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A Survey of SHP Development in China

Hangzhou Regional Center(Asia-Pacific)for Small Hydro Power(HRC)

1. The three phases of development
2. The Ecological Protection Programme to Replace Firewood with SHP.
3. Facing new challenges
   1. The three phases of development

    Rural hydro in China has developed in step with the overall social and economic progress in China. The development of rural hydro can be divided into three phases.

    (1)The first phase: SHP is mainly used for domestic lighting£¨1950s¡ª1970s£©

    In this period from the founding of the People¡¯s Republic of China in 1949 to the primary period of reform and opening up, rural hydro was mainly developed as a solution for domestic lighting for rural, hilly and poor areas. SHP, small hydropower, was essentially developed under the mode of a planned economy. With the guidance and encouragement of government policy, the local government and rural population were motivated to build up SHP, thereby making possible substantial developments in rural hydro.

    Before 1949, the exploitation of SHP was rather backward in China. The earliest SHP station was the Guishan SHP Station at the Danshui River tributary in Taiwan in 1904 with an installed capacity of 500 kW. In mainland China, the first SHP station was Shilongba SHP Station near Kunming in Yunnan province. Up to 1949, the installed capacity of all the hydro power stations in China was over 360 MW, and the installed capacity per capita was less than 1 W, with an annual power generation of 1.2 billion kWh. There were only 52 SHP stations each with an installed capacity below 500 kW, totaling 5,916 kW in all.

    After 1949, with the development of agriculture and rural hydro projects, SHP advanced quickly. The National Agricultural Development Program issued in the 1950s pointed out£¬¡°Wherever appropriate to develop hydro projects, try every possible way to construct medium and small hydropower stations so as to gradually solve the problem of rural energy supply.¡± Since the 1950s, a large number of SHP stations were built nationwide. By the end of 1960, 8,975 SHP stations had been built, with installed capacity of 252 MW. The 1950s were the initial period of rural hydro and electrification. Its features were mainly to supply energy for domestic lighting and agricultural by-products processing. The local population called rural hydropower a ¡°night pearl¡±. At that time, the installed capacity of the SHP stations was very small, with an average of 28 kW only, and most of them were in isolated operation. The equipment was simple, mainly adopting wooden or wood-iron turbines produced by agricultural machinery factories. These were run by the local people, and financially and technically aided by the government. Some SHP stations of bigger installed capacity were essentially invested and built by local governments.

    During the 1960s, the State (national) grid developed rapidly, and extended to the suburbs and rural areas. Some isolated SHP stations were substituted by the State grid and others were abandoned; the total installed capacity and rate of development of SHP therefore decreased. However, there was still a large potential for development, owing to the demands of industrial and agricultural growth and improvement in people¡¯s living standards. The annual average installed capacity reached 58 MW, and the definition of SHP was upgraded to refer to hydropower stations with installed capacity of 3,000 kW.

    In 1969£¬the State Planning Commission held a ¡°Meeting on Small Hydropower Projects for the Hilly Areas in South China¡± in Yongchun county, Fujian province and some policies were worked out including ¡°Mainly small-scale, run by the local people and with locally-made equipment ¡±, together with the incentive policy of State assistance in funding and materials for SHP development. Thus, SHP exploitation was formally listed in the national development plan. The implementation program of small basin development and coordinated distribution of local equipment manufacturing were proposed, thereby promoting the large-scale development of SHP. Afterwards, the State set timely measures to protect and assist SHP with funds, technology, key materials, and so mobilizing everybody¡¯s initiative in constructing SHP stations.

    Then, in 1975, 1978, 1979 and 1980, national meetings on SHP were conducted respectively in Guangzhou, Wuchang, Beijing and Chengdu to summarize the experience and problems in various phases, thus pushing forward SHP development. The definition of SHP was upgraded to 12 MW, and the average annual increase in installed capacity was 580 MW, with a maximum of 1,120 MW in 1979. In this period, SHP supply was used for domestic lighting, processing, drainage, irrigation and township enterprises. In the whole country, there were over 60 turbine and complete package manufacturers with an annual production capacity of 1 million kW. Serialization of the turbine products from 250 kW to 12,000 kW was prepared. Automatic regulation of turbine speed could be performed in key stations. Some counties with fast SHP development formed local SHP-based 35 kV grids. SHP stations developed from isolated operation to connected operation with unified dispatching. During this period, overall surveys and investigations were carried out for SHP resources, essentially clarifying the exploitable SHP potential in China.

    After some 30 years of SHP exploitation since 1949, SHP supplied power to over half of the territory for domestic lighting, thereby solving the electricity supply problem for 300 million people.

    (2) The second phase: SHP is mainly used for poverty-relief in poor areas£¨1980s & 1990s£©

    Since the wide application in China in 1980 of the contract system of responsibility linked with production, tremendous changes took place in the rural economy and great achievements were made. Electricity demand increased with economic development, living standards improved and there was a boom in township enterprises. This led to a sharp imbalance between power demand and supply. The severe shortage of electricity became the main obstacle to the development of the rural economy. In order to meet the needs of rural development and to quicken the pace of poverty-relief in the rural areas, the State decided to speed up the rural electrification program, and to include it in the two key strategies of national agricultural modernization and national energy construction.

    In Nov. 1982, with the personal support of Deng Xiaoping, the central authorities proposed that wherever SHP is available, SHP should be developed, putting the rural electrification program at the core of resolving the poverty-relief issue in remote, minority, old revolutionary and hilly areas. The State Council issued a document to publicize the 100 counties for primary rural electrification. In all, 100 million Yuan was allocated for subsidies every year and the 100 counties for rural electrification were to be completed by 1990. SHP development started to be included in the rural electrification program. After years of efforts, the progress of the pilot counties for rural electrification was swift. By the end of 1988, 48 counties reached the target in advance and passed inspection. By the end of 1990, the first batch of 109 counties had passed inspection for primary rural electrification.

    With the advancement of rural electrification counties, the rural hydropower scope increased and more key SHP stations appeared. The definition of SHP was increased as well, from installed capacity of 12 MW to 25 MW. Local grids were established, with around 78% of the capacity in connected operation. The previous defect of isolated operation was overcome and unified dispatching set up at the county level. Furthermore, reservoirs were built at many cascade stations, thus increasing regulating capacity. The management system and equipment were improved constantly. Generally speaking, local SHP corporations at the county level were created and efficiency increased. By the end of 1988£¬the installed capacity of SHP in the whole country reached 11,790 MW£¬with annual power generation 31.6 billion kWh and 683,600 km of high voltage transmission lines£¬1.52 million km of low voltage transmission lines and total transformer capacity of 44.413 million kVA. In the whole country, 717 counties were mainly supplied by SHP. With the development of SHP installed capacity and expansion of the local grids, SHP in China became a new sector with unique business features.

    In the 1990s£¬to cope with the opening up and reform policies as well as local economic development, SHP leapt forward in scope, management, policies, science and technology. The features were: based on the foundation of continuous construction of SHP stations, emphasis was placed on key medium-size hydropower stations. The definition of SHP was increased from 25 MW to 50 MW installed capacity. The trend was from single SHP stations to cascade developments of a whole basin. Based on improving the county grids, local trans-county grids started to develop. The voltage grade increased from 35 kV to 110 kV. In some regions, substation projects of 220 kV were constructed.

    The second batch of 208 (versus 200 in the plan) counties for rural electrification was constructed based on the experience of building the first batch. In 1995, the implementation of the third batch of 300 counties for small and medium hydropower based on rural electrification was started. In terms of management, a shareholding system was adopted, setting up the modern enterprise system of ¡°Clear ownership of property and responsibility, separation of government and enterprise, plus scientific management¡±. In some areas, based on local grid construction and basin exploitation, a group of regional power corporations and basin development groups with major ties of property linkage and production cooperation were set up, having multi-layer structures, and features of parent and subsidiary company as the main entity. Funds were collected for developing SHP stations and the capital-raising mechanism has been transformed. The advantages of having a cluster of entities were brought into full play, so as to realize a mutually complementary effect, increase efficiency and consolidate the SHP sector.

    By the end of 1996, the total installed capacity of all power stations under the Chinese Ministry of Water Resources was 24.295 million kW, of which hydropower accounted for 21.643 million kW. Of this total, two sites were of large hydro with installed capacity of 1.225 million kW, 21 sites medium hydropower with installed capacity of 1.217 million kW, and 45,174 SHP sites with installed capacity of 19.201 million kW, representing 24.3% of the exploitable resources. The annual power generation from SHP amounted to 62 billion kWh. Nationwide, there were 1576 counties with SHP stations built, of which, 780 counties representing 48% of the total land area and with a population of 300 million mainly depended on SHP supply. With the progress of small and medium hydropower, the local grids managed by the hydropower sector also constantly developed and were improved.

    The Water Resources Sector is responsible for the power supply and management for 754 counties and possesses 878,000 km of high voltage transmission line of 10 kV and above, of which 35 kV transmission lines account for 97,000 km and 110 kV 20,000 km. There were 4,503 substations over 35 kV, with a transformer capacity of 29.08 million kVA. Around 800 local grids at the county level were formed with 43 trans-county grids. In order to increase the reliability of the local grids and increase the output in the dry period, the Water Resources Sector made use of small local coal mines to construct 360 medium and small thermal plants with installed capacity of 2,416 MW. Meanwhile, 3,035 sites of wind power plants were built to make use of wind resources with an installed capacity of 8.8 MW. There were 1,216 sites using other power resources with a total installed capacity of 226.5 MW that operate in co-ordination with SHP. The rural hydropower greatly improved the rural infrastructure and economic structure, leading the way forward for economic development in the hilly rural areas. The development mode of ¡°Water generates electricity and electricity supports electricity¡± was formed. So, the development of rural hydropower has become an important means of boosting the rural economy, increasing local revenues and enriching the local farmers so they can escape from poverty.

    (3) The third phase: SHP used mainly for protecting and improving the ecological environment and boosting the local economy (entering the 21st century)

    Entering the 21st century, while rural hydropower continues to promote local economic development, it starts to play a more and more important role in improving the ecology, protect the environment and promote rural modernization. With the progress of the social economy, the ecological environment is put into a more prominent position. The <Recommendations for Making the Tenth Five-Year-Plan of the National Economy and Social Development> at the Fifth Plenary Session of the CPC¡¯s Fifteenth Central Committee pointed out that China should strengthen ecological construction and environmental protection, return arable land to forest and grass in a planned and sequential way and improve the production and environmental conditions in the western part of China. In 2001, former Premier Zhu Rongji pointed out several times during his inspection tour in Hunan, Sichuan and Guizhou that SHP should be developed on a large scale so as to resolve the fuel and energy problems for the farmers. The return of arable land to forest should be promoted to protect and improve the environment, the local economy should be developed, farmers' income should be increased and the process of poverty-relief for the poor farmers should be speeded up. Support must be provided. The refurbishment of the rural grids should be combined with SHP development. All these instructions by former Premier Zhu, viewed from his strategic vantage point, pointed the way for the directions, objectives and tasks in the new era of SHP development, guiding it towards new areas for exploitation and broader prospects for SHP development.

    Remarkable achievements were made in the development of rural hydro and electrification in 2002, with 1.88 million kW newly added installed capacity, breaking the previous record. By the end of 2002, the accumulated total hydropower capacity installed by the water resources sector reached 35.86 million kW, representing 42.4% of the national hydropower installed capacity. The annual power generation was 113.4 billion kWh, representing 41.8% of the national hydropower output. Of the 35.86 million kW, the installed capacity of rural hydropower was 31.04 million kW with annual output 103.7 billion kWh. In 2002, the total annual power generation from this rural hydropower reduced the amount of coal to be burnt, equivalent to a reduction of emissions of 90 million tons of CO2 and other harmful gases. There are in all 20 million households in the SHP supply areas where the residents use electric cookers in differing degrees, thereby reducing felling of forests over an area of 130,000 hectares annually, saving 9 million m3 of timber, protecting the forest, and preventing soil and water erosion, thus improving the environment. Many of the medium and small hydropower stations together with their reservoirs in China have become local ecological and tourist resorts, realizing the policy of ¡°building one SHP station, boosting the economy of one region and beautifying one area of the State land¡±.

    The installed SHP capacity and its annual output vs. its proportion of the total installed capacity and annual output of hydropower in China are shown in Table 1.1 below

    Table 1.1 Installed SHP capacity and its annual output vs. its proportion of the total installed capacity and annual output of hydropower in China

Year SHP SHP as a percentage of total hydropower capacity and generation
Installed capacity (MW) Yearly output (TWh) Installed capacity ratio (%) Yearly output ratio (%)
1950 3.70   2.20  
1955 7.00   1.40  
1960 251.40   13.00  
1965 330.00   10.90  
1970 1019.00   16.40  
1971 1536.20 3.00 19.70 11.80
1972 1830.80 3.40 21.00 11.60
1973 2200.70 4.10 21.40 10.40
1974 2593.50 4.90 21.90 11.80
1975 3083.20 6.70 23.00 14.10
1976 3601.40 7.10 24.60 15.70
1977 4315.20 8.50 27.40 17.90
1978 5266.50 10.00 30.50 22.40
1979 6239.50 11.90 33.10 23.80
1980 6925.50 12.70 34.10 21.90
1981 7573.60 14.40 34.50 22.10
1982 8079.70 17.20 35.20 23.20
1983 8504.70 19.90 35.20 23.10
1984 9066.60 20.80 35.40 24.00
1985 9521.00 24.10 36.00 26.10
1986 10095.10 24.40 36.60 25.90
1987 11106.30 29.10 36.80 29.00
1988 11792.30 31.60 36.10 29.00
1989 12934.30 34.70 37.40 29.30
1990 13180.00 39.30 36.60 31.10
1991 13853.40 37.30 36.60 29.80
1992 14419.10 44.20 35.40 32.20
1993 15055.30 47.00 33.80 35.70
1994 15776.60 50.90 32.20 30.50
1995 16646.10 55.40 32.70 32.60
1996 19201.80 62.00 34.50 33.20
1997 20519.60 68.34 34.36 35.13
1998 22024.18 71.34 33.85 34.92
1999 23480.69 72.01 32.18 33.82
2000 24851.72 79.98 31.32 32.90
2001 26262.40 87.10 31.70 33.80

    2. The Ecological Protection Programme to Replace Firewood with SHP.

    In 2002£¬the State Council and CPC Central Committee issued <Opinions on Doing Agriculture and Rural Work Well in 2002> (Document No. 2 in 2002), in which rural hydropower was listed as part of the basic small and medium scale infrastructure that should be accessible to the majority of rural households and bring direct benefits to farmers. Therefore, more investment was needed in this sector. That was the first time that rural hydropower had appeared in the CPC Central Committee¡¯s documents, and reflects the new tasks and requirements set in the new era for rural hydro development. It also shows the full confirmation given by the Party and the State for the position of rural hydropower in the national economy and social development. In 2003£¬another document issued by the central authorities <Opinions on Doing Agriculture and Rural Work Well in 2003> (Document No. 3 in 2003) further emphasized that more investment be given to construction of the medium and small infrastructure of the farmers, increase the items of construction, start pilot projects to replace firewood with SHP and consolidate the work of returning arable land to forest.

    China has very abundant SHP resources. According to the latest statistics, the exploitable SHP potential in China is 120 GW, No.1 in the world. By the end of 2002, 31.04 GW had been exploited, representing 26% of the total, and providing advantageous conditions for implementing the Ecological Protection Programme to Replace Firewood with SHP. Currently, residents who use firewood for cooking and for heating are mainly distributed in the central and western parts of China, especially in the upper reaches of the Yangtze River and mid reaches of the Yellow River where areas have been designated for ¡°returning the arable land to forest¡±, natural resources protection zones, natural forest protection areas, and key areas of water & soil loss treatment. These areas essentially are also in the regions of SHP resources. These resources and their zonal distribution could stably meet the needs of fuel supply for the farmers living in the planned areas for a long period of time. Over 1,600 counties have developed SHP in China and more than 40,000 SHP stations have been built, with over 800 rural hydropower local grids capable of self-generation and self-supply at the county level. With the rural grid reform, the rural grids could meet the requirements of SHP for the Ecological Protection Programme. Experiments have been made in some areas for exploring the ways of replacing firewood with SHP and some achievements have been made. These have laid a good foundation for the implementation of the Ecological Protection Programme.

    The Ecological Protection Programme is a new historic mission of SHP conferred by the new era. It has strategic significance in the adjustment of the rural energy structure, ecological protection and sustainable development.

    (1) The Ecological Protection Programme is a strategic measure to consolidate the work for returning arable land to forest.

    Felling at will or felling at hill slopes caused severe natural disasters like erosion of water and soil, barren land, drought and water logging. The central government made the decision to carry out ecological construction with the focus on returning arable land to forest. After the implementation of the decision, the problems of felling by forest enterprises and felling at the hill slopes by the local farmers were basically solved. However, the problem of felling by the farmers for firewood was not solved. In 2001£¬the amount of firewood burnt by the farmers reached 228 million m3, far exceeding 64 million m3, the quota for farmers¡¯ firewood consumption set by the State Council, and also far exceeding 223 million m3, the quota for felling in the whole country. To solve the problem of chopping firewood by the farmers, one must solve the problem of fuel for the farmers. The practice of replacing firewood with SHP for the farmers would reduce the amount of firewood consumed by at least 149 million m3 every year, a 65% reduction of the firewood previously consumed by the farmers. The amount of firewood chopped by the farmers was reduced to close to the quota of 64 million m3 set by the State Council to protect 340 million mu (15 mu is equal to 1 ha) of forest stably over a long period of time. So, the Ecological Protection Programme could fundamentally solve the firewood problem of the farmers and consolidate the work of returning arable land to forest.

    (2) The Ecological Protection Programme is a great contribution to the alleviation of the greenhouse effect that attracts global attention

    According to the<Kyoto Protocol>£¬the amount of CO2 emission of the industrialized countries worldwide in 2012 should be decreased by 5 percentage points based on the amount of 1990. In case of failure, penalties would be imposed. The amount of CO2 emission in China represents 13.2% of the world total, listed as the second largest after the USA. In 2002 China ratified the<Kyoto Protocol>. Presently, the emission amount of CO2 in China is 3.13 billion tons every year. After the implementation of the Ecological Protection Programme, a reduction of 200 million tons of CO2 emissions could be realized yearly, i.e. a reduction of 6%. The benefit, which is equal to 34 billion Yuan, is very evident. Recently, an UNEP, United Nations Environment Programme, report pointed out that at 14 km above the earth¡¯s surface in Asia there was a layer of brown cloud 3 km thick, which was called ¡°Asian Brown Cloud¡±. The UN organized over 200 scientists all over the world and reached two important conclusions after 5 years of research. One was that the layer was composed of dust, smoke, acid elements and other harmful aerosols, most of which were from the smoke and dust created after burning firewood by farmers in the Asian region. Thus, the main reason for the ¡°layer of brown cloud¡± above the Asian area was the burning for cooking and heating by the Asian farmers. The second conclusion was that the ¡°layer of brown cloud¡± caused climate abnormality, diseases and severe natural disasters in some areas of Southeast Asia. This ¡°layer of brown cloud¡± now endangers global environmental security. In reducing the greenhouse effect and securing global environmental safety, the implementation of the Ecological Protection Programme is a concrete measure put in practice to realize the commitments made when China solemnly declared its ratification of the <Kyoto Protocol> to the world and is China¡¯s significant contribution to global environmental safety.

    (3) SHP stations for fuel ecological protection are scattered here and there, covering thousands of rural households to benefit the numerous farmers directly

    The farmers may directly participate in the implementation of the Ecological Protection Programme. That will create job opportunities as well as increase the income for the farmers. It could reduce stably and for the long term the hardship of suffering from smoke while burning firewood -- a way of living since ancient times -- and it can change the conditions of production and life. Out of 2400 counties in China, 1,600 counties have built SHP stations, among which, there were 886 counties with plans for SHP stations for fuel ecological protection already compiled. There were 25 provinces (regions and cities) and the Xinjiang Production and Construction Corps that have compiled the provincial plans. The Chinese Ministry of Water Resources has compiled the national plan, involving a population of 300 million, an area of 3.5 million km2, and installed capacity of 24.04 million kW to be newly increased.

    (4) SHP stations for fuel ecological protection have significance in increasing domestic demand and developing the rural market

    The implementation of SHP stations for fuel ecological protection could stimulate the development of machinery, construction, electronics, materials, steel and iron, transportation, electric goods etc. It would increase farmers' income, create job opportunities and stimulate the rural consumption market.

    (5) The building of SHP stations for fuel ecological protection forms part of the infrastructure which could develop the hilly water resources industry with rural hydropower as the ¡°dragon head ¡° enhancing the ability to prevent floods and fight against drought

    Rural hydro is an inseparable and the most vigorous part of water resources infrastructure. It is an important part of comprehensive utilization of water resources and comprehensive treatment of the rivers. The implementation of the Ecological Protection Programme would newly construct SHP stations with an installed capacity of over 20 million kW, forming the new developing structure of water resources with rural hydro as the ¡°dragon head¡±, electricity supplementing water, as well as water resources and hydropower promoting each other. That will push forward the comprehensive treatment of medium and small rivers, but also promote cascade development, increase the ability to prevent floods and droughts as well as lead to comprehensive water resources utilization. Thus, the comprehensive capacity of the water resources to serve agriculture and the rural economy is considerably augmented.

    The planning area for implementing SHP stations for fuel ecological protection involves 25 provinces, autonomous regions and the 886 counties with a total area of over 3.5 million km2 and 80.8 million households with 273 million inhabitants, of which, SHP stations for fuel ecological protection could be implemented for 28.3 million households, 104 million people with a total installed capacity of 24.06 million kW and annual energy consumption 34 billion kWh. According to the planning, the implementation of this project could save the consumption of 189 million m3 of timber, and protect 340 million mu (15 mu equals 1 hectare) of forest area, so that an ecological benefit of 36 billion Yuan could be achieved, creating enormous social and economic benefit.

    3. Facing new challenges

    As rural hydro plays an important role in the supply of rural energy, improving the environment, poverty-alleviation and promotion of the rural economy, it has been gradually developed to cover half of the land and one fourth of China¡¯s population, with over 40,000 SHP stations, an installed capacity of 26.26 million kW, and an annual output of over 90 billion kWh, representing 30% of China¡¯s rural electricity market share.

    However, SHP is small in production scale, with the contradiction between the rainy and dry periods, and sometimes with inadequate technical facilities and low-level management. Meanwhile, there are occasionally difficulties in selling out electricity, unsatisfactory electricity tariff mechanism, slow market development, constraints of public benefit and other unfavourable external factors, under the condition of the power reform and market competition with ¡°separation of power plant and the grids, competitive bidding for selling to the grids¡±. During the transition period of China¡¯s planned economy to a market one, SHP is confronted the following new issues, mainly:

    First, the existing management mechanism is not in agreement with the development of the market economy. In the whole country, 80% of rural hydro adopts a management system with the county level as the main force, and assisted and guided at the province level. Policy and measures were usually made by various administrations. There was a great deal of difference among the SHP entities in the extent to which they enjoy many of the preferential policies. As there are multiple main investors, it is difficult to optimize the allocation and restructuring of resources that definitely leads to inability to compete or reduce risks in the market. Quite a few of the local SHP companies depend on the large grids to subsidize them so as to continue to survive.

    Secondly, there is a shortage of funds. The rural hydropower potential in China is rich and after decades of SHP exploitation, by means of attracting foreign funds, financing or fund mobilization etc in particular, a great deal of funds has been mobilized for construction. However, the current proportion of SHP exploitation is only around 20% and there is a severe shortage of funds for exploitation. Rural hydropower is constrained by the region and large grids, the financial rate of return is not high, and is hardly likely to become a hot spot for investment in society.

    Thirdly, management methods are backward. Presently, rural hydropower enterprises in many of the areas adopt a traditional and crude means of management. The phenomenon of stressing construction and ignoring management is prevalent. The quality of the working staff still has to be improved and over-staffing in a large number of rural hydropower enterprises exists. Due to the demerits of the management, costs are increased and the efficiency low, prolonging the period for capital accumulation and circulation and causing slow development and expansion through self-generated funds.

    The present monopoly will be broken after the restructuring of the power market. After restructuring, the potential and market competitiveness of rural hydropower will be demonstrated. It could become a powerful competitor in the power market in a new way. The restructuring of the power market not only offers rural hydropower opportunities for development, but also presents it with serious challenges.


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