards. This incurs a higher cost of production of solar cells. Therefore, an improvement in production technology and production scale reduces the cost of production. Dezhou also encourages the development of solar cell encapsulation technology, solar panel self-cleaning technology, power generation technology, and lighting equipment and systems production. In the coming three to five years, it is hoped that Himin Solar would become an internationally renowned solar thermal and photovoltaic equipment manufacturer and become one of the best global solar energy enterprises. Technological research and development should bring breakthroughs in the manufacturing of high power and high brightness LED epitaxial wafers and chips, high-efficiency LED encapsulation, the refining of highpurity crystalline silicon for photovoltaic cells, manufacturing high-efficiency solar cells, and the application of solar cells in LED lights. Improvement in technology could end the monopolistic status of foreign technology in the industry. The application of technology should be studied. New products and systems with independent intellectual property rights which suit the market demand should be developed. The development of supporting materials and key components should be simultaneous in order to raise the overall functionality and quality of products. The development and production of LED products should be enhanced, especially for landscape lighting, electrical appliances indicator lights, LED display, LCD backlight, traffic lights, mobile phone keypad backlight, camera flash, LED street lighting, interior lighting, and automotive lighting. By 2012, the sales of solar energy products reached CNY40 billion, of which CNY20 billion was from the sales of domestic solar water heaters. Solar water heating projects accounted for CNY5 billion, solar power generation, heating and cooling, and desalination accounted for CNY5 billion, and photovoltaic products and lighting systems accounted for CNY10 billion. The development of hightemperature solar power generation was commercialized. Different independent photovoltaic systems were developed to suit the clients’ needs. The most advanced photovoltaic technology was mastered and new products, such as batteries with silicon film, were launched.

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Dezhou will complete the solar thermal and solar photovoltaic industrial agglomerations by 2020. The solar thermal agglomerations rely on the major enterprises such as Himin Solar, Yongkang Zhengda Industrial Co., Ecoo Solar, and Yaohui Solar Energy. Without losing market share, they should enhance their technological research and development and competitiveness of their products. Dezhou also tries to attract enterprises in the upstream of the production chain such as Linuo Power, Sangle Solar Energy, North Glass Technology, Ferrotec, and Boostsolar Photovoltaic Equipment to reinforce the sustainability of the industry. The solar thermal agglomeration is based on the introduction of technology and independent development. With solar cell production as the foundation, the production of upstream and downstream products of the production chain is developed. The introduction of polycrystalline silicon solar cells and inverters is accelerated. At present, Dezhou is having discussions about investment in photovoltaic polycrystalline silicon solar cell components with Beijing Zhongjingtianneng Science and Technology Development Co., Ltd. The next step would be to attract investments from CSUN, Trina Solar, and Jinggong P-D Solar Energy Techenology. When all the policies and measures are implemented effectively, by 2012, the new energy industry in Dezhou shall obtain CNY50 billion of sales income. The distribution of income would be as follows: CNY30 billion from solar thermal, CNY10 billion from solar photovoltaic, CNY6 billion from wind power, and CNY4 billion from biomass energy. The new energy industry would contribute CNY10 billion of profit tax. By 2020, Dezhou will have become a well-known new energy technological, production, and information center in China. It would also become where new industrial technology, knowledge, innovation, and talents concentrate. The new energy industry in Dezhou shall obtain CNY120 billion of sales income. The distribution of income would be as follows: CNY60 billion from solar thermal, CNY30 billion from solar photovoltaic, CNY20 billion from wind power, and CNY10 billion from biomass energy. The construction of the China Solar Valley should be accelerated. The Valley has one of the longest avenues with solar lights in the world, and the entrance is operated using integrated solar energy (see Fig. 5.11.1). There is also a solar cultural avenue and a renewable energy theme park. Other highlights include: • The world’s largest park with integrated solar energy • The venue of the 2010 Fourth ISCI World Congress — Riyuetan “low-emission” building • National energy efficiency building area — Prospective City • The world’s longest avenue with a solar energy lighting system • The world’s largest solar thermal and solar photovoltaic research and production base 176

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• A solar science and technology museum • A solar energy testing center • The world’s first automatic production line of solar water heaters Fig. 5.11.1

Main entrance of the China Solar Valley

The China Solar Valley and “green energy base” have become brand names to attract investment to Dezhou. Since 2011, Dezhou has successfully introduced six new energy projects including importing wind power equipment from Denmark and a project by Boostsolar Photovoltaic Equipment. The total investment was CNY2.52 billion. Dezhou has become the largest solar thermal energy production and utilization base. Technology is developed and supporting industries concentrate in the base. Products of renewable energy range from solar water heaters, solar photovoltaic power generation and lighting systems, high-temperature solar power generation systems to energy-saving glass, solar air conditioning systems, and the integration of solar energy in buildings. Not only does Dezhou have “zero emission” buildings which use solar energy for heating and cooling, hot water supply, and lighting, but it also plays host to solar energy enterprises which hold 12% of the market share in China, and 95% of the products and production lines possess independent intellectual property rights. The Dezhou  Solar Valley  Micro-E International Hotel (See Fig. 5.11.2) in the Valley adopts a solar collector system. Its roof is covered with collector tubes. Solar energy is used in hot water supply and the heating and cooling in the hotel. The solar panels on the outside of the building collect and store solar thermal energy during the day and this energy is used for lighting the neon lights at night. The hotel uses only energy-saving insulating glass and insulation boards. This reduces outside noise and maintains interior warmth.

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Fig. 5.11.2

Dezhou Solar Valley Micro-E International Hotel

At present, Dezhou is building an energy-saving civil building called Prospective City (See Fig. 5.11.3). In 2006, it was approved as one of the state demonstration projects of renewable energy by the Ministry of Housing and Urban-Rural Development and the Ministry of Finance. The total building energy conservation efficiency is over 90%. The energy conservation efficiency in hot water supply provided by solar energy is over 70%. The energy conservation efficiency in air-conditioning provided by solar energy and geothermal energy is over 65%. Fig. 5.11.3

Prospective City

Dezhou is poised to become a top new energy technological innovation and demonstration center in China, where knowledge and talents come together.

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5.12 China National Offshore Oil Corp. (CNOOC) Hainan’s Biodiesel Project: Annual Output of 60,000 Tons Li Yi and Liu Qiang

The China National Offshore Oil Corp. (Hainan)’s Biodiesel Project of producing 60,000 tons of biodiesel fuel annually was one of the first three state-level industrialization projects approved by the National Development and Reform Commission in 2008 (Circular 1261). Fig. 5.12.1

Production facilities of the biodiesel fuel project

Introduction The total investment in the project was CNY175.29 million (CNY8 million was invested in environmental protection facilities). The application for the launch of the project was done in accordance with the state’s investment management regulations. The project was designed and implemented in accordance with the national standards and standards of the petrochemical industry. The automation and control of the production process is considered advanced in the petrochemical industry. The labor safety facilities and environmental protection facilities were built, and acceptance tests were conducted. Exhaust gas and wastewater emissions comply with the level I standards. It is the first “new and green” biodiesel enterprise

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in China. Up to the time of this writing, it has also been the only manufacturing enterprise which has been allowed to sell oil products. The China National Offshore Oil Corp. (Hainan) (hereinafter, CNOOC Hainan) applies the technique of high pressure transesterification, which has independent intellectual property rights. It is the first biodiesel production unit which has been expanded to industrialized operation after pilot testing. The construction of the production unit commenced in January 2009 and was completed and put to trial on December 18, 2009. On January 6, 2010, its biodiesel product (BD100) was deemed compliant with the national standards (GB/T20828-2007). As the first project of CNOOC in the biodiesel field, the production materials it selected during the early stages were acid oil, palm oil, fatty acids, as well as catering waste oil, which had a constant supply. They were used as production raw materials in the transition period when the company developed the market and stimulated the consumer demand for green consumption. At the same time, the company began to construct a raw material base and gradually localize the supply of raw materials. It hoped that all production would utilize Jatropha oil coming from the base. The establishment of the base would guarantee the supply of raw materials, lower the costs of materials, and reinforce the company’s ability to resist risks. In order to promote the use of biodiesel energy and eliminate the people’s worries over the storage and use of biodiesel fuel, CNOOC took up the social responsibility over the commercial application of biodiesel fuel. In 2007, it conducted a variety of tests in preparation for the commercial use of biodiesel fuel, which included the engine adaptive test, engine emission test, biodiesel vehicle road test, and biodiesel fuel storage test. The test results showed that a 20% increase in the use of biodiesel fuel significantly lowered the level of particulate matter 2.5 (PM2.5). Also, in the engine exhaust gas, the amount of carbon dioxide emitted dropped 28%, unburned hydrocarbons 36%, and nitrogen oxides 24%. Smoke emissions produced by the engine at full load dropped to the range of 0.2 Rb to 0.9 Rb. The change in engine power was around –0.45% to 2.33%, and fuel consumption increased around 0.99% to 4.59%. With a 5% increase in B5 biodiesel fuel, the engine power and economic performance did not show significant changes. The durability test showed that the engine performance was normal, the same as using ordinary diesel fuel. However, the engine was better lubricated. There was no abnormal wear of key components. At the same time, CNOOC has received support from the Hainan government, Tsinghua University, Sichuan University, and SINOPEC Research Institute of Petroleum. It contributed to the B5 Biofuel Blend Standards (Hainan Province DB 46/189—2010), the first biodiesel fuel standards in China. The standards were part of the preparation for the commercial application of biodiesel fuel in China.

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Results and problems of the projects Results The effects of closed operation surfaced initially. In April 2009, the Hainan government announced the Hainan Province’s Notice on the Issuance of the Work Program of the Promotion and Utilization of Biodiesel. The Department of Commerce of Hainan Province established a team for the promotion of biodiesel fuel. The team coordinated the construction of biodiesel blend stations and the updating of the logos at the gas stations of SINOPEC, China National Petroleum Corporation (CNPC), and other oil product sales companies in Hainan. After a year and a half of preparation, on November 8, 2010, biodiesel products began their trial sales. They were sold at the 12 gas stations of SINOPEC and 11 gas stations of CNPC. Hainan Guosheng Petroleum started to sell oil products in Ligao and later Chengmai County. This signified the beginning of the “closed operation” of biodiesel fuel in Hainan Province. CNOOC is also the only enterprise which sells vehicle biodiesel fuel in China. During closed operation, the Department of Land Environment and Resources of the Hainan government performed a test on the exhaust gas of vehicles using B5 biodiesel fuel and distributed questionnaires to 520 drivers. The results showed that the use of biodiesel fuel significantly improved air quality. The pollutant emissions concentration of motor vehicles using B5 biodiesel fuel was 157.2 m-1, compared to 177.39 m-1 of vehicles using ordinary diesel. It was an 11.5% difference, and the vehicle engines did not encounter any problems in adapting to B5 biodiesel fuel.

Existing problems After more than three years of operation, the project has shown progress in technology, raw materials supply, and market development. The business performance of the enterprise is on the upswing. However, there remain problems to be tackled. The prices of raw materials and products fluctuate to a large extent. Unreasonable pricing distorts the relationship between costs and prices. The policies from the state are inadequate. Biodiesel fuel has yet to gain public approval. The single buyer’s market causes underemployment of the production facilities. The enterprise cannot amortize the costs.

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Conclusion and recommendations Conclusion The CNOOC biodiesel project integrated the upstream and downstream production processes, including maintaining its supply of raw materials, product processing, and product sales. As the first large-scale vehicle biodiesel project in China, it offers great demonstration of the development of biodiesel fuels and the integration of forest oil. It is also good reference for state-owned energy enterprises for operational management in agroforestry, as well as for other alternative energy industries. It should motivate the development of the agricultural industry. The project is also beneficial to the establishment of Hainan Island as a green island. It is also a manifestation of the concept of sustainable development by the CNOOC. CNOOC shoulders the social and political responsibilities of the development of alternative energy, increasing energy supply, improving energy structure, ensuring energy security, and conserving energy.

Recommendations on the development of the industry It is hoped that the government can implement more refined support policies to encourage the healthy development of the biodiesel industry. Under the current market conditions, financial support and preferential tax policies would ensure that manufacturing enterprises operate normally, continue to reinforce technology, lower production costs, and become more competitive. At the same time, directive measures should lower the prices of biodiesel fuel to the level of ordinary diesel. As biodiesel fuel becomes more accepted in the market, the increased demand shall allow the biodiesel enterprises to utilize their full production capacity. Their cost of production would be reduced and they should operate under normal conditions.

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5.13 The Rise and Fall of Suntech Li Shi

Suntech Power Holdings Co., Ltd. is considered a classic venture capital firm which was founded by foreign-educated Chinese scientists, supported by the local government, followed by foreign strategic investors, and became listed on the New York Stock Exchange in six years’ time. However, Suntech was in crisis in the following few years and its business fluctuated until it went bankrupt and was reorganized. The launch and closing down of enterprises is not uncommon, but that of Suntech is closely related to the development of the new energy industry in China and global competition. This makes the case of Suntech unique.

Three steps to the ideal situation First step: joint forces Since the 6th Five-Year Plan (1981–1985), the central government has included the development of solar energy and renewable energy in the National Key Technologies Research and Development Program. During the 7th Five-Year Plan (1986–1990), foreign solar cell production lines were introduced in China, the annual production capacity reached 4.5 MW, and the price of solar power was driven down from CNY80/Wp to CNY40/Wp. In 2001, the state launched the Brightness Program. It aimed at supplying electricity through photovoltaic and wind power generation to the 21 million residents in remote mountain areas. This was when Shi Zhengrong and Wuxi began their cooperation. Shi has a strong science background. He obtained a graduate degree from the Shanghai Institute of Optics and Fine Mechanics of the Chinese Academy of Sciences. He studied under Martin Green, recipient of the 2002 Right Livelihood Award (“Alternative Nobel Prize”), while he was a PhD student at the University of New South Wales. He became a researcher at the school’s Centre of Excellence for Photovoltaic Engineering after graduation. Later, he became a research director and executive director of Pacific Solar Pty., Ltd., an Australian photovoltaic company. In 2001, Shi began to look for opportunities holding his patents in photovoltaic technologies. He met Zhang Weiguo, an investment manager of Wuxi New & HiTech Venture Capital Co., Ltd. With the help and recommendation of Zhang, the Wuxi government approved Shi’s plan for establishing a photovoltaic company. He also attracted a total of USD6 million of investment from eight state-owned companies in Wuxi, including Little Swan, Wuxi New & Hi-Tech Venture Capital, and Wuxi Shanhe Pharmaceutical. Shi invested USD400,000 and his patents which

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were worth USD1.6 million. In the same year, Suntech was established to begin producing solar photovoltaic cells and components. According to its official website, Shi held 10 patents in crystalline silicon technology. The U.S. Patent and Trademark Office records show that before Shi returned to China in 2001, he was holding one U.S. patent. The remaining four were applied before his return and approved after his return.1

Second step: assistance In September 2002, the first production line of Suntech began operation. Despite having a high quality, the sales of the products were disappointing. After several months, the company had suffered a loss of more than CNY7 million. The Wuxi government injected funds of CNY50 million twice. In 2003 and 2004, the Wuxi government helped Suntech get nine innovation projects and almost CNY40 million of supporting funds from governments at various levels.2 Shi was given the Award for Innovation and Entrepreneurship by the Wuxi government. He was also chosen as a participant of the Phase II of the Program 333 during October 2003 to September 2006.3 Before 2004, the world had offered little policy support to the solar photovoltaic industry, and the market demand was weak. The size of the industry in China was small. There were only six crystalline silicon solar cell manufacturers. The production capacity of Suntech was 5 MW and Yingli Solar 3 MW. The remaining manufacturers had a capacity smaller than 1 MW. None of them could fully utilize their production capacity. In 2004, the amended Feed-In-Tariff Law  of Germany was announced. This stimulated the dramatic growth of the global photovoltaic industry. In 2004, the production capacity of China’s photovoltaic industry expanded to 50 MW, 318% higher than the 12 MW in the previous year. In 2005, the business of Suntech Power improved. The output value grew multiple times and the profit was close to CNY20 million.

Third step: driving force In the first half of 2005, Suntech raised USD80 million from international investors Goldman Sachs, Actis, DragonTech, Natexis, and Prax through private placement. It attempted to purchase all the shares of Suntech held by domestic shareholders and transform Suntech into the first private Chinese company to become listed 1 2 3

The United States Patent and Trademark Office, http://www.uspto.gov. Zhao Bo, “Plight of Suntech and LDK Solar: Failure of the ‘Wuxi Model.’” Human Resources Management Leading Group of Jiangsu Province, “Notice on the Determination of individuals for Level I and II Training in the Second Phase of the Program 333.”

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on the New York Stock Exchange. With the support from the Wuxi government, the shareholders of state-owned shares, which originally accounted for 75% of the shares of Suntech, withdrew and earned more than 10 times their original investments. Suntech then became a foreign enterprise whose controlling stake was not held by the state. On December 14, 2005, Suntech Power Holdings Co., Ltd. (STP: New York) became listed on the New York Stock Exchange. Shi Zhengrong, the Chairman and CEO of Suntech, ranked 350th with USD2.2 billion on Forbes’s 2006 The World’s Richest People list. The Wuxi government has offered its support multiple times during Suntech’s initial development, maturation, expansion, and listing. Shi once said, “Without support from the local government, Suntech would not be where it is today. Without support from the Wuxi New Area, I could not achieve what I have achieved.”4

Together through difficult times The development of photovoltaics in China is basically in sync with the rest of the world. In 2000, Australia launched support programs to offer subsidies to small residential properties which used photovoltaic energy. It was when Shi Zhengrong returned to China. Europe is a major area where photovoltaic energy is developed. In 2000, Germany passed the Renewable Energy Act. In 2004, it amended the Feed-InTariff Law. Also since 2004, the Spanish government has announced regulations and decrees on photovoltaic energy. It strongly stimulated the market demand. In 2005, the U.S. announced the Energy Policy Act of 2005 and adopted incentive policies to boost the purchasing and utilization of solar power. In 2006, it launched the Solar America Initiative. The French government also began to offer tax incentives to users of photovoltaic systems. This greatly stimulated the market. The year-onyear growth in capacity was as high as 233%. Italy has adopted multiple incentive policies to boost the photovoltaic industry since 2008. Apart from implementing the feed-in-tariff method widely adopted in Europe, the Italian government offers subsidies which are worth 20% of the production cost to new photovoltaic power generation projects. In 2005, China passed the Renewable Energy Law. This effectively encouraged the development and utilization of renewable, non-fossil energy wind, solar, and hydropower. During 2005 to the end of 2008, the photovoltaic industry experienced rapid growth. The annual growth rate of total output was higher than 100%. In 2007, China became the country with the largest output of solar cells. The total output jumped from 400 MW in 2006 to 1,088 MW. In 2008, the figure climbed to 2,589 MW, which accounted for one-third of the total output in the world. 4

Yang Huahua, “From Prosperity to Decline: Industrial Revelations of Suntech.”

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Nevertheless, there were the drawbacks in the development of the photovoltaic industry. The incentive and support policies adopted by the West gave the impression that the market was huge. This sparked unfavorable and fierce competition. Taking high-purity polycrystalline silicon as an example, its spot price was USD35/kg in 2005. Right before the 2008 financial crisis, it had risen to USD480/kg while the contract price over the same period of time had only risen from USD80/kg to USD100/kg. Given policy support and incentive schemes from the governments, profit-making companies became engaged in the photovoltaic industry. In Jiangsu Province where the photovoltaic industry was relatively large, according to the statistics of the Jiangsu Photovoltaic Industry Association, there were fewer than 100 photovoltaic companies in February 2006. By the end of 2011, the number climbed to 1,100. Jiangsu Province contributed 45% to the total output value of China’s photovoltaic industry. Its photovoltaic module production capacity accounted for 50% and 30% of China’s and the world’s production capacity, respectively. Its output value of photovoltaic industry accounted for 3% and 15% of the total output value of industries and strategic emerging industries in Jiangsu, respectively. Around 200,000 people are employed in the photovoltaic industry.5 In view of this, Suntech expanded in three aspects.

Expansion in production capacity In September 2002, Suntech’s first 10 MW solar cell production line began operation. The production capacity was equivalent to the sum of the production capacity of the four previous years. Before 2004, the production capacity was below 100 MW. In 2006, the production capacity jumped from 150 MW to 270 MW, which was an 80% growth. In 2007, the figure doubled to 540 MW. Suntech achieved in five years what ordinary companies take 30 years to do. Before the global financial crisis, Suntech had been expanding continuously. In August 2008, Jiang Zongxian, a former executive at Foxconn, joined Suntech as Chief Operating Officer. His task was to expand the production capacity as part of the marketing plan for the next three to five years. Since the second quarter of 2010, the output of Suntech had topped the world and surpassed that of its rival companies in the U.S. According to the financial reports of listed photovoltaic companies in the U.S., the gross margin of the photovoltaic module industry was higher than 20% around 2005. That of some companies was over 30%. When Suntech was founded in 2001, the total output of solar cells in China was merely 3 MW. By 2007, it had expanded 5

Fang Tiantian, “Self-Defense War of the Photovoltaic Industry in Jiangsu Province: 300 Enterprises May Undergo Reshuffles.”

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to 1,088 MW, which was the largest in the world. In six years’ time, the figure had grown more than 360-fold. For the following five years, the production scale expanded 150% annually.6

Overseas expansion As one of the most reputable companies in Wuxi and a listed company, it began to expand its overseas market with support from the local government. In July 2006, Suntech signed a USD5 to 6 billion contract with the global silicon supplier MEMC Electronic Materials for polycrystalline silicon supply. The contract period was 10 years. Six months after signing the contract, the black market price of polycrystalline silicon rose from USD100/kg to USD300/kg. In June 2007, Suntech signed a USD678 million contract for polycrystalline silicon supply with Hoku Scientific. Affected by the rise in price, the quantity demand of photovoltaic cells dropped. As the supply of raw materials was stable, Suntech was still able to expand the production capacity of some downstream products. Thanks to lower production cost and advanced technology, Suntech became one of the world’s leading photovoltaic enterprises in late 2007. In August 2007, Suntech announced its acquisition of MSK Corporation, one of Japan’s largest photovoltaic module manufacturers. In October, it announced the establishment of the headquarters of its American branch in San Francisco to expand its business scope in the U.S. In February 2008, Suntech established sales offices in Spain, Germany, and Korea to provide better customer services. In March, Suntech announced that it would supply polycrystalline silicon which was worth USD631 million to Korea’s DC Chemical during 2009 to 2016. It also invested USD100 million in Nitol Solar, a Russian polycrystalline silicon supplier.

Expansion of the industry 2007 was also the year when Suntech ventured into the realm of thin film solar technology. In comparison to solar cells with silicon wafer, solar cells with silicon thin film have a lower efficiency in energy conversion. However, the amount of silicon used is only 1% of the silicon wafer. This lowered the cost of solar cells from USD2.5/W to USD1.2/W. Silicon thin film technology was also an area of research interests of Shi Zhengrong. In the same year, Suntech supplied 230 MSK Photovol Glass panels to Socovoltaic Systems founded by the Italian company Socotherm and TSNergy. The glass panels were to be used in the building integrated photovoltaics (BIPV) system. This was the beginning of Suntech’s development of 6

Li Wei, “Suntech’s Mid-Life Crisis.”

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its thin film solar cell industry. At the same time, the first thin film solar cell base in the world began operation in Shanghai. A total of USD300 million was invested in the base. The expansion of Suntech was favored by international investors, domestic financial institutions, the management, and the Wuxi government. The global photovoltaic market was prosperous. Suntech’s business performance was favorable, and the Wuxi government was supportive. These factors gave investors confidence in this Chinese private enterprise. In January 2008, Suntech’s stocks reached their highest price ever at USD90. Its total market capitalization was over USD10 billion. At that time, investors, the enterprise, and the Wuxi government were enjoying the benefits. The 2008 global financial crisis crushed the photovoltaic industry. Chinese photovoltaic enterprises which depended on exports to Europe were closed down or had to lay off employees. Suntech could not escape from the crisis. In less than a year, its total market capitalization contracted 80%. Shi Zhengrong recalled in an interview that he had been aware of the risks and impending crisis in the industry before the financial crisis, but he did not expect the crisis to come so soon. The development of new energy and photovoltaic power is global. However, when crisis hit, enterprises failed to unite and survive the difficult times. First, the competition between enterprises had become an international trade dispute. In 2010, the U.S. began investigation of China’s “illegal” subsidies to its clean energy industry. The European Union followed by claiming that China’s subsidies caused unfair competition. Although the accusations were dropped due to the lack of evidence, in 2011, the U.S. launched anti-dumping and countervailing investigations against Chinese photovoltaic enterprises. Chinese enterprises lost market shares in the U.S. which account for 10% of their exports, as well as the potential end consumer market in Europe. China was not the only country which offered “subsidies” to the new energy industry. In 2009, the U.S. offered USD25.2 billion of subsidies to the renewable energy industry. European countries adopted a variety of subsidy policies. Against such “trade protectionism,” together with the anti-dumping and countervailing investigations, the Chinese photovoltaic enterprises faced immense difficulties as over 95% of their outputs were exported. In excessive competition, taking out competitors also inflicts harm on ones’ company. The anti-dumping and countervailing investigations had a negative impact on the U.S. and European photovoltaic companies. Over 1,000 companies encountered business difficulties. The Alliance for Affordable Solar Energy (AFASE) launched a petition signed by over 700 companies from more than 20 countries saying that the EU’s plan to

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impose anti-dumping and countervailing duties on China’s photovoltaic products would hinder the growth of the solar industry and the companies in Europe. There was also competition between the enterprise and the local government. The Wuxi government and Suntech had been on the same wavelength from the start of the company to the listing of the company. However, when crises hit, the differences between the two partiers sharpened. An especially obvious example was that in 2011 when the financial situation of Suntech was already difficult, the Wuxi government proposed the goal of building another “Suntech” in five years. It allocates hundreds of acres of land to Suntech and required Suntech to build a factory to employ 500 workers. Shi Zhengrong later reflected on the emergence of the many photovoltaic enterprises in China. There were two reasons: the wealth effect and government intervention. He commented that encouraging the construction of photovoltaic industrial parks across China was in fact an irresponsible act.7 When Suntech went bankrupt and had a negative impact on the local industries and society, the Wuxi government had to intervene and handle the issues caused by the enterprise. Second, there were internal problems in Suntech. After Suntech became listed, the structure of profit sharing, equity, and organization changed fundamentally. Conflict was sharpened when the enterprise was in midst of a crisis. In July 2012, Suntech announced it had launched an investigation into possible fraud of Global Solar Fund (GSF). Suntech was unable to repay the USD575 million convertible bonds which reached maturity in March 2013. The China Development Bank demanded Shi Zhengrong offer an  unlimited liability guarantee with his personal assets. Suntech refused. In August 2012, Shi announced his resignation from the position of CEO of Suntech, and that he would be succeeded by David King, Suntech’s former Chief Financial Officer. As of September 2012, the amount of bad debts between Suntech and the Wuxi government remained unclear. In March 2013, Suntech declared bankruptcy. Shi Zhengrong and David King were temporarily restricted to leave the country. They were suspected for relatedparty transactions with Asia Silicon for polycrystalline products. Shi had been the Chairman of Asia Silicon since 2009. According to Suntech’s financial reports, from 2008 to 2011, the net income of Suntech’s photovoltaic modules was USD9.17 billion. Based on the reported proportion of exports of 95% and the export tax rebate rate of 17% of the industry, the amount of tax rebate of Suntech for those four years should be around CNY9 billion. As Suntech relied on exports, it contributed little to the local tax revenue. On one hand, this hampered development of the new energy industry. On the other 7

Xi Xiangde, “Reflections of Shi Zhengrong: The Solar Bubble Has Definitely Burst.”

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hand, this former leading enterprise was no longer a leader which the industry could depend on.

Risk control The bankruptcy of Suntech was unfortunate. However, it was the first enterprise in China to lead the development of the photovoltaic and new energy industries. Thanks to the wealth effect of Suntech, China’s photovoltaic industry thrived. In terms of production capacity, size, and technology, China has surpassed some developed countries. Instead of solely criticizing Suntech after its bankruptcy, the influential enterprise should be viewed as an inspiration, whether it has been a success or failure. It is hoped that by summarizing the experience of Suntech, similar enterprises in the photovoltaic and new energy industries can learn a lesson and value risk control. Suntech’s leadng position could be seen in several areas. In terms of some tangible indicators, Suntech achieved record-breaking average efficiency of 17.5% and 19.5% with the Pluto monocrystalline silicon and polycrystalline silicon solar cells they developed and produced. Suntech also actively developed high-efficiency solar cells based on plasma. Suntech co-developed photovoltaic materials with its suppliers. In 2001, almost all photovoltaic materials in China were imported from foreign countries. Today, most of them come from domestic suppliers. There are also photovoltaic materials exported to overseas countries. When it comes to photovoltaic equipment, apart from acquiring the Garman manufacturer KSL-Kuttler, Suntech developed its own technology and products, including the plasma-enhanced chemical vapor deposition  (PECVD)  technology and laminating machines. Suntech stimulated the industry. The localization rate of photovoltaic equipment was almost 50%. Suntech also established the Photovoltaic Product Testing Center, which tests and assesses the products and equipment of domestic photovoltaic companies. It has received certification and recognition from certification centers such as Underwriters Laboratories, VDE, Canadian Standards Association, and the China General Certification Center.8 With the driving force of Suntech, China’s output of photovoltaic cells increased from 3 MW in 2001 to 1,088 MW in 2007. China became the largest photovoltaic cell producer in the world. Despite that, there were hidden risks and crises.

8

Zhan Jianmin, “Is There No Core Technology in China’s Photovoltaic Industry?”

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Attention to policy risks Policies about the photovoltaic industry were adopted rather early. In 2005, the Renewable Energy Law was passed. In 2007, the Medium- and Long-term Development Plan for Renewable Energy presented the goals: by 2020, China should have completed 20,000 rooftop photovoltaic power generation projects with a total installed capacity of 1 million kW and the total installed capacity of photovoltaic power stations should have reached 200,000 kW. In 2008, amendments to the Renewable Energy Law proposed the standards for subsidies. Each household needs to pay CNY0.001/ kWh of electricity. In 2009, the state launched the Golden Sun demonstration projects. It subsidized 50% or more of the costs of on-grid photovoltaic power generation. In December 2012, the Ministry of Finance, Ministry of Science and Technology, Ministry of Housing and Urban-Rural Development, and National Energy Administration joined forces to promote the large-scale application of photovoltaic power in China. Globally, the photovoltaic industry is a cyclical industry often affected by the economy and the relevant policies. After 2004, major European countries and the U.S. adopting photovoltaic policies was a sign of the beginning of the cycle. Objectively, this provided a growth environment for the initial rapid development of Suntech and other similar major enterprises. The financial crisis happened and over competition in the photovoltaic industry was met with the shrinkage of the major European and U.S. markets. Protective measures were implemented. China was underprepared for the policies adopted by the export countries. There was insufficient demand for photovoltaic products. As China did not adopt any feed-in-tariff law or other support policies, the problems with on-grid photovoltaic power generation have never been resolved. The industry was developing on its own, and the situation of “huge production and little consumption” persisted. The government subsidies to photovoltaic companies were directive. In the previous two years, the U.S. and European governments tended to subsidize the tariff or the consumer for utilization of photovoltaic power rather than the industrial production process. Germany, one of the pioneers in the European photovoltaic industry adopted a floating feed-in-tariff mechanism, in which the tariff is linked to the installed capacity. If the installed capacity of that year is lower than a certain level, the photovoltaic power tariff would not be lowered. The U.K. offered subsidies to small-scale photovoltaic systems. This shows the country’s support for small-scale and distributed utilization of photovoltaic energy. It is worth mentioning that the photovoltaic industry has become an inevitable part of the globe under globalization. The U.S. and EU’s anti-dumping and

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countervailing investigations were a blow to China’s as well as to their own photovoltaic industries. In 2013, the European Commission was to impose a punitive tariff of 37.2% to 67.9% on China’s photovoltaic modules. The AFASE’s petition had warned that a punitive tariff might in fact have a negative impact on the European solar industry.

Internal risks There were problems with Suntech’s internal management. It is harder to maintain a business than to start one. Compared to foreign photovoltaic enterprises which also experienced an industry downturn, the expanding Suntech did not establish a mechanism or make preparations for maintaining business. Shi claimed himself to be more of an explorer than an entrepreneur or a scientist. He remarked that he was in a comfortable and highly-paid position and ambition became redundant.9 To some, donating personal assets like Bill Gates and Warren Buffett do is the epitome of entrepreneurship. While Suntech expanded overseas, it was suspected for relatedparty transactions with Asia Silicon, and Shi refused to offer an unlimited liability guarantee with his personal assets to obtain loans from the China Development Bank. These events were considered as examples of Shi’s lack of entrepreneurship.

External risks Suntech is a leading hi-tech enterprise. Its growth and reorganization were heavily influenced by the political environment, operational management, and personal factors. It should be acknowledged that Suntech’s bankruptcy did not alter the development trend of China’s and the world’s photovoltaic industries. China included the photovoltaic industry as a strategic emerging industry of the state in its 12th Five-Year Guideline. Under macro planning, 30 provinces have made the new energy industry one of their focuses of development. Therefore, the photovoltaic industry began to develop rapidly. According to statistics, in the last 10 years, the global solar cell industry has grown 35 times. In 2011, the global photovoltaic modules exceeded 50 GW. However, the global photovoltaic installed capacity at that time was only around 25 GW. The supply of photovoltaic products was greater than the consumption to a large extent. In 2006, soon after Suntech became listed on the New York Stock Exchange, the Wuxi government launched the Program 530. It hoped to bring in more than 30 foreign-educated talents to start businesses in five years. It adopted a series of preferential policies to attract talents as well as 9

Dai Leilei,“Shi Zhengrong Relegated to Second Line for the Loss of Entrepreneurship.”

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established an industrial park. This combined the credibility of the local government to the marketized operation of the enterprises, which is similar to the “Suntech model.” Steven N.S. Cheung remarked that China’s rapid economic growth in the past 30 years was a result of competition among provinces.10 High-tech industries seem to be going down the same road: When an enterprise encounters a payment crisis, the local government’s instant response is to persuade banks not to demand early repayment of loans and keep on offering support to the enterprise through preferential tax policies and subsidies. Yan Tan commented on the “three crimes” of the manufacturing industry exposed by Suntech: the company pretended to be a hi-tech company but lacked core technology or pricing power; the local government fueled the situation of excess capacity for their own political achievements; and the entrepreneur brought harm to ordinary investors because of the lack of rules and regulations. Problems were not resolved but handled nationally. This was not only a failure of Suntech but also a difficult time for the manufacturing industry.11 Under globalization, external risks were mounting. Chinese enterprises should learn to understand, control, and avert risks. Industries in the West have developed for 300 years. Their experience is worthy of learning. Different from the West, China’s industries have been in development for only 30 years. It is natural that the transformation of manufacturing, development of hi-technology, and emergence of huge and influential enterprises like Suntech would take a different course. In 2008, Steven N.S. Cheung commented on China’s success by using an unorthodox but effective method. He said that the better systems in China were invented by itself. The systems copied from other countries were ineffective. China’s choice of strategic emerging industries for the 12th FiveYear Guideline may spark a development boom in the new energy industry. Other locations may follow in the footsteps of Wuxi, and there will be more enterprises like Suntech which expand to overseas countries. Only by learning from the rise and fall of Suntech can China nurture more truly international enterprises.

10 Cheung, Steven N.S., The Economic System of China. 11 Ye Tan, “Three Crimes in China’s Manufacturing Industry Exposed by Suntech.”

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References Cheung N.S. Steven 張五常. Zhongguo de jingji zhidu 中國的經濟制度 (The Economic System of China). Hong Kong: Arcadia Press, 2008. Dai Leilei 戴蕾蕾. “Shi Zhengrong bei zhi sangshi qiyejia jingshen bing tuiju Shangde erxian” 施正榮被指喪失企業家精神並退居尚德二線 (Shi Zhengrong Relegated to the Second Line for the Loss of Entrepreneurship). Legal Weekly (法治周末), October 2012. Accessed August 20, 2013. http://finance.sina. com.cn/chanjing/gsnews/20121031/133313537334.shtml. Fang Tiantian 房田甜. “Guangfu ziweizhan Jiangsu jingxiang: 300 jia qiye huo lin xipai” 光伏自衛戰江蘇鏡像: 300家企業或臨洗牌 (Self-Defense War of the Photovoltaic Industry in Jiangsu Province: 300 Enterprises May Undergo Reshuffles). Sinanews, May 15, 2012. Accessed in August 20, 2013. http:// news.sina.com.tw/article/20120515/6756053.html. Human Resources Management Leading Group of Jiangsu Province. “Guanyu queding sheng ‘333erqi gongcheng’ disanpi diyi, er cengci peiyang wujian de tongzhi.” 關於確定省“333二期工程”第三批第一、二層次培養物件的通 知 (Notice on the Determination of Individuals for Level I and II Training in the Second Phase of the Program 333). Surencai 蘇人才 (Talents in Jiangsu), 2 (2003). Li Wei 李蔚. “Shangde zhongnian weiji” 尚德中年危機 (Suntech’s Mid-Life Crisis). Oriental Outlook, April 2012. Accessed August 20, 2013. http://www. lwdf.cn/wwwroot/dfzk/business/254935.shtml. Xi Xiangde 襲祥德. “Shi Zhengrong fansi: guangfu paomo xianzai kending polie le” 施正榮反思: 光伏泡沫現在肯定破裂了 (Reflections of Shi Zhengrong: The Solar Bubble Has Definitely Burst). Global Entrepreneur (環球企業家), April 2009. Accessed August 20, 2013. http://tech.sina.com.cn/it/200904-22/14323027580.shtml. Yang Huahua 楊滑滑. “Wuxi Shangde yousheng zhuanshuai de guocheng chanye qishilu” 無錫尚德由盛轉衰的過程產業啟示錄 (From Prosperity to Decline: Industrial Revelations of Suntech). China Economic Times, April 17, 2013. Accessed August 20, 2013. http://news.henanci.com/ page/2013/04/17/20130417102617.shtml. Ye Tan 葉檀. “Wuxi Shangde baolu le Zhongguo zhizaoye de sanzongzui” 無錫 尚德暴露了中國製造業的三宗罪 (Three Crimes in China’s Manufacturing Industry Exposed by Suntech). Southern Metropolis Daily, March 28, 2013. http://epaper.oeeee.com/D/html/2013-03/28/content_1829626.htm. Zhan Jianmin 張建敏. “Zhongguo guangfu chanye zhen de meiyou hexin jishu

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ma?” 中國光伏產業真的沒有核心技術嗎? (Is There No Core Technology in China’s Photovoltaic Industry?). CSPIN, January 17, 2011. Accessed August 20, 2013. http://www.tynfd.cn/bencandy.php?fid=62&id=2843. Zhao Bo 趙博. “Shangde he Saiwei de kunjing: ‘Wuxi moshi”shibai.’” 尚德和賽維 的困境: “無錫模式”失敗. (Plight of Suntech and LDK Solar: Failure of the ‘Wuxi Model’). Huicongwang, August 22, 2012. Accessed August 20, 2013. http://info.ec.hc360.com/2012/08/221658579332.shtml.

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5.14 Guangyuan: A Low Carbon City Zou Jin and Zhou Yong

Introduction to Guangyuan City Guangyuan City is located in the north of the Sichuan Basin. Its northern part is connected to the Qinling Mountains and its eastern area is adjacent to the Daba Mountains which place it in the heart of the Qinba Mountain Area. It became a prefecture-level city in 1985 and it consists of four counties and three districts. It has an area of 16,300 km2 and a population of 3.14 million, among which 2.41 million people (76.8% of the total population) make up an agricultural population. Guangyuan has long been regarded as the “door to Northern Sichuan,” and is called the “first city along Jialing River.” It also features Pre-Qin ancient plank roads, examples of China’s Shu culture, and reminders of the history of the Three Kingdoms period. It is also the birthplace of Wu Zetian. As it is adjacent to the provinces of Shaanxi and Gansu, the location of Guangyuan is advantageous. It is also at the intersection of four major cities: Chengdu, Xi’an, Chongqing, and Lanzhou. It is an important secondary integrated transportation hub of Sichuan Province. Rich energy and tourism resources can be found: proven coal reserves of 460 million tons, water reserves of 3,000,000 kW, and natural gas reserves of 400 billion m3. Guangyuan acts as a natural barrier located along Jialing River. It is a tourist destination and an ecological garden city of Sichuan. Its creation of a “National Forest City” has been recognized by the country and it has won the China Human Habitat Environment Prize. It is also listed as one of China’s top low-carbon cities and one of the first cities to make contributions to low-carbon development. It is called “China’s Low-Carbon Advanced City.” In 2011, the city’s GDP reached CNY40.35 billion, and its economic aggregates were doubled compared with the figure before the 2008 Sichuan earthquake. Local general budget revenue reached CNY2.28 billion, which was 3.36 times that of 2007, with an average annual increase of 35.4%. Total investment reached CNY50.04 billion, which was 4.15 times that of 2007 and this marked an average annual increase of 42.7%. The income of urban and rural residents reached CNY14,635 and CNY4,895, respectively. Those numbers were 1.77 times those of 2007, an average annual increase of 15.3%.

Major works and achievements of low-carbon development Since the post-disaster reconstruction, with objective observation of the situation

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and consideration of the advantages of resources, along with extraordinary vigor and courage, the strategic approach of “scientific reconstruction” and “low-carbon development” was first proposed in Western China. The principle of “innovate to accelerate industrialization, urbanization, and agricultural modernization” is adopted as the main direction to support low-carbon development. By fostering low-carbon development, structural adjustment, development changes of the economy, creation of a circular economy, and the combining of carbon emissions reduction and carbon sequestration, this goal can be achieved. The above approaches can effectively facilitate the development of Guangyuan as a low-carbon city.

Establishment of sound organizations The Leading Group for Low-Carbon Economy Development (National Leading Group to Address Climate Change) has been set up. The Party secretary and the mayor are the group leaders; the heads of the municipal committee and the local government act as the vice group leaders; and the people-in-charge of relevant municipal-level departments are the members. Additionally, different districts and counties also set up corresponding organizations. Moreover, the Guangyuan Low-Carbon Development Council was founded in 2011 and it was specifically responsible for the city’s low-carbon development.

Insistence on scientific planning Well-known experts and scholars were invited to conduct high-standard scientific planning for the low-carbon development in Guangyuan. The city was a pioneer of formulating the 12th Five-Year Low-Carbon Economic Development Plan. Different aspects of low-carbon development were addressed in this plan, including the current situation, strategic positioning, development goal, indicator system, development direction, key focus, and guarantee system, and these laid a solid foundation for the low-carbon development of Guangyuan. The city also cooperated with the Chinese Academy of Social Sciences Institute for Urban and Environmental Studies, and the Department for International Development of the U.K. government, to complete the low-carbon development roadmap for Guangyuan. Additionally, several policy documents like “Comprehensive Work Plan for the Promotion of Development and Use of Clean Energy,” and “Comments on the Construction of Circular Economy Industry Area for the Achievement of Low-Carbon Development” provided Guangyuan with organizational and policy support.

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Construction of a low-carbon energy system to develop clean energy Many hydropower projects, such as Tingzikou Key Water Conservancy Project, with installed capacity of 875,700 kW, were facilitated. There were built-in facilities of biogas for 314,000 rural households and this accounted for 50% of the total number of households. The process of “Gasifying Guangyuan” was accelerated which resulted in 198,000 urban households using natural gas, and the penetration rate is higher than 75%. Some 483 owners of the “five small industries” (game center, salon, hostel, public bath, and club) changed to using natural gas instead of coal. A batch of liquefied natural gas (LNG) trucks and public vehicles were used for demonstration for promotion. The Synthesis Gas Welding for Natural Gas Project (Phase 1), the construction of Zhongwei-Guiyang Gas Pipeline (Guangyuan Section), “Gasifying Guangyuan” Clean Energy Project, and Qingchuan ZhuyuanQiaozhuang Gas Pipeline Construction Project were facilitated. The wind power project in Chaotian District, estimated to produce 100,000 kW of energy, was approved. Besides, the wind power project in Lizhou District, estimated to produce 100,000 kW of energy, was officially launched. The hot spring in Jiange Country was constructed and was officially in use. The preliminary work of Kaidi’s biomass energy project in Chaotian District was on track.

Acceleration of the development of low-carbon industries The five major industries, energy, agricultural by-product processing, building materials, electrical machinery, and metal, were basically formed in the city. Guangyuan Conch Cement, Sichuan Guangyuan Aostar Aluminium Co., Ltd, and other enterprises adopted waste heat recovery power generation technology. In order to develop ecological agriculture, 31 modern agricultural demonstration parks were constructed. Additionally, a 790,000 mu (畝, 1 mu = 666.67 m2) to production base for green food raw materials was developed. A production base occupying 193,000 mu was approved by the State to produce pollution-free, green, and organic products. The production bases of kiwi and mushrooms in Cangxi and Qingchuan were regarded as the key hubs for exporting agricultural products in Sichuan. The protected quantity of Agro-product Geographical Indications ranked second in the entire province. Low-carbon tourism was also encouraged by constructing scenic spots in Tianzhao Mountain, Mingyue Gorge, and Tangjia River, and 11 national 4A-level scenic areas. In 2011, a total of 14,475,700 tourists visited the city, exhibiting a growth of 103.77%. The tourism revenue reached CNY5.36 billion, an increase of 67.19%. In addition, various low-carbon industrial projects were formally signed: Solar Energy Water Heater Industry Base Project (a total

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investment of CNY460 million, with 100 solar energy water heaters), Guangyuan International Automobile Trade Logistics City Project (Zhejiang Geely Group’s investment of CNY1.3 billion), New Material Industrial Park Project (Xing Neng New Materials Limited’s investment of CNY2 billion), product development of Maliu embroidery in Datan, and deep processing of “black” agricultural products in Cangxi County.

Acceleration of the construction of low-carbon consumption pattern More than 10 professional plans for transportation and lighting were completed. In accordance with the idea of giving priority to “low-carbon industry in a low-carbon city,” the reasonable design of the industrial park would improve the utilization of urban land and energy. The promotion of the use of public transportation and the bi-fuel vehicles was also beneficial. All taxis and 96% of buses were changed to natural gas-driven ones from oil-driven ones. In urban areas, 1,000 bicycles were provided and 1,859 compressed natural gas (CNG) cars were developed. In addition, 31,743 LED lamps were installed in urban areas, while the number of ordinary energy-saving lamps was at 6,423. The new construction projects were designed strictly based on the energy efficient standards of 50%, while mandatory standards of energy efficiency had to reach 100%. Energy-saving areas reached ​​357 m2, and new wall materials accounted for 45% of total quantity of materials used. The daily waste classification rate of both the downtown city and county reached 50%. There were a total of 254 waste landfill spots, 13 country landfills, 24 waste transfer stations, and 49,000 new/renovated classified waste collection points/ huts/pools. The Party organs and the administrative units of Guangyuan used official vehicles one day less per week. In addition, they encouraged the officials to drive private cars one day less per week, and for the public, one day less per month. At the same time, the government also advocated the “135 Commuting Proposal” — walking for distances within 1 km, cycling for 3 km, and public transportation for 5 km. The ideas of “paperless offices” and “paperless communication” were actively promoted. The use of new technologies and new products, like energysaving sockets, was promoted to reduce stand-by power consumption. The waste classification received a positive response. The “Earth Hour” campaign was also successfully launched.

Solid promotion of energy conservation and emissions reduction The pilot demonstration of urban carbon emissions records and the case study of Guangyuan City were useful for the preparation of the data collection program,

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so as to develop carbon emission models and scenario analyses. The emphasis would be on waste heat recovery, air pumps conversion, energy optimization, and other related areas to promote energy-saving demonstration projects. The energy conservation management of major energy consumption units pinpointed 24 enterprises with an annual integrated energy consumption of more than 5,000 tons of standard coal equivalent to formulate energy conservation monitoring schemes for them. The elimination of 450,000 tons of backward cement production capacity and the shutdown of 38 small enterprises contributed to saving of 110,000 tons of standard coal equivalent of energy. The government’s active energy-saving procurement, gradual implementation of energy contracts, and energy audit were beneficial to the development of a low-carbon city. Guangyuan Middle School, Guangyuan First People’s Hospital, Guangyuan Municipal Agriculture Bureau, and other units also carried out pilot work for energy audit and energy contract management. In 2011, the city’s energy consumption per CNY10,000 of GDP decreased by 3.22%, achieving the target set by the province.

Facilitation of the construction of an eco-city The full implementation of the post-Sichuan earthquake ecology restoration, urban forest construction projects, and other forestation projects enabled Guangyuan to successfully become a national forest city. The city’s forest coverage rate reached 53.6%, with a forest land area of ​​1,515 mu and standing forest stock volume of 52.12 million m3. The green coverage rate of built areas reached 41.2%, while the green area rate of built areas was 40%. The carbon sequestration capacity of the ecosystem reached 12.44 million tons. The number of days with high air quality reached 364 days or more for three consecutive years. All drinking water sources were qualified for the standard of surface water. Moreover, different approaches such as engineered reduction, structural reduction, and regulatory reduction were specifically adopted to achieve the targets. The urban centralized sewage treatment rate reached 88.02%, while the daily waste pollution-free treatment rate reached 100%. The seven districts and counties in the city launched a comprehensive ecological construction effort. Cangxi County passed the provincial ecological examination and assessment. The number of national and provincial scenic towns reached 20, and 18 provincial eco-villages were also established. Micangshan in the city became one of the 13 areas of biodiversity conservation priority. Jiangjun Village, Yuanba Town and Shiling Village, Yunfeng Town in Cangxi County were recognized as the “Garden Villages of Sichuan Province.”

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Active application for carbon trading projects The city signed the “Guangyuan Carbon Asset Development and Marketing Cooperation Framework Agreement” with Beijing Century Green Gold Company. There were a total of two applied projects in progress. One of the projects, the promotion of soil testing and formulated fertilization technology, dominated an area of ​​420 mu, with a trading indicator of 150,000 tons of carbon dioxide. The transaction amount was CNY4.8 million. Guangyuan’s rural greenhouse gas reduction and trading projects were included in “China Rural Greenhouse Gas Emission Reduction” as case studies. Furthermore, five carbon trading projects were also implemented, including the World Expo Green Commuting project and the Guangzhou Asian Games Green Commuting project, among other projects. Furthermore, Guangyuan City actively fought for the donation of USD62,615 (CNY390,000), which was commissioned by the U.S.-based UPS Foundation through the Green Commuting Fund of the China Association for NGO Cooperation to support the city in carrying out the low-carbon energy-saving lighting project which would benefit a population of about 10,000.

Strengthening the publicizing of low-carbon ideas The People’s Daily, CCTV, Sichuan Radio and Television, Sichuan Daily, and other media platforms conducted in-depth media coverage on Guangyuan’s low-carbon development. Consequently, the city’s low-carbon development path attracted widespread attention. The radio stations and television news centers in the city broadcast special programs for low-carbon development publicity which totaled 154 news articles annually. The social education centers of television produced 10 features and promotion programs. There were also several publications on the issue: Low-Carbon Reconstruction — Guangyuan as the Hardest Hit of Sichuan Earthquakes (Ditan chongjian — laizi wuyier dizhen zhongzaiqu guangyuanshi de anli 低碳重建 — 來自512地震重災區廣元市的案例), Basic Knowledge of Low-Carbon Economy (Ditan jingji jiben zhishi duben 低碳經濟基本知識讀本), and Comic Carbon — Scientific Lesson on Carbon Economy and Human Survival and Development (Manhua ditan — ditanjingji yu renlei de shengcun he fazhan xilie kepu jiangzuo 漫畫低碳— 低碳經濟與人類的生存和發展系列科普講座). August 27 was set to be Guangyuan Low-Carbon Day with a series of activities, including the “Lead a Low-carbon Life, Build a Low-carbon City” one million signatures campaign, the Guangyuan Low-Carbon Achievements Report Exhibition, the Earth Hour campaign, a No Driving Day, low-carbon volunteer recruitment, low-carbon knowledge prize quizzes, and many other activities. The city also promoted the idea of low-carbon

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life as a new trend. The city also formulated a low-carbon development publicity proposal in 2012. The column “Low-Carbon Guangyuan” was published on the website of the Guangyuan Municipal Development and Reform Commission. The Office of the Leading Group of Low-Carbon Development in Guangyuan and the Low-Carbon Development Bureau founded the newsletter, Low-Carbon Guangyuan (Ditan guangyuan 低碳廣元). The preparation work for the journal Western LowCarbon Research (Xibu ditan yu yanjiu 西部低碳與研究) by Guangyuan Low-Carbon Economy Researching Community was in progress. .

Increase of external cooperation efforts After investigation in Guangyuan’s low-carbon projects and technological demand, the Chinese Academy of Social Sciences and the experts from China Technology Exchange drafted the Proposal for Low-Carbon Development and Technological Demand Research in Guangyuan. The content was in line with the Urban Carbon Emission Record Preparation and Policy Support Systems Research, Development, and Demonstration project. That project was the seventh sub-topic in the Low-Carbon Urban Development of Key Technology Integration Research and Demonstration of the 12th Five-Year National Key Technologies R&D Program. The Guangyuan carbon emissions calculation system was officially running, which implied the beginning of the preparation work of the city’s carbon emissions inventory. The city also participated in the Eco-city and Green Construction Summit of the 12th Western China International Fair. Additionally, it successfully held exhibitions showcasing the low-carbon achievements of Guangyuan. The municipal committee secretary, at the summit, delivered the keynote speech titled “Low-Carbon Development Leads to Guangyuan Green Future” and this was highly appreciated by the participants and was widely reported by different media platforms. The city was also awarded as “China’s Low-Carbon Eco Advanced City” at the Second China Low-Carbon Eco-City Development Summit. In the awards presentation ceremony of “Green China 2011 • Environmental Achievement Award 2011,” Guangyuan received the prize as an Outstanding Green Eco-City. It became one of the two cities in China which were invited to the United Nations Climate Change Conference in Durban. It was also the only western city in China to be invited. It actively cooperated with the Provincial Academy of Social Sciences to carry out low-carbon development research, and participated in the study mission of China’s Small and Medium Cities Addressing Climate Change Construction Project organized by the National Development and Reform Commission. Research activities would become the case studies of the Guangyuan low-carbon development for publication or promotion. The city would also provide policy recommendations to support low-carbon

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development in Guangyuan City to the provincial committee, the provincial government, and the National Development and Reform Commission.

Application for a national low-carbon pilot city The Guangyuan Low-Carbon Pilot Work Preliminary Implementation Proposal was completed. The city was to be included in the second batch of the national low-carbon pilot cities.

Future work plan Guangyuan follows the direction of scientific development and acceleration of the transformation of economic development and firmly regards the building of a Low-Carbon Guangyuan, Green home as the long-term goal of its urban development. It considers constructing a resource-saving and environmentallyfriendly society as a fundamental aspect of sustainable development. It promotes technological innovation; promotes the optimization and upgrading of industrial structure; reduces the intensity of carbon economy; advocates energy conservation; establishes the industrial system, the energy system, and the consumption pattern for low-carbon development; creates a depression effect for low-carbon investment; and strives to explore low-carbon development models for other areas. Guangyuan is expected to be a national forest city and a national eco habitat as well as an ecological barrier along Jialing River. It is necessary to facilitate the construction of the Shaanxi-Gansu-Sichuan eco-city, together with advanced economic and cultural development.

To build a low-carbon energy system The “Gasifying Guangyuan” initiative is effective in promoting the comprehensive utilization of natural gas. It is important to accelerate the gas field development to achieve the target of the annual production of 5 billion m3. Besides, the projects like Jiulongshan Gas Purification Plant, Yuanba Gas Purification Plant, and comprehensive utilization of oil sands project, should be pushed forward, so as to meet the daily energy capacity of 3 million m3. The number of natural gas users to be supplied by the new development is targeted at 20,000 households, with an expected urban penetration rate of 77% or above. The large-scale natural gas welding projects will be launched. “Gasifying Guangyuan” clean energy projects are completed and in production. The city also implements an energy efficient construction demonstration project. For the construction of the biogas system,

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the development of rural biogas is developed with the target of including 20,000 households as new biogas users. On the aspect of the development of new energy sources, a 30,000 kW wind power production area is established. The preparation work for the integrated R&D of solar power and thermal energy has to be addressed comprehensively. It is also essential to accelerate the development and utilization of water resources, facilitate the Tingzikou Key Water Conservancy Project, the Changxi Navigation and Hydropower Project, and the Donghe River construction project. Rural small-scale hydropower development is encouraged to have 130,000 kW of installed capacity. The city also strives to achieve the target that clean energy should account for 25% of the total amount of energy used in the city.

To develop low-carbon industries The development of privileged industries like clean energy, electrical machinery, agricultural product processing industries, and the focus on strategic emerging industries like energy conservation, environmental protection, and new materials, contribute to cultivate new economic growth. Moreover, it is also beneficial to promote the new energy automotive industry development and to accelerate the construction of the electric car project. For the exploration of the standards of establishment of industrial projects, it is expected that the investment amount in low-carbon industries can reach 50% of the total investment. The steady progress in the development of low-carbon construction realizes the proportion of 50% of new wall materials over the total amount of wall materials, and the energysaving standard mandatory rate reaches 100%. In order to promote eco-tourism development, it is important to put much effort into the promotion of low-carbon facilities and low-carbon management services. Five eco-tourism areas have been built to achieve a growth of 30% or above in terms of the number of tourists and the tourism revenue. To develop green agriculture, it is more effective to promote modern agricultural parks, ecological cultivation districts, and the construction of a modern animal husbandry science and technology demonstration park. There is the need for the production of 10 core agricultural demonstration firms, the construction of 50 ecological livestock farming districts, and 10 modern animal husbandry demonstration zones. The development process of low-carbon products also has to be facilitated, focusing on the development of kiwi fruit, tea leaves, and other advantageous industries. Special agricultural products with the characteristics of Guangyuan should continue to be developed.

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To enhance low-carbon technological innovation Guangyuan City should continue to strive to foster the introduction of high-tech innovation and integrated innovation capacity, so as to provide research on suitable advanced technology which can greatly accelerate the low-carbon development in economic society as well as support the major low-carbon industrial innovations. As required by industrial agglomeration and large-scale development, the city should focus on the development of ecological agriculture, biomedicine, natural gas chemical industry, and other strategic emerging industries. The development of military supporting industries can help promote the development and industrialization of civil information systems. The active development of the new materials industry can support the development of products with technical characteristics and comparative advantage like optoelectronic materials, high performance structural products, and those with special innovative functions. Different approaches, such as the promotion of clean production, emphasis on energy conservation, emission reduction, energy contract management, and enhancement of corporate energy efficiency, are used to guide enterprises to reduce greenhouse gas emissions by improving technology and equipment, optimizing supervision and management, and using renewable energy.

To promote energy conservation One of the key steps to strengthen industrial energy conservation is to accelerate the elimination of backward production equipment and technology with high energy consumption. There is a need to enhance the energy management and supervision of the major units with an annual energy consumption of more than 5,000 tons of standard coal equivalent. Moreover, the energy conservation work in the public sector is no exception, including government offices, schools, and other public health systems. Furthermore, energy conservation of public construction and the promotion of fuel-efficient devices also help achieve the environmentally-friendly targets. Apart from the public sector, the energy conservation work in the private sector, such as retail, catering, and hotels should also be facilitated. The public organizations act as role models to develop different energy conservation methods. Key energy management should be noted to realize the utilization rate of 30% of water-saving appliances in public institutions. In the aspect of transportation, the use of energy-saving and new energy vehicles is advocated. Apart from improving road transportation organization and management, there needs to be a strict implementation of vehicle fuel consumption limits. The elimination system of old automobiles is implemented to promote the use of compressed natural gas vehicles and bi-fuel vehicles. 205

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To increase the carbon sequestration capacity The development of a low-carbon city cannot be separated from the construction of ecological environment and protection. The facilitation of natural forest protection and withdrawal of agriculture for forest restoration will improve the capacity of carbon sequestrations, promote project financing of forests and wetlands, and carbon trading. The carbon trade projects, including Agricultural Greenhouse Gas Emission Reduction, Small-scale Development of Hydropower in Donghe River, Cangxi County, and Afforestation and Reforestation of Degraded Land in Northwest Sichuan have to be carried out with full attention. The strengthening of international and domestic cooperation can broaden the field of carbon emission reductions with the foci on rural greenhouse gas emission reduction, forest carbon sequestration, rural biogas, small-scale rural hydropower, and other carbon sequestration projects. Last but not least, the Programmatic Clean Development Mechanism (PCDM) project of energy-saving lighting should also be pushed forward as soon as possible.

To actively promote low-carbon consumption Different media platforms can contribute to the in-depth publicity for lowcarbon development. It is expected that the public penetration rate of low-carbon knowledge can reach 90% or more. The promotion is going to be more effective if public institutions can be used as examples. At the same time, it is also important to strengthen the circulation of information among the governments of municipalities, counties, and towns with improved information sharing platforms for the idea of “paperless offices.” Moreover, the development of green commerce encourages enterprises to implement green marketing and to support e-commerce development so as to reduce energy and material consumption. Green products are encouraged to be circulated and are sold in the market to gradually enable the energy-saving products to enter the shopping malls and supermarkets. Furthermore, on the aspect of low-carbon transportation system, the use of hybrid electric vehicles and electric battery vehicles can be demonstrated. They can be introduced in urban areas, scenic spots, public transportation, sanitation, and in other public services. CNG, LNG, and electric vehicles should be promoted through the setting up of two CNG stations and one LNG filling station soon.

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To explore the establishment of low-carbon urban regulatory standards According to the systematic low-carbon concept, a city has to strike a balance with an area greater than itself in terms of space utilization. Urban development is closely related to the coordination among internal economy, society, resources, and the environment. Guangyuan low-carbon urban regulatory standards should be drafted according to policy objectives, policy formulation, policy implementation, green operations supervision, management performance evaluation, institutional improvement, and so on.

To facilitate the pilot demonstration The establishment of a carbon emissions monitoring system and decomposition evaluation system contributes to the development of a low-carbon city. The preparation of carbon emissions inventory is also an important task. Based on the characteristics of different industries and different regions, the standards of model institutions, model villages, model communities, model schools, and model enterprises for low-carbon development should be further perfected. Selecting a number of representative villages (communities), enterprises, institutions, and schools with better backgrounds as pilot demonstration units; and establishing a group of low-carbon case studies covering different regions, different levels, different fields, and different sectors will surely lead to an impressive low-carbon development of the city.

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5.15 The Success of Rayspower Xue Liming

Introduction The traditional fossil energy sources are drying up due to mankind’s continuous exploitation. The energy crisis is worsening. The current resources of coal and oil will soon be exhausted. With increasing global energy consumption, we should also focus on the ecological balance when responding to economic sustainable development. Solar power is one of the keys for the existence and development of humanity in the future. Its role will be more and more important in the future. China has abundant solar energy resources with more than 2,200 annual sunshine hours. The total annual radiation is more than 1,390 kWh/m2, accounting for more than two-thirds of the total area of the country. There is a large area of​​ desert resources. The area of desertificated land is at ​​2.62 million km2, of which if 1% is used for solar power generation, the capacity can be up to 7.86 billion kW. The annual power generation will be about 1.02 billion kWh, which is 2.4 times the total electricity consumption in 2010. The global electricity generation of solar power (photovoltaic, solar thermal) is expected to reach 9,000 MWh by 2050, which can nearly meet one-fourth of the global electricity demand, while the current global solar power generating capacity is only 37 MWh. Rayspower Energy Group Co., Ltd. (stock code: 430065) was established in 2005, and it experienced a stock-system restructuring in 2009. The group company was established in 2012, and it was positioned as a professional service provider of solar power plants. It is mainly engaged in solar power generation of new energy industry. After just seven years of development, with advanced concepts, high quality products, and outstanding engineering performance, the company has become a top enterprise of integrated solar power system in China. It is also a pioneer in the field of solar thermal energy generation.

Macroeconomic policies to support the development of solar power Nowadays, our living environment has been seriously damaged and energy has been running out. Development and promotion of renewable energy has become a priority of human society. The development of environmentally-friendly energy has become a global issue. As a kind of sustainable, free, clean, and inexhaustible

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energy, solar energy has great potential and has attracted worldwide attention. Commercial development and utilization of solar energy has become a worldwide trend. Obtaining energy from the sun has become the enterprises’ first priority. Solar energy is growing at an unprecedented pace in the developed countries. China is a prominent country in terms of energy production and consumption. It is also facing the problems of energy shortage and environmental protection. The active development and use of new energy are key to achieving sustainable domestic economic development. Fortunately, scientific advances and the global energy crisis have stimulated China’s further development in solar energy and other new energy forms. Since 2009, the Chinese government has introduced a number of preferential policies, such as 2009 Golden Sun, building integrated photovoltaic (BIPV) demonstration projects, and a series of industrial support policies. In 2010, in the State Council’s “Decision on Accelerating the Development of Strategic Emerging Industries,” the strategic vision of accelerating the promotion and application of solar thermal technology was stated. In 2011, the National Development and Reform Commission issued “Guidance Catalogue for Industrial Structure Adjustment,” which marked the first time the new energy industry was recognized on its own. In the National Energy Administration’s 12th Five-Year Plan for Renewable Energy Development, solar thermal power generation capacity will reach 1 GW by 2015 and 3 GW by 2020. On July 19, 2012, the State Council issued the Development Plan for National Strategic Emerging Industries. During the period of the 12th Five-Year Guideline, the capacity of solar power plants was adjusted to 21 GW. On December 19, 2012, Former Premier Wen Jiabao held a State Council executive meeting to specifically discuss the policies and measures promoting the healthy development of the photovoltaic industry. It also pointed out the need for active exploration of the domestic photovoltaic applications market. On January 7, 2013, at the National Energy Work Conference, the National Energy Administration announced in 2013 the photovoltaic capacity target of 10 GW, which is double the 2012 figure. On January 29, 2013, Shi Lishan, Deputy Director of Renewable Energy Agency of National Energy Administration, said the photovoltaic installed capacity as stated in the 12th Five-Year Guideline had been confirmed and it was adjusted from 21 GW to 35 GW. The introduction of these laws and policies fully reflects the confidence and determination of the Chinese government in developing the new energy industry. Rayspower Group is concerned with the development of the solar power industry in China. It acts in line with the government policy, and it aims at becoming an inheritor of solar photovoltaic and solar thermal industry in China. In its process of development, Rayspower makes full use of the national industrial policies, and actively participates in the activities, high-end forums, policy

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seminars organized by the government, and the industry associations of all levels for the healthy development of Rayspower. It has become a pioneer in China in the field of engineering, procurement, and construction (EPC) of solar power. It is also one of the first enterprises participating in the national construction projects of Golden Sun. With expanding exploration of the solar power industry, Rayspower firmly believes in promoting solar power system integration applications in China, guiding the government to expand the domestic market, and increasing the market capacity, so as to enable solar energy to be more fully applied in the market. Through their efforts and facilitation, more and more people are alerted to the importance of energy conservation and renewable energy development, thus promoting the vision to build a “Green China.” The goal of setting up solar power plants throughout the world will come true.

Steady development of the photovoltaic industry China’s solar energy industry has been in development for more than 10 years. It was first about manufacturing upper-middle stream products and then photovoltaic products. The 90% export rate indicated the impressive amount of profits. Now the industry enters a new era of expanding domestic demand and development of the domestic solar photovoltaic power plant downstream market in a commercialization process. The installed capacity is expected to reach 35 GW during the 12th Five-Year Guideline period. It fully demonstrates China’s determination and efficiency to develop the solar industry. Rayspower is positioned as a professional service provider of solar power plants. It makes use of the solar power system integration as an entry point to step into the solar power generation industry, becoming one of the earliest enterprises to construct solar power plant terminals. These contribute to Rayspower’s market positioning. The corporate strategic planning was timely adjusted in accordance with national macroeconomic policies. The company’s installed capacity in integrated solar photovoltaic power plant systems increased from 18 MWp in 2009 to 100 MWp in 2012. The capacity is expected to reach 300 MWp in 2013. The projects cover East China, Northeast China, Northwest China, Southwest China, and other regions, with coverage in over 50% of China’s regions. Main businesses have shifted from participation in national demonstration projects to the current commercialized operations. National large-scale power groups and electricity companies are the key customers of Rayspower. While the solar power systems integration is the major business, the quality and technology of photovoltaic power station construction is the key to deciding

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the sustainable development of the enterprise. In the field of technology research and development, the company adopted a market-oriented approach to be engaged in technology development. In the field of solar power generation, it has more than 60 self-developed core patented technologies, some of which have been transformed into scientific and technological applications. In the field of power plant construction, Rayspower developed many large-scale solar photovoltaic power plants with special landform and climatic conditions: Yunnan Kunming Shilin 66 MW peak photovoltaic power station had Karst topography, CECEP Solar Energy Technology 30 MW peak photovoltaic power station (phase 2) in Jiangsu Dongtai had tidal flats, and dozens of megawatt photovoltaic power plant construction projects were implemented in the high altitudes. In 2012, the state proposed strategy on distributed solar photovoltaic energy development. With outstanding power plant construction experience, Rayspower successfully became the developer of the 30 MW peak solar photovoltaic agricultural greenhouse project. Jiangsu Dongtai 30 MW peak solar photovoltaic power plant project (phase 2) fully embodies the professionalism, construction speed, and quality of construction of Rayspower as an engineering, procurement, and construction (EPC) contractor. Dongtai tidal power plant project is the largest photovoltaic power plant in China (see Fig. 5.15.1). The initial construction scale is 60 MW, with a total investment of about CNY10 billion. Phase 1 is a 30 MW project that occupies 1,100 mu (畝, 1 mu = 666.67 m2) of tidal flat area. Phase 2 has a capacity of around 30 MW and occupies 1,000 mu of tidal flat area. As the EPC contractor of the project, Rayspower undertook the phase 2 of the project. The 30 MW tidal power plant was to be completed in a month. Considering existing technology, a 30 MW tidal power plant requires at least six months for construction even under normal geologic conditions. Yet with its rich experience in constructing power plants and outstanding construction team, Rayspower took only 30 days to finish the project. The time frame included all the work, from design to completion, which also fulfilled the owner’s requirements. It was a miracle in photovoltaic power plant construction. Rayspower is known as a “courageous team” of today’s photovoltaic power plant construction. In the construction of the 20 MW solar photovoltaic agricultural greenhouse project, the design of the power plant highlights the company’s competitiveness. China ranks first in the world in terms of agricultural greenhouse area. Besides small sheds and other pieces of simple equipment, the areas of solar greenhouse and plastic greenhouse occupy ​​more than two million hectares. It is a valuable photovoltaic resource. Moreover, in some rural areas focusing on vegetable growth,

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Fig. 5.15.1

Dongtai tidal power plant project

agricultural greenhouses are often connected over a large area, which is favorable for distributed generation and grid connection. The promotion of photovoltaic agricultural greenhouses will facilitate new energy development and energy conservation, improve the modern agricultural production methods, and better people’s livelihoods. Fig. 5.15.2

Solar photovoltaic agricultural greenhouse project

Rayspower successfully gained the EPC project right of CECEP’s Jiangxi Leping 20 MW photovoltaic agricultural greenhouse power plant construction project. The photovoltaic power plant will be constructed with the combination

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of new agricultural technology. It is an innovation of application of new energy in agriculture. In the whole process of construction, from design to implementation, Rayspower highlighted the design and coordination of the system. It is an organic coordination integrating photovoltaic power generation and agricultural production. It provided the photovoltaic greenhouses with a full range of solutions. This project becomes a typical case study of Rayspower in its outstanding design capability.

Active boost of the development of solar thermal power industry Solar thermal power is an important technology trend in the direct use of solar radiation energy. Its basic working principle is to gather solar energy to further heat﹣working substances for driving turbine generators to produce electricity. At present, China’s electricity supply is mainly fossil-fuel fired, yet this kind of production will result in serious pollution to the ecological environment. China has speeded up the development of solar energy, wind power geothermal energy, and other new energy sources. Amidst the global trend of low carbon economy and new energy revolution, in the period of the 12th Five-Year Guideline, the state has further invested in the construction of new energy. The objectives of solar power planning were raised more than a dozen times. In 2013, most of the new energy quota system of the reformed merger of the National Energy Administration and the State Electricity Regulatory Commission will be more comprehensively executed. Under such domestic and international factors, solar thermal power’s high electricity adjustability, its convenience of storage, its ability to be combined with fossil-fuel fired energy, and other technical advantages make it one of China’s future dominant energy forms. Its market share will continue to increase. According to the International Energy Agency, concentrated solar power (CSP) capacity by 2050 will reach 830 GW, with an annual increase of 41 GW. In the next 5 to10 years, the accumulated annual growth rate will reach 17% to 27%. In February 2011, after comprehensive market research, Rayspower invested CNY200 million in the manufacturing of solar thermal power emission condenser lens in Shuangliu, Chengdu. With the introduction of international advanced production equipment, Rayspower aims at building China’s first solar thermal power emission condenser lens production lines of an internationally advanced level of quality. Currently, the main part has been constructed and the major equipment is installed in the solar thermal base of Rayspower. It is expected to be completed and to begin production by June 2013. By then, the solar thermal base can satisfy China’s demand for condenser lens in solar thermal power plants construction, which will lay a solid foundation for the solar thermal power industry.

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Cooperation to overcome the bottleneck of the development of the business As the development of solar energy systems integration was still falling behind, Rayspower entered the field with a lack of professionals and weak design capacity. These have become the technical bottlenecks restricting the development of the enterprise. Based on the early experience of off-grid power system construction, and with construction experience of fossil-fuel fired power plants, Rayspower organized and developed its own power plant construction team, emphasizing the strength of corporate culture. Its market-oriented applications for core technology development and its patented technology catered to actual power plants’ needs are applied to greatly improve power plant application capability.  Stable development of the industry is the key to the success of the enterprise. When the international environment adversely affected the solar photovoltaic market of China, Rayspower stayed calm in the face of different obstacles to strengthen internal risk control efforts and to enhance the quality of the core technology of power station construction. All these factors contribute to the rapid development of the enterprise. Strong financial security is a reason why solar power system integration can be orderly developed. As one of the earlier listed companies on the Agency Share Transfer System of small and medium enterprises, Rayspower takes advantage of the leverage effect of the over-the-counter market. Along with their excellent performance, it has successfully attracted strategic investors and funds. It also establishes good relationships with a number of banks and other financial institutions, which forms solid financial security for the overall development of the company to facilitate further development.

Heritage of corporate culture for the future Rayspower believes in its mission of “achieving corporate goals, benefiting the society, and improving the lives of future generations.” It is hoped that the responsibility and healthy development of the new energy industry, along with unremitting efforts, can further advance the industry so that the future generations can enjoy a better environment with blue skies and clear water. In the near future, as a professional service provider of solar power plants, Rayspower will collect more and more sunshine to brighten both night and day. Rayspower is like the cultural ambassador of green energy. It keeps promoting green ideas to light up the future and the world.

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5.16 Forestry Carbon Exchange Practices in China Lei Ziwen

Introduction Huadong Forestry Exchange, established on December 6, 2010, is the only trading platform for forest resources in Zhejiang Province. It is mainly engaged in forestry property transactions, transactions of logs (timber) and other bulk forest products, forestry carbon sequestrations transactions, and other related services. It now has 2,500 members, including forestry enterprises, social investors, and others in the market in need of the services. It has set up 12 forest rights trading centers in the key forestry counties in the province. In 2011, the forest tenure turnover reached CNY1.5 billion, and the amount of forestry financing services reached CNY9.5 billion. In October 2011, as agreed to by the State Forestry Administration, Huadong Forestry Exchange officially became the only pilot platform for forest carbon sequestration trading. It initiated the pilot work of the national forest carbon sequestration trade, and it successfully carried out the first batch of 148,000 tons of forestry carbon sequestration index transactions in China. This was the first regulatory operation of China’s forestry carbon sequestration trading, creating a case of how forestry faces climate change, which led to domestic and international attention and appreciation. To achieve the “double increase” target, Huadong Forestry Exchange explores the eco-efficiency market, and promotes voluntary reductions of domestic enterprises. It has made important contributions to expand China’s economic development.

The first step of forestry carbon sequestration trading May 16, 2010, was the day which marked the new beginning of Huadong Forestry Exchange. On this day, Huadong Forestry Exchange welcomed a group of exceptionally distinguished guests: Su Zonghai, Deputy Secretary of China Green Carbon Foundation (CGCF); Zhou Guomo, Chancellor of Zhejiang A&F University; Dr. Zhao Su, Director of Zhejiang Zheshang Venture Investment Management Co., Ltd.; and Tang Mingrong, Deputy Director of Lin’an Forestry Bureau. These distinguished guests were the professionals of China’s domestic forest carbon sequestration, production, monitoring, and measurement of forest carbon sequestrations. They were the authorities in this emerging field. China Green Carbon Foundation was approved by the State Council to register the first

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national public equity foundation in the Ministry of Civil Affairs, for emission reduction and forest protection on July 19, 2010. It is a professional authoritative organization specializing in carbon offset and carbon neutral industry in China through afforestation to increase carbon sequestration and forest protection to reduce emissions. The State Forestry Administration is its supervising unit. Zhejiang A&F University is the pioneer in carbon accounting methodology for afforestation with bamboo, as well as monitoring and measuring technology in China. The university’s research team of bamboo afforestation methodology has been led by the chancellor Zhou Guomo. The 10-year research project has contributed a lot of fundamental scientific data and academic achievements. Therefore, the school has been one of the 10 units with the qualification of metering and monitoring of forest carbon sequestrations in China. Zhejiang A&F University is located in Lin’an, Zhejiang, where the research on carbon sequestration afforestation and forest carbon sequestration has been conducted. Huadong Forestry Exchange discussed the operation model of volunteerbased carbon market and the demand for forest carbon trading with the experts and scholars. The parties agreed that carbon sequestration is an important means of mitigating global warming when the world is facing the challenge of climate change. The great increase of forest carbon sequestrations has become one of the three objectives of the Chinese government in the voluntarily control of greenhouse gas emissions. Under this circumstance, it is obviously imperative for China to open a volunteer-based forest carbon trading market in order to meet the demands for carbon neutral production and the elimination of carbon traces of the high energy-consuming enterprises and citizens. The market prospect is promising. The parties agreed that they would work together to research on and strengthen the forest carbon trading, forestry financial product innovation, forestry asset securitization, forestry asset evaluation, and other forestry areas. The mutually beneficial cooperation will continuously expand the forestry investment and financing channels and facilitate the financial development of forestry. Moreover, it also further explains the trade rules and operation mechanisms of forest carbon sequestrations, and establishes the carbon sequestrations measurement, monitoring systems, and standards, which are in line with international standards and the national situation and policies. These actions are favorable for the development of forest carbon sequestration, which contributes to ecological civilization. Undoubtedly, the conversation and cooperation with the experts of forest carbon sequestration in China for the exploration of the forest carbon sequestration trading mechanism involves a lot of hard work. Apart from the support from the government, Huadong Forestry Exchange has taken an unprecedented step in the exploration of the domestic forestry carbon sequestration transaction market, with the favorable conditions as follows. 216

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Carbon sequestration as an internationally recognized carbon reduction measure The two measures in response to climate change are to reduce greenhouse gas emissions and increase carbon sequestrations of greenhouse gases. According to the assessment report of the Intergovernmental Panel on Climate Change (IPCC), forestry brings about various kinds of benefits, and helps to mitigate and adapt to climate changes. Forestry is thus an effective and economically feasible way to increase carbon sequestrations and reduce emissions in the next 30 to 50 years.

Carbon sequestration as China’s voluntary emissions reduction target The Chinese government has made the following commitment to the world: By 2020 the carbon dioxide emissions per unit of GDP in 2020 will be decreased by 40% to 45% compared with that in 2005. By 2020, the ratio of non-fossil fuels in primary energy consumption will reach 15%. Through reforestation and enhancement of forest management, the forest area will be increased by 40 million hectares compared with the figure in 2005. The forest stock volume will be increased by 13 billion m3 compared with the figure in 2005.

Forest carbon sequestration trading with important practical significance Forestry carbon sequestration trading is an innovative mechanism for forestry development. It accelerates the marketization of forest ecological value, and promotes the efficiency of forestry as well as that of forestry agriculture. Forestry carbon sequestration trading is to establish the carbon sequestration afforestation market promotion mechanism, which accelerates the realization of the “double increase” target of forestry. It plays an important role in forestry by addressing climate change. Forestry carbon sequestration trading helps facilitate corporate voluntary emissions reduction and demonstrates corporate social responsibility, so as to gain buffering time for the implementation of scientific innovation. It is an important measure to achieve “green growth.”

Forest carbon sequestration industry in Zhejiang as a pioneer in China Zhejiang Province took the lead in establishing different carbon sequestration funds and projects: • China’s first provincial fund — Zhejiang Carbon Sequestration Fund

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• China’s first municipal fund — Wenzhou Carbon Sequestration Fund • China’s first county-level fund — Zhejiang Yinzhou Special Carbon Sequestration Fund • China’s first special fund of central, provincial, and county levels — Zhejiang Beilun Special Carbon Sequestration Fund • China’s first corporate special fund — Zhejiang Alibaba Special Carbon Sequestration Fund Zhejiang has initiated carbon sequestrations reforestation construction projects and has carried out carbon sequestrations metering and monitoring research.

The forerunner of China’s forest carbon sequestration In June 2011, after more than a month of early solid preparation and repeated research, Shen Guohua, Chairman of Huadong Forestry Exchange, led the carbon sequestrations team of the company to Wenzhou to participate in the Forestry Carbon Sequestration Trade Forum organized by the China Green Carbon Foundation, bringing the Proposal on Volunteer-Based Forest Carbon Sequestration Trading Pilot with him. At the forum, the team of Huadong Forestry Exchange met Li Luyun, the forerunner of China’s forest carbon sequestration. She led and helped Huadong Forestry Exchange enter the field of carbon sequestration trading. Dr. Li Luyun is the General Secretary of China Green Carbon Fund and the Executive Deputy Director of the Office of Combating Climate Change of the State Forestry Administration. She was also the Former Vice Director and Chief Engineer of the Department of Afforestation, State Forestry Administration. Li Luyun has been contributing a lot in the field of forest carbon sequestration. She is well-known for her hard work in the use of forestry to combat climate change. With her high degree of professionalism and dedicated attitude, she is regarded as a pioneer of China’s forest carbon sequestration.

Preliminary program and consensus The team of Huadong Forestry Exchange was struggling before reporting their forest carbon sequestration trading proposal to Li Luyun, since they worried that their proposal would be seriously criticized. Indeed, Li Luyun pointed out a lot of questions regarding the proposal, many of them related to fundamental concepts. She required the team to strengthen their study. Huadong Forestry Exchange then devoted a lot of time and effort in preparing and editing the proposal, which was then recognized by Li Luyun. This presented the right value and direction of the

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development of forest carbon sequestration business. It was proposed that the idea of a volunteer-based market forest carbon trading pilot should be pushed forward. The primary market of the China Green Carbon Foundation could be used as the basis to set up a transparent secondary market, which could effectively promote the business activities in the primary market. Furthermore, a positive interactive mechanism between the primary and secondary markets could be established as well. Li Luyun strongly agreed with this idea. She expressed her willingness to cooperate with Huadong Forestry Exchange to promote a forest carbon sequestration trading pilot program.

Active coordination During the Wenzhou Forest Carbon Sequestration Trading Forum, Lee Luyun’s reaction greatly strengthened the determination of Huadong Forestry Exchange in exploring forest carbon sequestration trading, and it also reassured Chairman Shen Guohua. After the meeting, Huadong Forestry Exchange set up a special working group for forest carbon sequestration trading. It also cooperated with different experts to prepare for the development of a forest carbon sequestration trading regulatory system and the pilot program of a forest carbon sequestration pilot program. The forest carbon sequestration trading regulatory system includes 17 documents, such as the transaction standards, trading rules, procedures of the industry, as well as a contract template. Huadong Forestry Exchange invited experts to conduct research on the trade rules of various local and foreign property transactions and carbon transactions institutions. It also discussed with China Green Carbon Foundation and sought legal advice many times before the confirmation of the trade rules.

Preparations before the establishment On October 22, 2011, after the four months of preparation in Wenzhou, Chairman Shen Guohua led the company team with the proposal, the forest carbon sequestration trading regulatory system, and the plan of the pilot program, to report to Li Luyun and the State Forestry Administration. They wanted to gain the support from the State Forestry Administration for Huadong Foresty Exchange so as to seize the dominant position of the forest carbon sequestration trading field in China. This time, Li Luyun expressed her full support to the professionalism and impressive performance of Huadong Foresty Exchange. When the team was reporting the pilot program of the carbon sequestration trading to the State Forestry

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Administration, some of the heads proposed different questions and doubts, which were considered to be challenges to the patience and determination of the team. Fortunately, after Lee Luyun’s in-depth interpretation of the pilot program, the meeting finally approved the plan in which the pilot program would be launched in Yiwu, Zhejiang Province, on November 1, 2011.

The first case of China’s forest carbon sequestration trading On November 1, 2011, the world witnessed the beginning of China’s forest carbon sequestration trading pilot program. On this day, the State Forestry Administration agreed that the national carbon sequestration trading pilot program, organized by China Green Carbon Foundation and Huadong Forestry Exchange, was officially launched in Yiwu, Zhejiang. Li Luyun pointed out that the realization of forest carbon sequestration trading was important to the innovative mechanism of forestry development, elimination of the bottleneck of forestry development, promotion for the optimal allocation of forestry resources, the establishment of forest ecological benefits of the new market mechanism, and the effective improvement of peasants’ income. At the launch meeting, 10 enterprises, including Alibaba and Geshan Construction, successfully carried out the first batch of 148,000 tons of forestry carbon sequestrations index trading, which aroused both domestic and international attention. Xinhua News Agency, the People’s Daily, CCTV, Economic Daily, and other mainstream media platforms, provided in-depth coverage on the program. Many large-scale international enterprises, such as PetroChina International (London) Co., Ltd. and Royal Dutch Shell, called to express their intention to purchase products from the program. In the Asia-Pacific Forestry Week, representatives and international organizations from Australia, India, Japan, and other countries also expressed their attention and appreciation. They hope to establish friendly and cooperative relations with China Green Carbon Foundation and Huadong Forestry Exchange. Zhao Shucong, Deputy Director of the State Forestry Administration, said at the launch ceremony that the signing of the Forest Carbon Sequestration Trading Subscription between China Green Carbon Fund and Huadong Forestry Exchange is China’s first innovation of forest carbon sequestration trading regulatory operation. Carbon sequestration trading is a new idea, which needs more investigation to find a direction that is in line with international standards and China’s national conditions. The production, measurement, monitoring, verification, and registration of carbon sequestrations have to be strictly controlled, so as to gather the invisible carbon sequestrations in the visible forest. A ton of

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carbon in each transaction is stored in forests. Each patch of forest is a source of income for farmers and contributes to the ecology.

Care and support from the authorities On November 30, 2011, Chairman Shen Guohua went to Beijing to meet Zhao Shucong and Xie Zhenhua, Deputy Director of the National Development and Reform Commission, to report the pilot work of forest carbon sequestration trading. He also fought for more support from the units to Huadong Forestry Exchange’s forest carbon sequestration trading pilot platform. Zhao Shucong approved the achievements of the pilot work, and he also expressed his support of the forest carbon sequestration and trading work in Zhejiang. He proposed that the pilot work should be carried out based on the active and stable principle and it would transform the invisible carbon into tangible forests through carbon sequestration trading. Xie Zhenhua said that the carbon sequestration trading pilot program was important to promote afforestation, strengthen forest management and protection, increase forest stock volume, and respond to climate change. The National Development and Reform Commission supported Zhejiang to carry out the pilot program. He reckoned that the state had issued a carbon intensity target. While guiding indicators of total energy consumption are going to be issued, the forest carbon sequestration has to be in line with standards of energy conservation, emission reduction, and cross-provincial industrial gradient transfer. At the same time, it also has to be bound by restricting indicators issued by the state to be included in the entire carbon trading market system. Shen Guohua’s trip to Beijing was a great success. It can be said that he cleared the policy barriers for the national forest carbon sequestration trading pilot platform, gaining recognition from the highest authorities.

Entrance to the international level In December 2011, the 17th session of the Conference of the Parties (COP 17) to the United Nations Framework Convention on Climate Change was held in Durban, South Africa. The year 2012 was the last year of the first commitment period of the Kyoto Framework. Therefore, the Durban Climate Change Conference was regarded as the last chance to save the world, so it had special significance. The implementation of the second commitment period of the Kyoto Protocol and the start of the Green Climate Fund became a central issue of the conference, as well as the focus of the United States, European Union, Japan, other developed

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countries, BRIC countries, other emerging economies, and other stakeholder countries. In 2012, China’s greenhouse gas emissions ranked first in the world, but they are still increasing with a rapid growth rate. Therefore, at the Durban Climate Change Conference, China felt unprecedented pressure from the international community. To maintain the right of development, China insisted on the principle of a two-track negotiation process. The insistence on the common yet differentiated responsibilities position was a great challenge. The Secretariat of the United Nations Framework Convention on Climate Change invited representatives of Huadong Forestry Exchange to join the international carbon market construction seminar of the Durban Climate Change Conference. Huadong Forestry Exchange became a significant bargaining party in China’s diplomatic climate change negotiations. The forest carbon sequestration trading achieved by Huadong Forestry Exchange was a convincing answer to the question of China’s efforts in responding to climate change as raised by other countries. Since the Durban Climate Change Conference in 2012, Huadong Forestry Exchange has officially an international outreach.

New collaborations, new status In February 2012, Huadong Forestry Exchange welcomed new friends: Su Zonghai, Deputy Secretary of China Green Carbon Foundation; Tang Renhu, Carbon Trading and Investment Chief Scientist from CITIC Securities International Company Limited; and Guo Wei, Senior Vice President of CITIC Securities International Company Limited. They visited Huadong Forestry Exchange together. CITIC Securities International Company Limited is a pioneer in carbon trading and carbon financing in China. It has much more experience in the international Clean Development Mechanism (CDM) market. SinoCarbon Innovation & Investment, a subsidary of CITIC Securities was supervised by Tang Renhu. It is specialized in the development of CDM projects and other related services, as well as the intermediary service of carbon market construction. It is also a forerunner of the carbon financing intermediary service in China. Dr. Tang Renhu is also the Chief Scientist of the 973 Project of the Ministry of Science, and has successfully developed a number of CDM methodologies. The visit of Tang Renhu, Guo Wei, and Su Zonghai brought new development opportunities to Huadong Forestry Exchange, and opened a new door for the forest carbon sequestration trading in China. The three parties agreed that the China Green Carbon Foundation would be responsible for the development of the primary market of carbon sequestration, while Huadong Forestry Exchange would be responsible for the construction of the secondary market. CITIC Securities would be responsible for providing professional carbon financing services, including the design of the trading system,

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the system construction, and product development. At the same time, the influence of CITIC Securities in the scope of carbon trading would help connect the forest carbon sequestration trading with the national carbon trading system.

Unprecedented challenges and a brand-new future In June 2012, the National Development and Reform Commission officially issued the Interim Measures for the Administration of Voluntary Greenhouse Gas Emission Reduction Transactions. These measures clearly stated that the National Development and Reform Commission is the national supervising authority for the voluntary greenhouse gas emissions trading. They also include a record-keeping system of voluntary emission reduction, a record-keeping system of methodology, and a record-keeping system of exchange. Furthermore, the document indicated that the registration fee of exchange should not be lower than CNY100. The introduction of the measures undoubtedly brought unprecedented challenges to the Huadong Forestry Exchange because the implementation of voluntary emissions trading should fulfill the binding requirements of the three record-keeping systems. Yet, at the same time, the measures also introduced the smooth commencement of voluntary emissions trading, reflecting China’s determination to achieve the emission reduction targets as stated in the 12th Five-Year Guideline. Voluntary emissions trading has become the basis for the voluntary emission reduction carbon market. The measures provide a reference for large-scale carbon trading in the future, and are likely to be in line with international carbon trading standards. Thus, the measures bring a brand-new future to Huadong Forestry Exchange. To be more specific, the existing forest carbon sequestration methodology would be turned into the national standard, and the existing forest carbon sequestration projects would be given national credibility. The registration capital of exchange would be increased to CNY100 million. The expanding strength indicates a brighter future. At present, the operation of the exchange is stable, and the record-keeping systems for forest carbon sequestration methodology and other projects are making great progress. It is believed that as long as the objective of “green growth against climate change” remains unchanged, and Huadong Forestry Exchange continues to innovate, pursues excellence, and insists on protecting the environment, the Huadong Forestry Exchange can enjoy a brighter future.

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5.17 A Venture Capital Practice of Investing in Wind Energy Lu Bo

Prologue Thirty years ago, ordinary families in China would grope for kerosene lamps at the dinner table when the lights went out. These blackouts were frequent and many nights were spent in darkness. What no one could expect was that the same thing should happen again at the end of 2003 in many cities of Mainland China. Factories had to halt production for two days every three days. Elevators and signal lights stopped working. Candles were being used again as substitutes for kerosene lamps. There were shortages in three energy resources: electricity, diesel oil for power generation, and coal stocks. With the adjustments in China’s economy after the Reform and Opening Up policy, China transformed itself from being a net exporter of energy to a net energy importer after 1993. The total energy consumption outnumbered total domestic supply, and China’s external dependence on energy grew rapidly. The per capita energy source of China is very low: The per capita oil reserve of China is less than one-tenth of the world’s average, and the per capita coal reserve is only about twice that of the global average. China suffers a shortage in coal, power, oil, and gas. According to the statistics released by General Administration of Customs of China on October 1, 2013, in 2012 China imported 271 million tons of crude oil with a year-on-year increase of 6.8%. The import value amounted to USD220.666 billion, up by 12.1% year-on-year, and the average import price was USD814.2, with a growth of 5%. China’s external dependence on oil exceeded 55%, and domestic oil reserves could only satisfy normal consumption of the country for 40 days. By contrast, the strategic oil reserves of America could meet its domestic normal need for 150 days, and those of Japan could supply its residents’ normal consumption for as long as 200 days. In China’s energy structure, the proportion of coal has been more than 7% for a long time, and resource depletion and environmental degradation created more and more pressure on the economic and social progress of China. So it is inevitable that China has to develop new energy and utilize renewable energy if the country strives to achieve a sustainable, green, and steady development. In China, many venture capital firms regard renewable energy as a focus of their future investment, which will provide a variety of financing channels for exploiting renewable energy, and at the same time realize their self-development.

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Wuhan Huagong Venture Capital Co., Ltd. was established in September 2000 with a registered capital of CNY136.6 million, and it was the first venture capital institution to be backed by a university in South-Central China. The company is now one of the most influential venture firms in central China. Since its establishment, Huagong Venture Capital has been actively involved in the investment of high-tech enterprises and the transformation of technological achievements, devoted itself to the exploration of a number of outstanding projects at the early or middle stage, and taken advantage of the company’s excellent resources to offer high-quality value-added services to the invested enterprises and support the growth and expansion of the investees. Currently, there is CNY1.1 billion capital under the management of Huagong Venture Capital, including Huagong Hatch Fund, Jiangsu Huagong Venture Capital Fund, Venture Capital Fund of Ningbo Hua Ci, and many others. Huagong Venture Capital has invested in more than 60 projects, among which nearly 20 projects had all or portions of the venture capital withdrawn, and 4 projects were successfully listed on the Growth Enterprise Market (GEM). Huagong Venture Capital Corporation as a professional venture capital institution and capital operation platform integrates project investment with business incubation, enterprise selection, and capital operation by taking advantage of its resource advantages at the government and university levels (as well as relying on shareholders), in order to form a research and development (R&D), investment, industry, and capital operation chain. Huagong Venture Capital has created its characteristic and core advantages when enhancing the management skills. Relying on its steady operating results and unique investment philosophy, Huanggong Venture Capital not only offered substantial return on investment to its shareholders, but also gained recognition from its industrial partners. It has won the honors of the Top 50 venture capital institutions in China, China’s best venture capital institutions, and China’s best venture capital institutions in financing, among others.

Investment strategies of Huagong in the new energy industry Huagong Venture Capital Corporation currently focuses on the new technology development of wind, solar, and biomass energies, and the popularization of related products in the market. The project screening criteria of the company emphasizes the capacity of relevant enterprises in making new energy or clean energy products and services

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to achieve higher efficiency, lower costs, better quality, and higher energy efficiency based on technological and process innovations. Among new energy or clean energy, wind and solar energies have a high output uncertainty, and large-scale grid integration of these energies is likely to cause overall grid failure. In 2011, the losses (excluding income from carbon trading) resulting from wind power curtailment because of the power rationing policy exceeded CNY5 billion. Accordingly, the company pays close attention to the enterprises engaged in the consulting and design of new energy development, and the technologies and services of intelligent power systems. Huagong Venture Capital Corporation is now tracing a new energy consulting and design company whose major businesses include: preliminary development and technological evaluation of new energy projects, design of photovoltaic systems, wind engineering and wind data management, project research and construction drawing design, wind farm optimal design, wind power forecasting, solar photovoltaic reporting system, wind farm operation optimization, wind turbine suitability assessment, wind farm post-assessment, power curve measurement, due diligence, solar energy assessment, wind farm monitoring and management, and optimization of the multi-service platform. Among those, power curve measurement and wind farm post-assessment filled the technological gaps in China’s new energy industry. Along with the gradual implementation of the national new energy development plan and the growing percentage of new energy in the power supply market of some areas, it is predicted that new energy consulting and design companies will have large opportunities for development. The development and investment focus of China’s solar industry in the past few years was photovoltaic power generation, and a huge industrial chain from raw silicon, materials, assembly, and installation service to photovoltaic power plants was developed. The business mode of extending both raw materials supply and product marketing abroad, as well as crazy investment and capacity expansion, have resulted in productions exceeding the market needs of China and the world as a whole in the next few years. Lower subsidies from foreign governments, the rise of trade protectionism, and the cost pressure from the domestic market led to the overall collapse of the photovoltaic industry. Even if a new policy about photovoltaic utilization was issued for the first time, the problems of excess capacity and over-investment still required a considerable long time for the market to gradually digest the excess. Based on our studies on solar industry, China is believed to be a major user of solar energy at present, and the most widely-used solar energy equipment is solar water heaters whose conversion efficiency is the highest compared with all other

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solar energy application methods. Southern China usually suffers a cold snap in winter and the indoor temperature will drop sharply. Since the use of central heating systems has not been entirely extended to the south, total reliance on electricity and gas heating equipment during cold days will cause a dramatic difference in electricity use between peak and valley times, and the direct results will include grid tripping, ignition failure of gas stoves due to low voltage, and other issues. At this time, a comprehensive energy supply system with multiple energy sources which can complement each other is extremely important. Therefore, Huagong Venture Capital Corporation targeted a solar energy company which is located in Wuxi City, Jiangsu Province. The company owns the technology which can directly convert heat into electricity by employing a novel material synthesized with nanotechnology together with highly efficient solar heat collection element. It simultaneously produces hot water and electricity, and thus achieves efficient utilization and conversion of solar energy. The solar thermal power production only requires necessary adjustments in the production process without any new fixed-asset investment. The installation process of the solar thermal power system is the same as that of the solar water heater, but after installation, the users can also gain a set of power systems. Technologies and projects like this which can change people’s lives, and improve and prefect people’s quality of life are the business focus of Huagong Venture Capital Corporation. Additionally, the application of biomass is continuously diversified, but its proportion in the total energy supply is still quite small, compared with that in developed countries. According to statistics, the reserves of available biomass resources are 460 million tons of standard coal and, so far, 22 million tons have been used. The consumption amount is scheduled to reach 50 million tons of standard coal equivalent by 2015. Due to the dispersion, low calorific value, and difficulties in the conversion of biomass, power generation by combustion is not the best method for biomass utilization according to Huagong Venture Capital Corporation. The company is more inclined to invest in innovative technologies which can realize the direct conversion of biomass by virtue of biological, chemical, and process technologies. Relying on abundant biomass resources and relevant policy support, China’s biomass energy industry will have broad prospects. Huagong Venture Capital Corporation is continuing to look for potential enterprises in this field. Huagong Venture Capital Corporation is less optimistic about the wind turbine manufacturing and wind farm projects, but shows more interest in domestic key components producers in the wind power industry. At present, it has invested in a wind turbine parts manufacturer and the investment case will be detailed in the following section.

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Case study Hubei Deke Special Heterotype High Strength Friction Grip Bolt Co., Ltd., founded in April 2009, is a producer of special heterotype high-strength bolts. The company is located at Cihu National High-Tech Innovation Service Center, Tuancheng Shan Development Area, Huangshi City, Hubei Province. Currently, the main business of Hubei Deke includes: high-strength bolts, yoke clamping bolts, stator clamping bolts, coupling bolts, blade bolts, connecting rod bolts, wind power bolts, and shaped bolts used in wind turbines, large hydro-generators, and turbine generators, or nuclear power, metallurgy, shipbuilding, chemicals, and machinery industries. The company has passed ISO9001 international quality system certification. Fig. 5.17.1 Product information of Hubei Deke

Blade connecting bolt

Stud bolt

Anchor bolt

T bolt

Coupling bolt

Brake pin

Mandrel screw

Field pole screw φ 40

Hubei Deke owns more than 50 pieces of specialized mechanical processing equipment. The large molding equipment ZA28-25 thread rolling machine can process thread M120 × 6 with the accuracy of over 4h, which is among the finest in China. The company imported WXC60B centerless lathe and JY60 roller straightening machine, which are the core technologies for producing silver steel by German JKL company. These two machines are able to produce pull rod bolts with high precision, high surface brightness, and high efficiency, and which have achieved a domestic advanced level. The company also purchased seven pieces of heat treatment equipment, such as a trolley furnace, tempering furnace, and shaft furnace, and successfully transformed heat treatment production line and supporting facilities based on the actual situation of market users and, as a result, the heat treatment quality has been greatly improved and the quality is stable and uniform.

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The management team of Hubei Deke is well-organized and has extensive experience in technology, production, marketing, and management which provides powerful support for the future development of the company.

Investment background Increasing demand for wind power bolts In recent years, under policy support from the government, China’s wind power industry has developed rapidly and the average annual growth rate of installed wind power capacity successively exceeded 70% in the past three years. Between 2003 and 2009 (except for during the 2008 global financial crisis), the annual growth rate of newly-increased installed capacity was more than 100% and the compound growth rate was over 110%. According to the statistics of 2010 China’s Wind Power Installed Capacity released by the Chinese Wind Energy Association (CWEA), China has (excluding Taiwan) newly installed 12,904 wind turbines with an installed capacity of 18,927.99 MW, a year-on-year increase of 73.3% in 2010. The accumulative installed capacity reached 44,733.29 MW, which was larger than that of the U.S. and ranked first in the world. The industry chain of the wind power industry mainly includes three parts, namely the manufacture of wind turbine components (blades, gearboxes, generators, transformers, towers, support structures, etc.), wind turbine production, and wind farm operation. The leading manufacturers in the wind power industry are mostly concentrated in the production of wind turbines, while the upstream components suppliers, especially the key components suppliers, lagged behind when compared with their international competitors. In particular, there is a great gap between domestic producers and foreign producers in manufacturing the components for large- and medium-sized wind turbines above 3 MW. As large wind turbines are the development trend in the wind power industry, how to provide corresponding components for high-power wind turbines is the problem which urgently needs to be addressed for China’s wind power equipment manufacturers. Sharp increase in approved installed hydropower capacity in recent years In 2010, China approved 16.13 million kW of installed hydropower capacity, up 212% on a year-on-year basis. It reversed the declining trend of approved installed capacity in recent years. It was expected that the approved installed hydropower capacity would increase substantially to reach 300 million kW, considering the long duration of large

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hydropower projects. In addition, National Development and Reform Commission (NDRC) and National Energy Administration assented to the preliminary works of hydropower projects of 32.88 million kW, which further indicated government’s support for accelerated hydropower construction. In conclusion, since the special high-strength bolts manufactured by Hubei Deke are one of the key components for wind power and hydropower equipment, it is estimated that the market demand of its products will continuously grow along with the dramatic growth of newly-added installed wind power capacity and the rapid development of hydropower projects. Investment prospects and returns China’s wind power industry will continue its steady development in the future. According to the long-term plan, China aimed to install 15 GW wind power capacity per year between 2012 and 2020, and wind power generation would meet 17% of domestic power demand by 2050 (the proportion of wind power generation in domestic power supply was only 2% in 2011). Hubei Deke, as a professional components supplier for wind power, hydropower, and nuclear power industries, enjoys broad prospects and huge market capacity. The core technologies mastered by Hubei Deke give the company competitive advantages. At the moment, the domestic production and processing technologies of the special heterotype highstrength bolts are generally backward. The advanced processing technology of elongated rod-shaped bolts developed by Hubei Deke greatly improved the appearance quality and other technical specifications of elongated rod-shaped bolts. After making adequate technology accumulation and sufficient preparation for market exploitation at the early stage, the company, benefiting from the massive expansion of those industries, is about to enter a rapid development period, and its annual sales volume is expected to reach CNY50 million and CNY100 million in 2013 and 2014, respectively. Risks Management risk: As a newly established private enterprise, Hubei Deke is weak in basic management, and with the continuous expansion of its business and company scale, the top management will face great challenges in their operation and management abilities. Large capital requirements: The company is currently in its infancy, but the rapid growth in volume of business will constantly increase its demand for capital,

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especially at the present stage when new production bases are continuously being built. So the company may encounter some financing risks. Risk of industry slowdown: In order to meet the demand from the downstream market, wind power equipment enterprises have expanded dramatically, and the installed capacity of high-speed wind turbine producers is becoming saturated with a high ratio of idle wind turbines. Besides, due to the tightened policies, the market demand for wind turbines is declining and the wind power industry has entered a steady development stage. Difficulties in investment When Huagong Venture Capital first contacted Hubei Deke, the later had been around for just half a year. At that time, the wind power industry was in a highspeed development period, Hubei Deke had invested all its capital in purchasing production equipment and raw materials and even borrowed CNY2 million from banks. The company lacked sufficient capital for operation. What attracted Huagong Venture Capital to invest in Hubei Deke were the well-organized teams, entrepreneurial enthusiasm, and technological advantages of the key components producer. The investment was conducted in the form of debt-to-equity swap. Since 2011, after five to six years rapid development of China’s wind power industry, a series of long-standing problems were exposed under the impact from the overall economic environment, and the growth rate of newly-added installed capacity for the first time showed a sharp decline. The current development of Hubei Deke has not met investment expectations. Affected by the financial strain of downstream customers, the company had great difficulties in obtaining a down payment after receiving orders, and waited for a longer payment period after product delivery, which to some extent restricted the rapid expansion of the company. It is believed that the industry downturn is only temporary, however. According to the 12th Five-Year Guideline, the state will introduce a series of favorable policies to promote the growth of wind power industry, which undoubtedly will create new opportunities for the development of the domestic wind power industry. In addition, China is giving increasing weight to the reduction of carbon emissions, energy conservation, and protection of the environment, so renewable energy as an alternative to traditional form of energy will receive more and more policy support. So the enterprises engaged in the field of renewable energy still have optimistic prospects, and Huagong Venture Capital will continue to put the renewable energy industry as a focus of its investment.

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5.18 Renewable Energy Development in Alberta William X. Wei

The province of Alberta is located in southwestern Canada. Famous for its robust oil sands industry, Alberta is regarded as the symbol of petroleum production of Canada. After dozens of years of relying on its “Black Gold” economy, Alberta started its exploration in renewable energy economy and now tries to find solutions to the challenges brought by building a sustainable earth. The unique experience of Alberta provides an enlightening example of how a place can make the transition from a traditional industrial economy to a renewable and sustainable one.

The condition of Canada’s energy resources Canada owns rich reserves of different kinds of valuable natural resources, especially energy resources. Referring to the data from the Statistics Canada official website for the period from 1997 to 2006, the main forms of Canadian energy resources (natural gas, crude oil, crude bitumen [oil sands] and coal) have an equivalent total value of USD1.080 trillion. The crude bitumen and conventional petroleum reserves of Canada are even larger than those in Saudi Arabia.1 The majority of oil sands areas are in Athabasca in Alberta. As a major energy producer nation on Earth, Canada has quite high energy consumption on the other hand. Each citizen accounts for around 19 tons of carbon dioxide emissions per year.2 Facing pressure from climate change, Canada has to develop a more environmentally friendly way to produce energy and consume energy. Canada has vast renewable energy resources, especially timber, due to its extensive geography, and traditionally they have been playing an important role particularly prior to the turn of the 20th century. After the two oil crises last century, the interest in renewable energy has been aroused both for the Canadian federal government and the provincial governments. Most Government of Canada expenditures in support of renewable energy occurred in the early 1980s, when it allocated about CAD100 million per year to expedite the development of technologies and encourage their market penetration.3 Canada has large physical reserves of biomass as well as ample potential of solar, wind, geothermal, and other forms of sustainable energy which can be 1

Energy Resources Conservation Board (ERCB), “Alberta’s Energy Reserves 2007 and Supply/ Demand Outlook, 2008 -2017.” 2 Vaughn, “Carbon Emissions Per Person, by Country.” 3 Government of Canada, Natural Resources Canada, Renewable Energy in Canada: Status Report 2002.

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developed and commercialized. In the report from the Canadian Association for Renewable Energies (CARE) via its Renewables.ca website, Canada retained its ranking in 2012 as No. 8 in the world for attractiveness of all renewable energies. In the quarterly ranking produced by Ernst and Young, Canada’s overall score was 54 compared with 70 for the top-ranked (and tied) China and the U.S. Actually the hydroelectric power industry works maturely in Canada, and it takes charge of more than 60% of power supply nationally.4

Alberta’s renewable energy developments Alberta is discussed in detail because of it status of energy supply both domestically and globally. As mentioned earlier, Alberta has the largest oil sands reserves in the world and its energy industry mainly depends on the fossil fuel resources operation. The crude bitumen extraction process is high in cost as well as high in terms of greenhouse gas emissions. Earning fame from its traditional fossil fuel production, Alberta is trying hard to keep pace with the development of renewable energy and store wealth for its future generations. Three cases can be used to illustrate the efforts made by Alberta. One is its municipal waste-into-biofuel facilities, which was the first one at the industrial level globally. The facility will convert 100,000 tons of municipal solid waste into 36 million liters of biofuels annually and reduce the carbon dioxide footprint by 6 million tons in the next 25 years.5 As one of the cities with the largest industrial scale in the world, the construction and operation funding for this meaningful facility is around CAD80 million. It is owned and going to be operated by Montreal-based Enerkem through its subsidiary, Enerkem Alberta Biofuels. Enerkem announced that they are investing CAD15 million and the local and senior governments kicked in another CAD23.35 million in financial support. The funding was provided by the Alberta Innovates project (funded by the Alberta government), the City of Edmonton, and Alberta Energy.6 The biosolid produced from the waste treatment process also addresses the need for fertilizer for Alberta which has a big agriculture sector. And the second example of its endeavor is the foundation of Alberta Innovates, which is a rather novel institution funded by the provincial government aimed at efficiently connecting government, entrepreneurs, and researchers. The policy support is the third driver of the Alberta Government. The renewable fuels standards of Alberta Province requires an average of 2% renewable diesel in 4 5 6

Canadian Industrial Energy End-Use Data and Analysis Centre (CIEEDAC), A Review of Existing Renewable Energy Facilities in Canada. City of Edmonton, “Waste-to-Biofuels Facility: Turning Garbage into Fuel.” Hislop, “World’s First Garbage-to-Biofuel Plant Opens in Edmonton in 2012.”

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diesel fuel and 5% renewable alcohol in gasoline sold in Alberta. Renewable fuels used to meet the fuel standards must demonstrate at least 25% fewer greenhouse gas emissions than the equivalent petroleum fuel. The quality requirement for the renewable components in the blended oil follows the regulation set by the federal government. Less greenhouse gas emissions expectations play an important role in this standard. All of the above efforts are turning Alberta into a modern, sustainable economy.

Lessons for China from Alberta In the previous chapters, the opportunities and challenges the Chinese renewable industry is facing nowadays have been discussed as well. Currently, China undertakes the biggest part in the global manufacturing industry as well as consumes the most unit energy to complete its production process. With the rising concerns from national energy security and the manufacturers’ tough times caused by exploding labor costs in China’s coastal cities, it is critical now to figure out the way to lower energy consuming levels and to explore a sustainable development model for China. Compared with the case of the province of Alberta, the cities relying on the energy industry in China, like Daqing and Karamay, share the same characteristics as Alberta. The traditional petroleum economy brings them prosperity, and also environmental issues. Additionally, the unsustainable defect of fossil energy is always making us question the future of such cities. From Alberta’s story, we can read first of the province’s efforts to fulfill the “Trash to Treasure” policy. The city’s waste solids can be utilized again after the residents there discard them. This step could both somehow make up for urban energy demand and reduce greenhouse gas emissions. The waste management in Chinese cities has been criticized for many years. Although in recent years a lot of policies and regulations have been formulated to push the waste management agenda forward in China, there still are many cities facing conditions in which they are surrounded by the waste they have produced. The example of Alberta emphasizes the benefit of urban waste treatment. The point of the discussion of Alberta’s case also works for the evaluation of diversifying a regional economy. The construction of its waste treatment facilities helps to reinforce the region’s agriculture as well. To balance the economy structure is a problem for policy-makers all the time. Here Alberta’s experience reminds us to take into account each aspect of our economy ecology while making a policy.

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From the perspective of tax incentives, we could enact laws or regulations to encourage the blending of renewable components in gasoline or diesel, or at least relieve the taxation on renewable energy-related companies or institutions. Alberta applied their fuel standards in 2011. But from its content we can tell that, obviously, renewable components — for example, ethanol — will inevitably make up a portion of the petroleum production used by Alberta residences. The most inspiring part of Alberta’s story here should be the existence of Alberta Innovates. As a link among the government, entrepreneurs, and research institutions, the associating and operating methods deserve our attention and discussion. Currently, millions of Canadian dollars flow in and out of Alberta Innovates. So how to make sure that the connecting efficiency and investment return rate are effective? Alberta Innovates still has a long way to go to find its own role, but its very existence is a good sign of the courage and volition of the local government to enhance its economy structure.

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References Canadian Industrial Energy End-Use Data and Analysis Centre (CIEEDAC). A Review of Existing Renewable Energy Facilities in Canada [2003]. March 2003. City of Edmonton. “Waste-to-Biofuels Facility: Turning Garbage into Fuel.” Accessed September 12, 2013, http://www.edmonton.ca/for_residents/ garbage_recycling/biofuels-facility.aspx. Energy Resources Conservation Board (ERCB). “Alberta’s Energy Reserves 2007 and Supply/Demand Outlook, 2008–2017.” Accessed September 12, 2013, http://www.aer.ca/documents/sts/ST98/st98-2008.pdf. Government of Canada, Natural Resources Canada. Renewable Energy in Canada: Status Report 2002. A National Report prepared for the Renewable Energy Working Party (REWP) International Energy Agency (IEA). Stelios Pneumaticos, March 2002. Accessed September 12, 2013, http://www.publications.gc.ca/collections/Collection/ M92-264-2002E.pdf. Hislop, Markham. “World’s First Garbage-to-Biofuel Plant Opens in Edmonton in 2012.” Calgary Beacon, December 14, 2011. Accessed September 12, 2013, http://beaconnews.ca/calgary/2011/12/worlds-first-garbage-to-biofuelplant-opens-in-edmonton-in-2012/. Vaughn, Adam. “Carbon Emissions Per Person, by Country.” The Guardian, September 2, 2009. Accessed September 12, 2013, http://www.theguardian. com/environment/datablog/2009/sep/02/carbon-emissions-perperson-capita.

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5.19 An Energy Efficient Chinese Restaurant: Shunhe International Hotel Ren Xingben and Guo Youyu

October 1, 2012 was the 63rd anniversary of the founding of New China. Miss Qi hurried to the wedding of her college classmate as soon as she got off the train. When she was in the taxi and looking at the both strange and familiar buildings along the roadsides, memories of her student days came flooding back. As she was immersed in her recollection of the past, the taxi driver stopped the car at a splendid hotel. “Here we are, Miss. This is Shunhe International Hotel,” the taxi driver said. After she paid the taxi driver, Miss Qi stared at the road sign — No. 26008 Jingshi Road, Jinan City — and wondered how a not-yet-launched seafood market had been turned into a hotel.

From a seafood market to a hotel: difficulties in the transformation When you walked through the Lashan overpass a few years ago, you could see a six-story seafood market. However it has been replaced by an international hotel which covers an area of 10,000 m2 and a construction area of 40,575 m2. Maybe you will be as astonished as Miss Qi was about the changes in appearance, but when you enter the hotel, you will discover that what has changed is a lot more than this: The air conditioning system will start 10 minutes before guests’ arrival; residual heat refrigeration will be automatically turned off 10 minutes after dishes are served; stoves can adjust the degree of heat according to the stove distance; and there is a naturally formed sediment system based on the different densities of water and oil. Behind these changes, there are also many other challenges, especially in the initial transformation of the hotel. Since the building had been used as a seafood market for many years, the renovation of the building was the priority of the transformation project. To retain the freshness of seafood, the seafood market had good ventilation; however, this contradicted the heat insulation needs of the hotel. How to solve this problem became the most important issue. Besides, compared to the seafood market, the hotel required multiple internal sub-space temperature control systems as well as higher cooling capacity. Since the horsepower of the old air conditioning system could not satisfy these demands, assuring the temperature control in the subspaces became a major challenge for the temperature control system. Meanwhile, because the air conditioning host

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

Fig. 5.19.1 Shunhe International Hotel

Fig. 5.19.2 The interior of the hotel

was placed at the basement of the seafood market, the limited space was another challenge in the transformation of the temperature control system. In addition, the water supply system of the hotel also needed relevant improvement. Reasonable piping arrangement and corresponding water-saving

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facilities installation should be made at the initial stage of the transformation project. At last, since the lighting demand of the hotel was greatly larger than that of the seafood market, how to properly arrange the lighting layout and minimize the demand for illumination was also a pressing issue.

Integrated energy-saving plan In the face of so many challenges, Shunhe Hotel Group acted according to the local conditions and carried out constant innovations in the reconstruction. In particular, Ren Xingben, Chairman of the group, proposed the idea of “Try everything you want, as long as you do not lose money,” which brought unlimited power to the hotel transformation team. Under such guidelines, Shunhe Hotel Group launched a series of energy-saving projects and formed an integrated energy-saving plan in order to make energy conservation deeply ingrained in the hotel operation and management. To be more specific, the energy-saving plan was carried out in the following four aspects:

Energy efficiency in buildings Shunhe Hotel Group has invested CNY1.3 million in the hotel decoration to undertake external wall insulation treatment of 10,390 m2 by using 40 mm-thick fire-resistant extruded board (XPS). Then, the group replaced 386 single-glazed aluminum windows (1,236 m2) with tinted heat-absorbing insulating glasses to achieve better energy-saving effect.

Energy-saving equipment and its transformation The hotel was equipped with energy-efficient air conditioning units which could convert heated air from each hotel room into hot water for bathing for the use of the guests. This not only saves energy but also reduces the urban heat island effect. At the same time, the hotel added modular refrigeration units. Based on passenger flow and seasonal variation, the units would activate different units and provide on-demand refrigeration in order to avoid high energy consumption caused by small demand with large supply. Furthermore, ventilation units with surface air coolers were installed in the hotel. The ventilation units could detect the concentration of carbon dioxide and automatically exchange room air for fresh air; in the meantime, heat and cold exchange also happened to retain over 60% of energy. The energy-saving water heater (Modular heat pump water heater

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

[MHA] 100) would not directly discharge flue gas through the chimney into the atmosphere but would first direct the gas for residual heat exchange in a pre-heat water tank with the heat efficiency reaching more than 91%. Table 5.19.1 Comparison of the costs of several water heaters

Type

Unit

Unit price

Energy consumption for heating a ton of water to 104°F (40°C)

MHA100

kWh

1.00

11.67

11.67

Heat generated by consuming 1 kWh electricity = 860 kCal X 4.0 (coefficient of performance)

Gas boilers

m3

3.50

5.57

19.51

Heat generated by consuming 1 m3 natural gas = 9,000 kCal X 0.80 (equipment efficiency)

Oil boilers

kg

6.00

4.63

27.77

Heat generated by consuming 1 kg fuel oil = 10,200 kCal X 0.85 (equipment efficiency)

kWh

1.00

49.12

49.12

Heat generated by consuming 1 kWh electricity = 860 kCal X 0.95 (equipment efficiency)

Electric boilers

Fig. 5.19.3

Cost (CNY)

Remark

Comparison of the costs of several water heaters

60

Costs (CNY)

50 40 30 20 10 0

MHA100

Gas boilers

Oil boilers

Electric boilers

Besides, gas evaporators were installed to gas steam cabinets, which could make each cabinet save CNY28.66 per day and reduce two minutes in steam production. Among the 19 upgraded gas steam cabinets, 18 have recovered the costs. The hotel also invested CNY800,000 in the thermal insulation for heating pipes in the machine room. 240

Renewable Energy and Energy Efficiency Case Studies

Fig. 5.19.4 Comparison of the machine room before and after thermal insulation installation

Before

After

Kitchen system Compared with the traditional kitchens which have greasy walls, sooty exhaust pipes, non-stop running water, and non-stop shooting flames, the kitchen of Shunhe International Hotel is now totally different. Fig. 5.19.5

The kitchen of Shunhe International Hotel

Targeting energy conservation, the hotel applied energy-efficient nested stove incandescent fire frying cookers. Through the addition of an incandescent fire device (sensor), the degree of heat will be automatically adjusted according to the distance between the pan and the stove — the closer the distance, the larger the fire.

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

In the meantime, exhaust hoods were transformed into inverter-equipped ones, which would not only save power but also reduce emissions. The application of water spray hoods made sure the discharge flue was clean and free from grease, which would therefore eliminate fire hazards. The hotel also used the double-tank grease trap which took advantage of different physical properties of water and oil to effectively increase the recovery rate of cooking grease and maintain a clean floor. At last, a float was installed in the kitchen water supply system, and in this way the water output would be automatically adjusted according to the water height in the vegetable washing tank. Fig. 5.19.6 Oil-water separator

Water surface

UPVC drainage pipes DN110 1% slope

UPVC intake pipes DN110 1% slope

Oil surface Water surface UPVC pipes DN159 Sedimentation basin

Oil-water separation pool B

The energy conservation transformation of power supply system The electricity consumption of daily operations in the Shunhe International Hotel was only about 75% to 85% of the full-load power. Therefore, in order to lower the no-load ratio, the hotel set aside 30% of the electrical motors while equipping the remaining 70% with inverters — inverters were installed in 42 out of the total 61 motors in the hotel. Moreover, the automatic energy-consumption detection platform installed in the hotel could automatically transmit the data from energyconsumption detector for monitoring.

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Table 5.19.2 Data from the automatic energy-consumption detection platform

Name of branch circuit

Electricity Electricity Electricity Electricity Total consumption consumption consumption consumption electricity at valley at peak hours at flat hours at sharp consumption hours (kWh) (kWh) (kWh) hours (kWh) (kWh)

Trane central air conditioning host

3,019.12

767.46

985.31

1,229.32

37.04

VIP rooms

4,017.67

868.19

1,391.99

1,282.07

475.42

Mezzanine office

5,523.78

1,236.57

1,832.79

2,166.90

287.52

0.00

0.00

0.00

0.00

0.00

Weak electricity well (backup, 2/F)

506.94

207.26

218.53

0.00

81.15

Main building left

615.13

132.63

205.21

222.25

55.04

Emergency power supply for 4/F corridor

70.80

26.89

22.84

20.30

0.77

Power supply for outdoor unit

33,489.31

5,053.39

12,746.24

10,725.38

4,964.30

Main building left (backup)

0.08

0.00

0.00

0.08

0.00

Weak electricity well (backup, 2/F)

2,709.18

573.94

889.85

896.39

348.99

22,509.07

7,786.31

6,478.81

7,447.81

796.15

VIP SPA and fitness center

3,030.56

636.38

1,041.21

1,007.74

345.22

Fire resisting shutter of the lobby

39.50

9.71

11.73

12.81

5.25

26,921.88

7,399.04

9,278.15

9,636.96

607.73

Fire hydrant (main)

Dining area (3/F)

Dining area (4/F)

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

(Cont’d) Electricity Electricity Electricity Electricity Total consumption consumption consumption consumption electricity at valley at peak hours at flat hours at sharp consumption hours (kWh) (kWh) (kWh) hours (kWh) (kWh)

Name of branch circuit Banquet and entertainment room (2/F)

23,894.29

8,088.81

7,135.67

7,752.16

997.65

Power supply for boiler room

6,313.80

1,131.49

2,594.37

1,867.57

720.36

Note: Data shows accumulated value from May 2012 to October 2012. The detection platform can monitor real-time energy consumption with updates every five minutes.

The second transformation of the power supply system was made in lighting. At present, energy-saving lamps were applied to the whole hotel, except for the hotel lobby and banquet rooms (since energy-saving lamps could cause partial aberration, particular locations were exempted from adopting energy-saving lamps in order to guarantee the effect of reception lighting). Hotel lighting was controlled on demand and divided into three categories: illuminating lights, decorative lights, and effect lights. When the hotel staff is cleaning tables, only illuminating lights are on; when the guests are arriving, decorative lights will also be turned on; and when waiters are serving the dishes, effect lights will be switched on. Fig. 5.19.7

Effect light

The three kinds of lighting in the hotel

Illuminating light

Decorative light

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New development mode: focus on details Apart from the above-mentioned facilities, Shunhe International Hotel has also applied the idea of energy conservation in different aspects of hotel management and to a certain extent explored a new development mode — to enhance efficiency by saving energy, to gain advantage by focusing on details.

Reasonable arrangement of equipment usage To fully make use of the above-mentioned energy-saving facilities, Shunhe Hotel Group came up with a reasonable usage plan. For example, air conditioners in the reserved rooms will be adjusted to a high speed a half hour before the arrival of guests, and when the guests have checked in, the air conditioners will be changed to a low speed. It will both ensure cooling or heating effect and reduce noise. Shutting down fans when turning on air conditioners will lower energy losses. When guests order hot noodles in the hotel restaurant, the heating system could be turned off for a while.

Environmentally-friendly energy consumption plan Due to the special needs for thermal energy of the hotel industry, Shunhe Hotel Group utilized heat energy conforming to the laws of nature in order to minimize the energy demands of the cooling or heating systems of the hotel. First, the hotel adjusts the air conditioning units on the basis of local climate features. Jinan City, Shandong Province has a typical subtropical climate with four distinct seasons. And since there is a centralized heating service provided by the local government, air conditioning is often used in spring, summer, and autumn. However, the demand for air conditioning in spring and autumn is markedly different from that of summer. In summer, it is necessary to choose large-capacity cooling units, but this will cause necessary energy waste in spring and autumn if the hotel installs central air conditioning. So the hotel added 12 modular refrigeration units to cut down the working hours of the high-power cooling units and also adjusted the use of air conditioners according to seasonal changes. Specifically, the traditional practice in summer was to run the central air conditioning until 3 o’clock and then residual heat was used for lowering the temperature after that. In contrast, after the installation of the modular refrigeration units, the residual heat cooling hour was extended to seven hours from 0:00 to 7:00 am. The new ventilation units with surface air coolers and carbon dioxide concentration detectors were installed in the hotel. These ventilation units operate based on the carbon dioxide

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concentration per unit space and adopt an air recovery system — hot air from guest rooms or other sources will be discharged through pipes to the underground tank and recycled back to the indoor space after cooling treatment. This method will enhance the heat insulation effect of the building especially in winter. Second, considering the differences in the sunlight intensity of each month, the hotel made use of the solar water heaters between April and October to reduce the reliance on traditional gas and electric water heaters. Besides, solar thermal storage tanks were also installed to ensure heat supply during the night. Third, air conditioners in the hotel machine room, dishwashing room, and pastry room were replaced by air-source heat pumps which could transfer the heat into water for the use of the hotel. At the same time, the temperature in those areas will be lowered from 113°F (45°C) to 78.8°F (26°C). In this way, not only is the working environment for the hotel staff improved, but energy consumption is also reduced.

To get every staff involved in energy conservation “Maybe you are not short of money, but our country is short of energy” — Shunhe Hotel Group uses this sentence to remind its staff of the importance of energy saving and cost saving. It is undeniable that energy saving cannot solely rely on increasing the efficiency of machines and equipment but ultimately has to depend on raising the awareness of people. Only when people are engaged in energy conservation work, can the work be truly carried out. The promotion of the idea of energy conservation by Shunhe International Hotel is quite successful. The staff of Shunhe International Hotel influences its guests through its actions. Public bathrooms for staff are equipped with smart card water-saving controllers, toilets adopt automatic flushing systems with temperature sensors, and voiceactivated lights are installed in the corridors. A condensate recovery device is installed in the air condition system, which could fully recover the steam produced by gas boilers. In the peak period of summer, the device could collect 10 tons of water. The water faucets behind 34 stoves were equipped with water-saving valves in order to cut down unnecessary wasting of water. In the meanwhile, corresponding monitoring groups are established to make sure the implementation of energy saving works. The hotel has also installed an energy consumption automatic detection platform, which can send realtime detection results to the monitoring groups. Certain staff are designated to be responsible for the management of the platform in order to achieve all-round monitoring and successful performance of energy saving works.

246

79.13

57.88

61.84

49.84

52.92

58.10

63.81

64.22

58.09

58.87

60.68

78.67

744.03

2

3

4

5

6

7

8

9

10

11

12

2011 Total

110,161

9,719

9,481

9,680

8,511

9,374

9,402

9,143

9,215

8,658

9,672

7,738

9,568

59.49

5.25

5.12

5.23

4.60

5.06

5.08

4.94

4.98

4.68

5.22

4.18

5.17

4,322,571

380,220

348,940

377,750

406,250

470,210

469,130

411,296

334,665

282,790

302,330

242,980

296,010

432.26

38.02

34.89

37.78

40.63

47.02

46.91

41.13

33.47

28.28

30.23

24.30

29.60

Cost (CNY10,000)

Electricity

Monthly Consumption Cost Consumption consumption (Ton) (CNY10,000) (kWh)

1

Month

Water

Table 5.19.3 Statistics of hotel energy consumption

698,859

98,048

57,238

43,955

35,644

33,612

32,730

33,329

40,098

46,761

73,100

81,444

122,900

Consumption (m3)

252.29

35.40

20.66

15.87

12.87

12.13

11.82

12.03

14.48

16.88

26.39

29.40

44.37

Cost (CNY10,000)

Gas

12,040.47

1,186.96

1,043.91

1,276.00

1,117.00

1,010.61

925.68

920.31

1,027.00

881.00

963.00

686.00

1,003.00

Mean value 6.29

6.63

5.81

4.62

5.20

6.35

6.89

6.31

5.15

5.66

6.42

8.44

7.61

The ratio of energy consumption to Revenue per CNY10,000 of (CNY10,000) revenue (%)

Renewable Energy and Energy Efficiency Case Studies

247

248

79.85

71.71

67.40

55.72

65.28

63.80

72.94

68.02

62.36

55.15

56.71

76.39

795.35

2

3

4

5

6

7

8

9

10

11

12

2012 Total

115,850

10,731

8,998

9,317

9,630

10,239

11,056

9,503

9,914

8,335

9,649

9,314

9,164

62.55

5.79

4.86

5.03

5.20

5.53

5.97

5.13

5.35

4.50

5.21

5.03

4.95

4,955,440

363,160

315,370

376,390

452,320

516,970

565,920

484,510

471,740

361,090

350,910

334,000

363,060

495.55

36.32

31.54

37.64

45.23

51.70

56.59

48.45

47.17

36.11

35.09

33.40

36.31

Cost (CNY10,000)

Electricity

Monthly Consumption Cost Consumption consumption (Ton) (CNY10,000) (kWh)

1

Month

Water

657,194

94,966

56,283

34,581

33,038

29,911

28,761

28,312

35,327

41,844

75,062

92,193

106,916

Consumption (m3)

237.24

34.28

20.32

12.48

11.93

10.80

10.38

10.22

12.75

15.11

27.10

33.28

38.60

Cost (CNY10,000)

Gas

13,277.50

1,243.04

926.14

1,320.92

1,151.20

1,073.12

1,070.62

1,024.70

1,289.16

1,017.78

1,112.61

988.16

1,090.28

Mean value 5.99

6.15

6.12

4.18

5.42

6.34

6.81

6.23

5.05

5.47

6.06

7.26

7.32

The ratio of energy consumption to Revenue per CNY10,000 of (CNY10,000) revenue (%)

(Cont’d)

RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

Renewable Energy and Energy Efficiency Case Studies

Shunhe International Hotel has made a series of efforts to build itself into a wellknown energy-efficient hotel through continuous enhancement of service quality and energy-saving methods based on its own characteristics. It has set an example for China’s hotel industry and explored a new solution for energy conservation.

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5.20 The Development of Offshore Wind Power Projects by China National Offshore Oil Corporation (CNOOC) An Lei

Introduction The development and construction of new energy is one of the six major business units of China National Offshore Oil Corporation (CNOOC). In 2006, CNOOC proposed to develop projects in the new energy industry. In August of the same year, a New Energy Development Office was set up in the company. In December 2008, CNOOC New Energy Investment Corporation, a wholly-owned subsidiary of CNOOC, was established and made responsible for new energy business. The new company was headquartered in Beijing. CNOOC New Energy Investment Corporation is the organizer and implementer of CNOOC’s new energy strategy. The company mainly runs businesses in Gansu, Tianjin, Inner Mongolia, Shandong, Shanxi, Jiangsu, Hainan, and some overseas cities, and its major businesses involve wind power generation, coal-based clean energy, power batteries, energy services, the development and utilization of biomass and other renewable energies and clean energies, and the comprehensive utilization of carbon dioxide. During the 11th Five-Year Guideline period, the New Energy Investment Corporation, under the correct guidance and leadership of CNOOC, established a differentiated development strategy of new energy and realized fast and efficient growth by adhering to the development principle of “committing to new energy development, creating a harmonious natural environment, and achieving mutual growth of employees and the company.” During the 12th Five-Year Guideline period, the company will continue to uphold scientific development and rely on scientific and technical innovations in order to build an industrial system of new energy with the characteristics of CNOOC, comprehensively promote the construction of a world-class energy company, and make great contributions to the second leapfrog development of CNOOC.

Project introduction Bohai Sea offshore wind power generation demonstration project The Bohai Sea offshore wind farm constructed by CNOOC is China’s first

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Renewable Energy and Energy Efficiency Case Studies

offshore wind power station and it is located in CNOOC’s Suizhong 36-1 oil field in Bohai Bay. The wind farm was completed on November 8, 2007, and it was successfully connected to the grid in one attempt. It was the first self-designed, self-manufactured, and self-installed offshore wind power plant in China at an international advanced level. The operation of this wind farm fully displays the resolution of CNOOC to implement a scientific outlook on development, strive for energy conservation and emissions reduction, and unswervingly follow the new road to industrialization. The construction of the Bohai Sea offshore wind farm marks the official entry of CNOOC into the offshore wind power industry and a new level in China’s offshore wind turbine design, manufacturing and installation. So it therefore has great historical significance. Fig. 5.20.1 The design of the engineering facilities in the Suizhong 36-1 oil field Terminal Dock

1. 2. 3.

14” / 18” gas, oil, and water pipelines X 4.3 km Submarine cable 10” water pipeline X 2.13 km 12” water pipeline Submarine cable 14” / 18” gas, oil, and water pipelines X 2.17 km 4. 8” water pipeline X 1.79 km 5. 12” / 16” gas, oil, and water pipelines Submarine cable 3.42 km

6. 10” / 14” gas, oil, and water pipelines X 2.04 km Submarine cable 2.04 km 10” water injection line X 2.04 km 7. Submarine cable 3.19 km 12” / 16” gas, oil, and water pipelines 8. 8” water pipelines X 2.13 km 9. 12” / 16” oil / water pipelines 10” water injection line X 3.22 km

10. 11. 12. 13.

4” gap pipeline X 1.54 km 6” water injection line Submarine cable 8” / 14” oil pipeline 4” gap pipeline X 1.6 km 14” / 20” oil pipeline 8” water injection line 10” / 16” oil and gas pipelines X 1.5 km 6” water injection line 14. Submarine cable 1.5 km 15. 20”/26” oil and water pipelines X 69.52 km

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RENEWABLE ENERGY IN CHINA: TOWARDS A GREEN ECONOMY

Compared with the construction of onshore wind farms, offshore construction occupies no land. Apart from this, the quality of offshore wind power is much better than the onshore ones, so the large-scale development of offshore wind power is the trend for the wind power industry. Offshore wind farms make up a new field combining two high-risk and high-difficulty technologies of marine engineering and wind power generation, and they will encounter many technical difficulties in structural design, facility corrosion prevention, marine construction, operation, and maintenance. CNOOC has more than 20 years of experience in marine engineering and this constitutes the knowledge base for the exploration of offshore wind power. In light of the many great challenges in entering the offshore wind power industry, CNOOC launched a demonstration and research project in China’s wind power generation on December 20, 2006. The demonstration project of China’s first offshore wind plant — Bohai Sea offshore wind farm — involved five research topics, including a fuel-wind hybrid power system, by installing a 1,500 kW direct-driven permanent-magnet generator and other related facilities in Bohai Sea offshore oil field. The location of the project was chosen at the Suizhong 36-1 oil field, which is 70 km offshore in the Bohai Sea, and a 1,500 kW wind turbine was installed there by making use of idle infrastructure. CNOOC New Energy Investment Corporation was fully responsible for project implementation; Offshore Oil Engineering Corporation worked as a contractor to undertake the project design, construction, and installation work; the research center of New Energy Investment Corporation conducted the project feasibility study and offered technical support; and the Tianjin branch company acted as a consumer of the wind power and was in charge of the testing of the offshore wind farm. In the project startup meeting, Zheng Changbo, Assistant President of CNOOC and General Manager of CNOOC New Energy Investment Corporation, stressed: “This is the first battle of CNOOC in the field of new energy and all participants are of the same family. We should devote every effort to collectively overcome the difficulties in order to achieve the final victory!” The project was started in April 2007 and, in less than seven months, fullpower grid connection was successfully completed on November 8. When the project was put into operation, the wind farm provided green power for offshore oil production. The generating unit was expected to reach an annual output of 4.4 million kWh, which is equal to saving 1,100 tons of diesel oil annually and also the reduction of 3,500 tons of carbon dioxide and 11 tons of sulfur dioxide emissions. This will effectively ease the power shortage in oil fields and is good for environmental protection. It will not only save oil and gas resources, but also achieve energy conservation.

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As China’s first offshore wind power demonstration project, this project has created three “world’s firsts”: The first implementation of a wind turbine for the power supply for offshore oil fields; the first application of a single hook overall lifting; and the first adoption of integral transportation of the wind turbine. Fig. 5.20.2 Single hook overall lifting

The preliminary practice has manifested the following major innovations in the demonstration project: First, the industrial demonstration project has confirmed five research and development topics which are of strategic significance. The five topics include fuelwind hybrid power system, low-cost offshore wind farm infrastructure, low-cost offshore wind turbine transportation and hoisting technologies, adaptability of wind turbine to marine environment, and operation and maintenance management of offshore wind turbines. These research topics are either the nation’s first or among the world’s first-class. With the successful development of those research topics, there may be five patented technologies with independent intellectual property rights, which will play an important role in the construction of offshore wind farms in China. In particular, the installation of wind turbines adopted advanced overall lifting technology together with other domestic leading technologies including special automatic harmless spreader. The project also made breakthroughs in grid connection technology. The simulation results indicated that when the hybrid power system works well, the proportion of wind power in the grid can reach 60%. Even when the proportion of wind power drops to 30% in the fuel-wind hybrid power system, the power grid can still safely operate.

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Second, useful exploration on the management system and mechanism of the industrial demonstration project was conducted. The demonstration project has employed a “project + research and development (R&D)” mode of operation to simultaneously promote the advancement of the two parts. R&D work will be carried out relying on the project construction while the project construction in return guarantees the performance of R&D works. Under such an effective operation system and mechanism, both the project and the five research topics proceeded smoothly, and the management targets of quality, schedule, cost, health, safety, and environmental (HSE) management are successfully achieved. Third, the project was carried out based on technological transformation. The abandoned single-point mooring jacket platform in the oil field was reused as the infrastructure of the offshore wind turbine. The project construction was strictly managed in accordance with the offshore oil field construction standard and requirements. The production, transformation, and operation of the wind farm were carried out simultaneously, and the grid transformation for grid connection was completed without affecting the production of the oil field. Therefore, the project construction time was shortened, and it took only seven months for the project to be finished from project establishment to final completion. The successful operation of China’s first offshore wind farm marks the initial success of CNOOC in the development of offshore wind power. This project has far-reaching significance since it has accumulated experiences for China’s future offshore wind power development, trained professional teams, established specifications and standards of wind power development, solved key technical problems, and innovated construction management mode. Facts have proven that the strategic decision of CNOOC in developing wind power, especially offshore wind power, was correct. CNOOC is capable of making the best of China’s offshore wind energy and providing more green energy for the country and the community. The development and utilization of wind energy, especially offshore wind energy as well as the development of new energy industry, are the established strategic objectives and development orientations for CNOOC. It is beneficial to the building of CNOOC into a world-class energy company and the construction of an energy-saving and environmentally-friendly society. In this way, the company can fulfill its obligations of energy conservation and emissions reduction, and assume its social responsibilities. It reflects the inevitable trend and inherent requirements of domestic energy companies and world-class energy companies. In recent years, CNOOC gave top priority to the development of the offshore wind power industry, and made large investments in capital, technology, and human resources. So far, CNOOC has invested over CNY100 million and achieved great progress in the in-depth research in microscopic evaluation of offshore wind

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energy, construction of offshore wind tower, offshore wind power technologies, and offshore wind power transportation and installation, as well as offshore wind farm operation and maintenance. According to preliminary research by CNOOC, China’s offshore wind resources are very rich and have huge potential. The reserve of wind resources in water depth of 10 meters is estimated to be around 100 million kW; wind reserve in water depth of 20 meters is about 300 million kW; and wind reserve in water depth of 30 meters is expected to be 490 million kW, which is about two times that of onshore wind resources. Besides, offshore wind farms have the following features: high speed, large generating capacity, low turbulence intensity, short distance to load center of power system, no demand for land, low impact on environment, large unit capacity of wind turbine, and long annual utilization hours. So the wind power has received much attention from various countries in the world and is gradually becoming a focus of development. Additionally, CNOOC has possessed the requirements necessary for offshore wind power development. It fostered some expert teams of more than 1,000 professionals specialized in offshore project R&D, design, construction, transportation, installation, and operation, and set up large manufacturing and logistics bases in Tianjin, Zhanjiang, Huizhou, Qingdao, Longkou, Shenzhen, and other cities, and owned nearly 70 transportation facilities of various kinds, 30 pieces of lifting equipment, and 20 offshore vessels. The company intends to conduct systematic research in offshore oil field wind farms and large-scale offshore wind farm construction, and develop special vessels for offshore wind farm construction and other bits of special equipment in order to meet the demands of the future offshore wind power industry. During the development of offshore wind power, CNOOC is always aware of the great challenges and huge responsibilities in current offshore wind power development. The difficulties include accurate observation and evaluation of offshore wind energy, corrosion and fatigue resistance of offshore wind turbines, effective and safe transportation and installation of offshore wind turbines, high unit investment cost of offshore projects, as well as requirements of sophisticated operation and maintenance. CNOOC, however, is determined to build the company into a leading power in the construction and operation of offshore wind farms, and takes actions to boost the sound and fast development of the domestic offshore wind power business. The company will promote the transformation of economic development mode and the adjustment of industrial structure by relying on its successful practice, and use its achievements to participate in the construction of ecological civilization and support the building of a harmonious society.

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Investment in follow-on projects CNOOC has vigorously advanced the development and construction of offshore wind farms by taking the opportunity of building the Bohai Sea offshore wind farm. This demonstration project has provided first-hand data for the development, construction, and operation of China’s offshore wind farms. After this, CNOOC actively promoted offshore wind farm projects mainly in the Bohai Sea region, such as the Weihai Sea offshore wind farm in Shandong Province. CNOOC Weihai offshore wind farm was proposed to be built at the northwest of Weihai Sea, near the Yantai Sea area. This sea area is rich in wind resources which provide favorable conditions for developing wind power generation, and will offer remarkable social and environmental benefits. The construction of the Weihai offshore wind farm has great significance for improving the power structure of Shandong Province, boosting the development of China’s offshore wind power industry, and developing renewable energy. Meanwhile, the development of the Weihai offshore wind farm targeted power generation, and also facilitated the application of domestic offshore wind turbines, by taking into consideration local economic conditions, regional development plans for power and other industries, and the realistic situation of the wind farm. It has played a guiding role for the development of wind power in the region, and created social benefits in environment protection and tourism, among other areas. The wind farm intended to install 44 wind turbines with a unit capacity of 2 MW (or above) and the total planned installed capacity was 100 MW. It was expected that the annual on-grid energy provided by the wind farm could reach 281.43 million kWh, which would greatly alleviate the electricity shortfall of the area and the nearby coastal region. CNOOC was actively promoting this project by relying on its experience in developing the Bohai Sea wind farm. In the field of onshore wind power development, CNOOC New Energy Company adhered to the principle of being “forward-looking, economical, advanced, intensive, professional” and using “standard” development methods. It will also have integrated development focuses with strategic layout, economic benefits, and development speed. It gave priority to the large-scale development of onshore wind power with centralized management by making full use of resources. In addition, the company also made every effort to quicken the project’s approval and construction speed, fully utilized the production and operation advantages of CNOOC, strengthened the building of the public relations system, personnel team, and management system, and set up large projects as well as large wind power bases in order to realize the leapfrog development of wind power business.

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As of the end of 2011, the company had achieved 400,000 kW of on-grid power generation: 49,500 kW from Inner Mongolia Huade phase I, 49,500 kW each from Inner Mongolia Erenhot phase I and phase II, 49,500 kW from Hainan Dongfang, and 201,000 kW from the Gansu Yumen wind power project.

Conclusion The economic benefits from wind power projects are not all the concerns of CNOOC and not even its main focus. Wind power as a renewable energy has significant social and environmental benefits, and plays a significant role in boosting the development of renewable energy in China. The 17th Congress of the Communist Party of China proposed to strengthen energy conservation and environmental protection and enhance the capacity for sustainable development. To save resources and protect the environment are the basic national policies of China and these policies closely relate to the vital interests of the people and the survival and development of the Chinese nation. So it is necessary to develop and extend advanced and appropriate technologies for conserving, substituting, and recycling energy and resources. As a large central energy company, CNOOC should shoulder the responsibility. After the more than 20 years of rapid and efficient development, CNOOC has basically realized its transformation from an upstream oil field developer to a comprehensive energy company integrating both upstream and downstream businesses. The decision-makers of the company made a strategic plan to vigorously develop clean energy and renewable energy, and regard the exploitation of renewable energy as another important business of the company with the view to practicing scientific development and assuming the social responsibilities of an integrated energy company. The company frequently stressed the importance of vigorously promoting the development and production of clean energy, and competed to become a leader and practitioner of clean energy production in order to make a contribution to the development target of creating “a resource-saving and environmentally-friendly society.”

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5.21 Improved Domestic Energy Use Methods Steve Haupt

I graduated from the University of Delaware with a BE in Electrical Engineering with a focus in Computer Science. I have worked in the process controls industry and, most recently, for 16 years with NASA’s Earth Observing System Data and Information System (EOSDIS). EOSDIS processes, archives, and distributes Earth science data for the land, ocean, and atmosphere. My broad background has enabled me to design, build, and test new cost-effective solutions for eliminating the need for fossil fuel use and reducing environmental impact. The eight ideas presented below are of my own design and innovation and I myself have transformed all but two into working systems. Block diagrams and photographs of each system are presented. I am in contact with the U.S. Patent and Trademark Office (USPTO), the U.S Environmental Protection Agency (EPA), the U.S Department of Energy (DOE), members of the U.S House of Representatives, the U.S. Senate, and have set numerous Non-Disclosure Agreements (NDAs) with companies here and abroad. Large-scale economic investments for renewable energy focus on energy production using wind, solar, geothermal, and hydroelectric power. There has not been as much focus on reducing the need for energy at home. By reevaluating the domestic requirements for water heating and air conditioning (heating and cooling), substantial energy reductions are possible. It is far more cost-effective to reduce energy needs than to produce it from centralized sources. Greater energy security is also met by utilizing a decentralized approach. A carbon-free automobile propulsion system is presented. This new design will eliminate air pollution while maintaining the level of transportation comfort we are accustomed to. You can see that the fuel and emissions are environmentally safe as confirmed by the EPA and the vehicle components are inherently safe, and there is no range anxiety as with electric cars. As batteries get more capable, they also become more dangerous as they store more energy per unit volume. Also, the carbon dioxide generation is displaced from the car to the electric power plant if using coal or natural gas. Therefore, a Zero Emissions Vehicle (ZEV) really isn’t “zero emissions” when all factors are taken into consideration. And then one has to factor in the expense of the batteries.

Refrigeration My design is much simpler than using electricity to power a compressor and yet the lifecycle cost is substantially less. There is also minimal environmental impact.

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The design simply takes advantage of outside winter air temperatures to create ice in a well-insulated ice store. The system is noiseless and remarkably reliable with an expected 100-year life. The design is also advantageous as refrigeration can be provided anywhere in the house. The refrigerator will be cold regardless of grid power outages. As cool air is denser than warmer air, it descends and displaces any heat within the refrigerator. This stratification effect keeps the refrigerator’s internal temperature at the temperature of the ice store. This design is developed based on an awareness of certain facts. One BTU (British Thermal Unit) is the amount of heat needed to heat or cool one pound of water by one degree Fahrenheit. One watt-hour is equivalent to 3.413 BTUs. The heat of fusion for water is 144 BTUs per pound. Another way of looking at this is that 1 kWh is equivalent to 3,428 BTUs using 24 pounds of ice for refrigeration. The ice/water is housed in an array of sealed PVC tubes whose expected lifetime is 110 years. During the winter, the water freezes. The capacity of the ice store is sufficient to provide refrigeration until the next winter. Water will freeze and melt infinitely which results in a lifespan much longer than that of a compressor and the generation of electricity. A block diagram of the system is shown in Fig. 5.21.1 and the implemented system is shown in Fig. 5.21.2. Fig. 5.21.1 Refrigerator block diagram Insulated ice store Attic or outside

Heat extraction

Refrigeration

Cooling stratification © 2013 Garsden Technologies

Patent Pending (61/850,948)

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Fig. 5.21.2 Implemented refrigerator

This implemented system was placed into service in March 2013. The 6-inch PVC blue tube concentrically surrounds a 4-inch PVC tube which extends to the bottom of the refrigerator. Foam insulation was placed in-between the 6- and 4-inch tubes. The red tube is insulated in the same manner and is the path for heat removal. Cool denser air descends within the blue tube and displaces any warmer air which rises in the red tube. The insulated ice store consists of 30 sealed PVC tubes each providing 7,200 BTUs of cooling. The tube design accommodates the 8% water freezing expansion. The average cost for electric refrigeration is USD15 per month or USD180 per year. With a 4%-per-year energy cost increase, and a new refrigerator every eight years, this would be equal to USD909,000 for 100 years. This calculation does not take into account any increases in utility tax rates or newly proposed carbon taxes.

Freezer An attic or outside loop is comprised of 0.75-inch aluminum finned copper tubing that has been repurposed, as this has normally been manufactured for hot water baseboard heating. Controller inputs are the freezer set point, time of year, attic loop temperature, and well water temperature. A “call-for-cool” signal applies 24 VDC pulse width modulated 300 Hz square wave power to the Peltier assembly

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and remains present until the freezer set point temperature is reached. Well water (55oF [12.7oC]) is used during the off-winter months for cooling. The controller determines whether to use the attic loop or the well water. The expected lifetime for this design is 60 years. The power comes from the solar photovoltaic 24VDC system discussed below. Much less power is needed for cooling as the Peltier assembly always has a 55oF (12.7oC) or cooler path for heat removal. Maximum use is made of the thermo siphon principle for the cold tank. The attic loop water is a solution of 40% propylene glycol for anti-freeze protection. Fig. 5.21.3 below shows the major components. Fig. 5.21.3 Freezer block diagram Aluminum finned copper tube Insulated open loop liquid cold reservoir, propylene glycol, seasonally cooled Attic or outside

N/C Solenoid

N/C Solenoid

Heat exchanger

Peltier unit (liquid/air heat exchanger) (maximum ∆T is 30˚ F)

Warm water discharge

Controller 24 VDC power supply

Freezer

55˚F Pressurized well water © 2013 Garsden Technologies

Patent Pending (61/850,948)

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Fig. 5.21.4 Implemented 60-year freezer

This implemented system was placed into service in April 2013. A 3-inch PVC pipe concentrically surrounds a 0.75-inch copper pipe which extends into the attic liquid cold store (60 gallon tank). The heat exchanger in the tank is comprised of two parallel half-inch copper coils. The thermo-siphon principle is used to cool the antifreeze solution in the tank from the aluminum finned copper pipe in the attic. This eliminates the need for a circulator pump in the attic. Two parallel 8-foot-long pipes comprise the attic circuit. Well water is used for off-winter month cooling of the Peltier assembly. The warm water is exhausted into the ground or septic system. The Peltier assembly is powered with 24 VDC and is controlled with a custom-built controller. The firmware program controls which solenoid is activated based on the attic cold store reservoir temperature. The frequency of the switched 24 VDC is 300 Hz and the duty cycle is 50%. This increases the Peltier modules’ expected life time to 60 years.

Air conditioning Normal space cooling for the summer is provided either by Freon-based heat pumps or air conditioners. These require substantial amounts of electricity for the fans and compressors. The following design eliminates this energy requirement by making use of well water. Fig. 5.21.5 shows an overview of the design. The operation consists of using cool well water (55oF [12.7oC]) and heating it to an exhaust temperature determined by the set point of the controller which is typically 72oF (22.2oC). The solenoid is normally closed. When cooling is desired, it is opened. The warmed water is then routed up to Attic Loop 1 for further warming in the summer. As attic temperatures during the summer months typically reach

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Fig. 5.21.5 Air conditioning unit (ACU) block diagram Attic Loop 1 (used during summer for water heating) Attic Loop 2 (used during fall/spring cooling) Tank Fan

Controller

Water/Air heat exchanger

Solenoid

Well water

130oF (54.4oC), there is plenty of water heating that occurs. This is how water heating needs can be met in the summer. No external roof panels are needed. A copper heat exchange tube is submerged in the un-pressurized hot water tank, whereas the water inside the copper tube is circulated to a hot water tank in the basement to provide pressurized hot water for the house. The water/air heat exchanger is 0.75-inch aluminum finned copper tube. The copper heat exchange tubing is halfinch. Two parallel coils keep the pressure drop lower when hot water is required. Eventually any excess water is discharged into the septic system. Over time the water will fall into the water table and cool. During the fall and spring months there is some benefit to capturing the cooler night temperatures using the Attic Loop 2 for cooling. A 1,500 BTU-per-hour cooling capacity equates to 0.18 gallons per minute which will comfortably cool 400 square feet. The design is scalable based on well capacity. A galvanized sheet metal box was contracted for fabrication to house the components and cost USD78. Fig. 5.21.6 shows the first prototype unit. The total cost for the first prototype was USD172, labor excluded. The selected fan assembly contains a thermostat and provides three different fan speed settings. A fan current sensor detects when the fans are running and then opens the cold water solenoid. Once the room reaches the set point the fans stop running and the solenoid closes. Note that in the winter the unit also provides heat by circulating hot water through the heat exchanger rather than cool well water.

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Fig. 5.21.6

Implemented air conditioning unit (ACU)

An adjustable water valve provides the BTU setting. Allowing more water to run through the unit provides more cooling. The internal components, including the water/air heat exchanger, solenoid, and mode control, power, and fuse bar are shown in Fig. 5.21.7. The fuse is for the solenoid. The controls include a blue LED which is lighted for cooling; a switch (DPDT) to select cooling, off, or heating; a red LED which is lighted for heating; a green LED which is lit as an indication that power is applied to the unit; and a fuse for the solenoid. The first production model is in use and will be available for sale in late 2013. Note that the unit can also heat if warm water is provided instead of well water. The Energy Efficiency Ratio (EER) is defined as BTUs divided by watts. A good conventional commercial unit has an EER of 14.0. This design has an EER of 8,000 BTUs ÷ 185 W = 43.0. The 185 W includes the fan, solenoid, and well water pumping. Full house air conditioning indicates a savings of USD13,000 over a period of 8 years for a 2,000 square foot house. Not only will this save the homeowner money, but it will create jobs in the trades for plumbers, electricians, and the heating, ventilation, and air conditioning (HVAC) field as well as in manufacturing. All of those jobs would also provide much needed tax revenue to the state and federal governments.

Water heating/tri-generator With perfect insulation, no space heating would be required in the winter as the air could not cool. A typical person provides about 100 W of heating due to the body’s metabolism.

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Fig. 5.21.7

ACU internal components of initial prototype

A tri-generator was designed and constructed. This makes the most efficient use of fuel as the entire BTU content is extracted. This provides electrical power, hot water, and supplemental space heating needs for the fall, winter, and spring. It is a simple design and can be assembled at home. The purpose is to assist meeting energy needs during colder weather or inclement weather. It is not envisioned to be used every day. Electrical energy is first generated from the alternator connected to the engine. Any fuel can be used but propane is the most convenient. The exhaust gas heat from the engine is then absorbed by the water that is pumped through between the 0.75-inch copper pipes and the 1.5-inch copper pipes. The water is then stored in an open tank. Once the water is the warm enough, the space surrounding the larger diameter pipe then becomes warm. This is what provides supplemental space heating during the off summer months. The controller ensures that the exhaust gas that exits from the top is cool, ensuring optimum energy use of the fuel. All components are available off the shelf from big box retail stores or plumbing supply houses. Fig. 5.21.8 shows the component overview. The selected generator is 3 kW. One inch black iron pipe is used to route the generator muffler gases to the 0.75-inch copper pipe. A high temperature silicone adapter is used to mitigate the vibration of the engine muffler to the black iron pipe. A feature of this design is to run 0.75-inch copper pipe through the inside of the 1.5-inch copper pipe. Reducers are used as well as tee couplings to keep the gas separated from the water. The design dimensions are to be set for the amount of hot water and space heating requirements. The designed system is comprised

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Fig. 5.21.8 Trigenerator Block Diagram Cool exhaust gas

Hot

water tank

Pump

Hot exhaust gas

Firmware controller

Generator

of four vertical runs with each run being six feet in length. The controller uses MicroEngineering Labs (ME Labs) PicBasic Pro software. Temperature sensors monitor the output water temperature and air temperature to ensure complete heat use. Convection on the outside copper tubes heats the air. When commanded, a circulator pump moves the heated water from the open loop hot water tank through the 1.5-inch copper pipes. A set of 0.5-inch copper coil tubes are immersed in the tank that remain under pressure for domestic hot water demands. Summertime water heating is met with the attic copper loops previously discussed as running the unit during the summer is impractical. For emergency power generation during the summer months, the exhaust gas is just routed outside. A propane conversion kit was used to fuel the engine. While this can be done, the generator should be placed outdoors. There are noise restrictions in some localities so be sure this is addressed. Generators are marketed with the higher priced units being much quieter and these are usually used at campsites or near recreational vehicles. Again, this is a supplemental system and is not intended to be used continuously.

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There are existing co-generator units on the market that use the exhaust gas to heat water that are intended to be used continuously. I am naming this a trigenerator as this design also provides supplemental space heating. Fig. 5.21.9 shows the current build state of the unit. Fig. 5.21.9 Tri-generator under construction

Space heating/water heating Space and water heating in the winter is the most difficult challenge. After considering all of the alternatives, the most cost-effective way is to use either wood or pellet-fired stoves. Wood is renewable and can provide plenty of warmth and hot water. The first consideration for spending money, however, should be the process of insulating the house. This reduces both cooling and heating requirements in the most cost effective way. Burning wood is carbon dioxide neutral in that the carbon within the fuel has been placed there within the last 100 years or so and can be recaptured again with new tree growth. Heat distribution from a woodstove is mostly convective. However, with a water heating device next to the stove at the back and on top, all the domestic hot water needs can be easily met. By storing the heated water it can be pumped using

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circulators through baseboard radiators (hydronic) or through old steam radiators. This reduces the need to keep the wood stove lighted through the night. Depending on the amount of water storage and outside temperatures, it may mean not lighting the stove for a few days. Available internal heat exchanger tubes should not be used as this reduces the wood stove efficiency. Also, the water storage unit and any pipes collecting hot water from near the stove should all be constructed using open loop techniques. This is critical for safety reasons as otherwise explosions can occur to cause property damage and injury. I have placed a loop of aluminum finned copper pipe in the attic and have routed the loop to the basement and a large water heater. A circulator comes on when the attic temperature is greater than the tank temperature. This provides all the hot water needed during summer. Another consideration is to install an air panel on the south side of the house. I have a unit which gathers about 1.5 kWh equivalent of heat directly from the sun in the winter. There are some days when I have to crack a window because it gets too hot inside. The unit draws inside air into the external unit near the floor and returns through a vent on the outside wall near the ceiling. There is no storage mechanism, however this could be implemented. The fan requires very little electricity for operation and has a built-in thermostat. I have a second unit which will provide energy for clothes drying. Instead of using the electric resistive heating unit in the dryer which requires a high current 220 VAC circuit, I will use the heat from the panel. This is only practical during summer.

30-ampere power system In order to provide electricity, a design of a 30 A 120 VAC system is described below. The diagram below shows a high level schematic. The system uses a 1,000 W photovoltaic panel system, four 6 VDC flooded acid batteries, and a 3,000 W sine inverter. Two transfer switches are used to automatically select grid power, generator power (tri-generator), or inverter output. Should the inverter fail or shut-off, then the grid is selected. Should the grid fail, then the trigenerator will come on. Grid-powered battery chargers turn on to recharge the batteries if there is insufficient photovoltaic panel capture. The inverter will shut down if the battery-set voltage falls below 22 VDC. This 3,000 W system provides all the domestic electrical needs. A 24 VDC tap powers the freezer. All lights have been replaced with high efficiency LED lamps to reduce power requirements for the evenings. Photographs of the system closet are shown below.

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Fig. 5.21.10 Design of a 30-amphere 120 voltage in alternating current system Tri-generator

Generator

Transfer switch

Grid 3,000 W Inverter

Master controller

Grid/Generator charging circuit 6 VDC Battery 1

6 VDC Battery 2

6 VDC Battery 3

Transfer switch

6 VDC Battery 4

Photovoltaic charging circuit

1,000 Watt Photovoltaic Panel Array

Fig. 5.21.11 30-ampere power system

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Fig. 5.21.12 30-ampere power system

Fig. 5.21.13 30-ampere power system

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Automobile propulsion system In 2011, the United States spent USD560 billion on oil imports. This is clearly economically unsustainable even without a consideration of the environmental impact. While substantial progress has been made on alternative propulsion designs for personnel transportation, there is one more example that I provide below. This is patent pending so I cannot convey all of the technical details but I will provide an overview. There is no getting around the energy requirements for vehicle propulsion. To overcome getting the air out of the way and overcoming friction some energy is required. One horsepower is required just for tire deformation. Some form of an energy carrier must be on-board, whether it involves gasoline, diesel, propane, compressed natural gas, batteries, or something else. I examined all energy carriers and there was one that stood out: aluminum. It is an environmentally safe material and is currently in use everywhere in construction, automobiles, and beverage containers. The list is almost endless. Aluminum is abundant as it comprises 6% of the earth’s crust. The current scrap price for aluminum is around USD0.48 per pound. The current purchase price for aluminum is around USD0.89 per pound. Alumina can be sold for USD0.12. This is what remains after the aluminum is burned. So the net fuel cost is USD0.77 per pound. Aluminum is an excellent energy carrier. One pound of aluminum has the same energy equivalent of three pounds of the explosive TNT. Production of aluminum requires 4 pounds of bauxite ore that will yield two pounds of alumina (Al2 O3). Aluminum melts at 993 K and boils at 2698 K. Ignition temperature varies between 1,700 K and 2,200 K, depending on the oxidizer. The specific gravity of aluminum is 2.7 while the specific gravity of alumina is about 3.8. About 1.6 kWh per pound of electricity is required to return the alumina back into aluminum metal. This is more cost-effective than battery recharging if one considers all of the upstream costs. A review of the U.S. Environmental Protection Agency’s Office of Air and Radiation Group regarding the use of the chemistry of reacting aluminum with steam has been conducted with no findings. The design is being scaled up for use in automobile propulsion. The prototype reaction chamber consists of 3 settings: ignition, run, and quench. There are some tricks to this but the reaction has been known for some time. Contributions have come about from unfortunate industrial explosions in aluminum casting operations and vessel cleanouts. The vessel is currently only going to be used for vehicle acceleration. A propane/ hydrogen dual fueled engine (20 HP) is for keeping the car at speed. This keeps the overall vehicle weight very light compared to gasoline-propelled vehicles.

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The combustion of aluminum in steam produces alumina and hydrogen. The hydrogen is mixed with atmospheric oxygen to propel the car at a constant velocity. Another component of the propulsion system is comprised of a pressure vessel that is used solely for vehicle acceleration assistance. Filtered rainwater is captured for use as the water source for the combustion chamber. This keeps the dissolved components to minimum levels rather than purchasing distilled water. Regular potable water contains minerals that would accumulate within the boiler subsystem. While there is much literature on aluminum combustion, there remains much to be understood. There are no fewer than 14 chemical equations that comprise the reaction details of the aluminum and water reaction: 2AL + 3H2O → Al2O3 + H2(g) As an extremely exothermic reaction, high pressures and temperature provide the released energy for vehicle acceleration. The following diagram shows the major components. Fig. 5.21.14 Major components proposed automobile propulsion system Low voltage, high current source

Pure water tank

Controller

Ignitor subsystem

Valve Boiler Pressure vessel

High voltage, low current source

Aluminum feed subsystem Propulsion subsystem Alternator Alumina capture and dryer subsystem

Next Projects I am currently working on a water hydrolysis effort to produce and store hydrogen. This will be used for cooking and baking. Depending on the amount produced

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in the summer, the hydrogen can also be used as heating fuel. Filtered rainwater is captured to supply the hydrolyzer. There is abundant literature available for design considerations. I plan to store the hydrogen in outside and underground tanks. There are obvious safety risks which need to be considered. Another area I am investigating is the use of paraffin wax for heat storage. It melts at about 125oF (51.6oC), and it has a good heat of fusion equal to 95 BTUs per pound. Interestingly, paraffin contracts when it freezes. It does not conduct heat very well but this can be addressed by the design on the storage unit. Water at 125oF (51.6oC) is a bit too hot but can be tempered with some cold water. I am keeping abreast of the work being done in the field of what used to be known as cold fusion. There are currently two federal agencies studying this now. There are some poorly understood effects that have been seen. It is likely that cold fusion could be a contributor to helping with energy issues but it remains to be seen. Even though this practice may not be immediately applied in China, and/or adopted by ordinary Chinese households, I still hope that it might shed light on the many initiatives that China may want to try.

Conclusion All of the discussed examples are in the process of being commercialized. The air conditioner is the first. I am in the process of writing a book, Same Sun, which will provide more detailed drawings so that anyone may construct them. A great deal of time was spent to ensure that the components are easily available. A small investment in these systems will reduce the energy needs and reduce the growing need for energy production. The ideas presented are related to renewable energy and economic sustainability. The approach taken was to avoid group-think and by relating what the sun and the earth already provide us daily, to look at solutions that require little further investment, except the automobile design. We all need to work more closely with Mother Nature rather than fighting her. Hopefully this chapter and book will convey information to people who wish to simplify living on our planet rather than making it more complex and less safe. I hope my theory and practice can have some relevance to the Chinese people. We are all aware of the fact that the United States and China are the two largest economies and also the two largest energy consuming countries in the world. We are both facing the same issue of energy shortage problems, especially in the future. I believe that renewable energy is an excellent opportunity not only for the United States but also for China.

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5.22 The Difficulties Faced by Sany Group to Enter the Wind Power Market Liang Jiankang

Background Wind power industry Wind power is a new form of green energy and, according to statistics, 1 million kWh of wind energy can offset 600 tons of carbon dioxide emissions. Based on the initial investigation of the Chinese Academy of Meteorological Sciences, the total reserves of wind power in China have reached 3.226 billion kW, ranking the first in the world. Among these, the reserves of exploitable onshore wind power account for 253 million kW, and that of exploitable offshore wind power occupy 750 million kW, which add up to 1 billion kW, larger than the reserves of China’s water power. The abundance in wind resources provides favorable external conditions for the development of the wind power industry in China. In recent years, under the support from the state, China’s wind power industry has grown quickly and has formed a comparatively complete industrial chain, from the upstream wind power equipment parts manufacturers and the wind turbine manufacturers in the midstream, to the downstream wind farm operators. Since 2005, the installed wind power capacity of China doubled year after year. It climbed rapidly from 1.26 million kW in 2005 to 62.73 million kW in 2011, increasing 50 times, ranking first in the world. In October 2011, the first China’s Wind Power Development Roadmap 2050 was issued. The roadmap predicts that the installed wind power capacity of China will reach 200 million, 400 million, and 1 billion kW by 2020, 2030, and 2050 respectively. Wind energy will become one of the five major sources of power in China and wind power will be able to meet 17% of the domestic power demand by 2050. The statistics by the Chinese Wind Energy Association (CWEA) showed that the cumulative installed capacity of wind power in China was 62.73 million kW in 2011, which means there will be 140 million kW of installed capacity in the next 10 years.

Sany Group Established in 1989, Sany Group has now become the world’s largest manufacturer of concrete machinery and also China’s largest and world’s sixth largest maker of construction equipment. The company’s concrete machinery, pile driving

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machinery, and hoisting machinery occupy leading places in China. Its concrete pump trucks have replaced imported ones to win a dominant domestic market share of 57%, and the production and sales of the trucks have ranked the first in the world for many consecutive years. In 2007, Sany Group recorded sales revenue of CNY13.5 billion and became the first private enterprise with over CNY10 billion sales in Hunan Province. In 2010 and 2011, sales exceeded CNY50 billion and CNY80 billion respectively. In July 2011, Sany Heavy Industry was for the first time listed in the Fortune Global 500 with a market value of USD21.584 billion and was China’s only machinery enterprise on the list.

Sany Group stepping into the wind power market Sany Electric, as a wholly-owned subsidiary of Sany Group, was established in April 2008 in Shanghai for engagement in the wind power market. At first, the research and development (R&D) base of the company was located in Zhousha County of Shanghai before it was moved to the Sany Industrial Park in Beijing in September 2008. Sany Electric is mainly engaged in new energy utilization and automation equipment manufacturing with wind power generation at the core. Its major businesses include the design, manufacturing, and sales of wind turbines, booster engines, electric generators, control systems, turbine blades, and other core parts of the wind power facilities, and the special-purpose equipment for the construction of offshore wind power plants. The company also provides overall solutions from the selection of wind farm location, field measurement, and construction, to operation investment and equipment installation. Based on its rich experience in the equipment manufacturing industry and solid financial strength, Sany Group intended to build Sany Electric into the world’s leading manufacturer of wind power equipment, just like its other successful subsidiary, Sany Heavy Industry, which was the leader in the construction machinery field. Consequently, Sany Electric adopted strategies and paths distinct from many other wind power equipment makers. In China, wind power equipment manufacturers are regarded as assetlight businesses because their technical drawings are usually acquired abroad and the components and parts of the equipment are outsourced. Sany Electric, however, chose an asset-heavy model that features independent R&D functions and manufacturing of the entire industrial chain by depending on the strength of the whole group. Except for the main shafts which are imported from Sweden and Germany, all other key parts such as gearboxes, blades, converters, variable

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pitch controllers, operating systems, and motors are developed in-house and manufactured on a large scale. For this reason, Sany Electric built strong R&D teams of complete machinery and key parts, and also set up an overall research institute and offshore engineering research institute, apart from the five corresponding research institutes of its five subsidiaries. In addition, Sany invited Behzad Bigdeli, an American who used to work at the Danish R&D Center of the Vestas Wind Systems, to form a European research institute focusing on the R&D of the most advanced large megawatt-class wind turbines and the work of international certification. In fact, Sany Electric has achieved substantial success in R&D. At present, the company has obtained 67 patents (8 invention patents), and another 98 (75 inventions) are under patent application. After a three-year rapid development period, Sany Electric has acquired core technologies developed by itself in the areas of wind turbines, generators, control systems (including main control systems, pitch systems, and converters), blades, and offshore wind power construction equipment, and has been also able to undertake mass production. “From 2008 when the company was started to 2009, Sany Electric devoted nearly all its efforts to product development. We did not rush to expand the market,” Wu Jialiang, General Manager of Sany Electric, said. Those two years, however, were when wind power equipment-makers forcefully encroached on the market. The development model of Sany Electric made the company miss good opportunities in the wind power market, and ever since then, its market share remained low. According to the statistics of CWEA, Sany Electric ranked 19th among new wind turbine manufacturers, but its market share was only 0.6% in 2010. In 2011, its ranking was 17th with a market share of 1%. By the end of 2011, Sany Electric failed to enter the top 20 in the list of wind power manufacturers based on the cumulative installed wind capacity. At the moment, there are over 80 manufacturers of complete machines. Among them, the total market share of the top 3 (Sinovel, Goldwind, and Dongfang Electric Corporation) reaches nearly 60%; and that of the top 10 is as high as 85%. The highly concentrated market pattern left increasingly small opportunities for Sany Electric to join the best or even the second-best groups. The difficulties faced by Sany Electric are far more than that. Since 2008 when the group first entered the wind power industry, it has invested CNY3.15 billion. Affected by the deteriorating global economy and the slowing growth of the Chinese economy, Sany Group suffered large losses in its main business in the construction machinery field. One of the group’s major companies, Sany Heavy Industry, experienced a drop in profits and a growth in accounts receivable. Meanwhile, the rumors of the layoffs in Sany Group have constantly proven to be

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true. As the overall economy is under huge pressure, continued investment seems impossible for the group. The latest news said that the manufacturing base of Sany Electric in Zhangjiakou (Hebei Province) was closed according to the investigation of some reporters. The market generally took this as a sign for Sany’s withdrawal from the wind power industry.

Analysis and conclusions Although it is still early to declare a failure of Sany Group’s investment in the wind power industry, Sany Group’s wind power business was trapped in the predicament and deviated from its ambitious goals set at the initial stage of Sany Electric. The unsmooth development of Sany Group in the wind power industry can be attributed to both the problems of the industry and the mistakes in strategy and execution of the company.

The problems of the wind power industry Behind the astonishing “Chinese speed” development of the wind power industry, a series of problems — excess capacity, vicious price competition, inadequate R&D capacity, unstable quality of equipment, and poor adaptability of grid connection —  are accumulating. In 2011, since the global wind power industry entered a low, the development of the Chinese wind power market slowed down. The newly increased installed capacity in China showed negative growth for the first time in the last 10 years, and Chinese wind power equipment manufacturers suffered a downturn in the market. The slowdown of the wind power industry exposed the long-standing and deep-seated problems. • The problems of wind power integration have not been completely settled. Although wind power is categorized as green energy, its great instability and large voltage changes require higher safety and absorption capacity of grids. China developed into a country with the largest installed capacity of wind power in 2010, but it has not become the largest user of wind energy. According to the statistics of CWEA, around 10 billion kWh of wind energy was curtailed in China, which hit an all-time high. The statistics from the State Electricity Regulatory Commission (SERC) indicated that the proportion of wind power curtailment in some provinces and cities of China reached 20% in 2011, and the proportion was more than 30% in the wind resource-rich areas in northern China and this resulted in direct economic losses of nearly CNY10 billion.

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• The lack of core technology, and the excess capacity of equipment manufacturing industry. According to the quota plan of relevant state departments, the average installed capability of China will be around 15 million kW between 2011 and 2015, however, the installed capacity of wind power equipment had already reached 35 million kW in 2010. In the Boao Forum in April 2012, Zhang Guobao, Chairman of the National Energy Administration, admitted that there was excess capacity in China’s wind power equipment manufacturing. The immediate consequence of this was a price war and vicious competition, and then a decline in the profit margin of the whole industry. The price for a complete set of wind turbines was CNY10,000 per kW, but it dropped to CNY6,500 per kW in 2008 and CNY5,400 per kW in 2009 before it fell below CNY3,500 per kW in 2010. Based on the financial statistics of 20 major listed companies of wind power, we can find that the income of these companies was up by 11.3% year on year while the net profit declined by 19.4% year on year in 2011. Among them, the leading wind power companies — Sinovel and Goldwind — suffered a 70% profit decrease. • The quality of equipment and the stability of the grid cannot be guaranteed. According to statistics, there were 35 incidents of wind turbines tripping off the grid and these incidents fell within the responsibility of the State Grid Corporation of China. Among these accidents, the tripping of large-scale wind turbines occurred 6 times and 3,848 wind turbines tripped off the grid after 2011. The frequent occurrence of those accidents reflects a series of problems, the including a lack of low voltage ride-through capability of wind turbines, inadequate construction observation of wind farms, the risk of large-scale wind farm integration on overall grid safety, and the poor management of wind farms. The chaos of the wind power industry urged relevant state departments to issue a series of regulatory policies in order to control the pace of industrial growth and ensure the sustainable development of the industry. Among those policies, the Guidance Catalogue for Industrial Restructuring (2011 Version) pointed out the prominent problem of excess capacity in the wind power industry. China’s Wind Power Development Roadmap 2050 predicted that the present subsidies to wind power would be gradually removed. The Interim Measures for the Administration of Wind Power Development and Construction clearly recovered the approval rights of wind power projects from local governments in order to further slowdown the overheated development of the wind power industry at the local level. The Design Regulations for Large-scale Wind Power Connecting to the System and another 17 new national standards of the wind power industry explicitly stipulated the access criteria of the wind power equipment manufacturing industry, which is beneficial to breaking through the technological bottleneck in the development of China’s

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wind power industry and promoting the transformation of China from a large wind power country to a wind power superpower. With the adjustments made in relevant government policies and the exposure of many problems in the wind power industry, the growth opportunity for the industry is gradually shrinking and the wind power industry meets with an unprecedented development bottleneck. The excessive market competition and the rise of technical threshold will bring about the consolidation of the whole industry, which is both a challenge and opportunity for the wind power industry. But in the long run, this industrial consolidation will promote the increase of product quality and the healthy and orderly development of the industry. It is inevitable that the wind power industry will transform from speed- and scale-oriented development to quality- and efficiency-oriented development.

Lessons learned from the experience of Sany Group in the wind power industry 1. The strategic orientations of new entrants into an industry need careful consideration. Although Sany Group has made great achievements in construction machinery and equipment manufacturing industries and accumulated plentiful experience and abundant capital, it remains a new comer in the wind power industry. In 2008, the market shares of foreign famous wind power equipment brands had shrunk, but their influence remained large; and at the same time, Sinovel, Goldwind, and Dongfang Electric occupied half of the wind power market. At this point, Sany Electric, as a challenger, was determined to be the market leader without considering its survival at the initial stage of business in its strategy arrangement. When the huge investment from the group could no longer sustain the company’s development and Sany Electric had not formed a profit-earning ability, the company would definitely get into trouble. 2. Which should be given priority, technology or market? This is a hard decision. It has to be admitted that Sany Group knew well the weak spot of domestic manufacturing industry, that is the lack of independent core technology. To overcome this weakness is the secret of the success of Sany Group. Its huge R&D system and vast R&D investment are guarantees for its leadership in the construction machinery industry. In the wind power industry, the same problems and opportunities also exist. A report from the Wind Power Committee of China Renewable Energy Society said that China’s wind power industry was weak in technological innovation capability, and still relied on imported core technologies from abroad without getting rid of the mode of

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introduction and imitation over and again. Considering this situation, Sany Group decided to choose an asset-heavy model of independent R&D and development of the whole industrial chain at the expanse of giving up the chance to seize the market. However, it was a pity that before the core technologies had been fully developed and showed results, market opportunities were lost. Besides, the limited time given by the market, the great need for manpower, materials, financial resources, and technical support presented challenges to the company’s management. It now appears that Sany Group did not make longterm and sufficient preparation for this opportunity. 3. Whether to hold on or give up is a tough choice. After this four-year effort, the wind power business of Sany Group did not make a profit and Sany Electric failed to be the industry leader. In addition to this, since the group can no longer sustain investment in the wind power industry, Sany Electric was in a difficult position in the face of the coming industrial consolidation. The wind power industry is the industry with the most potential green energy. The future of the industry is bright, despite the various problems discussed above. The government’s policies aim to promote a more healthy and orderly development of the wind power industry instead of urging industrial contraction and transformation. In the face of the bright prospect of the wind power industry but harsh survival conditions, Sany Group and many other similar companies in the wind power industry face a tough choice: keep going or give up?

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5.23 Renewable Energy in Nanyang City Zhang Xiaoyang and Feng Wensheng

Nanyang City is a regional key city at the junction of Sichuan, Chongqing, Hubei, Henan, and Shaanxi provinces and also the centers of politics, economics, culture, education, science and technology, logistics and transportation in the southwest of Henan Province. Being one of China’s historical and cultural cities as recognized by the State Council, Nanyang was one of the six major cities in the early Western Han Dynasty, the birthplace of Emperor Guangwu of Han, and also the place where the thatched cottage of Zhuge Liang, a famous Chinese statesman is located. It is an important tourist attraction in Central China and a comprehensive refection of Chu culture and Han culture. Nanyang City is not only a famous historical and cultural city in China, but also a prominent city in developing renewable energies.

The distribution of renewable energies in Nanyang Bioenergy The available biomass resources in Nanyang City include agricultural and forestry wastes, farming waste, light industrial waste, and household waste, among others. Straw is the main source of biomass resources. The straw yield of Nanyang is around 11 million metric tons (5.5 million metric tons of standard coal equivalent), accounting for 1.6% of national straw output. The per capita amount of crop straw resource of Nanyang is two times that of the national average. At present, the available amount of straw is 7.8 million metric tons which equals to 3.9 million metric tons of standard coal equivalent. The gross livestock, poultry and human excrement of the city is about 22.12 million metric tons, equal to 713,000 metric tons of standard coal equivalent. If all these biomass resources are used to produce biogas, there will be 974.46 million m3 of biogas, among which 1.28 million metric tons is from human (rural population) excrement; 3.8 million metric tons from swine manure; 11.52 million metric tons from cattle manure; 257,800 metric tons from donkey, mule, and horse wastes; 2.46 million metric tons from poultry (chickens and ducks) waste; 2.66 million metric tons of sheep droppings; and 130,000 metric tons from rabbit droppings. At the moment, 56% of waste is directly used as fertilizer, mainly from poultry and livestock excrement in scattered farming; about 20% is lost due to difficulties in collection and for other reasons; and approximately 24% of waste from centralized farming may form pollution and thus needs to be treated. In fact, animal waste (including human excrement) are good resources for methane fermentation, and

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the residue after fermentation can be used as organic fertilizer. In this way, both energy and fertilizers will be produced. Waste from light industry include organic wastewater (waste residue) from alcohol, beer, starch, beverage and paper industries, and the appropriate energy utilization method is to produce biogas through anaerobic digestion. The total light industry waste of Nanyang City is 17.04 million metric tons (260,000 metric tons of standard coal equivalent), and this will generate 355.43 million m3 of biogas, if all the wastes are used for biogas production. Among the waste, organic wastewater and waste residue from major light industries in the central area of the city equals 6.47 million metric tons, which can be converted into 150.47 million m3 of biogas (see Table 5.23.1). Table 5.23.1 The volume of organic wastewater (waste residue) discharged from major light industries in Nanyang City and the corresponding biogas yield

Company name

District

Village/ township

Type of industry

Henan Tianguan Biological Engineering

Wancheng District

Zhongjing subdistrict office

Fuel ethanol, and beer

Wahaha Production Base Of Nanyang

Wancheng District

Lihe Township

Henan Chuangji Dairy

Wancheng District

Henan Yaowei Science and Technology

Wancheng District

Total

Volume of wastewater (waste residue) discharged (10,000 metric tons)

Biogas yield (10,000 m3)

600

15,000.00

Beverage

41.51

41.51

Xindian Township

Beverage

5.21

5.21

Lihe Township

Paper making

0.02

0.48

646.73

15,047.2

Household waste is mainly the sludge and feces from sewage treatment plants, and solid refuse from urban households (please refer to Table 5.23.2 for the volume of sludge production and municipal waste clearance). Among that waste, sludge and feces are suitable for methane fermentation. The sludge output of the city is 1.04 million metric tons which can be turned into 6.93 million m3 of methane resources, equal to 5,100 metric tons of standard coal equivalent. The amount of household

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excrement is 343,700 metric tons which can produce 16.50 million metric tons m3 of biogas, equal to 12,100 metric tons of standard coal equivalent. Table 5.23.2 Nanyang City municipal waste generation Municipal The energy The Sludge waste Biogas Percentage Volume of production collected heating contained in Wastewater converted of industrial wastewater value of municipal (10,000 and volume treated from sludge wastewater 3 waste waste (×105 metric transported (10,000m ) (10,000, m3) treated (%) (10,000, m3) GJ) (MJ/kg) tons) (10,000 metric tons) Central urban area

3,833

60.01

2,300

34.5

231.84

30.96

5

15.48

Currently, Nanyang City generally collects 850 to 950 metric tons of household refuse per day, and the collection amount can be as high as over 1000 metric tons on peak days. With the further improvements in waste collection, disposal, and transport, and the expansion of waste collection area to the rural region, the total amount of household waste will exceed 1,000 metric tons per day. The energy produced by household waste per year is equal to 178, 200 metric tons of standard coal equivalent. The total biomass resources of the city can be converted to 5 million metric tons of standard coal equivalent, 1/4 more than the energy consumption of 2009. Taking advantage of its abundant biomass resources, Nanyang City developed biomass energy from three aspects of fuel ethanol, biogas, and biomass power generation. Fuel ethanol The annual production capacity of fuel ethanol of Nanyang City is more than 500,000 metric tons, accounting for 30% of national production. There are three features of the fuel ethanol development in Nanyang. First, there is the supply of diversified resources. At the moment, the proportion of non-grain fuel ethanol increases gradually to about 30% of the total ethanol production, with the other two major resources being excess stocks of wheat and corn. The supply of these raw materials can be timely adjusted based on the market price and demand in order to maximize the economic and social benefits of the suppliers. The cellulosic ethanol technology developed from straw and other crop waste by Tianguan Group in Nanyang is among China’s most advanced technologies in this area.

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Second, production methods are flexible. The Tianguan Group owns the flexible production technology which can be used for ethanol production from a great variety of raw materials. Its production line is suitable for converting cassava, sweet potatoes, corn, wheat, and other raw materials into fuel ethanol, and it can achieve cleaner production. Third, there is the circular economy. Due to the fact that Tianguan Group was among the first group of national circular economy pilot enterprises, the group not only increased the yield of the main products, but also fully explicated and utilized the byproducts during the fuel ethanol production. Distiller grains were used to produce Distillers Dried Grains (DDGS) high-protein feed, biogas, and organic fertilizer, and the distillage was also reused for other purposes. Carbon dioxidebased biodegradable materials were made based on carbon dioxide. In addition, relying on the cellulosic ethanol technology, the group developed an industry chain from ethanol to ethylene and then to downstream products on the basis of biomass waste, and an industry chain of carbon dioxide-based materials (or chemicals) and downstream products based on carbon dioxide, in order to create a “Tianguan biorefinery mode of multiple-level circular utilization.” Biogas The biogas industry of Nanyang City has developed from pure energy utilization to waste disposal and comprehensive and multi-level utilization of biomass. In 2009, there were 490 large- and medium-sized biogas digesters, and every 10,000 households occupied 21 biogas digesters, 1.9 times the number of national average. The city has formed a biogas production capacity of 57.60 million m3, and is able to dispose 16 million metric tons of organic solid waste and wastewater per year. The biogas users of rural households reached 468,000, accounting for 20% of the total rural households of the city, and is 1.74 times the percentage of national average (11.5%). The annual biogas production of the city would be as many as 140 million m3. There are 522 biogas digesters of centralized biogas supply, with a total pool capacity of 34,710 m3. Among them, 90 biogas digesters have a capacity less than 50 m3. There are 50 breeding farm biogas projects with a total pool capacity of 66,110 m3, among which the proportion of large- and medium-sized farms accounts for 14.6%, which is much higher than the national average of 0.08%. Nanyang City also owns eight biogas projects from light industry wastewater and solid waste, and the biogas production of these projects is among the highest in the country. At present, the annual biogas production from light industry wastes can reach 50 million m3. After the construction of these biogas projects, the city has basically formed an industrial development team of agricultural biomass, and now the total number of

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rural biogas service centers in the city amounts to 586. Biomass power generation Despite a late start, biomass power generation in Nanyang City developed rapidly in recent years. Up to June 2009, more than 1.5 million m3 of biogas was used for power generation with an accumulated power output of over 2.6 million kWh. The existing installed biogas capacity of breeding farms reached 1,440 kW and had generated 3.5 million kWh of electricity. Organic wastewater and solid waste from light industry can produce 500,000 m3 of biogas per day, among which 420,000 m3 was left aside for civil use and the rest was for biogas power generation. At the moment, there are three power generation projects of straw direct combustion which are completed or under construction, and one power generation project of straw gasification. Among them, the biomass direct combustion power plant of Zhenping County Liyuan Thermal Power Company has been built and put into operation in July 2012, and the installed capacity of the first phase is 24 MW with an annual consumption of crop straw of 174,000 metric tons. The biomass direct combustion power plant of Wancheng District is at the planning and preconstruction period, and the installed capacity of its first phase is also scheduled to achieve 24 MW.

Solar energy Nanyang City is located at 32°17’–33°48’ north latitude and 110°58’–113°49’ east longitude. It lies in the transition zone from the subtropics to the warm temperate zone. It has a typical semi-humid continental monsoon climate with four distinct seasons and sufficient sunshine. The number of sunny days in normal years can reach more than 200 days per year with the average annual sunshine hours of 1,973 hours, and the annual total solar radiation could exceed 4,500 MJ/m2 (160 kg of standard coal equivalent). So the city has an advantage in solar energy utilization. At present, the development of solar energy in Nanyang city remains in its infancy, and large-scale utilization of solar energy has not yet formed.

Water resources Nanyang City is an alluvial plain of Baihe River. Due to the differences in lithology, thickness, depth of groundwater, and recharge condition of aquifers (groups), the water abundance of aquifers differs markedly. According to the value of transmissibility coefficient and unit inflow (q) of different parts of aquifers

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(groups), the water richness of aquifers (groups) can be divided into the following three zones. Extremely rich zone This zone is mainly located in the Baihe floodplain, southeast of the line from Yuanzhuang, northeast of the city, to Wangfu. In the south bank of Baihe River, the zone is located in the Baihe floodplain, north of the line from Liulinzhuang to Xiao Penyao. The total coverage of the extremely rich zone is around 33.3 km2, occupying 35.9% of the alluvial plain of Baihe River in the urban area. The aquifer is mainly composed of coarse sand, cobble gravel, and sandy gravel. The aquifer thickness is 25 to 50 m with a permeability coefficient of 40 to 100 m/d and a transmissibility coefficient of 1,000 to 2,500 m2/d. The specific yield of aquifers is between 0.1 and 0.3, and its unit inflow is 30 to 60 m3/h•m with the average inflow of 49.77 m3/h•m (based on the statistics of 32 wells [holes]). The depth of groundwater is between 3 to 10 m. This zone owns generally good-quality water and convenient exploitation conditions, and thus is the ideal place for setting up water exploitation wells. Relatively rich zone The relatively rich water zone is a zonal area situated at the northwest of the line from Yuanzhaung to Wangfu. In the south bank of Baihe River, it distributes in the south of the line from Liulinzhuang to Xiao Penyao. The total area of this zone is approximately 37.0 km2, accounting for 39.8% of the alluvial plain of Baihe River in the urban area. The composition of the aquifer is mainly sandy gravel, and the aquifer thickness is generally between 15 and 44 m with certain areas of 50 m. The permeability coefficient is 40 to 100 m/d and transmissibility coefficient is 600 to 1,000 m2/d. The specific yield of aquifer is between 0.1 and 0.3 and the unit inflow is 15 to 30 m3/ h•m with an average inflow of 23.84 m3/ h•m (based on the statistics of 28 wells [holes]). The underground water depth is between 5 and 15 m. Moderately rich zone This moderately rich water zone is mainly found in the north bank of Baihe River with a total area of 22.6 km2, accounting for 24.3% of the alluvial plain of Baihe River in the urban area. The aquifer lithology is mainly characterized by medium coarse sand, medium fine sand, and cobble gravel. The aquifer thickness is generally between 5 and 25 m while that of the island-shaped area is between 30 and 42

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m. The permeability coefficient is 40 to 80 m/d and transmissibility coefficient is 300 to 700 m2/d. The specific yield of aquifer is between 0.1 and 0.25 and the unit inflow is 5 to 15 m3/ h•m with an average inflow of 10.86 m3/ h•m (based on the statistics of 12 wells [holes]). The underground water depth is between 2 and 4 m. The shallow groundwater of Nanyang City is closely related to precipitation and groundwater, and they are interchangeable and interdependent. Statistics indicated that in wet years, the total recharge capacity of Nanyang City could reach 73.08 million m3/a, among which the hilly area accounts for 17.06 million m3/a while the plain area occupies 56.02 million m3/a. The total excretion could amount to 54.31 million m3/a, among which 12.09 million m3/a is from the hilly area and 42.22 million m3/a is from the plain area. In dry years, however, the total recharge capacity is estimated to be 45.85 million m3/a. The recharge capacity of the hilly area is 8.40 million m3/a while that of the plain area is 37.45 million m3/a. The total excretion is able to reach 55.52 million m3/a, with 10.92 million m3/a from the hilly area and 44.59 million m3/a from the plain area. There are many rivers flowing through Nanyang and these rivers belong to the three major river systems of Yangtze River, Huaihe River, and Yellow River, with 85 rivers having a drainage area of over 100 km2. The main rivers in the city include Danjiang River, Tanghe, Baihe River, Huaihe River, Tuanhe River, Diaohe River, Guanhe River, etc. The water area of Nanyang is 2.98 million mu (198,933.33 hectares), and the runoff volume is 6.7 billion m3. The volume of total water resources reached 7.04 billion m3, and that of underground resources is 2.66 billion m3. Nanyang City ranked the first in Henan Province in terms of total water reserves, water volume per mu, and water volume per capita. In conclusion, Nanyang City is rich in shallow groundwater reserves with good recharge capacity, and the temperature of shallow groundwater is around 64.4ºF (18°C) throughout the year with abundant geothermal energy. Thus, the city possesses favorable conditions for the exploitation of shallow geothermal energy.

The status quo of renewable energy utilization Biomass Tianguan Group is the leading enterprise in Nanyang City, which develops biomass energy, especially fuel ethanol, and also the industrial leader around the country. Since the above section has detailed the development of biomass by Tianguan Group as a case study, this part will not be further expanded.

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Biogas Household biogas: Up to the end of 2011, the number of active biogas household consumers in the central area of Nanyang City (including Wancheng District and Wolong District) was 43,105 (22,658 from Wancheng District and 20,448 from Wolong District), the annual use of biogas amounted to 13.69 million m3 (7.37 million m3 from Wancheng District and 6.31 million m3 from Wolong District), equal to 9,772 metric tons of standard coal equivalent. Centralized biogas supply and breeding farm biogas: As of the end of 2011, there were 164 centralized gas supply and breeding farm biogas projects in the central area of Nanyang City with the total capacity of 28.665 m3 (Wancheng District accounts for 2,885 m3 while Wolong District accounts for 25,780 m3). These projects supplied biogas for 5,400 households (810 from Wangcheng District and 4,590 from Wolong District), and consumed 2.80 million m3 of biogas per year (143,921 m3 from Wangcheng District and 2.66 million m3 from Wolong District), approximately equal to 2,000 metric tons of standard coal equivalent. Industrial biogas: In May 2009, Tianguan Group invested CNY650 million in constructing a biogas project with a production capacity of 150 million m3 per year in the Tianguan Ecological Industrial Park. The project mainly takes the waste from ethanol fermentation as raw materials to produce biogas, and according to the plan, the biogas utilization is targeted towards three directions: (1) The project of combined heat and power generation from biogas and multi-level intensive use of energy consumed 90 million m3 per year, and achieved an annual power generation of 180 million kWh and annual steam output of 29,000 metric tons with the energy efficiency reaching over 80% through a new multi-level heat and power utilization mode from biogas for power generation, to waste heat for firing boilers, and then to steam for heat and power cogeneration; (2) the project of preparing vehicle gas through biogas purification and compression used 30 million m3 per year, and powered 1,940 city buses, delivery vehicles, sanitation trucks, and taxies (430 vehicles were transformed) through the water washing method to remove sulfur and carbon; and (3) the project of making biological fuel gas for civil use by refining and compressing biogas demanded an annual biogas consumption of 30 million m3. It provided gas for urban residents in the central city via the WestEast natural gas pipeline network before the desulfurization, decarbonization, and compression of biogas through the water washing method. The length of the newly-laid pipelines was 300 km, and the number of newly-increased gas users was 80,000. At the end of 2011, the project achieved a biogas consumption of 120 million m3 per year (around 85,680 metric tons of standard coal equivalent). Among this, 60 million m3 of biogas was used per year for the heat and power supply in

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factories, 30 million m3 was consumed by cars, and 30 million m3 was converted to gas for civil use. Landfill gas: Nanyang City has a municipal solid waste landfill with the daily disposal capacity of 1,000 metric tons. The landfill was full and was closed in 2010. A landfill gas generator was installed in the landfill, which had the installed capacity of 2×500 kW, and was able to use 2.66 million m3 of landfill gas per year, equal to 1,900 metric tons of standard coal equivalent. By the end of 2011, the total annual biogas consumption, including household biogas, centralized biogas supply and breeding farm biogas, industrial gas, and landfill gas reached 137.148 million m3, equal to 97,924 metric tons of standard coal equivalent.

Solar energy At the moment, household solar water heaters are the most popular form of application of solar energy in buildings of Nanyang City. The popularization rate of solar water heaters are 27% in urban areas and 23% in rural areas. Additionally, the city has set up solar lighting and signaling facilities at traffic junctions, and also installed solar-powered garden lights, lawn lamps, and indicator lights. Despite all that, there is still a lot of space for the development of solar energy. A solar photovoltaic power generation system converts solar energy into direct current energy by making use of solar modules, and reverses the direct current energy into three-phase alternating currents (AC380 V, 50 Hz) through a gridconnected inverter. A photovoltaic power plant is designed as a grid-connected power generation system with no storage, and electricity generated by this system is transmitted to users through a high-voltage electrical power distribution cabinet in the substation of the building. The system can generate clean and green power for the use of indoor air conditioners, machine room air conditioners, offices, and production equipment. In 2011, the total photovoltaic power capacity of Nanyang City reached 2,000 kWp. The number of newly-installed solar street lamps was 400, which is a really small number and signals the large development potential. Building-integrated grid-connected photovoltaic power generation facilities will be built in the city, which will be first applied in public buildings including government offices, railway stations, stadiums, hotels, and shopping malls, as well as in large energy consumers in development zones and industrial parks, before such facilities are added to other buildings. Solar-powered street lamps will be widely used as the public lighting in streets, gardens, railway stations, and other places, and a group of solar + LED energy-saving lighting demonstration projects will be carried out in Nanyang.

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The existing problems of renewable energy development and utilization There are some common problems existing in renewable energy development and utilization, such as the shortage of specialized technical talents, low level of application technology; incomplete fiscal and taxation preferential policies; and improper use of the rich resources. Most of all, Nanyang City has not developed the corresponding financing mechanism, which has led to the passive involvement of social capital. Taking the application of biogas for example, biogas projects as a supplementary measure for preventing and controlling pollution and optimizing enterprises’ internal resources have received investment from the project owners themselves. However, those project owners are mainly small- and medium-sized enterprises which possess limited capital, and even with a small amount of funding from governments at all levels, their investment capacity is still insufficient, thus weakening the investment targets and effects.

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5.24 Huigu Agriculture District: Making Low Carbon a New Way Of Life He Wenjun and Li Yang

Introduction Modern agriculture Modern agriculture features a diversified industrial pattern and multifunctional industrial system, which closely connects agriculture, industry, and trade, and integrates manufacturing, processing, and marketing, under the joint forces of the market mechanism and government regulation. It takes guaranteeing the supply of agricultural products, increasing farmers’ income, and promoting sustainable development as the targets, improving labor productivity, resource productivity, and commodity rates as the means, and modern technology and equipment as the support. Modern agriculture widely adopts ecological agriculture, organic agriculture, green agriculture, and other production technologies and modes in order to realize the sustainable utilization of fresh water, land and other agricultural resources, and to achieve a virtuous cycle of regional ecological growth. In 2007, Several Opinions on Promoting the Positive Development of Modern Agriculture and New Socialist Countryside Construction by the CPC Central Committee and State Council pointed out that “to develop modern agriculture is the priority of the construction of the New Socialist Countryside,” and the “modern agricultural system must be used to develop agriculture.” At the same time, the Decision of the Central Committee of the Communist Party of China on Several Big Issues on Promoting the Reform and Development of Rural Areas made a comprehensive plan for positive development of modern agriculture and implementation of strategic adjustments of agricultural structure, and proposed to build a market-oriented modern agricultural system with technological innovation as its means, and quality and efficiency as the goals. Modern agricultural is no longer a concept of industry, but an industrial system in which different stages of pre-production, production, and post-production are closely related to each other. In this industrial system, the production factors (including human resources) supporting industrial development have been fundamentally changed, due to the massive introduction of technologies and advanced materials and equipment. In addition, influenced by modern management and economics, modern agriculture emphasizes more the innovation of operation ideas and mode, and its operational basis has changed into modern market economy. As a result, agriculture will develop into a sustainable industry.

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Sichuan Wellcrop Agricultural Technology Corporation Sichuan Wellcrop Agricultural Technology Corporation was set up in 2003, and is a complete solution provider of modern agricultural industry. The company is dedicated to offer comprehensive services including agricultural park planning, construction, and operation consultancy, among others to agriculture investment firms. Wellcrop Agricultural Technology has always been committed to integrate the ideas of low carbon, environmental production, and sustainable development in the planning and design of agricultural parks by means of the utilization of solid and liquid wastes through biogas technology, reasonable layout of agricultural parks, and rational allocation of resources in the parks. The company owns a business team with extensive theoretical knowledge and abundant practical experience. The team displays considerable proficiency in planning, construction, research and development (R&D), agricultural technical guidance, and post-operational services, and is able to solve a series of problems encountered by investors in their investment. The company organizes a group of senior experts as its consultants by taking advantage of local academic resources from the Chinese Academy of Sciences, Sichuan Academy of Agricultural Sciences, and Sichuan Agricultural University. Sichuan Wellcrop Agricultural Technology has undertaken a great number of projects which have won high praise from customers, and therefore established a good reputation in the industry. Sichuan Wellcrop Agricultural Technology constantly struggles to develop by adhering to the spirit of “hard work, cooperation, dedication, and sharing,” and following the trend of agricultural development. Since the establishment of the company, it has achieved outstanding results in agricultural planning, industrial park design, intelligent agriculture, creative agriculture, and many other domains, and incorporated low-carbon development, environmental protection, and sustainable development into its corporate culture.

Low-carbon development and sustainable development Agricultural planning Sichuan Wellcrop Agricultural Technology Corporation has abundant experience in professional planning and implementation of agricultural park projects, and mainly offers investment environment investigation and analysis, interpretation and advice on effective use of policies and regulations, breakthrough mode formulation, on-site instruction and consulting services, agricultural technical

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guidance, and industrial information consultation. Since its establishment, the company has participated in a series of government modern agriculture projects, including the Bazhong City selenium-rich organic and modern agricultural industrial belt, a high-end sightseeing agricultural park demonstration project, and the Deshang farm — Chengdu garden city comprehensive demonstration project, and formulated a lot of detailed project plans, such as the China winter strawberry plantation industrial technology demonstration park, and Guangwu Mountain color seedlings and rare plants research and development base. The company has infused the idea of circular economy into every agricultural park’s planning and design, and insisted on the planning concepts of low-carbon development, environmental protection, and sustainable development.

Agricultural park design Sichuan Wellcrop Agricultural Technology has undertaken the construction projects of agricultural parks on many instances, and built intelligent greenhouses, nursery greenhouses, cultivation facilities, irrigation and fertilization facilities, automation and control facilities, and other modern agricultural facilities (see Fig. 5.24.1). During the design of the agricultural park, the company focuses on saving energy, environmental protection, and the utilization of renewable energy. Fig. 5.24.1 Modern agriculture: plant walls

Plant wall

Moving hedge

Green screen

Babylone

• Biogas projects: The wastes from daily life in the agricultural park are disposed of through centralized treatment to reduce waste disposal of the park by constructing environmentally-friendly toilets, centralized farming system, and other projects. The biogas output could meet the daily energy needs for lighting, cooking, etc., and biogas slurry and residue would be made into organic fertilizer for the use of agricultural production in the park. • Organic fertilizer plant: The plant could recover the wastes from daily life and production in the park, such as straw, unwanted branches, wood chips, and

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food waste, and convert them into organic fertilizer by adding active probiotics and allowing the wastes to go through fermentation and decomposition. This helps achieve zero emissions, zero pollution, and ecological and environmental protection. • Aquaponic system: Aquaponics is a technology which enables the coexistence and interdependence of microorganisms, plants, and fish in a symbiotic environment. It takes advantage of the ecological relationship among the three organic matters to realize the circular and continuously dynamic movement of energy and substances, and builds an artificial system which imitates but overtakes natural ecosystems. • Circular agriculture: The company advocates circular agriculture and the scientific application of technologies, such as rice-fish symbiosis, non-timber forestry farming, floating island planting and breeding, and makes full use of biological resources on the basis of environmental protection and low-carbon development, in order to achieve the double successes of ecological and economic benefits. • Food safety: Since the company calls for safe and ecological food production, agricultural production within the park operates according to organic standards and eliminates the use of pesticides and fertilizers to ensure the production of safe, green, and high-quality vegetables, grains, eggs, meat, and other food products. Fig. 5.24.2

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Renewable energy: Changtan Village clean energy project Changtan Village of Zhengzhi Town rests at the foot of Longer Mountain near Qinghua River and has an average elevation of 600 m. It is along the Guangyuan– Baizhong Expressway and is one kilometer from Zhengzhi Town. The village administers three agricultural production cooperatives composed of 302 households with a population of 1,040. The village has flat terrain and fertile soil, and belongs to typical subtropical humid monsoon climate. This provides the favorable conditions for developing planting and breeding industries. According to the New Socialist Countryside construction targets of the integrated building “The Nanjiang County New Countryside industrial demonstration zone, back garden of Bazhong City, and eco-resorts,” Changtan Village strives to build itself into the No.1 village along the Guangyuan–Bazhong Expressway in the New Socialist Countryside construction by taking the construction of supporting infrastructure as a breakthrough, the development of seedling cultivation base and health resort as the focus, the renovation of rural households as the starting point, and the increase of rural income as the target. The clean energy unitization plan of Changtan Village mainly included the construction of biogas systems, sewage treatment systems, and solid waste disposal systems. Sichuan Wellcrop Agricultural Technology cooperated with Sichuan Yaoneng Environmental Protection Engineering and Beijing Huaqing Company, and formulated a detailed construction plan of biogas digesters. They planned to build a biogas digester with a daily production capacity of 600 m3. In the construction of the sewage treatment system, they intended to undertake the following projects: 1. Constructed wetland: It is an artificially created and manually operated marshtype area. It is designated to treat wastewater and sludge through the synergetic effects of natural physical, geochemical, and biological processes of soil, artificial medium, plants, and microorganisms, when sewage and sludge are disposed under control to the artificial wetland, and flowing along a certain direction. Its mechanism includes: adsorption, retention, filtration, redox, precipitation, microbial decomposition, transformation, plant shelter, residue accumulation, transpiration of water, nutrient uptake, and the functions of various animals. 2. Rural sewage treatment: Before being discharged into the environment, sewage will be filtered through a process: household sewage → septic tank → anaerobic tank → aerobic treatment → constructed wetland (where hygrophilous and highly absorptive plants with a developed root system such as lotus root, canna, water onion, and calamus are cultivated). 3. Aerobic (aeration) treatment: Through the impellers of aerator, microbubbles

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are directly injected in the untreated sewage, and under the collective effects of coagulants and flocculants, suspended solids undergo physical flocculation and chemical flocculation and form large flocs which will float on the liquid surface under the buoyancy effect of bubble clusters to form scum that will be separated from the water by a scum scraping machine. There is no need to clean the nozzle, because blockage will not occur.

Conclusions Sichuan Wellcrop Agricultural Technology has discovered serious environmental problems in the design and planning of agricultural parks from its experience. These problems mainly involve the following three aspects.

Serious environmental pollution The extensive use of pesticides and fertilizers: According to statistics, China annually produced more than 200 kinds of fertilizers, 500 kinds of processed preparations, and 400,000 metric tons of original drugs in the 1990s, making it the second largest producer in the world. The heavy use of pesticides lowers the safety and quality of edible vegetables, and high-toxic and high-persistent pesticides have been creating hidden dangers at people’s dining tables for ages. In addition to this, the long-term use of pesticides can enhance the drug resistance of pest and weed species, which will cause great difficulties for agricultural production and increase the usage of pesticides. Heavy pollution from livestock and poultry manure: In recent years, the adoption of livestock and poultry manure as fertilizer has sharply declined, causing severe separation between breeding and planting industries. The animal wastes are released and dumped indiscriminately, and aggravates the pollution to the environment year by year. Livestock wastewater contains a large amount of nitrogen and phosphorus which can cause water eutrophication; livestock and poultry breeding will bring about air pollution since it produces toxic gases containing substances like ammonia, sulfide, and methane; animal wastes contain a large number of pathogenic microorganisms and parasite eggs, and no or poor handling will result in outbreaks of human and animal infectious diseases and endanger human and animal health.

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Increasingly prominent water shortage The water resources per capita of China is only at one-quarter of the world average, and China is one of the most water-poor countries in the world. Agricultural water consumption represents 65% of total water consumption in China, in which irrigation water uses more than 90% of that consumption. This is because China is influenced by a prominent monsoon climate, and has a large-scale, semi-arid areas. Two-thirds of the country’s arable land needs to be irrigated. In recent years, overexploitation of groundwater resulting from agricultural irrigation and industrial development has led to a series of environmental problems including groundwater level drawdown, ground subsidence, rivers drying up, and saltwater intrusion. Meanwhile, water waste in agricultural irrigation is very serious in China. The average effective utilization coefficient of 0.475, and the utilization of natural precipitation is only 56%.

Reduction of areas for effective cultivation, and decline in the quality of cultivated land China’s cultivated land is constantly decreasing from 1.95 billion mu (1.30 trillion m2) in 1997 to 1.83 billion mu (1,217.33 billion m2) in 2011. The cultivated land per capita of China declined from 1.58 mu (1,053.33 m2) of a decade ago to 1.38 mu (920 m2), which was only 40% of the world average. Additionally, the quality of cultivated land is also deteriorating. According to the Investigation and Evaluation of China’s Cultivated Land Quality released by China’s Ministry of Land and Resources on December 24, 2009, the proportion of land with a production capacity of over 1,000 kg/mu was only 6.09%, and the quality of cultivated land was generally low. China’s existing low-yield land, such as alkaline soils, red soil hills, land of soil erosion, sandy soils, arid land, land of drought and flood, waterlogged land, is responsible for one-third of the total cultivated land. Judging from the development trend, the shortage of cultivated land resources and the decline in cultivated land quality are hard to be eased in a short period of time, and will restrict the development of modern agriculture for a long time.

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5.25 Foreign Wind Power Companies in China Li Ni

Wind power is a new energy with the most mature technology, the greatest potential in scale production, and the greatest commercial development prospects. Foreign-funded wind power companies have participated in or witnessed different development stages of the growth of China’s wind power industry. Judging from today’s market share, neither wind farm developers nor wind turbine manufacturers have dominated the wind power market in China — they act more like catalysts. Despite their small proportions, they are indispensable for the development of China’s wind power industry. In the following article, I will briefly review the different roles played by the foreign-invested wind power enterprises in the history of China’s wind power industry and discuss the difficulties met by these enterprises in the development of wind farms and wind turbine production as well as the corresponding solutions. The information was gathered from or compiled based on public sources.

The roles that foreign companies played at different stages of China’s wind power industry The period between 1983 and 1995 was considered as both the initial stage and the testing stage of China’s wind power industry. With the loans or grants from the governments of Denmark, Germany, and Spain, China gradually launched some small-scale wind power pilot projects. And in exchange, these European countries carried out test runs of their wind turbines in the Chinese market. In 1983, when Rongcheng City (Shandong Province) introduced three 55 kW wind turbines from Denmark and started the testing and demonstration of grid integration technologies, it signaled the beginning of China’s wind power industry. Between 1995 and 2003, Chinese governments at all levels successively promulgated a great variety of preferential policies, which pushed forward the wind farm start-ups. During this period, it was a sellers’ market and all wind turbines were basically provided by several international manufacturers. Most of the wind power equipment relied on imports and the equipment prices were relatively high. However, since 2003, the National Development and Reform Commission (NDRC) in China rolled out a series of incentives to encourage the development of the domestic wind power industry. For example, the early measures of offering the franchises of wind farms, delegating approval rights of wind power projects below 50,000 kW, and developing renewable energy based on the proportion of newly-

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increased installed capacity of thermal power in power firms greatly enlarged the scale of wind farms and also motivated the upper-stream manufacturers of the wind power equipment and parts. The injection of industrial capital boosted the overall capacity expansion. Under the encouragement of preferential policies for wind farm development and the rigid requirement of “no less than 70% of domestically-made wind-driven generators,” foreign-funded wind power giants began to emerge in Tianjin Wind Power Industrial Park and other industrial parks in China, which stimulated the overall development of the industrial chain from the manufacturing of wind power equipment to that of parts and components. The years between 2006 and 2009 were an all-round development stage for China’s wind power industry. During those four years, the accumulative installed capacity increased from 2,537.2 MW to 25,805.4 MW according to the statistics of the China Renewable Energy Society. The total installed capacity rose nine times and the annual compound growth rate nearly reached 80%. After the rapid growth between 2006 and 2009, the industry slowed down its development, and the annual growth rate was gradually reduced to 6%. In spite of this, according to the statistics released by the Wind Power Committee of the China Renewable Energy Society, the newly-added installed capacity of China in 2011 still ranked the first in the world, with installed capacity of over 17,631 MW accounting for 43% of total new installed capacity. In 2012 the development of China’s wind power industry followed the trend of 2011, with the newly-added installed capacity between 15 and 18 GW. Large-scale central government-led enterprises and local state-owned firms are the main forces for the wind farm development in China. Nearly 90% of wind power projects are completed by these companies. By the end of 2011, there were around 60 state-owned enterprises which participated in the investment and construction of wind power projects, and their accumulative grid-connected capacity exceeded 37.98 GW, accounting for 79.4% of the country’s total. Among them, China’s five major power generation groups took up 57% of the accumulative grid-connected capacity. Judging from the above statistics, it is obvious that foreign-funded wind farm developers occupy a comparatively small proportion with a limited development capacity in China’s wind power market. Major foreign participants include Iberdrola from Spain, AES and UPC of U.S.-funded independent developers, Hong Kong-owned developers, as well as some foreign wind power equipment developers who act as wind farm developers in the hopes to promote the sales of their products. Their performance in the wind farm appraisal system and their advanced management have impelled China’s wind power market to move forward in a more and more standard manner. Through analyzing the development status of some of those typical wind farm operators, we can see the

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difficulties and opportunities faced by those foreign-funded developers in the development of China’s wind farms.

The status quo, problems, and strategies of foreign-funded wind power developers Iberdrola Group is the second largest power company in Spain and was once the largest wind power operator in the world. By the end of 2012, the total installed capacity of its renewable energy facilities (wind power 98%, and others 2%) reached 14,034 MW, among which 13,735 MW had been put into operation. However, things were not going well for this wind energy superpower in China. The group conducted wind monitoring in Bayannur of Inner Mongolia and Qiqihar of Heilongjiang Province where the wind reserve capacity surpassed 1,500 MW, but no real wind farm was built there. Applied Energy Services (AES) is a global power generation enterprise and the largest independent power company in the world. The company was established in 1981 and now owns the installed capacity of over 39,000 MW in 25 countries, among which the capacity of wind power accounts for 24%. Its Asian business contributes 10% to its pre-tax income. As an early entrant to China’s wind power market, its business peak was reached when AES cooperated with Chinese firms to build more than 15 power plants within China. The company withdrew twice in China’s thermal power projects in 2000 and 2004, and finally, four kinds of wind power assets and the shares of a coal-fired power plant in China were transferred to Singapore’s Sembcorp Group. This sale marked the basic completion of the withdrawal of AES from China’s market. The acquisition included a 49% stake in four wind power assets owned through AES Huanghua, AES Hulunbeier, AES Xinbaerhu, and AES Chenbaerhu wind power companies. UPC Group is an American enterprise focusing on the development of renewable energy, and it conducts wind firm business in the U.S., Philippines, Indonesia, and China at present. Its wind power projects at home have already reached 1,000 MW. The Chinese subsidiary of UPC — UPC Renewables China — was established in 2006 and took control of the wind power development rights of over 11,000 MW in 11 provinces of China. Only three projects of around 150 MW, however, have been put into operation. UPC Renewables China received USD165 million investments from Global Environment Facility, Macquarie Bank, Deutsche Bank Masdar Clean Tech Fund, and CIAM Group in February and December 2010 and January 2011 to support the company’s wind power development projects in China. Now, the company is participating in seven wind power projects through different channels in China. 300

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Hong Kong-funded enterprises, compared with the other foreign-owned enterprises, enjoy the geographical advantage, and possess rich experience in China’s power market. The best representative is China Light and Power (CLP) Group. CLP Group was incorporated in Hong Kong under the name of China Light and Power Company Syndicate in 1901. After a century’s efforts, CLP has grown from an electric company focusing on the Hong Kong market to a leading investor and operator in the power industry of the Asia Pacific region and it owns over 60 power assets and retail businesses in Mainland China, Australia, India, Thailand, and Taiwan. At the moment, CLP is one of the largest investors in China and its businesses cover coal, nuclear, hydro-energy, and wind power have an attributable capacity of 5,911 MW. There are generally three ways for CLP to participate in the development of wind power development in Mainland China: equity participation in wind firm project companies, independent holdings, and the joint founding of the CGN. Wind Energy Company with China General Nuclear Power (CGN) Corporation. At the present stage, its wholly-owned projects include Qian’an I and II Wind Farm and Penglai I Wind Farm, which involve a capacity of 147 MW. The proportion of equity held by CLP in other project companies is generally above 40% with the majority reaching 49%, and the attributable capacity is around 400 MW. The group also controls 32% of the shares of CGN Wind Energy. Up to June 2012, CLP held 524 MW attributable capacities of the joint ventures, and the wind farm projects spread over Inner Mongolia, Heilongjiang, Xinjiang, Gansu, Jilin, Hebei, Guangdong, and Shandong provinces. We can get a clue of CPL development in the wind power industry in Mainland China from the 2012 annual report of the group. According to the annual report, influenced by the power rationing policy in North China, CPL decided to postpone its wind power projects in the northern provinces until the policy was relaxed, and divert its focus to the southern market instead. In 2013, the group planned to develop four wind power projects, and began to gradually change all its wind power projects into wholly-owned ones. In addition, due to the inconsistency in business development speed, CPL is determined to restructure the jointly-owned CGN Wind Energy with its shares reduced to 15.75%, and it also seeks selling opportunities. There is also another kind of Hong Kong-funded wind power developers, such as China Wind Power (CWP) and Hong Kong Energy (HKE). They are not the traditional power developers but new entrants driven by financial capital in the new energy market. The registered places of this type of enterprise are usually in offshore financial centers and they usually focus on new energy development. Although some of those companies are registered in Hong Kong, they conduct businesses mostly in Mainland China. For example, CWP specializes in wind and solar power operation and is devoted to the infrastructure construction of China’s

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wind and solar power farms. The group strives to offer an integrated solution to the development of wind and solar power generation. As of December 31, 2012, CWP Group had put into operation 26 wind farms and 7 solar plants. The total wind power installed capacity reached 1,409 MW, among which 638 MW was of attributable capacity. In 2012, the group obtained permissions for 14 wind power projects in South China with total capacity of 803 MW. Judging from the 2012 annual report of CWP, the group would continue its investment in the southern area where the power rationing policy had no effect, and at the same time it would actively sell its assets in the northern area. In the face of the power rationing policy in North China, and the longer approval cycle of wind power projects, the company intended to rely on the construction of the Ultra High Voltage Direct Current (UHVDC) transmission projects and the application of new low-speed wind turbines in the low wind speed areas in South China. The most typical example of complete machine manufacturers stepping into the wind power development domain is Gamesa Energy under the Gamesa Group. The Gamesa Group is a global wind turbine leader and its businesses consist of wind turbine production, investment, and development of wind farms as well as operation and maintenance services. At the end of 2012, Gamesa Group had sold and installed over 26,800 MW wind power equipment, provided operation and maintenance services of 19,100 MW, and invested wind farm projects of over 5,960 MW. As a global corporation, Gamesa has set up production and supply hubs and built local production factories in India, the U.S., and Brazil. It started the investment and development of wind farms after 1995 with its businesses spread over Europe, the U.S., Mexico, India, and China. Gamesa brought its wind farms to China in 2005 and led the trend of the machine manufacturers to engage in wind farm development in China. At present, among its grid﹣connected power generation projects in Inner Mongolia, and Liaoning and Shandong provinces, eight projects have a total capacity of more than 500 MW. Gamesa operates in a way of taking charge of wind farm development before the projects are verified and approved, while forming joint ventures with domestic developers after the projects get approval. There are basically two reasons for the participation of wind turbine manufacturers in wind power development: First, the producers can apply their own products in the self-developed wind farms in order to drive the sales of wind power equipment during industry downturns; second, they can acquire profits by transferring the wind farm equity if the wind power projects have a large generating capacity, and thus obtain premium investment. The difficulties faced by foreign-funded wind power developers in China’s market are typically of the following three kinds. First, long wind farm development cycle. It generally takes more than three years from agreement signing to the

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completion of a wind farm. The scale of foreign-owned enterprises is usually smaller than that of their domestic counterparts, and therefore the businesses of the former are concentrated in some specified areas, which will result in a slower transformation of the foreign-funded enterprises in sudden policy and environment changes. Early wind power development was preliminarily located in the “ThreeNorth” regions (Northeast China, North China, and Northwest China), Xinjiang, and Gansu, where economic developments are comparatively backward, power loads are small, and power networks are poor. After the large-scale wind power development reached a certain stage, the grid capacity was gradually saturated and the power rationing policies were frequently implemented in those areas. In 2012, more than 20% of wind power was curtailed in Eastern Inner Mongolia and Jilin. Domestic wind power developers which benefited from their large﹣scale and internal competition mechanism began to penetrate the southern market a few years ago. As a result, when the wind power projects were substantially cut down in number or even completely stopped in several provinces due to the power rationing policies, the domestic companies’ development projects in South China could compensate for their losses of installed capacity in the north. Foreign-owned enterprises have valued much about return on capital, so they devoted great efforts in the selection of the wind farm location. Since there was a shortage of low-speed wind turbines in the previous years, they overlooked the development of the southern market. Consequently, foreign firms lost the best timing for seizing the markets of southern provinces in the face of the present trend of the shift to the south in terms of wind farm development and relevant project approval focus. The result is that foreign developers accumulated huge installed capacity in the northern areas but faced fierce competition or a risk of cutting down or suspending their wind power projects due to the power rationing policies. The market share of foreign-funded companies further decreased. Second, there were financing difficulties. Wind power development is a capitalintensive industry and the costs for developing wind farms in 2011 were around CNY8,000 per kW. To build a 50,000 kW wind farm, CNY400 million will be needed. According to the provisions on the registered capital and total investment of foreign-funded companies and joint ventures, for a project like a wind farm, the proportion of capital contribution should be no less than 33%, that is to say, project companies should directly invest more than CNY100 million. Due to the fact that it is hard for domestic business banks to enforce foreign-based parent company guarantees, foreign-funded companies and joint ventures can hardly obtain loans from Chinese business banks. So these companies have to resort to foreign banks. On the contrary, domestic developers, especially the five major power generation groups and local state-owned developers, have built a close business relationship

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with domestic banks in the field of thermal power and other traditional forms of energy development. Therefore, when these domestic development groups engage in new energy development, it is easier for them to get credit. Besides, the capital requirement of domestic investment is only 20%, which means that foreign companies have to invest more capital in developing China’s wind farms. The common feature shared by the still active foreign-funded developers in China is that they all own either convenient financing channels or constant equity financing support. That is why most foreign developers undertake wind power development in the form of joint ventures. In the Sino-Foreign joint ventures, the foreign partners usually provide wind turbines and take up no more than 50% interests (noncontrolling interests) while the Chinese partners (controlling shareholders) are often responsible for project financing and construction activities. In this way, foreign wind power developers can solve the financing problems through cooperation with domestic companies and expand the number of development projects. At last, to let domestic developers be the controlling shareholders in the joint ventures is one of the conditions for wind plants to complete Clean Development Mechanism (CDM) registration and obtain income from Certified Emission Reduction (CER) trading. Third, there are difficulties at the project approval stage. Since most foreign developers undertake wind farm development in the form of joint ventures, the results of investment attraction, which are the focus of local governments, are usually less impressive than those expressed in the development agreements. By contrast, the five major power generation groups and local state-owned developers can bring benefits to the places where the wind farm projects are located through framework agreements or strategic agreements. As a result, foreign developers are losing attractions to local governments, which in turn causes the disadvantage of foreign-funded companies in the site selection of wind farms.

The status quo, problems, and strategies of foreign-funded wind turbine producers The rapid development of Chinese machine producers and parts suppliers poses strong challenges to foreign-funded wind turbine manufacturers. According to the statistics of China’s newly-added installed capacity in 2011, there were only three foreign-invested machine producers (Vestas, General Electric Wind, and Gamesa) among the top 20 wind turbine manufacturers. And the total newly-added capacity of these three manufacturers accounted for only 7.5% of that of the top 20. That is mainly because domestic wind power developers have always been very

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sensitive to the price of wind turbines. The cost for onshore wind turbines often takes up 60%–70% of the total wind farm cost. The development body of wind farms is usually formed by large central-government enterprises and local stateowned enterprises which will be responsible for wind turbine bid invitation and procurement. At the bidding stage, the domestic development groups focus more on the return on investment but may also consult project companies which are more concerned with construction costs. Consequently, this causes the long-term price-conscious environment in China’s wind power industry. Under the huge pressure of excess capacity, domestic machine producers have to reduce the prices of MW-level wind turbines to below CNY4,000 per kW. Wind turbines produced by foreign-funded companies, however, cost 10%–30% more than those made by their Chinese counterparts. Foreign wind turbine producers thus lose their competitiveness. Apart from the disadvantage of foreign companies in price, the penetration of domestic wind farm developers to the upper stream of the industrial chain also erodes the market shares of foreign wind turbine producers. The 2012 annual report of Goldwind disclosed that China Three Gorges New Energy held 14.17% of Goldwing shares and had become the second largest shareholder. In July 2011, China Creative Wind undertook strategic restructuring collectively with China Datang Corporation and the former became the backbone of Datang Technology Corporation. Guodian United Power Technology Company which benefited from the rapid development of its parent company, Guodian Group, in wind power development, outstripped Sinovel to be the number two in terms of domestic newly-added installed capacity in 2012 with a newly-increased capacity of 2,029 MW. However, simple price competition resulting from excess capacity since 2010 may have led to the poor quality of wind power equipment. The frequent occurrence of serious accidents has sounded the alarm for the exponentially growing wind power industry in the past few years. Shi Pengfei, Vice Chairman of the Chinese Wind Energy Association, thought that China’s wind power industry had entered an adjustment stage, and it was necessary for the Chinese wind power industry to reach a consensus in forming a complete and systematic appraisal system suitable for China’s actual situation through the collective efforts of all participants in the industry. Advanced technology and rich experiences are the advantages of foreign wind turbine producers. So in the past few years, they have engaged in the formulation of development plans for the wind power industry and joined the discussion of industrial evaluation standards in order to avoid direct price competition with domestic wind turbine manufacturers. At the end of 2011 Siemens signed a strategic agreement with Shanghai Electric to set up two joint ventures and planned to complete the installation of a 50 MW

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onshore wind power project in Guangrao County by the end of 2012. This was the first project that was collectively worked out by these two joint ventures, which marked the continuous participation of foreign wind turbine producers in the form of joint ventures by virtue of their technological advantages despite their comparatively small market shares in China’s wind power industry. Similarly, General Electric (GE) and Harbin Electric (HE) collectively funded HE-GE Wind Energy in Zhenjiang City, Jiangsu Province in October 2010, and HE Group acquired a 49% stake in GE Energy (Shenyang), which initiated all-round cooperation of the two companies in the wind power business. This mode of cooperation also ensured that foreign machine producers could participate again in the market competition and sell their products at the same prices as domestic enterprises by relying on the technological advantages. Besides, foreign wind power giants are trying to reverse their disadvantaged position in the pure price competition at its source through rebuilding China’s wind power appraisal system. In September 2011, the Wind Power Committee of the China Renewable Energy Society and Vestas Wind Technology (China) jointly prepared the China Wind Power Evaluation System Research Report. This report made a detailed description of the evaluation criteria in the following six aspects: wind turbines, wind turbine manufacturers, wind farms, post-project evaluation, and onshore and offshore wind farm tenders. The editorial board also invited Garrad Hassan & Partners, a leader in the international standard of wind power, to offer advice to wind turbine bidding in China and introduce typical cases of the similar bidding activities of advanced countries. The report elaborated in great detail the concept of lifecycle cost of energy in view of the over-attention on capital expenditure in the early period. The lifecycle cost of energy is decided by capital expenditure (CAPEX), operation expenditure (OPEX), and generating capacity. Capital expenditure mainly refers to the wind turbine procurement expenses, construction costs, and the costs of financing and insurance at the construction stage, which has long been the focus of the wind power industry. Operation expenditure is mainly determined by four factors, namely, system failure rate, maintenance costs, replacement costs, and spare parts costs. The generating capacity of wind farms is a joint result of several factors including the quality of wind turbines, machine model selection, and the micrositing of wind farms, among other factors. At present, the general availability of wind power in domestic wind farms is often above 95% while that of experienced enterprises which have built operation and maintenance teams, such as China Longyuan Power Group, could exceed 97%. It needs to be noted that such a high availability rate of Chinese machine manufacturers is achieved through sending on-site engineers. If the wind turbines are out of the warranty period, this method is not applicable because it

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will substantially increase the operation and maintenance costs. The advantage of the evaluation based on costs of energy is that machine manufacturers with a technological edge can provide a status monitoring system as an option in the supply of wind turbines. The maintenance review on the basis of maintenance plan in most cases can detect the failure in major components in advance, which can prevent the complete damage to these parts by timely informing repair service. In this way, the maintenance costs can be reduced and the generating capacity losses in the maintenance downtime will also be cut down through the reasonable arrangement of maintenance based on generating capacity forecasts. This evaluation system not only assesses the performance and adaptability of wind turbines provided by manufacturers for proposed projects, but also investigates the product research and development ability and professional experience of the manufacturers, especially the actual performance of wind turbines in previous projects. The new evaluation system will help the whole wind power industry get rid of the vicious cycle of “low quality and low price” under the lead of foreign wind turbine producers and some domestic machine manufacturers with technological reserves, which is beneficial to the long-term development of the industry. It also manifests the catalytic role of foreign machine producers in the development of China’s wind power industry.

Conclusion In 2012, China’s wind power market entered a period of steady development after many years of rapid growth, and its newly-increased installed capacity ranked first in the world. Despite the problems in this market ascribed to the limitations in its development stage, this market can hardly be overlooked by any foreign wind farm developers or equipment manufacturers. The virtuous competition and mutual learning between domestic and foreign wind power developers can drive the healthy and sustainable development of the whole industry. So, it stands to reason that there are not only Gamesa G114-2MW turbines but also Envison Energy 2.1 MW turbines with a rotor diameter of 110 meters in the low-speed wind turbine market, which cater to the needs of wind farms in Central China; and domestic developers including China Longyuan Power Group and China General Nuclear Power Group have built wind farm central control centers, which are based on the same standard as that of the European Iberdrola Group. With the continuous perfection of the system and structure of China’s wind power industry, foreign wind power companies will take root in China’s wind power market by virtue of their competitive advantages in the long run.

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6.1 The General Principles of Economy: Categories of Goods and Services Pierre Calame

Introduction: the different ways of classifying goods and services One of the classic questions faced by governance is that of determining what should belong to the market (which requires public authority only to define the rules and create the conditions in which it can operate) and what should belong to the public sector (on the basis of which taxation, redistribution, or direct public action in the form of public services are justified). These questions are the subject of a lively debate. Partisans of public service have opposed those of the market for so long that many distinctions and nuances have become blurred, rendering many general terms increasingly meaningless. Under the rubric of “public service,” goods and services provided by local authorities because they are essential to human dignity (such as health, education, the environment, and water) are mixed in with economic activities that are called “public” because they face no significant competition; services that depend on public intervention, such as roads and railways; and services that are essential to a nation’s future, such as research. This leaves us with quite a mess. Further confusion ensues when it is inferred that because a good is public, its management must also be public; in this way, the good’s nature and purpose are conflated with its management. This debate leads us to even more appalling muddles, such as the defense of “French-style” public service against the temple merchants of the United States or Great Britain, or the fact that we applaud our state companies (such as EDF, Air France, France Télécom, and others) when they conquer foreign firms. In the name of sovereignty, we grow indignant at the prospect that on our own soil our champion companies might be subject to the very competition that serves them so well when it comes to acquiring little siblings abroad. It is fortunate that France belongs to the EU. The fact that we must constantly compare how nations with very different traditions go about pursuing the same goals requires us to constantly reconstruct and deconstruct our own habits of thought. Pierre Bauby, the former director of the EDF’s electricity and society research group, and chairman of one of the committees of the European Centre of Employers and Enterprises providing Public Services (CEEP) insists that in the French tradition the term “public service” is confusing because it can, as Bauby explained, refer simultaneously to several different things: a public assignment,

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a monopoly, a state company, an employee’s status, and even the state itself. In other European countries, public services differ from one another in terms of the categories they use, their doctrines and concepts, their territorial subdivisions, the commercial character (or lack thereof) of their services, as well as the nature of the actors involved (public, mixed, private, or associative). Even so, beneath this diversity lies a profound unity: in all European countries, public authorities have decided that certain activities must not be forced to obey the laws of competition and the market, but instead require their own specific forms of organization and regulation. The principle of “undistorted competition,” on which the European Common Market was built, has seriously shaken the conventional understanding of public services. It requires each state to justify why it thinks it should be exempt from the rules of competition that apply to all. The high point of these challenges to our understanding of public service was reached between 1986, when the Single Act was signed, and 1994, when the single market was fully implemented. But, as Pierre Bauby has also explained, the traditional idea of public service was also called into question by several technological and cultural developments including the internationalization of sectors that had previously operated on a national scale, consumer demands that certain services be diversified, and the inefficiency of certain public services that had been protected by their monopoly status. The charge was enthusiastically led by neoliberals and by major firms — some of which had previously enriched themselves on public sector contracts, as was the case with the water industry in France — seeking to profit from the neoliberal wave. At times we are talking about the way in which some goods and services are produced, at others, we are talking about the goods’ recipients, by affirming that everyone should benefit from them; occasionally, their public character is justified on the grounds that they are not the object of genuine competition, and that allowing them to be privately managed would privatize income acquired through a dominant position; at times, we are referring to a form of management; at others still, we mean a long-term and collective interest arising out of a concern for social cohesion and future generations. Thus, depending on which criteria one chooses to emphasize, one is led to different models of production and management.

The criterion of destination Let us begin by examining in depth the first criterion for classifying goods and services: the criterion of destination. This criterion should allow us to distinguish public goods from private goods, and to see if it is possible to deduce specific

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governance systems from them. From the standpoint of their destination, socalled “public” goods and services are associated with the idea of rights. Since the adoption of The Universal Declaration of Human Rights of 1948, it has been expanded and filled out by a large number of conventions and two pacts covering political and civil rights — as well as economic, social, and cultural rights — universal rights have to be considered here. Consequently, the notion of a global public good is thus intimately connected to that of universal economic, social, and cultural rights. “Global” is defined here as something to which everyone has a right and not as a piece of the historical heritage of man, or something that needs to be managed at the global level. Water, education, health, and an uncontaminated environment are obviously fundamental conditions of human dignity, as much as freedom of speech and matters of conscience. An economy that claims to promote humanity’s well-being within conditions of responsibility and equity must allow each human being to enjoy these elementary rights. The International Covenant on Economic, Social and Cultural Rights of 1966 recognized that everyone has the right to the highest standards of physical and mental health. The Covenant also charged the signatory states to take the necessary measures to guarantee that these rights can by fully utilized. But we must note the unintended humor found in subsequent phrases. The Covenant spoke of these high standards but made no mention of the limitations to enjoy the standards due to one’s genes, age, environment, lifestyle, or economic means. And while the signatory states still recognize that they have been charged with taking the measures necessary to achieve these goals, what exactly are their practical implications? Where are the courts before which “everyone” can sue a state denying them the highest attainable standard of health? Does the Covenant require states to devote all of their resources to achieving these goals? What does it say about adjudicating goals that are mutually exclusive? Four observations follow from these questions. The first is that in an economy, some goods are public by virtue of their destination. These goods are defined through a collective adjudication standing over against the atomized expression both of the unrestricted preferences of individuals (i.e., demand) and of the unrestricted choices of producers (i.e., supply). This leads to a major question: how should collective preferences and individual choices be combined, and what kind of regulations of supply and demand are required, the public or private character of the actors charged with providing these universal services notwithstanding? The second observation concerns the institutional arrangements to be created. A declaration of rights, even when unaccompanied by positive measures

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prescribing how all can be made to enjoy them, at least establishes a principle of non-contradiction: any institutional arrangement that makes the enjoyment of these rights impossible becomes ipso facto illegitimate. Perhaps the notion of “manifest incapacity,” which brings us back to the nature of the actors and their relationship with one another, can provide a roadmap leading to future institutional arrangements. The third observation concerns the multiplicity and thus the coherence of an economy’s goals. The question of the coherence between goals and means is settled simply by juxtaposing institutions, despite the fact that they often have different purposes, without anyone ever bothering to adjudicate between them. Yet the public and private institutional arrangements that must be invented to provide these types of goods and services should, to the contrary, seek to pursue multiple goals simultaneously. The fourth observation pertains to responsibility. The International Covenant on Economic, Social, and Cultural Rights of 1966 affirmed that states must take the necessary steps to enable people to realize their right of responsibility. But this does not imply a penal responsibility. Rights cannot be effective unless it is possible to demand that they be enforced in a court of law; consequently, to be made effective, rights presume a division of responsibilities. Yet what all economic and social rights have in common is that while they depend on individual behavior (for instance, with regards to health, alcohol, tobacco, and drugs, or, in the case of housing, noise, respect for the occupied space, and the timely payment of rent and service charges), they are also managed by local and national authorities, as well as by the international community. Responsibility for these rights is thus necessarily shared, making it difficult for one to demand their enforcement by a single institution. Michel Doucin, France’s former ambassador to the Commission on Human Rights, has analyzed the meaning of economic and social rights in depth, demonstrating that they can only mean that any given state must be as efficient as possible in fully enforcing these rights given the means at its disposal. This means that the policies and institutional arrangements that each state adopts must be examined by its citizens as well as by the international community, and must benefit from the successes and failures of others and from the best available knowledge. This is precisely what is meant by the principle of active subsidiarity. The association Biens publics à léchelle mondiale (BPEM) has observed: “Universal human and ecological rights are the rule, legitimate international institutions are the guarantor, democracy is the permanent requirement, and social movements are the source.” One should note both the strength and the weakness of this formula from the standpoint of an economy: a right is not a rule; international institutions have, regrettably, neither the legitimacy nor the means to guarantee that rules are

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obeyed; democracy is not one of public service’s strongest suits; and as for “social movements,” whether the social dynamic that historically played such a decisive role in pressuring states to adopt public health policies is adaptable on a global scale is unclear. Thus, if the criterion of the destination of goods and services allows us to assert that the collectivity must step in to determine collective preferences, by guaranteeing that there is universal access to these goods, by punishing actions that violate economic and social rights, and by devoting itself to actually providing them, it tells us relatively little about the system of governance that it necessitates.

Modes of Production Let us turn to the second possible criterion for classifying goods and services: their mode of production. This is the weakest criterion, for several reasons. The first is that public goods are only defined, as it were, negatively. For neoclassical theorists, public goods are those that the market cannot produce: goods that are non-exclusive, and thus over which there is no rivalry. Everyone can use them as he or she wants, and doing so deprives no one else of them. However, from the standpoint of economy, this criterion is on its own not particularly relevant. It implies that in situations where the market is capable of producing, it is necessarily more efficient. Public action thus occurs simply by default, as a second choice, or when market mechanisms are unavailable. A broader examination of which institutional arrangements are best suited for achieving an economy’s goals is thus required. Market mechanisms naturally have their place; they are, however, only one institutional framework among others, and should not be seen as an end in themselves. The second reason is that this form of classification encourages us to see each mode of production as endowed with inherent attributes. It is better to judge the various possible institutional arrangements in light of their results, rather than in terms of their self-declared virtues. Public institutions can function purely for their own sake and become completely self-referential, indifferent to society’s real expectations; but they can also be models of governance aimed at promoting the public good; private companies may be full of crooks and run by unscrupulous opportunists, but they can just as easily be driven by an ethos of the common good. It is thus more useful to imagine under what conditions the former might truly serve society and the latter serve the common good than to declare a priori that one form is superior to the other. The third reason for the frailty of classification in terms of modes of production is that the kinds of goods that can be produced or reproduced by a market are very dissimilar. A monument or a landmark that has been declared to belong to

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humanity’s heritage is a public good because it is not reproducible. Its value lies in its history; it is deemed a “public good” not by virtue of how it was produced, but by virtue of what was produced. Being an integral part of the richness of humanity, it should fall under the purview of classical property law, which, as Roman law stipulates, authorizes the “use and abuse” of goods one owns. Private or public proprietors cannot do what they want with it without accountability. The notion of a common good leads, for individuals as much as for states, to the idea of what Bauby termed “functional sovereignty.” The right to use a good or a service is recognized only as long as one preserves resources that are held in common, achieves certain results, and does not deprive others of their right to use the good or service, and so on. Functional sovereignty (i.e., the right of usage or of conditional property) is thus in the middle between several different modes of production. The final reason for this frailty is that today, the modes of production are mixed. In a modern economy, most intangible, human, and natural capital necessary for production — including private production — is collective capital, in the sense that it has been either produced by the collectivity or is the outcome of multiple contributions made by its members.

First category goods which are destroyed when divided Examples and characteristics of first category goods First category goods are those that are indivisible, or which, if they were divided, would be destroyed. They consist of two major types: those that are the product of a single action, and those that are the outcome of a myriad of actions and decisions. One can say, for the sake of simplicity, that the criterion of first category goods is that of Solomon’s judgment: if one cuts an infant in two, and gives half to each mother who claims it as her own, there would no longer be any child at all. In relation to indivisible goods, we must behave like the good mother in the story of Solomon’s judgment. It is a frustrating category, as it is both self-evident and difficult to explain. To define its parameters, we will consider a list of possible examples and then try to identify the category’s general properties. First example: a monument or land classified as being a piece of the heritage of humanity. These are clearly not divisible: if one broke the monument down into its component materials, or divided the land up into strips, one would destroy the very thing that makes them valuable. These are goods whose different parts form a system and whose quality is an emergent property of this system. Furthermore, what makes this heritage valuable is the fact that it is not reproducible, since it is a product of history and history cannot be rewritten. Any building or piece of land

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can meet the twin criteria of indivisibility and non-reproducibility, without for that reason deserving to be included in humanity’s heritage. A third characteristic is thus necessary: an artifact’s irreducible value. It is irreducible in the sense that its value has no monetary equivalent. It is a product of civilization that we judge to be important for ourselves and for our children. It thus satisfies one of the economy’s criteria: “The preservation of the interests, the rights, and the capacities of future generations.” To call it humanity’s heritage is to say that it is important for the whole world and that the whole world is the guarantor of its integrity. A second example is to be found in the biodiversity of ecosystems. Biodiversity is a property of the ecosystem itself, an emergent property, irreducible to its parts. A second characteristic is that biodiversity is not reproducible precisely because of the fact that it is the result of an infinite diversity of regulations that we do not know how to reproduce artificially. Thanks to biotechnology, we know how to produce beings that do not exist in nature — they are unfortunately constitutive of the very dreams that these technologies allow us to entertain. However, in the case of biodiversity, we are incapable of doing more than participating in its upkeep. A third characteristic is that the existence of this good or service is essential for us. We know that by undermining biodiversity, we would also be undermining the interests, rights, and capacities of future generations; we would fail to achieve one of an economy’s major goals: the preservation and enrichment of the biosphere. We thus have already identified three interesting characteristics of first category goods: their value is an emergent property of the system and thus indivisible; they are non-reproducible; and they have qualities that are valuable for the future. Biodiversity is not only defined globally; it also applies at a more local level. For example, when one converts — as the Charles Leopold Mayer Foundation recently did — a major agricultural property from conventional to organic agriculture, one increases very visibly and quickly the local ecosystem’s biodiversity, because in regenerating it benefits from the biodiversity of a much vaster system, which it then contributes to maintaining. Biologists have shown that the biodiversity of the whole cannot be maintained, as some once imagined, by creating biodiversity conservatories, such as natural parks or gene banks. We thus find ourselves considering a fourth characteristic: system properties can only be maintained on the basis of a totality of local actions. In other words, we all share responsibility for the creation and the preservation of the common good. A third example is related to the climate and the ocean. Our three characteristics — non-reproducibility, non-divisibility, and value for humanity — can be easily recognized in these examples. Even more than with biodiversity, it is clear that the climate and the ocean’s equilibrium are affected by the sum of our involuntary actions. No one intentionally destroys the ocean’s equilibrium or deliberately

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modifies the climate. And yet, the cumulative effect of billions of decisions produces these outcomes. This type of common good thus necessarily entails shared responsibility. It must be exercised by imposing constraints on behavior, but these constraints must be consistent with a principle of equity to which all can adhere and fall under the jurisdiction of an authority recognized as legitimate. This point will be developed in the chapter dedicated to an economy’s legitimacy. Finally, thanks to this example we encounter another property that is dear to economists, that of non-exclusive use: in other words, the fact that one person uses it does not prevent someone else from using it. Cities and networks are our fourth example. With them we again find, though to a lesser degree, several characteristics found in the preceding cases. First of all, their value lies in emergent properties. A city is not merely the sum of its buildings; a network is more than the sum of its paths. A private highway is valuable only insofar as it links up with the regular road network. Furthermore, it is generally the product of actions that have built on and completed one another over the course of history. That said, one could not claim that these goods are strictly speaking indivisible. The good or service’s raison d’être lies in the fact that it is shared, even if one cannot, in the narrow sense of the term, speak of non-exclusive use: anyone who has been caught in a traffic jam or been unable to send an email via the internet can easily confirm this. But I am rather attached to the idea that there are goods and services to which anyone can have access. The fifth example is the intangible and human capital that we described in an earlier chapter as one of the major preconditions of the modern economy. This again brings us back to the first shared characteristic: that of emergent properties of the system, where the whole is more than the sum of the parts. For instance, a stockpile of scientific and technical knowledge is a totality that cannot be broken down into discrete items of knowledge. In the same way, there is no doubt that the mass of knowledge and know-how available on the labor market is simply the sum of individual knowledge and know-how; even so, the fact that they coexist in a single urban space and on a single labor market make it possible to organize their mutual complementarity into a valuable production factor. As in the case of the climate, we can say that this good is the product of a large number of actions. Consequently, we must thus think of it as being managed according to the principle of shared responsibility. As in the case of a city, we cannot say that strictly speaking this good or service is non-reproducible; however, it would certainly be lengthy, costly, and laborious to reproduce. Preserving and enriching it are a duty that preserves the interests, the rights, and the capacity for the initiative of future generations. A final example is vast natural spaces, such as the Central Asian steppes or tropical forests, which play a central role in maintaining the stability of those

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parameters upon which life on earth depends. They share several characteristics with natural ecosystems and these spaces are non-divisible. The capacity to stabilize the parameters of life on earth is an emergent property of the system. Stabilization mechanisms cannot be reproduced artificially, because they bring into play millions upon millions of rules. The existence of these things is a determinant for life on earth. On the other hand, even more than in the case of biodiversity, they are “territorialized” goods; their preservation and management are everyone’s concern, but they are essentially dependent on the actions (whether or not they are actually taken) of individuals or authorities living in a specific territory. As in the case with oceans, the world community must involve itself and property and sovereignty must be limited — in other words, subordinated to a certain number of rules made in the common interest. We must also consider the issue of solidarity: because these goods are being preserved in the interest of the world community, the latter must contribute to their preservation and management. From the comparison of these different examples, several principles arise. First category goods and services can be in the global interest, yet still require local management. They require that all levels of governance, extending from the local to the global, be carefully gradated, and that the various territorial levels respect the shared obligation to produce results. In an economy, the totality of goods falls neither under the purview of the market, nor of traditional property rights — which, to the contrary, imply a possibility of being divided, reproduced, used exclusively, and a free choice as to whether to produce or not produce, or to use or not use.

Systems of Governance for First Category Goods First category goods are clearly not to be situated in the same realm as commercial goods. They possess none of their characteristics. Yet this does not mean that they fall under public management. We are condemned to impotence if we lock ourselves into the opposition between centralized public management and private management based on decentralized regulation. The first reason for transcending this opposition is that first category goods, as we have seen in the case of oceans, natural or domesticated biodiversity, or intangible assets, are important factors of production and exchange. A large number of economic actors benefit from them. In many instances, it is due to the financial contributions of these innumerable beneficiaries that one can hope to gather the resources to preserve and maintain first category goods, which are essential to humanity’s survival.

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The second reason is that the development of these goods proceeds from a large number of decentralized decisions. The economy of first category goods must thus consist of regulations that are themselves decentralized, seeking to encourage protective behavior, such as, for instance, agricultural modes of production that contribute to maintaining biodiversity and that emit few greenhouse gasses. The third reason for not seeing the two spheres as impermeable relates to the efficacy of incentives and sanctions. Because many first category goods are global in scale, managing them runs up against the weak legitimacy and inefficiency of global governance. In general, first category goods can be classified in terms of what I earlier called the four types of capital: tangible capital, intangible capital, natural capital, and human capital. One also speaks, to refer to important landmarks such as monuments or cities, of part of humanity’s collective heritage. They all belong to what the economy, by its very definition, seeks to preserve and improve. Over the past several decades, scientific knowledge of these goods has increased, become better inventoried, and been made more available at an international level. It is now easier to pursue these kinds of improvements than to force, say, the Russian or Brazilian government to make decisions in the name of humanity’s interests that would be domestically unpopular or contrary to their short-term economic interests. Moreover, as the work of the World Watch Institute demonstrates, such inventories and oversight are major areas in which a global civil society can invest. Systems of governance for first category goods stem from the fact that those who are responsible for their preservation are different from those who benefit from them. I have already mentioned the cases of the Siberian steppes and the Amazon rainforest. The preservation of first category goods is often tied to a territory that places the people and communities who live where these goods are located into a kind of servitude through, for instance, restrictions placed on rights of usage, or prohibitions on forest clearings or the destruction of coastal mangroves — through, in short, limitations on property rights or sovereignty, or through requirements concerning the proper upkeep of certain locations, such as buildings, cities, or sites classified as belonging to humanity’s collective heritage. But the beneficiaries are elsewhere, and exist on a completely different scale — namely, that of humanity as a whole. For governance occurring on a local or a national scale, this problem is an old one, harking back to the origins of public finances. In France, during the 1960s, there was a vivid debate on this very matter: should the easements of urban planning be financially compensated? When an urban planning document declares that a particular zone is unbuildable in the interest of the collectivity — even when construction there is technically possible — property

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owners are deprived of a potentially valuable good. Should they be compensated on the grounds that they have been harmed by a decision made in the public interest? The debate has never been fully resolved. The non-compensation of urban planning’s easements has perverse consequences. An urban planning document can be revised, and many property owners in unbuildable zones will speculate on this probability. Thus, in the Mediterranean zone, many forest and scrubland fires occurred because land was poorly kept by property owners who had no interest in its upkeep. In some cases, the fires were a direct response to the arguments that had been made against them. Was the zone declared unbuildable because it was forested? If my zone is unbuildable because it is forested, replies the property owner, then a fire or two should sort that out. This is why some collectivities developed much more reliable plans, which involved purchasing notarized private easements, making it possible to introduce a distinction between ownership of the land and ownership of its usage. The economy of first category goods requires a combination of regulation mechanisms. Let us begin by considering two cases in which the economy of first category goods requires a cap on total consumption: the emission of greenhouse gasses and the number of fish likely to be caught. To grant the use of such goods to those who can pay whatever it takes would amount, in the case of greenhouse gasses, to allowing developed countries to continue their emissions of carbon dioxide without restriction, while prohibiting poor countries from raising cattle on the grounds that cows produce methane, which is a greenhouse gas! Such a requirement would clearly be untenable. There is no escaping the principle of justice that usage quotas be allocated equitably, even if they are subsequently renegotiated on the free market. The next question is that of knowing exactly who will negotiate the sale of the “usage rights.” Let us take the example of halieutic resources. The experience of attributing catching rights in fishing zones demonstrates, particularly in Africa, that the attribution by states is unsatisfactory: a state may deprive artisanal fishermen of their catching rights and sell them to foreign industrial fleets in order to bring in opportune hard currencies that pay bureaucrats’ salaries. It is thus important to look quite far down the ladder when deciding on how to allocate quotas. The allocation of “usage rights” must in the last resort be aimed at individuals or, in the case of catching rights, at local fishermen communities. They alone can decide to yield them, to negotiate, or to delegate negotiations to states. But these usage rights must not be confused with property rights. Their purpose is to preserve the common good by guaranteeing that it is used appropriately. To stick with the example of fishing, the distribution of catching rights could be made contingent on the respect of fishing practices and coastal management that protects the halieutic

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potential. The examples of biodiversity or of preserving the halieutic potential bring into focus other possible forms of regulation. Experience has demonstrated that it is impossible to preserve shared goods in the name of the general interest when it is at the expense of those who use those goods most immediately, who live in the affected territory, and who need the goods in order to subsist. The latter people must be treated as potential allies and not as predators or enemies. Arrangements must be made to ensure that they see that preservation is in their own interest. Numerous devices guaranteeing this end can be imagined. In the case of domestic biodiversity, the first step is obviously to banish those existing economic rules that run completely counter to the goal of biodiversity. This is the case, for instance, with rules relating to the normalization of seeds. They have been adopted over the past few decades to the benefit of major seed companies on the pretext that they increase security, when in fact that undermines the preservation of domestic biodiversity. I will return to this example when considering the economy of fourth category goods. The second step is to promote, through a combination of norms and incentives, agricultural practices that contribute to the preservation of diversity. The European Common Agricultural Policy will come around to these practices over time. The regulation of production and exchange must contribute to the economy of first category goods. Another efficient means of preserving first category goods is to act upon the conditions of production and exchange of the commercial goods that depend on them. This is effective in the first place because it is easier to tax or prohibit a good that is exchanged than to impose easements at the source. Next, and primarily, exchange involves a minimum of two parties. Exchange presupposes an agreement between someone who is selling and someone who is buying. This agreement has the advantage of bringing people out of their confinement in sovereign states. To put it in a more trivial way: if one cannot prevent a state from wanting to sell, it is possible to arrange things so that other states or consumers do not want to buy it. This is the reason that it was possible, through the World Trade Organization, to establish an organization for settling differences and imposing sanctions that it was impossible to set up in other domains of international life. These mechanisms belong to the systems of governance applicable to first category goods. They can go as far as embargoes, as in the case of endangered species, but they can also include labels and citizens’ campaigns. It is not too farfetched to imagine that an attack on first category goods in one country could result in trade sanctions initiated by a group of other countries, and not only those, as occurs today within the framework of the WTO, who are harmed from the standpoint of free trade.

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Our laws could be extended to a duty to protect shared goods. This principle has inspired a number of initiatives taken by local communities in Europe, in which a region, a department, or even a municipality decides to prohibit GMOs on its territory on the grounds that allowing them would endanger biodiversity, at a domestic or natural level, in spite of the loud complaints of the European Commission or of states claiming a monopoly of the right to legislating in this domain. The economy of first category goods demands the specification of levels of governance. The examples that have been considered have demonstrated that most of the first category goods are territorialized, that they are spread across vast territories, or that they are determined by a maze of individual and local decisionmakers. They are “glocal” goods. Consequently, their system of governance must combine different levels of regulation and public decision-making, and different levels of governance.

Second category goods which are divisible when shared and finite in number Second category goods are divisible when shared but finite in number. They are not, at least as far as their quantity is concerned, the fruit of ingenuity and human labor. Examples include water, energy, and fertile soil; they will serve as reference points for our discussion.

Examples and characteristics of second category goods The characteristics of these goods are the following: 1. These second category goods are limited resources. Consequently, the notions of production, distribution, and utilization become unusual in this context. It is better to speak of preservation, exploitation, improvement, and degradation. One produces drinkable water or one pollutes water. One exploits a waterfall in making use of its potential for producing hydroelectric energy. One extracts and transforms coal, oil, or gas. One maintains, improves, or degrades soil fertility. These goods resemble first category goods in terms of their non-reproducibility. They differ from them because they are clearly divisible. Strictly speaking, they lack emergent properties of the system. Water resources and hectares can be either added up or handed out. In keeping with an economy’s definition, the distribution of this type of good and service must adhere to the conditions of responsibility and equity. This is all the more necessary in that all three examples

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— water, soil, and energy — are goods whose consumption is indispensable to the well-being of humanity. 2. These goods are numerically finite, divisible, indispensable, and used in an exclusive way: these are all conditions that ensure that individuals will compete to control and use them. This is also the case in that all three of the examples cited can be used in multiple ways. Land is desired for agriculture, infrastructure, cities, industry, and recreation. Water is involved in all human activities, as is energy. One can only be terrified by the extent to which consumption of these goods varies per person, ranging from a bare minimum in some societies, to the lifestyles common in the richest countries. 3. That they can be defined both as “flows” and as “stockpiles.” The other criterion of an economy — preserving and enriching the biosphere — becomes an essential imperative. One can over-consume for a period, but it will be to the detriment of the rights and interest of future generations. 4. Though the finite quantity of these goods owes little to human ingenuity, human ingenuity plays an important role in the conservation of these goods and in their mobilization in society’s service. A “natural resource” is not something that we pick or gather, but something that is quantitatively finite. Second category goods thus presuppose the creation of actors, arrangements, agreements, and methods related to the exploitation and distribution of these goods. It presupposes the use of often sophisticated techniques and the creation of organizations that are capable of mobilizing them.

Equity and efficiency: two necessary conditions for the economy of second category goods The characteristics of second category goods immediately situate them at the crossroads of two worlds: on the one hand, that of pure distribution, founded on the principle of justice, of the kind associated with gifts; on the other, that of economic activity and the financing of maintenance and reproduction costs. These goods and their consumption are at the forefront of efforts to strike a balance between our way of life and the reproduction of the biosphere; their system of governance must enable the reconciliation of equitable distribution with the preservation and enrichment of the biosphere. Like first category goods, these goods are by their nature situated. Some are mobile, notably oil and gas, and, to a lesser extent, water. Others are immobile, like the earth. The processes and rules of extraction, exploitation, distribution, and preservation that are applicable to them thus necessarily involve different levels of territory and governance.

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A final and frequent characteristic of this type of good is the asymmetry that typically exists between those on the supply side and those on the demand side. In the case of water as much as that of energy, management today is dominated by supply-side policies. Corporations may end up with a stranglehold on these resources and certain financial transactions — sometimes unfair ones — can result from this stranglehold.

The inadequacy of traditional responses to the imperatives of equity and efficiency To manage scarcity, several hypotheses would appear at first glance appealing: the goods in question could be nationalized; they could be distributed in an authoritarian fashion; or they could be relocated to where they are produced and used in a way that ensures that everyone lives off of local resources and thus feels responsible for them. In actual fact, none of these solutions has proved entirely satisfactory. Nationalizing land or water had led in practice to inefficient bureaucratic management. This is notably the case with land in the former Communist countries. Their fertility has been damaged, often dramatically, by an instrumental and mechanical vision of nature, such as in China, where peasants maintained the fertility of the soil for millennia. Agricultural reforms are indispensable in many countries because of the inequalities in the distribution of land and the poor use that was made of it when it was concentrated in only a few hands. However, the results are often disappointing, because they do not take into account the actual capacity of families to farm the lands that they are granted and because land redistribution is not accompanied by complementary measures, such as training and increased access to credit. The idea of freely distributing water contradicts the need to conserve it. It also leaves the problem of financing water networks, water processing, and water distribution completely unresolved. Some have suggested that water should be managed by public services at a territorial level. This approach is not always advantageous. In practice, it too often runs up against the inflexibility of administrative and political limits, which were rarely conceived with an eye to the reality of ecosystems or drainage basins. As for drastic relocations of resources and their usage, they are utopian, ridiculous, and unjust. Water, for its part, is not equally distributed across any territory, making it absurd to impose uniform rules concerning its preservation. To say that access to water is a fundamental human right cannot mean that the collectivity — which incidentally is an abstract concept — must commit itself to providing water to every family wherever it may choose to live. On the other

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hand, the principle of justice implies that a certain amount of water per person — an amount that varies with the climate — must in some way be guaranteed at a low price, with greater consumption being taxed proportionately, according to schedules comparable to the progressive ones used for income taxes. Efforts have already been made in this direction.

Quotas negotiable at different levels: the example of energy It is also possible to consider generalizing the option adopted in the realm of energy in the Kyoto Protocol by creating “rights to consume.” Let us suppose, for instance, that everyone, at the beginning of the year, has an electronic billfold and in this electronic billfold is a right to consume fossil energy that the person can either use or sell to someone else. Technology makes such a hypothesis entirely plausible. Let us consider it on a European scale. Suppose that each European was entitled to the same number of tons of oil equivalent (the measure used for fossil fuel). This would be rationing, but negotiable rationing. At what territorial level and according to what form would this negotiation occur? Various energy efficiency strategies allow for several different spatial and temporal scales. This means that energy quota negotiations must first occur at the local level. Some energy is in any case directly consumed by the collectivities themselves, whether it goes to energy distribution, public facilities, or industry. A local market for energy and an assessment mechanism complement one another. Next, various local collectivities from the same region negotiate exchanges, with accounts being consolidated at the regional level, and then at the national and international levels. This means that while each individual’s electronic billfold is the starting point, the system quickly develops a hierarchical structure spanning from the local to the European level. At each level, surpluses and shortfalls are consolidated.

The economy of second category goods and the principle of active subsidiarity: the example of water One can achieve, through a comparable mechanism, the same objectives of justice and conservation in relation to water. Imagine that in a given territory, everyone has in his or her electronic billfold the right to a certain quantity of water at a price corresponding to the average cost of its reproduction. Everyone in this way becomes a shareholder of the local water company and, by the same token, acquires an interest in it being managed efficiently. On this basis, everyone can sell on the local water market amounts that they have not used or purchase what they need. Once again, the quantities allocated to cities, industry, and agriculture must be

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taken into consideration. In France, for example, even if these institutions have become bureaucratized over the years, it is certainly possible to take advantage of the expertise acquired by the Basin Agency to determine mechanisms for distributing water between various uses and various actors and options for remunerating water treatment. Redistributive mechanisms of this kind are already present in some countries, such as contracts struck between farmers and cities, in which the latter compensate the former to modify their farming practices in ways that protect water tables. According to this scenario, what is the role of the European Union, and specifically the European Commission (EC)? This role has already been outlined in the water directive, in its conception of services of general interest (SGI), and in the organization of a market for rights to consume energy that was first created to implement Kyoto’s goals. One can imagine the EC taking on four roles: 1. The EC could define the conditions under which undistorted competition between public or private organizations seeking water contracts on a given territory could occur. The project requirements for this operation would include, in keeping with the twin goals of justice and efficiency, financing, distribution, treatment, and the organization of the local exchange market. 2. The EC must make the best use of available experience to formulate shared guiding principles aimed at optimal management. These obligations remain at the heart of active subsidiarity. Since water is a scare resource, it is legitimate to demand that each local collectivity do the best that it can. 3. The EC can also, by drawing on this exchange of shared experiences and action, provide collective experience and advice to institutional arrangements that have proven themselves. 4. The EC can, finally, be the forum for negotiating the management of major drainage basins.

Third category goods which are divisible when shared but of indeterminate quantity Examples and characteristics of third category goods Goods and services belonging to the third category are divisible when shared but are above all the product of ingenuity and human work. They are primarily industrial goods and services providing personal care. They include most of the consumer goods and appliances that fill our homes, as well as most of the services that make life agreeable (the organization of our cities, transportation systems, and recreation,

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etc.). These goods are also most of the goods and services, finally, that are necessary for production, which naturally incorporate matter — metal, wood, silicon, many kinds of natural or synthetic molecules — but matter that, thanks to human work, intelligence, and creativity, has undergone a complete transmutation, to the extent that the service provided has only a distant relationship to the matter incorporated in it. These goods are of an indeterminate quantity. By this I mean that unlike first or second category goods, if they are divisible, they are also reproducible, and have no limits — at least, none other than the time that we devote to other people through artificial products and services, and the time which they in turn devote to us. And no other limits except that of the human ingenuity required to offer more services with less matter. The complex molecules in medicine, nanotechnology, computer chips, computer processes, and telecommunications networks are not matter, but rather the result of the distillation of intelligence, creativity, and organizational capacity. They are symbolized by the increasing miniaturization of modern machinery — as if every day our capacity to distill intelligence into matter increases.

The decentralized economy of third category goods: the role of the market At first glance, third category goods would appear to be those to which market mechanisms apply most normally. Through billions of regulations, our needs and desires seek to coincide at a planetary level with products and services that not only exist, but are also available and within our reach whenever and wherever we feel the need for them. The fascinating mixture of centralized organization on the part of major producing and distributing companies and of decentralized adjustment mechanisms is hard to match. In any case, centralized planning, which one might have thought would allow for an even more efficient allocation of resources than this combination of micro- and macro-regulations, has over time revealed itself incapable of rivaling it.

Traceability: the heart of third category goods To reflect on an economy, to undertake a radical critique of current modes of production and consumption, as well as the economic doctrines that underpin them, is not to deny the operational efficiency of the “market economy” or to blame it for all the evils under the sun (before taking advantage of all its practical benefits in one’s daily life!); it is rather to question these mechanisms in light of an

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economy’s goals. This questioning occurs in two stages: first, that of examining the market’s legitimate scope; second, that of considering whether, in areas in which it is technically legitimate, it meets an economy’s goals. As we have begun to see, the market’s legitimate scope is that of goods and services that are divisible and the nature and quantity of which depends essentially on human labor. As for its capacity to meet an economy’s goals, this question will be explored in depth later, but we already laid down a few markers in the preceding chapter. According to an economy’s definition, we must factor in the well-being of humanity when considering the production and use of goods and services (that is, third category goods). It is thus necessary that the production and consumption of third category goods keeps track of the human labor and the quantity of resources incorporated into them, measured, for instance, in terms of the MIPS (Material Input per Service Unit) defined by the Wuppertal Institute. Classical theory is, ultimately, much more utopian. It posits the existence of perfect information, that is to say, perfect knowledge of everyone’s desires and of all the possible ways to combine the means of production. This hypothesis is completely unrealistic, not only for practical reasons but also for theoretical ones, which George Soros analyzed in his demonstration of the intrinsic instability of financial markets: we are always dealing with human beings who have a mutual influence on one another. The system is reflexive: the behavior and preferences of some influence the behavior and preferences of others so these systems will never be stable. The hypothesis of perfect traceability is, in comparison, far more modest and realistic. It states that we have all the technical means necessary to indicate, at each stage of production and distribution, the quantity of labor, resources, and energy that has been incorporated into a particular good or service. I have no doubt that when Paul Delouvrier created the valued added tax (VAT), many people complained of the terrifying complexity of the system, since it required, in order to avoid double counting, recording, for every transaction involved in the production of a good or a service, the added value that had been incorporated at earlier stages. The idea of the perfect traceability of a product is a mechanism of exactly the same nature. Traceability provides consumers with essential information: does the good or service depend on human labor, which strengthens their relationship with the rest of society, or does it depend on resources or finite energy reserves, which bring them into competition with others and impoverishes the biosphere? It is also technically feasible. Today there are electronic systems that allow one to pass a shopping cart in a supermarket through a scanner which calculates how much the shopper must pay upon exiting. This kind of traceability and computation make it

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possible, at a territorial level, to determine the flow of resources and human labor that enter and leave in a much more detailed way than do current calculations of ecological footprints. Moreover, even if we don’t dispose of precise data about a product’s path throughout the value chain, we do have access to summary estimates. Beyond raising consumer consciousness, traceability could also serve as the basis for electronic billfold mechanisms of the kind considered in relation to second category goods, in which the only limit on buying human labor would be one’s purchasing power, while the consumption of resources and energy would be limited by quotas. Moreover, this type of computation is necessary to bring our considerations of water and energy to their logical conclusion: one must take into account not only their primary, but also their secondary usage — that is, insofar as they are incorporated into the third category goods that we consume. The Wuppertal Institute became famous several years ago for calculating the quantity of liters of water and fuel consumed in Brazil needed to produce orange juice consumed in Germany. In La Consommation Assassine (Murderous Consumption), Sandra Postel and Annie Vickers observed that industries, especially in the agro-alimentary sector, are responsible for 59% of the global usage of soft water. Suren Erkman, in his book Vers une Ecologie Industrielle (Towards an Industrial Ecology), provides many examples of resource consumption being incorporated into consumer goods. He shows, for example, that the consumption of oil and water required for one liter of American orange juice is infinitely superior to the Wuppertal Institute’s calculation for the consumption of Brazilian orange juice in Germany. His statistics are mind-boggling: one liter of American orange juice requires a total of 1,000 liters of irrigated water and two liters of oil.1 Given the nature and lightness of electronic chips, the numbers for electronics are, again according to Suren Erkman, even more mind-boggling. To produce 750 tons worldwide of pure silicon for our electronic chips, we need 800,000 tons of metallurgical-grade silicon, 100,000 tons of chlorine, 200,000 tons of various acids and solvents. Thanks to these examples, the meaning of traceability becomes clear. An electronic billfold that would keep track of the consumption of both human labor and the consumption of resources would radically transform the organization of production, exchange, and the ways of life. Traceability has a second merit, one that relates to human labor: it makes social bonds concrete. When farmers in France, Argentina, or Canada haul wheat to the world market, they produce an anonymous good that goes to anonymous users. From the standpoint of economy, this anonymity implies a loss of human contact, and thus a diminution of life’s value. When consumers are attracted to regional 1 Erkman, Vers une écologie industrielle.

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products, it is often out of nostalgia: the idea of a regional product is bound up with that of artisanship, tradition, and quality. But more profoundly, they are also attracted to products that are not anonymous, but refer to a concrete reality — and it matters little if it is real or mythological. The same desire to relinquish anonymity leads checkout assistants in supermarkets to wear badges bearing their first names. Because there is a personal bond, transactions evoke, however trivially, the idea of a social contract. For these reasons, the personalization of services continues to grow, even in large public services with bureaucratic traditions. When one knows the name of the person who took care of you, or who looked after your file, service once again has a human face. There are even industrial products produced on a mass scale in which one finds the name of the individual who was responsible for quality control. I doubt this has much impact if the product has some kind of deficiency, but its symbolic value remains important. Social bonds also imply mutual responsibility. For instance, clean clothes campaigns still only affect a fraction of international trade, but they have a powerful symbolic role in the way that they affirm that consumption of third category goods and services has a human impact which it is important to be aware of.

The economy of third category goods and collective and individual preferences Through billions of more or less independent decisions to produce, distribute, and consume, the relationship between supply and demand is formed and adjustments occur. The system is profoundly asymmetrical. Supply is more and more organized and concentrated, while demand is more and more atomized and decentralized. The immediate adjustments that occur through the price mechanism play only a secondary role, at least in the short term. Only in open-air markets are a kilo of tomatoes a bargain at the end of the day! Price-fixing strategies and competition between essentially identical products is an enormous subject that is discussed in abundant literature, which I will not attempt to address. This is not where the essential truth lies. There is another issue, however, that does merit consideration: that of the relationship between individual and collective preferences. Collective preferences are not the sum of individual preferences, nor are the latter immune from the effects of imitation or prestige — in other words, from collective preferences. This phenomenon is particularly striking in the case of children and adolescents: to be like others, to play the same games, or to wear the same clothes count infinitely more than the nearly meaningless question of whether these clothes are attractive

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or comfortable. Companies and marketing departments know how to play on the link between individual and collective preferences when they bring a product to the market. It is, after all, their job. Our society, however, lacks the tools to formulate collective preferences. Though we are quick to mock our schizophrenia as consumers — we are quick to act as advocates for organic agriculture that is respectful of the environment, but less likely as consumers to pay the extra cost at the checkout counter — there is no escaping the fact that we express ourselves differently when we speak of collective rather than individual preferences. But, our starting definition of an economy clearly implied collective reflection on the production, distribution, and use of goods and services.

A misleadingly clear concept: added value The economy of third category goods raises another question — that of added value. Does all activity have value? Does it bring value to goods and services that are consumed? The notion of “added value” plays, however unintentionally, on the ambivalence of the word “value” itself: is it something added to the commercial value of things, or is it the very thing that makes them appear valuable to us? Added value, for a company, is measured by the difference between the product when it is sold and intermediate consumptions. Strictly speaking, added value is not measured by the intrinsic quality of the product, but simply by the possibility of finding clients willing to buy it at a particular price. The added value of human labor is measured, in the first instance, by the price of salaries.2 It thus consists of “added labor” rather than “added value” — an essential distinction. Salary is a cost; it tells us nothing about the actual value that this labor adds, but only that the consumer has consented to pay it. While analyzing 10 years ago the operation of financial markets and the role of middlemen, I concluded that in the case of service activities it was impossible to distinguish “added value” from “subtracted value.” What these terms measure are management costs paid to a financial middleman; in other words, his capacity to withhold a share of the economy for his own profit. The obvious question is why the business owner is prepared to pay for these services if they are not really useful. What service is actually rendered to the client and to society as a whole? A service clearly must be rendered — if not, the economic world would be composed entirely of simpletons. But is the service proportional to the size of its cost? There is reason to doubt it. In any case, this means that the cost of management in relation to supply and demand is considerable.

2

Piketty, L’économie des inégalités.

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The inevitable revolution of intermediation What has been said about financial services can also be more or less applied to industrial goods. From a narrowly productive perspective, added value is, strictly speaking, the direct activity of producing a product — in other words, the sum of the hours of labor that went into it. Everything else seems, somewhat naively, to be a parasitic expense. But, in reality, the immediate production costs of goods that we consume amount to somewhere between 10% and 20% of the price we pay. And where does the rest go? I mentioned this when discussing Daniel Cohen’s example of a pair of Nikes. All that is required is a consideration of the evolution of the job structure in underdeveloped countries and of how we live. Economic activity is essentially tied to transaction costs (R&D, design, production, and so on). We thus find ourselves very far from an efficient and inexpensive mechanism in which supply meets demand. Transaction and intermediation costs are such that there are always innovations appearing that seek to reduce them. This is the constantly recurring cycle of mass retail, which begins with discount stores that scale back on displays, product variety, advertisements, and margins, which then evolve towards more “high class” functions while expanding its margins by introducing more product variety, only to be ultimately marginalized by a new wave of discount stores that adopt the same approach. A new wave of de-intermediation between producers and consumers can be anticipated in the next 20 years thanks to the internet and technological advances.

Fourth category goods which multiply as they are divided Goods that multiply as they are divided: the economy of the holy spirit A vast redistribution of wealth from formerly developed countries to the rest is desirable, inevitable, and already underway. Will this redistribution be achieved through a pitched battle or through collaboration? Will the citizens of currently rich countries consent to sacrifice their way of life, or will they launch a desperate resistance? These are the essential political questions of the 21st century. Sapper Camember3 — an old French comic-book hero — knew only one way of filling up a hole: digging another one, and then using the latter to fill up the former. It is imperative to get out of the Sapper Camember economy and take a greater interest in goods and services that multiply as they are divided, rather than simply being cut up. Life in society, in small groups, in families, or in communities is nourished 3

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Fireman Camember (Sapeur Camember) was the hero of one of the first French comic strips and he represents an illiterate and simple-minded French soldier.

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by sharing and by relationships that lie outside of commercial relationships and are founded on a kind of sharing that multiplies what everyone receives. In a heavily populated, fragile world with finite resources, in which the purpose of an economy is to provide for the well-being of everyone, the wellbeing of everyone cannot be achieved just by working more. Are we, like Jesus in the account in The Bible, meant to rely on the Holy Spirit to resolve the delicate problem of how to share the planet’s scarce resources for us? Without going quite so far, the example might still inspire us to seek out, in the contemporary world, goods and services that multiply when they are shared.

Examples and characteristics of fourth category goods Our first example is life, or, specifically, the genetic code. From the cell to the human being via plant seeds, life is a process of duplication and multiplication. Naturally, duplication requires external resources, nutrition, and energy; but these are incommensurable with the sophistication of the organism that is being reproduced and multiplied. It thus becomes clear that one of the meanings of the phrase “to multiply while sharing” is the modest costs of duplication, costs that bear no relationship to the object or the organism itself. Computer technology and the internet opened the door very suddenly to mechanisms allowing for multiplication and duplication at a low cost. The costs of stockpiling, of distributing, and reproducing a musical CD now approach zero. The entire classical economy of books, music, and entertainment has been called into question by this new reality. The second example is related to farming seeds. These are seeds that have been selected by growers. By putting their selections together, they increase considerably the biodiversity of the shared gene pool. But it is important to understand that when we say that this gene pool is “shared,” we mean that every member of the network has access to the gene pool’s entirety. In this example, unlike in the preceding ones, two mechanisms come into play. In the first, which has already been described, duplication costs little or nothing. The second is mutualization: by giving, I not only keep what I already have, but in exchange for my gift, I receive a similar gift from my partner. The gift and counter-gift are not balanced out because the sacrifices made by each party in pursuit of its goal are equivalent. On the contrary, each party held on to what it gave away. Balance here does not imply proportionality but reciprocity. The mutualization involved in this case is not one of risks, as with insurance; mutualization here refers to a symmetry of attitudes rather than an equivalence of gains. It involves everything related to information and knowledge; it follows the axiom: one divided by two equals two. Let us turn to the case of free software or to the sharing of experience. Free

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software satisfies the two criteria that have already been identified: the duplication of part of a program or of a few lines of code cost nothing; by mutually offering one another parts of a program, a program is completed. This exchange has a third property, which in relation to first category goods we called an emergent property of the system. A combination of programs produced the software: it is the assemblage and complementarity of the parts that gives the software its value. In the example of free software as in that of farming seeds, the process of mutualization is a gradual one. Improvements never end. The back-and-forth between use and improvement guarantees that the software or the seeds are adapted to needs. Better still: it is by using the good that it becomes more available. Those who belong to my generation remember the advertisement: “Wonder batteries only run down if you use them.” On the contrary, fourth category goods run down only if they are not used. A further characteristic is that the very activity of producing farming seeds or of improving free software, far from being experienced as “work” in the negative sense of the term, is actually inherently gratifying: the direct bond between production and usage, as well as that between the pleasure of creating and the pleasure of sharing transcends the perception of work as drudgery. We must redefine what “living well” means, especially in relation to ideas of work. The inclusion of individuals in the activity of mutualization is worthwhile not only because of what one receives from others but also, and perhaps primarily, because of the pleasure of participating and developing connections. The dazzling success of Wikipedia offers a perfect example of the developmental logic of fourth category goods. Thousands of volunteers interact daily, according to clear rules that distinguish between the tasks of editing, correcting, and oversight, to produce and to make freely available to all common encyclopedic knowledge. Let us now consider the case of exchanging experiences. For years I have been convinced that the kind of knowledge that is most useful to action is born from action itself and the experience of others. This idea led me to become interested in the mechanics of how experiences are shared. In this context, we find first of all the two basic elements of fourth category goods: the costs of reproduction or duplication are modest or nil; and one keeps what one gives at the same time that one receives something new. But an analysis of processes for exchanging experiences brings two additional insights. The first is that representing one’s own experience is a source of satisfaction. When our Foundation began to support programs for sharing experiences, it overlooked this psychological phenomenon and thus misinterpreted it. Our system of exchanging experiences was founded on the idea of barter. We began with the hypothesis that what would make someone interested in sharing his or her own experiences was the desire to learn about that of others. But in practice, people experience a deep satisfaction in representing

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their own experience and in the end express relatively little curiosity concerning the experience of others! How does one explain this paradox? By the fact that in transforming lived experience into a story deemed worthy of transmission, one affirms oneself as subject and as the author of one’s own destiny. This overlaps perfectly with the definition of “living well” and it is a product of expression rather than just a method of accumulating things. Based on this observation, one could almost conclude that one must reverse the classic argument: the unbridled consumption of material goods, far from being a prerequisite for happiness, is simply a compensation for the frustrations of life and, in particular, for the absence of creative activity. Close observation of experience exchange also taught us another lesson. Exchanging experiences at an international level on a particular subject allowed us to detect deep similarities lurking beneath contextual differences in a way that generated radically new knowledge. The description of a single experience makes it impossible to grasp what, in the chain of events, is the product of particular circumstances or chance occurrences and what is the consequence of the inner structure of the situation. Only exchange makes it possible to distinguish between the two. Exchanges of experience thus have their own emergent properties, that of producing knowledge that would be inaccessible without the possibility for comparing different experiences. Not only do I hold on to what I have given, and not only do I receive, but we also produce together: the new “whole” is greater than the sum of its parts. Until now, our reasoning has focused on the moment of the exchange. But what happens when it occurs over time? Let us take the case of knowledge and experience. We previously described a capital of knowledge and experiences as a first category good, one that is neither divisible nor reproducible. Are we not now contradicting ourselves by describing the processes of exchanging knowledge and experience as fourth category goods? No. It is simply that there is a considerable similarity between first category goods and fourth category goods. The latter maintain and nurture the former. The example of farming seeds illustrates this well. A network for exchanging farming seeds is a means for maintaining or developing biodiversity, which is itself a first category good. To say that the totality of available knowledge is neither divisible nor reproducible means that dismantling it would destroy essential emergent properties of the system. Similarly, if everyone in a factory took off with a piece of machinery under his arm, the process of production itself would become impossible. Let us take another case, that of what is usually called “social capital” — the network of social relations in which everyone is enmeshed. Social capital is an extension of us into our relationships with the world; it is an essential element of

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our well-being. Social capital is also a good that multiplies as it is shared. And yet the cost of its duplication is neither modest nor nil. On the contrary, social capital builds up slowly. At the same time, sharing one’s social capital with others by no means involves losing it.

The two functions of fourth category goods: direct usage and factors of production The examination of social and knowledge capital brings us not to the nature of fourth category goods, but to their use. I will distinguish between two kinds: the direct use of these goods as sources of well-being, and their use as means of production or governance. Social exchange, access to information, the sharing of knowledge, and music are goods and services whose use engenders well-being, and this is the reason that many would like to transform them into saleable goods. If one analyzed the way that individuals or societies budget their time or use their monetary resources, one would see that the poor devote the largest share of their budgets to survival and subsistence, while the rich devote the most to leisure, in the broadest sense of the word. There are good reasons for thinking that this shift gives an ever expanding space to what could potentially be fourth category goods. The incorporation of fourth category goods into the processes that produce and distribute goods and services of all kinds has become considerable. They constitute most of what we call intangible capital, and they are determinants for transaction costs, whose central role in the economy we have discussed.

Free and mutualized: the two wellsprings of the economy of fourth category goods Recognizing the importance of fourth category goods for the future of the economy, hardcore proponents of the free market stumble over themselves to attempt, despite all evidence to the contrary, to force them into market mechanisms by appealing to intellectual property and patent law — laws invented for other purposes, and in the framework of other technological frameworks. Authors’ rights were invented several centuries ago to protect the interests of the weak against those of the strong and to compel recognition of the right of an artist to control the use of his or her intellectual production. But today they tend simply to provide guaranteed income to the publishing and media industries, as they become ever more concentrated.4 4 This information was collected in September 2004 during the International Forum of Culture in Barcelona, specifically the talk by Joëlle Farchy during the roundtable on “Rights and Cultural Policies at the National, European, and Global Level.

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Similarly, patent law was invented to remunerate technical innovation that increased the efficiency of production factors or that created a new product or a useful service. But by definition, these innovations were difficult to reproduce. It is thus a complete misinterpretation, as well as an abuse of dominant market positions, to now claim that the very same law can be extended to knowledge and — even worse — to life itself. Activists who are firmly opposed to this evolution have made no mistake. Nor is it an accident if the popularity of Monsanto, the firm that so enthusiastically promotes genetically modified organisms (GMOs), collapsed when, with astonishing obliviousness, it dubbed “Terminator” a gene that, when introduced into plants, made them incapable of reproducing. The firm claimed, perhaps in good faith, that it wanted to protect ecosystems from the risk of the uncontrolled reproduction of genetically modified plants that were resistant to pesticides. But, in so doing, it left no doubt that at least symbolically it had sided with death over life. It is for the same symbolic reasons that activists call “merchants of death” the pharmaceutical firms that oppose the reproduction of medicines necessary for fighting AIDS in poor countries in order to secure their return on investments. To touch the symbol of life itself, to sequestrate the living by privatizing it, to forbid someone, in the name of the sacrosanct rights of intellectual property, to freely reproduce a living mechanism upon which one’s survival depends, is to let the market economy penetrate into domains where it is not legitimate.

Summary of systems of governance applicable to different categories of goods This consideration of the different categories of goods and services has shown their extreme diversity. Even if the “share-and-divide test” that led to their classification into four categories proves itself to be particularly pertinent for the economy, each of these categories contains goods and services with different characteristics, leading to systems of governance that themselves may be quite different. We are far from the simplicity of the market economy, which considers all goods and services to be similar. But this diversity is the very condition of their relevance! Is not the art of governance that of coordinating different kinds of action? And is not one of the five fundamental principles of governance to find institutional arrangements adapted to the goal pursued? A version of this essay was originally published in French by Editions Charles-Léopold Mayer in Paris, 2009. The English version of this essay was translated by Michael C. Behrent.

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References Bauby, Pierre. “The Evolution of Thought Relating to Public Service at a European Scale.” Institute for Research and Debate on Governance, 2005. Erkman, Suren. Vers une écologie industrielle. Paris: Charles Léopold Mayer, 2004. Farchy, Joëlle. “Rights and Cultural Policies at the National, European, and Global Level.” Roundtable during during the International Forum of Culture, Barcelona, Spain, 2004. Piketty, Thomas. L’économie des inégalités. Paris: La Découverte, 2008.

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6.2 Taoism and Renewable Energy Manhong Mannie Liu

Introduction China was once a relatively poor and backward country. After 30 years of rapid development it jumped to become the second largest economy in the world. In the first decade of the 21st century, China’s average economic growth rate (10%) was three times that of the global average (3.2%). If inflation factors are neglected, China’s GDP grew seven times between 1952 (CNY67.9 billion) and 1982 (CNY532.3 billion). In comparison, GDP grew 97.5 times in the 30 years between 1983 and 2012 (CNY51.9 trillion). In these 60 years, China’s GDP has grown 764 times, becoming an economic miracle after the Reform and Opening Up. Fig. 6.2.1

China’s GDP from 1952 to 2012 (CNY1 million)

60,000,000 50,000,000 40,000,000 30,000,000 20,000,000

2012(E)

2009

2006

2003

2000

1997

1994

1991

1988

1985

1982

1979

1976

1973

1970

1967

1964

1961

1958

1952

0

1955

10,000,000

Source: National Bureau of Statistics of China, China Statistical Yearbook 2012. Note: Initial data is used for 2012. Actual number may be different from the estimation used here.

China’s development is not only exhibited in its GDP, but also in various aspects in social life in China. According to Maddison,1 China’s political and economic situation from the 1950s to the 1970s has been very chaotic for most of the time. Per capita income was far lower than that in Africa. From 1880 to 1978, the global 1 Maddison, The World Economy: A Millennial Perspective.

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GDP increased more than three times but China’s GDP per capita only doubled. In 1950, the life expectancy in China was only 41. This was raised to 76 by 2011. The illiteracy rate in 1950 was as high as 80%, but this was reduced to 4.08% by the end of 2010. China’s foreign exchange reserves grew from the negative USD1.3 billion in 1980 to USD3.31 trillion in April 2011, exceeding Japan as the country with the largest foreign exchange reserves. For a more specific example, the first mobile phone appeared in China in 1987. The first mobile phone cost CNY21,000. Together with cellular fees of CNY6,000 and prepaid fees of CNY1,000, the total cost amounted to CNY28,000. The average annual income of Chinese urban residents in that year was CNY1002.1. The price of the mobile phone was 27.9 times that of their annual income, so obviously, a mobile phone was unaffordable for the normal citizen. By the end of 2011, the number of China’s mobile phone users had reached 980 million,2 with a penetration rate of 71.5% (using 1.37 billion as the total Chinese population according to the Sixth National Population Census). The mobile phone has become a daily necessity in the lives of Chinese people. Yet a great price has been paid for the economic development of China. The development cost has been shocking from both the perspective of resource consumption and environmental destruction. In these years, the average global growth rate in primary energy consumption is 2.8%, but the growth rate of China reached 9.6%. According to the BP Statistical Review of World Energy 2012, the United States was the largest consumer of petroleum in 2011, accounting for 20.5% of global consumption. However, the consumption rate decreased by 1.9% as compared to the previous year. China was the second largest consumer of petroleum, accounting for 11.4% of global consumption. Compared to the previous year, this has not dropped, but has risen by 5.5%. In addition, China’s natural gas consumption increased by 21.5% when compared to the previous year.3 This has come to a turning point. China’s growth model that sacrificed a large amount of resources and environmental health for rapid growth has to be changed.

Following nature China has a tradition of respecting nature. As early as 2,500 years ago, China’s great philosopher Lao-tzu stated that “Man follows Earth. Earth follows heaven. Heaven follows the Tao. Tao follows what is natural (zhiran 自然).”4 The term zhiran represents a broader concept which not only encompasses “nature,” but also what National Bureau of Statistics, China Statistical Yearbook 2012; WHO, World Health Statistics 2013; State Council of the PRC, Fifty Years of Progress in China’s Human Rights; and the World Bank Data, data. worldbank.org. 3 BP, BP Statistical Review of World Energy 2012. 4 Lao-tzu, Tao Te Ching.

2

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is natural. That is, it is a natural “formless form.” Lao-tzu’s classic work points out that man is limited by the earth, the earth is limited by the sky, the sky is limited by known rules, while rules are limited by nature. Although different people will have different interpretations of Lao-tzu’s nature, one point is certain: humans cannot act completely on their subjective wishes. Humans are part of nature, and all paths have to follow the rules of nature. While men can alter nature, economic development has to be carried out on the basis of following natural rules, so as to improve the quality of their social life. According to the rules of traditional Chinese thinking, men exist within the earth, heaven, and Tao — they cannot exist independently. Man’s exertion of his own effects on the natural environment must follow the rules of nature. Lao-tzu proposes that the world should be governed with the law of nature. For example, “Man follows Earth,” but in what ways and how? The earth carries all things and shoulders all for us. All daily necessities, and thus even our lives, are dependent on the earth. Food is grown from the earth and clothes are taken from earthly materials. All of man’s necessities are obtained from the earth. Any disrespect towards the rules of the earth is mistaken and unsustainable, as it will lead to disasters sooner or later. Lao-tzu is also attributed as saying: “The earth and skies run without pushing, the sun and moon burn without lighting, the stars order themselves without any arranging, animals propagate without creation, this is the work of nature, how does it require human intervention?” The alternation of day and night, the cycle of seasons, the light of stars, and the niches of animals in food chains are all due to nature. The natural world has existed for billions of years before the appearance of humans. It has its own internal rules, and its various factors share a myriad of competitive and cooperative endogenous relationships. If humans do not realize this and destroy such natural relationships, they will face dire consequences from nature. China’s economy has developed abnormally rapidly in the past decades in a historic miracle, yet such economic development is built upon large-scale overconsumption, and is unsustainable. Rapid development can be temporarily achieved, but it cannot last forever. Resources are limited but wants are unlimited. A path of sustainable development has to be found in the midst of this conflict of what is limited or unlimited. By applying this concept to the energy industry, it can be seen that economic development that is dependent on non-renewable energy is unsustainable, as such energy will be exhausted one day. For example, coal is a typical non-renewable energy. The economic development of China has always been dependent on coal for although it is polluting, it is cheap. However, this opinion appears superficial and short-sighted when examined from another perspective. If the social cost of environmental pollution is also calculated,

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is coal really cheap? The pollution cost and environmental cost from the use and extraction of coal will not be discussed here. First, we shall look at the role of China in the global production and consumption chain of coal. How does China fare when compared to the world’s countries that have the major coal reserves, as well as the major producers and consumers of coal? Table 6.2.1 The coal reserves, production, and consumption of major coal producers in the world Coal reserves (%)

Coal production (%)

Compared to 2010 (%)

Coal consumption (%)

Compared to 2010 (%)

United States

27.6

14.1

0.9

13.5

-4.6

Russia

18.2

4.0

4.1

2.4

0.8

8.9

5.8

-2.2

1.3

13.6

China

13.3

49.5

8.8

49.4

9.7

World

100

100

Country

Australia

100

Source: BP, BP Statistical Review of World Energy 2012.

China has always called itself a major coal producer. However, in reality, China’s coal reserves only account for 13.3% of global total coal reserves. In comparison, the United States has 27.6% of coal reserves, Russia has 18.2%, and Australia has 8.9%. Disregarding the quality, carbon content, or energy value of the coal of various countries, the United States has more than a quarter of the world’s coal reserves, but its production and consumption rate is less than one-seventh of the global total. Russia has rich reserves, but does not waste its resources. It has 18.2% of global coal reserves, but it only produces 4% of the global total, and only consumes 2.4% of the global total. Australia has nearly 10% of global coal reserves, but these only account for 5.8% of total production and an insignificant 1.3% of total consumption. In contrast to these countries with major coal reserves, the rate of China’s economic growth is almost parallel to the increase in its non-renewable energy consumption rate. Although China only has 13.3% of the world’s total coal reserves, its production and consumption rate is nearly half of total global production and consumption. China’s coal reserves are less than half that of the United States, but its consumption rate is three and a half times that of the United States. It should be noted that in 2011, the coal consumption of the United States decreased by 4.6% as compared to the previous year, but that of China increased by 9.7%. In the same year, the coal production of Australia decreased by 2.2% as compared to the previous year, but that of China increased by 8.8%. China is consuming

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beyond its means and using the energy resources of future generations. This is against Chinese traditional values of caring for the future generations; and against the value to place the nation and people before the individual. Chinese traditional culture emphasizes the interests of the majority. It is the individual’s goal to begin from cultivating oneself, bring order to the family, govern the country, and finally bring universal peace as the ultimate goal. China’s development cannot and should not be pursued with the exhaustion of resources as the price.

Mastering the self needs strength Lao-tzu states that “Knowing others is wisdom; Knowing the self is enlightenment. Mastering others requires force; Mastering the self needs strength.”5 This is such an important maxim. It requires wisdom to understand others, and these people are called wise-men. It is of a higher level to be able to understand oneself, and these people have greater-wisdom and are enlightened. In a dispute, those who can overcome others have power, and these people are called brave. People who can overcome themselves have greater-bravery, and are the real heroes. China has to formulate a correct energy policy. China not only has to understand others, but also herself; not only overcome others, but more importantly to overcome herself. It is more difficult to understand oneself than to understand others, as it requires greater wisdom and deeper introspection. It is also more challenging to overcome oneself than to overcome others, as it requires greater courage, more long-term vision, and greater confidence. How can this ancient wisdom be applied in the use of renewable energy? Using China’s photovoltaic industry as an example, the United States and the European Union have imposed punitive tariffs on China’s photovoltaic products. From a purely economic perspective, this author is against trade protectionism, but this article shall not discuss issues on trade protectionism, the win-win or lose-lose nature of trade protectionism, or the rights and wrongs in trade disputes. Although China can try to use various ways to persuade others to give up the punitive tariffs, this cannot solve the long-term problems in renewable energy. China should solve the root cause of the problem and achieve an understanding and overcoming of the self. China not only needs to understand others, but more importantly, should understand itself, as well as reflect and overcome its current self. On its long-term renewable energy strategy, China has to reflect deeply upon its industrial structure, policies, direction, and tactics. Painful and difficult adjustments have to be made before China can “overcome itself.” 5 Ibid.

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First, the strategy of the entire renewable energy industry, especially of the photovoltaic industry, should be discussed. China’s industrial structure has two “external” factors — external core technology and external markets. China has only used its relatively cheaper production factors to produce quality and inexpensive products. Due to the external dependencies, the fate of the photovoltaic industry is controlled by others. Strictly speaking, the current difficulties of the Chinese photovoltaic industry are not caused by others’ punitive tariffs, but by mistaken industrial policies. China’s industrial layout has resulted in the current embarrassing situation. China has to alter the current passive situation and begin by restructuring the industry. It is obviously a difficult task, but it has to be done sooner or later. Restructuring is difficult and may alter the vested interests of stakeholders, but restructuring is an inevitable trend. External situations are forcing the change, and this is a good opportunity for China to correct its industrial structure. In order to resolve the current situation where core technologies are imported, sales are dependent on external markets, and only the production chain is carried out in China, technology innovation is needed and the dependency on external markets has to be broken. Industrial restructuring can be carried out from these two aspects. It is not sustainable to rely on price advantage from low labor cost to raise the international competitiveness of China’s photovoltaic products. Technological innovation should be strengthened, as the development of all industries has to rely on technological advancement. If the renewable energy industry is to develop healthily in the entire energy system, it cannot rely on government subsidies continuously. Under government support and increased social awareness of the public, the main driving force behind the development of the industry should still be economic benefits. It is only through technological innovation—which increases the efficiency of renewable energy and lowers the cost so that renewable energy is economically more competitive than traditional energy—that the renewable energy industry in China can be driven by economic benefits. It is only through technological innovations that production efficiency can be increased and production costs be reduced. This is the only way to increase actual competitiveness. Thus, the importance of venture capital is becoming increasingly obvious. Venture capital is the bridge between innovation and finance and an important part of driving innovation with financial capital.6 At the same time, China has to shift the major renewable energy market from foreign countries to within the country. Such strategic adjustment cannot be realized quickly, and requires time, strategic planning, and the drive from the market itself. Economic benefits are the drive behind enterprise development. When they are suppressed in foreign 6

Liu Manhong, Venture Capital: Innovation and Finance.

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markets, they have to shift towards the domestic market. To develop domestic needs is not only a necessary national strategy for the development of renewable energy, but also an internal drive created within the production enterprises. Next, macroeconomics strategies are also widely applied in the field of renewable energy. Currently, emphasis is placed on the supply side instead of the demand side, just as emphasis is placed on investments instead of consumption. In the development of renewable energy, supply and demand are pushed by investments as in China’s macroeconomics, instead of being driven mainly by market forces. The author thinks that this strategy is unsustainable, unbalanced, and does not comply with economic rules. In the past year, the Chinese government has financially subsidized the supply side of renewable energy, but has failed to spend an equal amount of efforts to support the demand side. It is not wrong to encourage the production of renewable energy through tax policies. China is neither the first nor the only country to do so, as many countries have used such subsidy policies. Yet, due to the special governance system of China, there is often a too great emphasis on the encouragement of supply, and neglect in the drive of demand. All provinces, cities, and regions in China have their own GDP targets, and various levels of officials have to try to meet their GDP targets. Yet market sales targets have never been set. There is a lack of coordination between the market and planning. There is a lack of a comprehensive plan. In the renewable energy market, some products have excess capacity, while others, such as raw materials of products, are under-capacity. The few decades of China’s experience in a planned economy has not been put to good use. Plans are formulated without in-depth investigation and consideration for local conditions. Yet while there is insufficient planning sometimes, there is also over-planning that is too restrictive. For example, the National Development and Reform Commission instructed that from August 1, 2012 onwards, the Chinese government will buy all photovoltaic power at the fixed price of CNY1 per kWh. Such universal provision is in reality very unreasonable. This price allows producers in central and western China to make a profit, but producers in eastern China will definitely incur a loss. Under the values of “knowing the self is enlightenment” and “mastering the self needs strength,” it is time for China to reflect and overcome its own weaknesses. The previous emphasis on supply instead of demand, as well as the emphasis on investment instead of market development (especially domestic market development), should be changed. In addition, power, responsibilities, and profits have to be integrated completely. In promoting renewable energy and energy conservation, the central government has to allow local governments a certain amount of power, responsibilities, as well as corresponding guaranteed benefits. If local governments are given the power

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similar to that of the past Family Planning Commission in areas of renewable energy and energy conservation, more obvious results may be achieved. Shandong is leading the country in energy conservation because of its determination. The provincial government gives the Shandong Energy Conservation Office sufficient power. The Shandong Energy Conservation Office has a main supervision team, but supervising organizations have also been set up in various county-level cities, which can penalize individuals and organizations that waste energy. Responsibilities cannot be fulfilled without power. In Shandong Province, energy conservation supervising organizations are the main government supervising bodies acting according to the law. Shandong has the relevant organizations, cadres experienced in energy conservation law enforcement, and support from the provincial leaders. The Shandong Energy Conservation Office has an overall monitoring team which also wrote the Shandong Province Energy Conservation Supervision Guide, which later became the national energy conservation supervision guide. It can be seen that the energy conservation achievements of Shandong province have been founded. The guidebook has provided a comprehensive legal foundation and regulations for the enforcement of energy conservation supervision in China. Finally, China has not implemented awards and punishments clearly, and punishments are not strict. Regions which have done well in energy conservation, such as Shandong and Shanghai, should be greatly rewarded. Rewards should not be limited to honorary rewards, but should also be manifested as economic incentives. More importantly, the punishment for resource destruction is not severe enough. Some enterprises exploit resources (including energy resources) for their own gains, and earn tens of millions of profits through such waste and destruction. Yet when they are caught, they only need to pay fines up to a few hundred thousand or a few million dollars. The short-term benefits gained from enterprises and individuals after such destruction are much less than the loss brought to the country, society, and even the whole world. The penalties imposed for such destruction are also mush less than their potential profits. There is a long way to go in the punishment of waste of resources, and further discussions on resource tax and social cost have to be conducted. Articles by professors such as Yuan Yongna and Shi Minjun in Part III of this book have theoretically discussed the problems such as the cost of resources, environmental pollution costs, and treatment costs. In sum, China’s punishment of environmental destruction is too light, and is much less than the social cost incurred by environmental destruction.

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Empty and be full; Wear out and be new Lao-tzu states that “Yield and overcome; Bend and be straight; Empty and be full; Wear out and be new; Have little and gain; Have much and be confused.”7 It is by yielding that things are preserved; by bending that things can be stretched; only a sunken place can be filled; only old objects can be renewed; by having little one gains; by having much one loses direction. If something is full it cannot be filled and if something is new it need not be replaced. A bent rubber stick can last longer than a stiff wooden stick. When the tree is alive it is soft, and it becomes hard and breakable when it is dried. People are the same. Their bodies are soft when they are alive, and stiffen after they die. We should be both bendable and stretchable when we live and do things, so that we can be flexible and vigorous. Water flows towards low ground. The deepest sea is where the deepest depression is. Being old is the foundation of renewal. It is only through such realization that replacements and renewal can be carried out. Lao-tzu’s dialectical thinking can be fully applied to the renewable energy field. China has many imperfections to be solved, many outdated regulations to be changed, and many problems to be revisited. There are many methods of governance to choose from, and the future is limitless with China’s enthusiasm. “Happiness is rooted in misery. Misery lurks beneath happiness.”8 The Chinese are familiar with the fable “The Old Man from the Frontier Lost His Horse.”9 The United States and European Union imposing punitive tariffs on Chinese products may not be a bad thing, as it provides an incentive for China to renew its outdated model and to build a new industrial system. There are many problems in the field of China’s renewable energy, and it is precisely that these imperfections can be improved upon that innovation is possible in the future.

7 Lao-tzu, Tao Te Ching. 8 Ibid. 9 In the fable, an old man lost his horse, and his neighbors said that it was unfortunate. The old man replied that it might actually be a good thing. Later, the lost horse returned with another good horse. His neighbors said that it was fortunate, but the old man replied that it might actually be a bad thing. The old man’s son then rode the new horse and broke his leg. The phrase is used as an idiom to refer to blessings or misfortunes in disguise, as well as the unpredictability of fate.

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References BP. BP Statistical Review of World Energy 2012. 2012. Accessed August 13, 2013. http://www.bp.com/content/dam/bp/pdf/Statistical-Review-2012/ statistical_review_of_world_energy_ 2012.pdf. Lao-tzu. Tao Te Ching. Translated by Gia-fu Feng and Jane English. New York: Vintage Books, 1989. Liu Manhong. Fengxian touzhi: chuangxin yu jinrong 風險投資: 創新與金融 (Venture Capital: Innovation and Finance). Beijing: China Renmin University Press, 1998. Maddison, Angus. The World Economy: A Millennial Perspective. OECD, 2001. National Bureau of Statistics. China Statistical Yearbook 2012. Beijing: China Statistics Press, 2012. State Council of the PRC. Fifty Years of Progress in China’s Human Rights. Beijing: New Star Publishers, 2000. World Health Organization (WHO). World Health Statistics 2013. Geneva: WHO Press, 2013.

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Renewable Energy in China: Towards a Green Economy Volume 3 Renewable Energy in China: Towards a Green Economy presents a complete look at China’s efforts to become a “green” nation. This three-volume series provides a collection of essays from over 70 internationally renowned experts who offer in-depth coverage of the current renewable energy industry in China. The series also looks at the relevant international events (the Fukushima disaster) which can provide lessons for China, as well as the current geopolitical and economic factors (solar power subsidies, wind power costs) which will impact China’s growth as a “green” nation. The series also contains 25 case studies from industry leaders and business experts who provide concrete examples and theoretical analysis of the renewable energy industry in China and the West. With a preface from renowned statesman Cheng Siwei and an introduction from Nobel Peace Prize winner Mohan Munasinghe, Renewable Energy in China: Towards a Green Economy offers an authoritative look at China’s progress as a green economy including the nation’s current efforts to develop sustainable practices.

Editors Manhong Mannie Liu is Director of the Venture Capital Research Group at the Chinese Academy of Sciences’ Research Center on Fictitious Economy and Data Science. She is also the Director of Renmin University’s Venture Capital Research Center, as well as a Professor and mentor of PhD students. Professor Liu received her PhD from Cornell University in 1994 and she has worked as a research faculty member at Harvard University. Mike Henry is Associate Dean of the School of Business, MacEwan University. His career spans the public and private sectors. He received his education at the University of Ottawa, the University of Alberta, and

Renewable Energy in China : Towards a Green Economy Volume 3

Presents a Complete Picture of China’s Sustainable Development Efforts

the University of Southern Queensland. the director of the Center for Green Economy, Peking University HSBC Business School, Asian Chairman in the Ecological Development Union International (EDUI), and as supervisor at China’s Ministry of Land and Resources. China’s Energy Studies

Manhong Mannie Liu Mike Henry Huang Haifeng

Huang Haifeng obtained his doctorate at Humboldt University of Berlin. He is serving as professor and

Renewable Energy in China:

Towards a Green Economy Volume 3

Manhong Mannie Liu Mike Henry Huang Haifeng