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Several Issues Regarding Developing Rural Hydropower in China
Cheng Huizhou, Director of Bureau of Rural Hydropower and Electrification, Ministry of Water Resources, P.R.China
    Editor¡¯s note: This article is presented by Mr. Cheng Huizhou, Director of the Bureau of Rural Hydropower and Electrification, Ministry of Water Resources, P.R. China on the ¡°International Workshop on Attracting Private and Public Sector Participation in Infrastructure (Small-Hydro and Water Supply Sectors)¡± held on November 17-18,2003 in Kunming, Yunnan Province, China. The workshop was jointly organised by Yunnan Provincal Government and World Bank.

Ladies and Gentlemen:
    Good morning. Thank you for your attention t o the undertaking of rural hydropower in China and welcome all sides of investors to develop rural hydropower. The rural hydropower that I talk in the speech refers to small hydropower with the capacity less than 50 MW. I would like to use this chance to set forth several issues regarding developing rural hydropower of China.

    I. Grand Potential , Distribution and Features of Resources
    The resources of rural hydropower of China are very abundant. According to the preliminary statistics of recent check survey, the capacity that can be explored amounts to 130 GW, ranking 1st in the world.

    The rural hydropower resources are distributed widely in more than 1600counties of 30 provinces (autonomous regions and municipalities), which mainly concentrate in western, middle part and littorals of China. Western part, poor areas, minority areas contain over 70% of total rural hydropower resources.

    Decentralization of resources is suitable for the strategic development direction of decentralized and distributed power supply.

    The moderate scale of rural hydropower is fit for countryside, farmer organizations and private sectors to explore and conducive to increasing farmer¡¯s income and promoting the development of rural economy.

    To develop rural hydropower will not result in a large pool of water and cause resettlement or submergence. It will also not emit GHG or any harmful gas. Rural hydropower is a clean renewable energy.

    II. Achievements of Development
    When new China was established in 1949, rural areas in China have no access to power. The central government took the guideline of ¡°walk with two legs¡± to explore rural hydropower in order to address the power shortage. This development was combined with control of rivers and construction of irrigation works. Up to 1990s, most of counties in China have been electrified by rural hydropower. The development of rural hydropower settled the electricity supply to 600 million un-electrified Chinese people in accumulative total. Over 1500 counties have explored rural hydropower and more than 48000 rural hydropower stations built up altogether. It is predicted that 2.3 GW capacity will be put into operation at the end of 2003 while the total capacity of rural hydropower will reach 30.8 GW and generate energy of 110 billion kWh annually. Both the capacity and annual energy will account for 40% of that of total hydropower in China. Rural hydropower realizes added value from generation and supply at 50 billion Yuan (RMB) and profits 7 billion Yuan(RMB).

    According to the deployment of the State Council, Ministry of Water Resources has continually organized the construction of 3 batches of preliminary rural hydropower and electrification counties from 1985 to 2000. 653 preliminary rural hydropower and electrification counties were thus completed. The GDP, financial revenues, farmers¡¯ income and energy consumption of those counties doubled over past 5 years and quadrupled over past 10 years. The economic structure was conspicuously improved and the developing speed evidently higher than national average level.

    Rural hydropower has become an important infrastructure and public establishment in vast rural areas in China. It is playing and will play the important role in the development of Chinese economy and society.

    III. Evolvement of Investment Structure
    Before 1990 the main financial source of rural hydropower came from national investment. The investment from central government accounted for more than 30% of total investment during the construction of electrification counties.

    From 1990 to the end of last century, besides the national investment, other non-public sector also participated in the development of rural hydropower, mainly the private cap ital, in Guangdong, Zhejiang, Fujian and other regions. Meanwhile foreign investors started their investment in rural hydropower.

    At the beginning of this century, more and more non-public invest ors invest in the construction of rural hydropower station. The proportion of nonpublic investment ranks comparatively high in Zhejiang, Guangdong, Fujian and other littoral regions.

    In this new era, with rural hydropower listed into ¡°Six Small Projects¡± by our country, rural hydropower needs to expand the investment scale and enrich the construction content. ¡°Six Small Project¡± is a combination of 6 small/middle scale of infrastructure projects in rural areas recommended by national government. Their characteristic can be summarized as short period of construction, short period of capital return, wide coverage of benefited people and notable effect of income increase. At the same time, Chinese government carries out Project of Substituting Small Hydropower for Fuel as an important method of consolidating ecological project of transforming farmland into forest to meet farmers¡¯ household firewood and production energy demand. Rural hydropower belongs to rural infrastructure and ecological protection projects, therefore, the government will increase the investment accordingly.

    IV. Main Experience
    1) Work on the basis of the situation of China. Chinese government adopted the policy of ¡°walk with two legs¡±. During a very long time, the problem of power short age was addressed mainly depending on local strength and in combination with controlling river and building up irrigation facilities. As the development of rural hydropower is not only solve the electricity shortage but also become the strong productivity, complying with t he situation of China, the enthusiasm of central government and local people were thus aroused and the development expanded rapidly.

    2) Work on the basis of objective rule. Combining tightly the development of rural hydropower with river controlling, rural hydropower is a dragon-head in the construction of irrigation works in mountainous region. To develop rural hydropower will not only bring the comprehensive benefits of water resources into full play, but also promote the sustainable development.

    3) Insist on the principle of serving agriculture, rural are a and farmers. To develop rural hydropower will make contributions to raising rural productivity, increasing farmers¡¯ income and promoting rural development after the energy demand of daily life and production were satisfied by rural hydropower.

    4) To tightly combine with poverty elimination. In the vas t areas of west China, rural electrification transforms the resources advantages into economic advantages, promotes the poverty elimination and realizes the double wins of economic and social benefits.

    5) To tightly combine with the ecological protection. Project of Substituting Small Hydropower for Fuel are carried out in those key areas where project of transforming farmland into forest also carries out so that the energy demand for daily life and rural product ion can be satisfied, while the results of project of transforming farmland into forest can be consolidated.

    6) National policy and investment support. Chinese government sets up the policy of ¡°self-construction, self-management and self-utilization¡±, ¡°rural hydropower shall have its own power supply areas¡±, ¡°to feed power with power, realize the rolling development¡±. Maintains the value added tax of rural hydropower at 6%. Government has put into a large amount of investment in rural hydropower.

    V. Development Opportunities
    1) Great attention was paid to ecological safety by each country of the world today and focus on GHG emission. International community will attach more and more regard to energy structure adjustment, promotion of renewable and reduction of carbon dioxide.

    2) Chinese government carries out the strategy of sustainable development, plan the harmonious development of human being and nature as a whole and take measures of project of transforming farmland into forest and other ecological protection projects. Project of Substituting Small Hydropower for Fuel will be carried out to meet the farmer¡¯s fuel and rural energy demand. According to the plan, up to 2020, the capacity of small hydropower stat ion for substituting fuel will amount to 24 GW.

    3) China attaches great attention to the issue of ¡°agriculture, countryside and farmer¡± and plan the development of town and countryside as a whole. Rural hydropower has been determined to be an important small and middle scale rural infrastructure and public facility, which will be provided with national support.

    4) China implements the strategy of developing west and plan regional development as a whole. Rural hydropower is very abundant in western part of China. To develop rural hydropower resources is an indispensable part of strategy of developing west.

    5) Water resources will continue getting high attention and support from the government. Rural hydropower as the dragon-head of irrigation works of mountainous region will realize sustainable, rapid and healthy development.

    6) The State Council has instructed MWR to organize the construction of Hydropower and Rural Electrification Counties to raise the electrification level and meet the energy demand of rural economy and society. Up to 2020, 2-3 GW capacity of rural hydropower should be put into operation annually.

    7) Country will steadily push power sector reform to decentralize the monopoly on power market. An equal, competitive, open, orderly and healthy power market system with a separation SHP in China between government and enterprises will come into being. The environment of rural hydropower market is imp roving gradually.

    VI. Problems and Risks
    1) Un-orderly development of rural hydropower is very severe. Many hydropower stations do not accord with the comprehensive planning of river basin and hydro potential development. Some river basins are even trenched on viciously preventing from equal competition. Some multi-purposed projects with the benefits of irrigation, flood control and ecological benefits have been explored as a pure commercial power generation projects; some developers reduce the installed capacity of stations defying the hydro potential planning but according to their own financial resources; some developers at will choose the site not obeying the rolling planning of rural hydropower, therefore, resulting in a great deal of resources waste and even affecting the safety of flood control, irrigation, drinking and ecological water supply.

    2) Severe hidden safety trouble exists in structure of some projects which have not passed the appraisal and approval of water resource authorities. The ¡°Four-nothing¡± projects which disobey basic const ruction procedure without approval, design, acceptance and management stand out seriously and some even have caused the fatal safety accidents. Recently MWR just finished cleaning up ¡°Four-nothing¡± hydropower stations, and many stations were smelled out. Those stat ions t hat have severe hidden safety trouble form a serious threat on people¡¯s life and belongings.

    3) Design market, equipment market and construction market are in urgent need of regulating. In recent two years, due to rapid development of rural hydropower, sector management was kept vacant or difficult to keep in pace with the development of rural hydropower. Some unqualified design institutes participate in the design field of rural hydropower sect or; some factories, workshops that are not qualified or with a low technical capacity and even individuals would pull a large amount of equipment manufacturing work into arms; some unqualified construction enterprises also took charge of rural hydropower work. All above causes severe hidden safety trouble to construction, equipment and production of rural hydropower. Regarding those problems above, MWR and concerning sectors are taking effective measures to straight en out and regulate.

    4) With the steady advancement of power sector reform, separation between transmission and distribution is not listed in the agenda, and the monopoly of grid still needs decentralizing. Some hydropower stations can generate but are not allowed to do so, some are allowed to generating but is not accepted by grid. These phenomena still exist in some areas.

    5) Although the State Council has issued the new power price policy, the new power price mechanism still needs time to be established.

    6) Legislation of rural hydropower lags far behind. Regulation on Rural Hydropower has not been enacted. There is no legislation support on the development of renewable so far.

    VII. To Fully Develop the Role of Rural Hydropower in Social and Economic Development
    In the new era, Chinese government puts forward a grand goal of building up a well-off society, of which the difficult and crucial point is in rural areas, especially in the vast western part where the rural hydropower resources are rich. Therefore, it is necessary for rural hydropower to bring it s advantages into a full play to promote the development of economy and society, and provide the effective support to building up well-off society.

    1) To Strengthen the construction of rural infrastructure and improve the life and production condition of rural areas. To develop rural hydropower, improve the facilities of power generation and sup ply gives t he drive t o rural economy and society. Meanwhile, to accelerate the controlling of rural hydropower and increase the controlling level of flood prevention reservoirs for increasing the ability of agricultural irrigation and water supply to improve the life and production condition in rural areas.

    2) To Increase the farmers¡¯ income. Farmers can increase their income by putting money or labor into the construction of rural hydropower, which can bring along rural product processing, local special resources development, construction industry, tourism and transportation industry. It can also transform the surplus labors into useful workers. The severe poor areas can eliminate poverty and increase farmers¡¯ income by exploring rural hydropower with the help of increase of government financial subsidies.

    3) To create more GDP and financial revenues. To develop rural hydropower is to transform the resources advantages into economic advantages, which could create a great deal of GDP and financial revenues and bring along other resources and sectors development, as well as complete the rural economic structure adjustment, improve its optimization and promote the rural economic development.

    4) To protect and improve the ecological environment. Rural hydropower can fully develop its advantage of low cost and further lower the present power price t o meet t he farmers fuel demand and rural energy demand so as to protect forests and vegetation, consolidate the results of t he important project of transforming farmland into forest and other ecological projects.

    5) To provide more and more renewable energy for national economic and social development and improve the energy structure.

     Thank you.

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