CHP 8 Profile for China - International Energy Agency /DHC COUNTRY SCORECARD:CHINA 4 During 2001-05, China’s final heat demand increased approximately50%(Figure5),mainlyfromtheindustrialand

1

China is the second-largest energy consumer and carbonemitter in the world.1 As a result of economic development,China’s energy consumption has been growing rapidly in recentyears and energy and environmental issues have become a keychallenge to China’s sustainable development. As a result, theChinese government has begun to pay unprecedented attentionto energy efficiency and emissions reductions, proposing anambitious target to reduce energy intensity by 20%. Asimportant energy efficiency technologies, combined heat andpower (CHP) and district heating and cooling (DHC) havereceived a good deal of attention by the Chinese government.Over the past several decades, China has issued a series ofpolicies to promote CHP/DHC; as a result, China has becomethe second-largest country in terms of installed CHP capacity.In 2006, CHP capacity in China increased to over 80 gigawatts(GW), providing 18% of nationwide thermal generationcapacity. However, in spite of high-level government attention,China has amuchgreater potential for developingCHPandDHC.This report contains the International Energy Agency’srecommendations for addressing existing barriers so thatChina

1. International Energy Agency, (2007)World Energy Outlook, IEA/OECD, Paris.

FIGURE 1.ANNUAL ENERGY CONSUMPTION AND ENERGY INTENSITY IN

CHINASOURCE: IEA,WORLD ENERGY OUTLOOK (2007).

CHP and DHC in China: An Assessment ofMarket and Policy Potential

Energy and ClimateChange OverviewIn recent years, with unprecedented economic growth andimprovement of the standard of living, annual energyconsumption in China has increased rapidly. During 1980-2000,annual energy consumption in China increased by780Mtonnesof coal equivalent (Mtce), while the annual energy consumptionduring 2000-2006 increased 1 080Mtce, as shown in Figure 1.In addition, as coal accounts for approximately 70% of China’senergy mix (as shown in Figure 2), resulting emissions of sulfurdioxide and greenhouse gases are rising rapidly.

Energy

intensity

(tce/10

000Yuan

RMB-20

05price)

Energy

consum

ption(M

tce)

may realise the future benefits of CHP/DHC, contributing notonly toChina’s energy efficiency andemission reduction targetsbut also to global greenhouse gas (GHG) emissions reductions.

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CHP/DHC COUNTRY SCORECARD: CHINA

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Despite its unprecedented energy growth, China’s current percapita energy consumption is just 1.3 tonnes of oil equivalent(toe), still less than one-sixth of theUnitedStates and less thanone-third of OECD countries. However, from a long-termviewpoint, with its economic growth expected to continue, theresulting growth in energy consumption in China will haveimportant impacts on regional and global energy supply andenvironmental issues.

As a result, theChinese government has begun to pay increasedattention to energy efficiency and GHG emissions reduction.Resource saving and environmental protection have becomeimportant national policies, and energy efficiency is the prioritystrategy to address these issues. The Chinese government hasproposed the ambitious target of reducing energy intensity by20% and reducing emissions by 10% during 2005-2010. Toachieve this ambitious goal, the central government has rolledout a series of supporting policies.

• The Chinese government issued a series of laws aimed atpromoting energy conservation and cleaner energyproduction, including the Energy Saving Law (formulated in1997, revised in 2007), the Renewable Energy Law, the AirPollution Prevention Law, and the Environment ProtectionLaw. In addition, the government has formulated a series ofenergy conservation standards, such as energy efficiencystandards for buildings, energy efficiency standards forappliances (including refrigerators, air conditioners, andlighting), and energy consumption quotas on some energy-intensive industrial products.

• The government has also issued a series of policiescontrolling new construction, including some that involve thephasing out of energy-inefficient industries. For example, theEnergy Conservation Appraisal and Assessment Scheme onProject Investment evaluates the efficiency of variousindustrial sectors. At the same time, the NationalDevelopment and ReformCommission (NDRC) has created aplan to phase out inefficient industries, which acceleratesthe phase-out of inefficient industries in key sectors such as

power, steel and iron, cement. Under this plan, 500 MW ofsmall coal power plantswill be phasedout during2005-2010;however, CHP plants are not included.

• The government also provides support to energyconservation projects through a series of dedicated funds,subsidies, and discounted loans for energy efficiencyinvestments.

• The government supports these policies through a publicinformation and awareness campaign which targets energyconservation andGHGemissions reduction. Activities includepublic awareness television programmes and outreach viaother media. As a result, energy conservation and emissionreduction are becoming well-known issues in China.

FIGURE 2:ENERGYMIX OF CHINA AND OECD COUNTRIES, 2004SOURCE: IEA,WORLD ENERGY OUTLOOK (2006).

(1) China (2) OECD countries

Oil21%

Oil41%

Natural gas3%

Natural gas23%

Other6%

Other15%

Coal21%Coal

70%

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China views CHP as an energy-efficient and environmentallyfriendly energy supply option. As such, CHP use in China hasgrown. Due in part to government promotion, China’s CHPmarket developed significantly in the past decades, as shown inFigures 3 and 4. At present, China is second in the world ininstalledCHP capacity, which increased from10GWin 1990 to

30GWin 2000, with an annual growth rate of 11.6%.3 By 2005,CHP reached almost 70 GW of capacity, with an increasingannual growth rate of 18.5% from 2001-05. During this time,the share ofCHPcapacity in thermal generation increased from11.3% in 1990 to 17.8% in 2005.

In 2006, there were more than 2 600 CHP units in China,representing over 80 GW, providing about 18% of the thermalgeneration capacity. The heating supply fromCHPwas nearly 2300 petajoules (PJ), representing an 18% increase compared

to 2005. The National Development and Reform Commissionestimates that, compared to separate production of heat andpower, CHP has resulted in energy conservation of 67Mtce.

CHP Status: Technology, Applications andMarketActivity2

2. In China, as in many countries, CHP/DHC is not seen as a separate industry sector. As a result, there is a lack of official statistics data on CHP/DHC.In this report, data have been collected from relevant agencies and experts.

3. CHP units of single unit capacity less than 6megawatts are not included in this report.

FIGURE 3:CHINA’S THERMAL GENERATIONAND CHP CAPACITY (GW)SOURCES:(1) CHINA POWER ALMANAC, CHINA POWER INDUSTRYPUBLISHER.(2)WANG ZHENMING, CHP DISTRIBUTED ENERGYAND ENERGY CONSERVATION, (2004).(3) US EPA CHP PARTNERSHIP AND ASIA-PACIFICPARTNERSHIP (APP) ON CLEAN DEVELOPMENT AND

CLIMATE, FACILITATING DEPLOYMENT OF HIGHLYEFFICIENT COMBINED HEAT AND POWER APPLICATIONSIN CHINA, (2008).

FIGURE 4:THE SHARE OF CHP CAPACITYIN THERMAL POWERGENERATION IN CHINA

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During 2001-05, China’s final heat demand increasedapproximately 50% (Figure 5), mainly from the industrial andbuilding sectors.5

The industrial sector is the biggest heat user, as the process ofindustrial production (including chemical industry, papermaking,pharmaceuticals, textiles, iron and steel and others) requireheat as the basic energy input. At present, with the exceptionof a few large industrial CHPplants, themajority of factories inthese sectors are producing heat in boilers. The heatconsumption in the industrial sector increased from42Mtce in2001 to almost 57Mtce in 2005.

FIGURE 5:HEAT DEMAND IN CHINA (MTCE)SOURCE: CHINA ENERGY STATISTICAL ALMANAC, 2001-2005.

FIGURE 6:THERMAL ENERGY DEMAND IN CHINASOURCE: CHINA ENERGY STATISTICAL ALMANAC, 2001-2005.

5. In China, the statistical data on heat demand is mainly for the industrial enterprises, including steam and hot water from industrial boilers, public CHP plantsand export steam for CHP plants. This data does not include self-use steam in industries or steam/hot water from boilers under 2 tonnes/hour.

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Industry Residential Commercial Other

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Residential heating is another major heat application. China’slarge size and varying climate conditions provide a number ofsuitable areas for the use of district heating.The heating periodin the coldest areas is 150-200 days, in other areas the heatingperiod is 90-150 days. The traditional heating area includes15 Northern provinces in cold climates, occupies 70% of thenational land area, and is home to 40% of the nationalpopulation (Figure 7). Residential heat demand has increasedfrom8Mtce in 2001 to17.6Mtce today, due in part to the rapiddevelopment of district heating in China.

FIGURE 7:SKETCH MAP OF CHINA’S CLIMATE ZONES

6. In China, the traditional heating area includes 15 provinces shown in the Table in the cold and severe cold areas.

Table 1 shows the national CHP heating supply, including the15 traditional heating provinces during 2003-05. These15 provinces are the main market for heat, accounting for60-70% of demand. In the traditional heating areas, CHPprovides heat for both the industry and residential sectors, andthere are steam pipelines and hot water pipelines in importantheating areas. CHPheat demand is also rapidly increasing in thesouthern provinces tomeet increasing heat demand of growingindustrial and residential sectors.Tomeet this growing demand,China has started to install large (200-300 MW) CHP units inrecent years.These units have important energy saving featurescompared with existing smaller-scale units.

TABLE 1.CHPHEATING SUPPLY (PJ)

2003 2004 2005National 1 484.2 1 657.4 1 925.5BeiJing 54.0 50.4 60.9TianJin 46.9 49.2 57.2HeBei 117.8 122.7 138.1ShanXi (capital Taiyuan) 41.0 44.3 53.1NeiMenggu 55.5 54.4 52.9LiaoNing 197.5 195.9 209.2JiLin 88.1 98.0 101.3HeiLongjiang 81.8 91.8 99.8ShanDong 243.0 191.1 266.8HeNan 36.9 29.5 40.4ShanXi (capital Xi'an) 11.6 12.9 13.8GanSu 32.7 34.9 37.0QingHaiNingXia 2.0XinJiang 27.0 26.6 32.9Total traditional heating area6 1 033.8 1 001.7 1 165.4Percentage 69.7% 60.4% 60.5%

SOURCE: (1) CHINA POWER ALMANAC,(2003-2005). (2) POYRY CONSULTANT COMPANY, CHINA’S CO- &TRI-GENERATION AND HEATING SYSTEMS POLICY REPORT ANDMARKET RESEARCH (2007).

Severe cold

Severe cold Cold

Cold

Temperate

Hot summerCold winter

Hot summerWarmwinter


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District heating has been encouraged by the Chinesegovernment for several decades. China’s district heating areahas increased fromover 276Mm2 in 1991 to over 1 100Mm2 in2000, and exceeded 2 500Mm2 in 2005, with an annual growthrate of 17% (Figure 8). The growth in district heating mainly

came from the Northern and the Northeast regions. In China,residential buildings account for about 70%of the total districtheating area, and commercial buildings account for about 30%.

District Heating and Cooling Applications

FIGURE 8:AREAS SERVED BY

DISTRICT HEATING(MILLION M2)SOURCE: MINISTRY OF

CONSTRUCTION (MOC), CHINA’SURBAN CONSTRUCTION STATISTICANNUAL REPORTS, 2006.

TABLE 2.DEVELOPMENTOF DISTRICTHEATING IN CHINA (2000-05)

Year Number of Cities Heat Capacity Annual Heat Supply [PJ] Transmission Pipeline [km] Total HeatingBuildingArea [Mm2]

Cities with DH Steam Water Steam HotWater Steam HotWater Total Residential[t/h] [GW] Building

2000 663 294 74100 97 238 833 8000 35800 1108 7582001 662 304 72200 126 377 1002 9200 43900 1463 9582002 660 315 83300 144 574 1227 10100 48600 1556 10802003 660 321 92600 172 591 1290 11900 58000 1890 13102004 661 324 98300 174 694 1282 12800 64300 2163 15082005 661 329 106700 198 715 1395 15000 71400 2521 1751

SOURCE: MINISTRY OF CONSTRUCTION (MOC), 2007

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01991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

District heating area (Million m2)

277 328442

510

646734

808865

960

1 108

1 4631 556

1 890

2 163

2 521

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Aswe can see fromTable 2, in 2005, 329 cities (out of a total of661 nationwide) have district heating infrastructure in place.The total steamheating supply in China is 106700 tonnes/hour(t/h), and the total hot water heating supply is 198 GW. Thedistrict heating area is more than 2 500M m2, and hot waterheating pipelines spanmore than71000km,with steamheatingpipelines at 15 000 km.7

By the endof 2005, district heating supply (including steamandhot water) was over 2 100 PJ; CHP accounted for 47% andboilers accounted for 51%.8 In the supply of steam and hotwater, steam supply is 715 PJ, of which CHP accounts for 81%andboilers account for 17%; the total hotwater heating supplyis 1 395PJ, ofwhichCHPaccounts for 29%andboilers accountfor 69%. The heating supplied by CHP units and boilers are,respectively, 992 PJ and 1 086 PJ.

As coal is the dominant fuel in China, and many CHP/DHCfacilities are quite old and inefficient, the present averageefficiency of a coal-based boiler in China is 60-65%. Further, insome cities, the heat loss from district heating pipelines (as aresult of poor insulation andwater losses) is 20-50%,which hasreduced thebenefits of district heating. As a result, theChinesegovernment is promoting an EnergyConservationRetrofit Planon Residential Buildings and District Heating Systems in theNorthern 15provinces.9 In 2007-08, the aimof this programmeis to provide 150M m2 of new district heating areas. Thismeasure has helped to promote the quick development ofenergy-efficient district heating technologies. The text boxbelow shows an innovative CHP/DHC waste heat recoverytechnology with absorption heat exchanger proposed byTsinghua University.10

7. This accounts for about 6% of national building area.8. Source: MOC, China City Construction Statistic Annual. The DH data does not include industrial steam and hot water.

9. Organisedmainly byMOC and local governments.10. Corresponding ways: Prof. Fu Lin, Building Energy Efficiency Centre of Tsinghua University, [email protected].

Today, an innovative CHP/DHC waste heat recoverytechnology with absorption heat exchange has beendeveloped by the Building Energy Efficiency Centre atTsinghua University. In this technology, absorption heat-exchange conception is adopted to form a heat networkcycle called “Co-ah” cycle (as shown inFigure9),whichmeansco-generation system based absorption heat exchange. Inthe substation of the heat network system, supply water inthe first network releases heat to the second network byabsorption heat exchange, whichmakes the temperature ofthe return water very low (about 20o). In a CHP plant,network water is heated to a temperature of 130o by

exhaust vapor in a condenser, absorption heat pump andpeak load heater sequentially. By enlarging the temperaturedifference between the supply and returnwater of the heatnetwork, the efficiency of the network improves, reducingthe investment required. Further efficiency gains(approximately 50%) are realised by recovering exhaustheat from the condenser. The Co-ah method is paving theway toward a revolution in district heating in northernChina.The added investmentmay be reclaimed in about two years.Several pilot projects using this technology will beimplemented in the end of 2008.

Case Study 1. CHP/DHCwaste heat recoverytechnology with absorption heat exchange cycle

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FIGURE 9:“CO-AH” CYCLE SCHEME OF DISTRICT HEATING SYSTEM WITH COGENERATION

1. Low-pressure (LP) cylinder 2. Condenser 3. Absorption heat pump 4. Heat exchanger 5.Load regulation device 6. Absorption heat exchanger 7. Pump

Extracted steam 0.4MPa, 250

To cooling tower

Return water 25oC

Return water

Supply water

Supply water 130oC

Condensedreturn water

Exhaust steam

Steam Water


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In addition, district heating and cooling (also called “CCHP” inChina) technology also has been developed recently. Due to therapid growth in urban energy demand, the natural gasmarket isgrowing. As a result, CCHP technology fired by natural gas isdeveloping in some cities, such as Beijing, Shanghai andGuangzhou.Most of the early CCHPprojects are at commercialbuildings, such as office buildings and schools. However, there

is some debate among experts about the actual energyconservation performance of CCHP, and policy barriers(including grid connection) are a barrier to the expandeddevelopment of CCHP in China. In 2007, the CCHP capacity atthe early projects was almost 4 GW. The Case Study belowshows a pilot CCHP project.

11. China CHP Committee,Development of Distributed CHP (2007).12. Including the newly established National Energy Bureau.

GovernmentGovernment plays an important role in CHP/DHCpromotion. Asa result of theChinese government’s organisational reform, therole of provincial departments in CHP/DHCpromotion has beenchanging. At present, the relevant government actors include:

• National Development Reform Commission (NDRC):12 Themain agency responsible forCHPand industrial policy, energyconservation and resource comprehensive utilisation, energyprice policy, and other energy policies.

• Ministry ofConstruction (MOC): Theministry responsible forurban construction (including district heating) and buildingenergy conservation. SomeMOC policies on district heatingfocus on heating reform, including metering.

• Other relevant agencies: These include theNational People’sCongress, the State Council and other ministries such asState Environmental Protection Administration. Theseorganisations mainly provide high-level viewpoints on theimpacts to energy efficiency and environmental protectionof developing CHP/DHC.

• Local governments: Some local governments also providepolicies to promoteCHP/DHC, such asBeijing, Shandong andShanghai. Local actions include lowering the fuel price forCHPandproviding subsidies to heating supply companies andCHP/DHC retrofit projects.

IndustrySeveral industries play an important role in CHP/DHCtechnology development. In China,most large-scaleCHPplants(>200MW)belong to power companies (DatangGroup, HuanengGroup, and others). Most of the middle scale (50-100MW) andsmall scale (<50MW)CHPplants belong tomunicipal companiesor industrial end users. In general, district heating boilers belongto the local heating companies; however, some local natural gascompanies are beginning to promoteDHC (CCHP) applications.

Non-governmental OrganisationsMany scholars from universities and research agencies haveactive research and development programmes to promoteCHP/DHC. NGOs (such as Energy Research Institute of NDRC,Energy Conservation Information Dissemination Centre ofNDRC, ChinaCHPCommittee, ChinaUrbanHeatingAssociation,Building Energy Efficiency Center of MOC, and others) havedeveloped expertise and activities on market applications andpolicies to promote CHP/DHC.

Stakeholders

Case Study 2.Beijing Gas Group Building CCHP ProjectIn 2004, Beijing Gas Group developed the first pilot CCHPproject at a 32 000m2 office building, providing electricity,heat and cooling. The electricity demand ranges from400-800 kW. The cooling demand is 500-3 000 kW insummer and 550-2 700 kW in winter. CCHP technologyincludes 2 gas engine generators (1×480kW+1×725kW) to

provide electricity. Two waste heat-fired absorptioncompressor units (1×1 163 kW + 1×2 326 kW of coolingoutput) provide 7-12OC chilled water in the summer and50-60OC hotwater in thewinter tomeet the cooling/heatingdemand .11

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BackgroundHistorically, Chinese governments have included CHP/DHC asan important energy conservation andenvironmental protectionstrategy. As such, since the 1980s, a number of CHP/DHCpolicies have been issued, including the following. This list isfollowed by a more detailed discussion of the most importantpolicies for CHP/DHC.

• Notice on the Report Regarding theWork on StrengtheningUrban District Heat Supply Management (1986), enhancedurban district heating supply management.

• Policies on District Heating Industry Development (1989),proposed policies for the district heating industry.

• Regulations for Encouraging Development of SmallCogeneration Plants and Restricting Construction of SmallCondensing Power Plants (1989). Includes policies ontechnologies, financing channels, peak power regulation, fuelsupply, and on-line electricity price. Proposed regulations onCHP development and the reduction of small condensingthermal plants.

• Notice on the Report Regarding theWork on StrengtheningUrban Heat Supply Programming and Management (1995),proposed requirements to strengthen urban heat supplyplanning andmanagement.

• China Energy Conservation Law (1997), CHP was listed as akey national energy conservation technology that should beencouraged.

• Catalogue on National Key Encouraging DevelopmentIndustries, Products andTechnologies (1998), included CHP.

• Some Regulations for CHP Development (1998). The ratiobetween heat and electricitywas considered as an importantindicator to define and approve new CHP plants.

• RevisedRegulations forCHPDevelopment (2000),proposingspecific regulations on CHP technical indicators,management practices and the relationship with the powergrid. This regulation is the major regulation governing CHPdevelopment in China.

• Pre-Feasibility Technical Regulations for CHP Projects(2002), included requirements on technical and economicpre-feasibility studies of CHP projects.

• Guidance Opinion on Pilot Programmes of Urban HeatingReform (2003). Aimed to stop welfare heating and topromote commercial district heating. Pilot projects forheating reform were started in the provinces of NortheastChina, North China, Northwest China , Shandong and Henan.

• Technical Guide onUrbanResidential HeatMetering (2004),proposed the technical measures to meet heat meteringdemand, including controllable room thermostats.

• China Medium- and Long-Term Energy Development Plan(2004), CHP/DHCwas an encouraged technology.

• ChinaMid- and Long-TermEnergyConservationPlan (2004),considered CHP as an important energy conservation fieldand named CHP as one of the 10 key national energyconservation programmes.

• Regulations for Residential Building Energy ConservationManagement (2005), encouraged district heat and cooling(CCHP) technology.

• Enhancement Opinion on Urban Heating Reform (2005),focused on heating price reform, promotion of gradualcommercialisation of district heating, optimising urbanheating resources and promoting energy conservation.

• Implementation Opinion on Promotion Heating Metering(2006), proposed targets andmeasures for heat metering.

• NDRC’sChinaEnergyConservationTechnologyPolicyOutline(2006) includes some key recommendations for CHP/DHC,including: CHP and district heating should be promotedinstead of small heating boilers; develop CHP and CCHP inareas with proper heat loads; develop CHP/DHC in large andmedium-sized cities in north heating areas; and developdistributed CCHP systems under proper conditions.

• Implementation Scheme of the National 10 Key EnergyConservation Projects (2007), under the 10 Key NationalEnergy Conservation Programmes, further specifiesimportant applications and supporting policies for CHP.

• Industrial Guidance Catalogue for Foreign Investments(2007) encouraged the foreign investment and operation ofCHP power stations in China.

• Urban Heating Price Management Temporary Measures(2007), proposed reform in the heating price, includinggradual use of two components, the basic heat price and themetered heat price.

• China Energy Saving Law (2007 revised edition), proposedseveral articles to promote CHP/DHC.

Review of China’s CHP/DHC policies


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Among the policies mentioned above, some of the mostimportant policies are described below in more detail.

(1) Some Regulations for CHP Development(1998) and Regulations for CHP Development(2000)

In February of 1998, SPDC, SETC,MOC, andMOEP issuedSomeRegulations for CHP Development (1998). A key feature ofthese regulationswas that, for the first time, the ratio betweenheat and electricity was considered an important indicator todefine and approve CHP.

In August of 2000, Some Regulations for CHP Development(1998) was revised, and SPDC, SETC, MOC, and SEPA issuedrevised Regulations for CHP Development, which proposedspecific regulations on CHP technical indicators, managementmeasures and the relationship of CHPwith the power grid. Thisis the most important regulation governing CHP developmentin China, and includes the following highlights:

• Requirements for local governments to produce a CHPdevelopment plan.

• Detailed CHP project approval conditions.• CHP technical indicator requirements, including overallefficiency levels and heat and power ratios. For example, forturbine CHP units, it pointed out that the overall annualenergy efficiency must exceed 45%; for CHP units greaterthan 50MW, the annual heat and power ratiomust be greaterthan 100%; for CHPunits of 50-200MW, the annual heat andpower ratio must be greater than 50%; and for condensingCHPunits greater than 200MWfor district heating, the heatandpower ratio in heating period should behigher than100%.

• Power management departments should provideinspection comments about grid connection for CHP.

• Guidelines that CHP projects should be sized based onavailable heating load, in order to maximise efficiency.

• Guidance encouraging the maximum use of waste heat, coaltailing, and other waste fuels for CHP.

• Suggestions to use CCHP to improve energy efficiency.• In the heating range of planned CHP/DHC project, othernewly-added small coal boilers projects will be restricted ifthe planned CHP/DHC capacity may cover the heatingdemand.

• A goal to implement heat metering on the basis of heatconsumption by 2010.

(2) ChinaMedium- and Long-Term EnergyDevelopment Plan (2004) and ImplementationScheme of the National 10 Key Energyconservation Projects (2007)

In November of 2004, the State Council issued the NDRC’sChina Mid-Term and Long-Term Energy Conservation Plan,which considered CHP as an important energy conservationfield, listed as one of the 10 key national energy conservationprogrammes that are critical to realising the energyconservation target.13

In 2007, NDRCpromulgated the ImplementationSchemeof theNational 10KeyEnergyConservation Projects, which providedimportant details on CHP target applications and supportingpolicies, including:

• Stated Goal: In 2005-10, 45 GW of new CHP units will beconstructed in the Northern heating area, and 8 GW of newCHP units in the Southern area for industrial heatapplications; and

• Key Applications: Requires CHP development in theresidential and industrial sectors, and encouragesdistributedCHP and CHP that uses waste fuels.

(3) Temporary Regulation for Cogeneration andPower Generation of Integrated Utilisation ofCoal Tailings (2007)

On January 15, 2007, NDRC and MOC issued the TemporaryRegulation for Cogeneration and Power Generation ofIntegratedUtilisation of Coal Tailings.ComparedwithRevisedRegulations for CHPDevelopment (2000),more administrativeregulations on CHPwere proposed.

• The local governmentwas required to stipulate aplan forCHPand coal tailing utilisation.

• Regions with severe winters and concentrated heat loadsshould actively develop CHP to replace small heat-onlyboilers. In regions with hot summers and cold winters, CHPshould be developed where there are concentrated heatloads, and CCHP is also encouraged under the properconditions.

• In areaswith existing CHPplants, the regulation discouragesthe development of additional end-use sited CHP plants.

• Except for large-scale enterprises such as petroleum,chemical, steel, and paper industries, the regulation does notencourage the use of CHP to serve single enterprises.

Important CHP/DHC Policies in China

13. In addition, many of the other 10 programmes – including the coal-fired industrial boiler (kiln) retrofit, residual heat and pressure utilisation, energy systemoptimisation, building energy conservation and government agency energy conservation – have reference to CHP/DHC applications.

11


• Encouraging the use of a variety of approaches to solveheating problems inmedium and small cities, such as the useof biomass, solar, geothermal and other renewable energy, aswell as the use of natural gas, coal gas, andother resources toimplement CHP.

• The grid electricity price should be determined by provincialpricing administrative agencies and authorised city andcounty governmental agencies, which will make decisionsbased on relevant national regulations, heat cost and profitratios.

• CHP should be given an advantage for connecting to the grid.

(4) Guidance Opinion on Pilot Programmes ofUrban Heating Reform (2003)

In July of 2003, MOC, NDRC and other agencies jointlypromulgated the Guidance Opinion on Pilot Programmes ofUrban Heating Reform. It aimed to stop welfare heating andpromote commercial district heating.This regulation proposedspecific requirements for district heatmetering. In addition, thepilot projects for heating reformwere started in the provincesof Northeast China, North China, Northwest China, Shandongand Henan.

(5) Urban Heating Price Management TemporaryMeasures (2007)

In 2007, NDRC and MOC issued the Urban Heating PriceManagement Temporary Measures, which encouragedCHP/DHC, and dictated the reform of heating prices. In thesemeasures, regulators will gradually use two price components:the basic heat price and themetering heat price.This regulationalso encouraged the development of CHP and district heatingand allowed non-public capital (including foreign capital) toinvest, construct, and manage heating supply facilities topromote the gradual commercialisation of district heatingindustries. The heat tariff, in principle, is determined by thegovernment (tariff administrative agencies at the regional andlocal levels), but in some regions (where conditions are suitable),the heat tariff may be determined by the market – i.e., by heatsuppliers and their customers.

(6) China Energy Saving Law (1997 Edition and2007 Revised Edition)

In theChinaEnergyConservation Law (1997),CHPwas listed asan energy conservation technology that should be nationallyencouraged. In October 2007, NPC approved the China EnergySaving Law (Revised Edition). Its articles relevant to CHP/DHCinclude the following:

• Article 31:The country encourages the industrial enterprisesto use high-efficiency energy conservation equipment, suchasmotors, boilers, kilns, blowers, and pumps; and encouragesenergy-efficient technologies, including CHP/DHC, residualheat and pressure utilisation, clean coal-fired technologies,and so on.

• Article 32: The power grid enterprises should arrange cleanandefficientCHP, utilise residual heat andpressure units, andtake other measures according to the requirements of theEnergyConservationPowerControlManagement formulatedby the appropriate State Council department, the onlinepower price executing the country concerned requirements.

• Article 78:The power grid enterprises bear liability if they donot comply with the requirement in Article 32.


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In China, the government plays a key role in CHP/DHCdevelopment, through regulation, policies, and funding. AsChinais in the process of reform, economic/pricing, institutional andpolicy barriers are themost important barriers to realising thepotential benefits of CHP/DHC in the future.

Economic and Pricing BarriersIn order to become a cost-effective and attractive investment,power and heating reform policies will need to be undertaken.Some of the key issues include:

• Energy price policy reform is a priority. At present, in China,the coal price is basedon themarket, which has grown rapidlyin recent years. However, electricity and heating prices arestill controlled by the government, and have only slightlyincreased. Many countries have positive experiences with avariety of CHP/DHC incentives that could address thisbarrier.

• In addition, heating reform needs to be further developed.Currently, in most cases, heat tariffs are developed on thebasis of building area, rather than the actual heatconsumption,which has a negative influenceon improving theenergy efficiency in district heat facilities and buildings.

• Power sector reform is also needed. At present, theelectricity produced bymost CCHP (and someCHP) projectscannot interconnect with the power grid, which has stronglyreduceddevelopment.The technical issues of grid connectioncan likely be addressed. However, there are alsoadministrative interconnection issues, such as added-capacity charges and power grid balancing that need to beaddressed. At present, the State Power Grid Group isresponsible for the power grid operation. As such, morecommunication and coordination activities could beconductedbetween theCCHP industries and theStatePowerGrid Group.

Policy BarriersThere also exist barriers in the area of economic support andadministrative policies related to CHP/DHC, including:

• There is currently a lack of favourable fiscal and taxincentives to support CHP/DHC. Although the governmenthas repeated its support for CHP in many of its policydocuments, it has not followed that support with concreteincentives to support CHP/DHC projects. Many countrieshave positive experiences with a variety of CHP/DHCincentives that could address this barrier.

• There is a lack of monitoring and enforcement of thegovernment’s policies related to the efficient operation ofCHP projects. Currently, it appears that some newly-builtCHP projects are operating only in thermal generation modeafter they have been approved, thereby reducing their energyefficiency.

• There is a lack of targeted policy for smaller CHP units. Inorder to fulfill the energy conservation target, China isattempting to increase the number of larger, more efficientpower generation plants and to close down smaller, olderunits. While it is important that the smaller, less efficientunits be closed down, some small CHP units with highefficiency are also being targeted for phase-out. Based onthe goal of increasing energy supply efficiency, a differentpolicy could be adopted. For example, in regions with lowheating loads, small CHP units could provide most of theirenergy needs at a fraction of the cost of larger units.14

Financing BarriersThere are promising energy conservation projects – particularlyin the district heating sector – that could be realised if therewere sufficient funds or other means available to address thegap in investment capital. In particular:

• SomeplannedCHP/DHCprojects are not operatedefficientlybecause they lack sufficient resources to invest in expandedheat pipeline infrastructure. Further, at many existing DHCprojects, the heat loss in pipelines is high, reducing the overallefficiency of the heating system. Additional financing isneeded to invest in cost-effective heat pipeline retrofitprojects, which could generate sizeable energy efficiencybenefits and GHG reductions.

• While energy service companies are expanding in thecommercial building energy conservation arena, they have notyet entered theCHP/DHCarea.There is some room for thesetypes of third-party players to come up with innovativemeans to finance projects.

Technical BarriersWhile CHP/DHC are proven, existing technologies that do notrequire major research and development, there are someadvanced technologies that could be introduced to improveefficiency and operational benefits. In addition, there iscurrently some debate about the relative merits of CCHP anddistrict cooling technology. China-specific research studiescould be conducted to confirm the primary energy conservationperformance of these technologies.

Barriers to CHP/DHC Development

14. According to the survey results of China Power Industry Alliance, in 2003, there were 1859 units of small CHP units under 50MWwhich accounted for 88% of allthe CHP units, and the capacity of small CHP units under 50MWwas 20.99GWwhich accounted for 48% of all the CHP units. These data showed that middle and smallCHP units are playing important role in China’s CHPmarket.

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Although China’s CHPmarket is growing, there are still severalprovinces that do not have CHP. With the fast development ofChina’s economy and the related improvement of livingstandards, the heating demand in both the industrial andresidential sectors is expected to grow. By 2010, China’s CHPcapacity is anticipated to increase from almost 70 GW in 2005to about 120 GW. Over 50 GW of new CHP will be built in2005-10.15 Comparedwith the separate production of heat andpower, these CHP units will result in about 40 Mtce of energyconservation.

In the meantime, there is strong potential for retrofittingexisting units to CHP. Currently, NDRC estimates that between135 and 300 MW of existing condensing power units(comprising86power plantswith244units and63GWcapacity)can be retrofitted to CHP.16 The NDRC’s analysis showed thatfor retrofit projects, the technology is attractive under properinvestment costs (130-220Yuan RMB/kW) and retrofit period(2-3 months). If these projects are realised, NDRC estimatesthe energy conservation benefits at approximately 50Mtce.In addition, a portion of the existing heating boilers also can becost-effectively retrofitted to CHP/DHC. If China achieves theretrofit of 30% of existing industrial boilers and 20% ofresidential district heating boilers, about 20 Mtce of energyconservation can be achieved.

In summary, enhancing China’s CHP/DHCmarket by developingnew CHP/DHC projects and retrofitting existing units couldbring significant energy conservation benefits of more than100 Mtce, making a positive contribution to China’s energyconservation targets and global greenhouse gas reductions.

CHP Potential and Benefits

Over the past 25 years, China has seen its CHP capacity growfrom almost nothing to today’s 70 GW. This was due in part tofavourable high-level policies that have consistently recognisedCHP and DHC as leading energy efficiency and GHG reductionstrategies. However, vast potential remains, which is not beingdeveloped because of a number of pricing policy, grid

connection, financial and informational barriers that exist. Thissection summarises the IEA’s recommendations for overcomingthese barriers and realising the potential of CHP and DHC inChina.

Realising the Benefits of CHP and DHC in China

16. Energy Research Institute, Study on China CHP/DHC Development Strategy (2004).17. Survey report organised by NDRC (2007).


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(1) Deepen the Relevant Pricing and Energy Reforms, Including Grid Connectionfor CHPCHP/DHC investments must take place against the larger backdrop of China’senergy growth and the resulting evolution of policies and institutions. However, inorder to realise the benefits of CHP, and other conservation measures, it isrecommended that the government promote further power reform, includingstream-lining connection to the power grid for CHP and CCHP.

The government has made important progress in implementing heating reforms,includingmetering reforms. However, it is also recommended that the governmentpursue further heating reform, in order to rationalise the energy prices for CHP,particularly for residential and commercial district heating.

(2) Strengthen CHP/DHC Capacity within the GovernmentWhile China has seen dramatic growth in CHP/DHC over the past two decades, thishas been in the absence of a government agency responsible for all aspects of thisimportant technology. Other countries have seen tremendous benefits from thecreation of a special government department responsible for CHP/DHC.Therefore,it is recommended that the government create a dedicated CHP/DHC department,and give it the responsibility and funding to collect data, perform technical analysisand stipulate China’s medium-term and long-term CHP/DHC development plan,including the creation of targeted financial incentives.

It is also recommended that the government (possibly through this newgovernmentdepartment) enhance monitoring of new CHP/DHC projects through certificationor a similar approach.This typeof regular certificationwould enable the governmentto limit any financial incentive support to only those projects which have proventheir efficient operation.

(3) Target Inefficient District Heating Systems for Financial SupportA large number of existing district heating schemes in China are poorly managedand have low overall efficiency. Further, there is currently a lack of financingavailable to retrofit these projects. Therefore, it is recommended that thegovernment provide targeted financing opportunities – perhaps working withESCOs or via GHG financing through the Kyoto Protocol’s Clean DevelopmentMechanism – to advance these projects.

(4) Enhance International Co-operation on CHP/DHCIn order to learn from international experience, Chinese government has underwaymany large-scale international co-operative energy efficiency projects withinternational agencies, and has realised important achievements. Unfortunately,there has not been a similar co-operative project in the field of CHP/DHC. AsCHP/DHC is an important energy efficiency technology forChina, it is recommendedto increase international co-operation on CHP/DHC between the Chinesegovernment and international agencies, so government policymakers can learn fromrelevant experiences of policy and administration from developed countries. Thiswill also introduce Chinese experts to advanced CHP/DHC technologies, andencourage greater foreign investment.The IEAandother international agencies areeager to foster this information exchange.

Summary Policy Recommendations

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AbbreviationsCHP Combined Heating and PowerCCHP Combined Cooling Heating and PowerDHC District Heating and CoolingGDP Gross Domestic ProductIEA International Energy AgencyNDRC National Development and Reform CommissionMOC Ministry of ConstructionMOF Ministry of FinanceMOEP (former) Ministry of Electric PowerOECD Organisation for Economic Cooperation and DevelopmentSBS State Bureau of StatisticsSC State CouncilSETC (former) State Economic &Trading CommissionSEPA State Environmental Protection AdministrationSPDC (former) State Planning Development CommissionNPC National People’s CongressMOP Ministry of PersonnelMOCA Ministry of Civil AffairsMOLSS Ministry of Labor and Social SecuritySAOT State Administration of TaxationSERC State Electricity Regulatory Commission


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The International CHP/DHCCollaborativewas launched inMarch2007 to help evaluate global lessons learned and guide theG8 leaders and other policy makers as they attempt to assess the potential of CHP as an energy technology solution.

The Collaborative includes the following activities:• collecting global data on current CHP installations;• assessing growth potentials for key markets;• developing country scorecards with data and relevant policies;• documenting best practice policies for CHP and DHC; and• convening an international CHP/DHC network, to share experiences and ideas.

Participants in the Collaborative include public and private Partner organisations and other government, industry andnon-governmental organisations that provide expertise and support. The Collaborative Network, the larger group that isinformed about meetings, publications and outreach, has over 350 participants.

If you are interested in participating in the Collaborative, please visit www.iea.org/G8/CHP/chp.asp.

This report was prepared by Tom Kerr of the IEA. The EnergyConservation Information Dissemination Centre and NationalDevelopment andReformCommission of China led the analysisand initial drafting and provided other support. The authorswould like to thank LukeNickerman andAlyssaMorrissey of theUS Department of Energy’s Office of Energy Efficiency andRenewable Energy, who were seconded to the IEA during theproduction of this report. IEAwould also like to thank all of thereviewers, including the US Pacific Northwest NationalLaboratory, Helsinki Energy, and all of the Partners andCollaborators in the IEA’s International CHP/DHCCollaborative.

Questions and comments about this document should be sentto:

Tom KerrInternational Energy Agency9, rue de la Fédération75739 Paris Cedex 15France

Email: [email protected]

The International CHP/DHC Collaborative

Acknowledgements

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