The Status Quo, Barriers, and Countermeasures to Small

Hydropower Development in Rural China

Hydropower and Rural Electrification Development Bureau, the Ministry of Water

Conservancy

Liu Liu JingheJinghe

Contents

Small Hydropower Resources in ChinaAchievementsBarriers

Internal problems of small hydropowerInstitutional, market, and policy barriers

RecommendationsProspects

I. The Small Hydropower Resources of China

Theoretical potential: 676GW, annual electricity generating capacity: 5920TW.h.Technologically exploitable: 378GW, 13.22% of the world total, annual: 1920TW.h.Of which: small hydropower 128GW,annual: 640TW.h. Share in China’s hydropower production: 29.7%,ranking No. 1 in the world.

Hydropower Resources of Selected Countries

0

100

200

300

400

China Brazil Russia Canada USA

180% 120%

250%210%

Small hydropower 128GW

The Distribution of Small Hydro-power among Different Regions

东部,18.50%

中部,17.80%

西部,63.60%

West

East

Central

The Untapped Shares in Different Provinces

0

500

1000

1500

2000

2500

Hebei

Shanxi

Inner

Mongolia

Liaoning

Jilin

Heilongjiang

Zhejiang

Anhui

Fujian

Jiangxi

Henan

Hubei

Hunan

Guangdong

Guangxi

Hainan

Chongqing

Sichuan

Guizhou

Yunan

Tibet

Shannxi

Gansu

Qinghai

Xinjiang

省份

装机

容量

Untapped

ExploitedProvince

Inst

alle

d Ca

paci

ty

II. China’s Small Hydropower Development Achievements

Development speed: 5%～10%By the end of 2003: there have been 48000 small hydropower stations in over 1600 counties, 31.2GW , 110TW.h, both accounting for 40% of the national total

Achievements (Contd.)

More than 800 county grids and over 40 regional grids have been built, more than 800 counties mainly rely on small hydropower for electricity supply Accumulatively, giving electricity supply access to more than 500 million people

Achievements (Contd.)

In through 3 phases, 653 rural counties realize preliminary electrificationCultivated thousands of small hydropower experts for 60 countries and regions, participated in the construction of hundreds of small hydropower projects in more than 50 countriesEcological and environment protection, 100 mt t CO2 of GHG emission reduction

III. Barrier to Small Hydro-power Development in China

1. Inherent problems of small hydropower

Small electricity production scale Instable supply: high water seasons and low water seasons, peak and bottom hoursLow technology level and efficiency of the generating units Improper operation modes Operation suspension during overhaul and accidents

Barriers (Contd.)

2. Institutional, market, and policy barriers

The resource administration system is imperfect, vagueness in responsibility and function division Electricity sales difficulty– market monopolyCommonweal nature restriction— policy-based supply is insufficient, without the necessary compensation

Impacts of the Barriers (economic analysis)

Capacity deducted 30%, in some cases even as high as over 50% (Fig.)The electricity production deduction in 2002 was 41TW.h, in terms of revenue loss, over RMB 10 billion

0

50

100

150

1998 1999 2000 2001 2002

(Tw.h)

设计发电量 实际发电量Actual outputDesigned output

A comparison of the theoretical and actual electricity Output

Capacity deduction higher unit generating capacity construction cost and unit electricity generating cost losses (Fig.)In 2002, actual average generating cost is 0.06 RMB/kW.h higher than the average designed generating cost

economic analysis

0

0.1

0.2

0.3

0.4

0.5

（元/kw.h）

理论发电成本 实际发电成本

（RMB/kw.h）

Theoretical and Actual Production Costs of the 64Hydropower stations

Theoretical generating costs

Actual generating costs

economic analysis

Among the 64 small hydropower stations studied: 11 realize some profits; 13 break even; 40 are in the red; namely, 62% of them report losses. The average actual electricity generating cost is 0.05RMB/kW.h higher than the average electricity price (Fig.)

The actual costs and sales price of the 64 small hydropower stations

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

（元/kwh）

实际电价 单位售电成本

Actual cost

Electricity price

IV. Policy Recommendations

Policy Direction: internalize the positive externality costs of rural hydropower through such macroeconomic measures as administrative laws and regulations, preferential electricity price, tax, subsidy so as to bridge the gap between production costs and social costs (Fig.)

Project cost curve

Policy direction

Market quantity

Optimal quantity

Electricity output（Tkw.h）

Recommendations (Contd.)

Eliminate institutional and market barriers

Specify and quantify the market share of small hydropowerGiving priority in grid access and require the grids to purchase all the electricity output of small hydropower plants

Acknowledge its commonweal nature

Recommendations (Contd.)

Optimize the electricity pricing mechanismOffer market price protection to the grid entry of rural hydropower ; protect them from direct competition with regular energy sources.On the above basis, establish a grid entry and price control system to stimulate the development of rural hydropower

Recommendations (Contd.)

Strengthen capacity building on small hydropower enterprises

Improve adjustabilityOptimize operating modesAdopt advanced technologiesIntensify management, lay off redundant workers, and increase efficiency

V. Development Prospects of the Chinese Small Hydropower Industry

Market demandSustained rural economic growth, urbanization, increases in farmer income, huge potential market. 400kW.h

Market supply Abundant resources, low exploitation rate. 128GW-31.2GW=96.8GW,The Renewable Energy Promotion Law– expected. Enormous financing potential: fiscal support, credit, private enterprises, foreign investment (Fig.)

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

1996 1997 1998 1999 2000 2001 2002 2003

Total National investment

Domestic loans Foreign investmentLocal fund-raising (province, prefecture,city, county)

Other fund (electricity sales revenue,electricity construction foundation

Sources of Investment

Therefore, in terms of demand and supply potential, small hydropower projects have very promising market prospects in China.

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