In the March edition of the China Report, author Lou Schwartz writes about how one farmer in Dongdong is using renewable energy to power his entire operation. There are also updates from all over China's renewable energy industries.

This Month’s Top Story

A recent story from Gansu Province illustrates how the adoption of renewable
energy sources for remote villages in China that are not grid accessible is contributing to
a noticeable improvement in villagers’ standard of living and health. There are many
benefits to farming households of adopting renewable energy besides improving
sanitation; these other benefits include increasing farmers’ income, conserving energy,
fundamentally changing how their kitchens and bathroom work, spurring renovations,
etc.

Wang Junren is a farmer in the Suzhou district of the Dongdong village in Gansu
Province. In August 2007 he installed and began using a solar hot water heater. Now he
is able to take a hot shower everyday to wash himself clean from a days’ grime from his
work in the fields; this has fundamentally changed the family’s previously unsanitary
habits and measurably improved their health and comfort. Now Wang Junren is
preparing to build a methane pit and renovate his home’s kitchen and bathroom, which
will further improve the family’s quality of living by removing smoke from the air in
their home and by saving time in doing household tasks; Wang Junren’s home will also
be much more sanitary because the family’s waste water, waste materials and animal
waste will all be put into the methane pit to serve as raw materials to generate methane.
By providing technical, financial and other assistance the Suzhou district of
Gansu Province has allowed more than 3600 farm households to start using methane gas
and 6820 farm households to use solar energy. In 2008 the Suzhou district will continue
this effort to increase the number of farming households that begin to use methane gas by
another 2500 and solar energy by an additional 3000. According to a person responsible
for this program in the Suzhou district’s offices, a family that puts in a methane pit can
receive 1200 Yuan in financial support from the district, which means that the family will
have out-of-pocket expenses of just 300 Yuan. A subsidy of 600 Yuan is available to
villagers who install a solar hot water heater system, which means that the financial
burden on villagers is relatively light. The Suzhou district offices estimate that at the
current level of use of methane pits, the entire district is saving approximately 5000 tpy
of coal (based on a calculation of 1 MT/year/household that builds a methane pit). Other
benefits of using methane gas to cook include that the household no longer fills up with
smoke from the burning of coal and that farming households save ~400 Yuan/year in not
having to buy bottled propane gas for cooking.

China's Solar Industry
The Tianwei Yingli New Energy Co., Ltd., which is located in Baoding, Hebei,
had sales of 4 billion Yuan in 2007. With the completion of the company’s 3 billion Yuan
project, Yingli, which will have a complete solar manufacturing chain, including silicon
wafers, solar cells and solar modules, is expected to have income of 15 billion Yuan in
2008.

The Tianlimuge Company is one of China’s leading manufacturers of solar hot
water heaters. The company has taken note that the Chinese solar hot water heater
industry is plagued by a widespread failure to guarantee that products work, failure to
provide service and failure to stand by the reputation of the manufacturers of solar water
heaters. The Tianlimuge Company also has noted that there are as many as 1 million
solar hot water heaters that have been abandoned on rooftops because of these quality and
service issues and that these failures are constraining the growth of the Chinese solar hot
water heater industry. Responding to these challenges, the Tianlimuge Company recently
announced that it would spend approximately 10 million Yuan to launch a new initiative
to provide after-sales service across a range of solar hot water heater brands. The
company has more than 1000 sales and service centers spread out over nearly 30
provinces, cities and autonomous regions in China; it also sells its products to the U.S.,
Spain, South Korea, Indonesia, Thailand, Tanzania and Australia, among other locations
worldwide.

In March 2008 the National Development and Reform Commission included a
photovoltaic power project for Dunhuang city in its 11th Five Year Plan program. Located
in western Gansu Province, Dunhuang city is a significant tourist destination because of
its history as an important stop on the ancient Silk Road and the spectacular caves with
ancient Buddhist carvings. Being situated on the edge of desert, Dunhuang also has
plentiful sun; it is estimated that Dunhuang city gets approximately 3247 hours/year of
sunshine or 6882 joules/square meter/year, making the city an ideal location for a
photovoltaic solar plant. The 10 MW, grid-connected solar power plant, which will be
developed by the Gansu Huineng New Energy Technology Development LLC at a cost of
500 million Yuan, will produce 16.6 million Kwh/year of power. Previously, the
Japanese New Energy Industry Technology Comprehensive Development Organization
built two small photovoltaic power plants in Dunhuang. The Yumeng Photovoltaic
Power Project, which was constructed at a cost of 1.45 million Yuan, has a total of 7Kw
of power, which produces 1800 Kwh/year of power. The other photovoltaic power plant,
which was constructed in Dunhuang at a cost of 28.54 million Yuan is the 200Kw Yadan
Wind/Solar Power Plant.

China's Wind Power Industry
A 100 MW wind farm will produce 230 million Kwh of power/annum. This level
of output of wind power will account for a 180,000 MT reduction in the use of coal,
which in turn can bring about a reduction of 1150 MT of smokestack emissions, 1403 MT
of sulfur dioxide and 199,000 MT of carbon dioxide. If each Kwh of wind power
produced avoids incurring pollution costs of 0.81 Yuan, then in one year a 100 MW wind
farm will create 40 million Yuan in environmental benefits.
According to Zhang Guobao, a vice-chairman of the National Development and
Reform Commission, China will have 10,000 MW of installed wind power capacity by
the end of 2008 and 20,000 MW of installed wind power capacity by 2010. As of 2010
China is expected to become the world’s largest generator of wind power.
In theory, Gansu Province has a total of 237,000 MW of wind power resources
available for development. The area with the greatest potential for wind power
development is the Hexi (west of the Yellow River) corridor near Jiuquan city. In this
area there is an estimated 10,000 square kilometers of land which can be used for wind
power development and the estimated capacity which can be developed there is 40,000
MW. Though Gansu Province’s long-term wind power development plan calls for the
construction of 18 large and mid-sized wind farms with a total installed capacity of
20,000 MW, through the end of 2007 there were a total of 500 MW of wind farms
operating, with another 1000 MW in planning. Gansu’s plan calls for there to be 3000
MW added in the last three years of the 11th Five Year Plan period, so that by 2010 there
will be 4000 MW of wind power in operation in Gansu Province. By 2015, installed
capacity of wind energy will have reached 10,000 MW or more and by 2020 Gansu is
expected to have 20,000 MW of wind power in the Jiuquan corridor; this area is being
dubbed the “Land-Based Three Gorges”. With the development of wind farms, there will
also be the development of the power grid; by the end of the 11th Five Year Plan period
Gansu Province will have built a 750 Kv transmission line from Jinchang---Jiuquan---
Guazhou to accommodate the 3000 MW of power which the wind farm construction in
Jiuquan will produce and feed into the power grid. In the 12th Five Year Plan period
another 750 Kv transmission line will be built from Baiying---Jinchang---Jiuquan---
Guazhou and from Jiuquan---Yumen and Jiuquan---Mafa. With the development of
10,000 MW of wind power capacity, it is expected that Gansu Province will create a 100
billion Yuan market for wind power equipment, which will spur the development of an
indigenous wind power equipment industry in Gansu. To this end a framework
agreement already has been signed between Gansu Province and two companies to
develop a large-scale manufacturing base to build wind-power equipment in Jiuquan.
Those two companies are, respectively, the Xinjiang Jinfeng (Golden Wind) Science and
Technology Joint Stock Co., Ltd. and the China Hydraulic Investment Group Company.
A ceremony was held in late March marking the beginning of construction of a
100 MW wind farm in Lianyungang. The project is a joint venture of the Hong Kong
Xiexin Group and the China Power Group, which together will invest 950 million Yuan
to install 66 windmills, each with a 1.5MW turbine. The developers estimate that the
project should be completed and in operation as of the end of 2009, whereupon a total of
360 million Kwh/year will be generated and flow into the power grid. The project will
avoid the necessity of using 132,000 tpy of coal equivalents, will reduce pollution
discharges by 160,000 tpy or more and will also save water resources.

Construction has begun on the Shaanxi Jingbian Lvneng Wind Power Generating
Project. Located in Jingbian, Shaanxi Province, this is Shaanxi Province’s first wind
farm project. In its first stage the Jingbian Lvneng project will install thirty-two 1.5 MW
wind turbines for a total of 48 MW of generating power. The Lvneng Development
Group of Shandong Province is the developer of this 480 million Yuan project, which
will go on-line during the second and third quarters of 2009. The first stage project will
produce approximately 88 million Kwh of power/year, which will save ~ 30,000/year in
coal equivalents forestall 130 tpy of sulfur dioxide and 80,000 tpy of carbon dioxide.
On March 31, 2008, a national experts committee approved the Shandong
Changdao (Long Island) Ocean-based Wind Farm plan. The Changdao Xinan Hai
(Southwest) Ocean area, which is located on the Bohai Sea, has a potential to generate
1000 MW of wind power. The first stage, 50 MW pilot wind farm project will now go
into a development phase. According to the evaluations, at 60 meters high, the average
wind speed is 6.86 meters/second at Changdao; the sea in this vicinity is also
approximately 9-17 meters deep, which makes installation of wind towers from a ship
feasible and less expensive. Since 1998 when the first wind farm was erected in
Changdao by the Shandong Lvneng Group, the Changdao area has erected a total of 80
windmills; cumulatively those 80 wind turbines produce a total of 62 MW of power or
130 million Kwh/year of power. The Changdao wind farm industry already produces 110
million Yuan/year in output value.
Taicang, Jiangsu Province is home to a new wind turbine blades manufacturing
facility owned by American interests.

China's Waste to Energy Industry
The most technologically advanced waste-to-energy plant is nearing completion
in Chengdu, Sichuan Province. The Chengdu waste-to-energy facility, which is now
doing test burning of the household waste it will use, is expected to be fully operational
in July 2008. When fully operational the 540 million Yuan plant will use approximately
1200 tpd (or 400,000 tpy) of city household waste to power two 12 MW power plants.
All but 25% of the power that the plant generates will be sold into the power grid through
an 110Kv power line. When operating normally the new Chengdu waste-to-energy plant
will produce 120 million Kwh/annum of power, including ~90 million Kwh/year that will
be feed into the grid and which will be sufficient to provide power for 40,000 to 50,000
households. The equipment was sourced from international vendors, including GE and
Germany’s DEMAG and ABB.

China's Hydropower Industry
By 2010 China expects to have 190,000 MW of hydropower operating, including
95,000 MW or 55% of the total in China’s west; within the western provinces,
hydropower will be most developed in Sichuan and Yunnan Provinces, which will have,
respectively 27,000 MW and 17,000 MW. Hydropower capacity in central China by
2010 will total 50,000 MW or 30% of total hydropower capacity nationwide, and eastern
China’s hydropower capacity will reach 25,000 MW, or 15% of total hydropower
capacity throughout China. In the 11th Five Year Plan period alone there will be an
additional 73,000 MW of hydropower capacity added to total hydropower capacity in
China. There is a long list of rivers or tributaries that are slated for hydropower projects,
including the middle and upper reaches of the Jinsha River, the Yalong River, the Dadu
River, the Lancang River and the upper reaches of the Yellow River. Among other rivers
that will be developed for hydropower includes the Nu River and the Wu River. 

China's Bio-Mass Energy and Bio-Fuels Industries

Because of grain shortages in China that has caused increases in grain and food
prices there and also due to the constraints on arable land in China, Beijing is now
encouraging the development of non-grain crops for the emerging bio-fuels industry in
China. In the near term the Chinese government is encouraging the cultivation of such
non-grain crops as sweet sorghum (gao liang), tung oil trees, Chinese pistache, cottonseed
and cassava. Through the end of 2005, China was using approximately 1.02 million tpy
of grain based ethanol, but because of the strain on arable land and grain production for
food, Beijing has ordered an end to further development of grain ethanol refineries.
According to plans drawn up by the National Development and Reform Commission, by
the end of 2010 China should be producing 2 million tpy of non-grain fuel ethanol. In
December 2007 the China Grain Group opened China’s first non-grain bio-ethanol
refinery in the Beihai region of Guangxi Province. The 1.5 billion Yuan project has the
capacity to produce 200,000 tpy of bio-ethanol using the cassava plant. In order to
provide further incentives for the development of non-grain bio-ethanol, Beijing
recognizes that it must put in place a purchasing system for non-grain bio-ethanol (using
existing outlets for sale of oil and gas), develop subsidies and formulate technical
standards.

Huaxiang County in Gansu Province is aggressively developing methane
resources. In 2007, the county invested 2.28 million Yuan to develop household methane
pits that enabled 1900 households to make use of methane. In 2008, an additional 1900
households will benefit from the investment of an additional 6.65 million Yuan in
household methane pits.

In a recent interview Li Zhijun, a researcher at the State Council’s Development
Research Center spoke about the development of China’s bio-diesel industry. There
presently are dozens of Chinese enterprises that are engaged in the bio-diesel industry in
China and cumulatively their capacity to produce bio-diesel is in excess of 3 million tpy.
Despite this the output of bio-diesel is only approximately 300,000 tpy because of a lack
of raw materials. Consequently, some of the largest Chinese energy companies, including
Sinopec and Petrochina are actively seeking projects to develop the raw material input for
the bio-diesel industry. Other factors constraining the more rapid development of the
Chinese bio-diesel industry include the lack of clear standards and policies with respect
to the collection, handling and quality of raw material inputs and the lack of channels for
distribution and sale of bio-diesel. Li Zhijun expressed that the Chinese bio-diesel
industry, if given proper guidance, will not require subsidies, but rather will be able to
succeed on market-based incentives only.

On March 12, 2008 a ceremony was held marking the start of construction on
China’s first biomass power generating plant that uses waste sugar cane. The Guangxi
Province, Liuzhou Xinneng Bioenergy Power Co., Ltd. is also Guangxi Province’s first
biomass power plant. The total investment of the project is 260 million Yuan. The
project, which is expected to be complete and operating by June 2009, will burn 200,000
tpy of waste sugar cane and other waste agricultural scrap to produce 200 million
Kwh/year of power (based on a 2:1 ratio of agricultural waste to coal, the project will be
equivalent to power generated from 100,000 tpy of coal equivalents). According to local
officials, Liucheng County cultivates 560,000 “mu” of land (1 “mu” is equal to 0.0667
hectares of land), which in turn produces 3 million tpy of sugar cane.

China’s first pilot non-grain fuel ethanol refinery has gone into production in
Guangxi Province. The Guangxi Zhongliang Bio-energy Co., Ltd. project will be
producing 200,000 tpy of fuel ethanol refined from the tapioca (or cassava) plant.
Through mid March 2008 the new refinery already had produced 11496 MT of bioethanol
using 28,859 MT of dried tapioca and 18751 MT of fresh tapioca. The bioethanol
already went on sale beginning March 1st in Beihai and Guigang in Guangxi
Province and through March 14th had already sold 1680 MT of bio-ethanol. By mid April
2008 all of Guangxi Province will be able to have access to ethanol gas.

China and Sustainable Building
A recent consumer survey asked respondents whether they would be willing to
pay 100 Yuan per square meter more for an energy efficient home if that additional
amount could be recovered in three to four years. As many as 79% of respondents to
this survey, which was conducted in conjunction with the “2008 China (Beijing) Real
Estate Exhibition”, said that they were willing to spend more for a more energy efficient
home. Beijing already has established the goal of having a 50% overall reduction in
energy consumption for new construction, including a 65% reduction of energy
consumption for new construction in mid to large cities. Adhering to these goals would
enable China to save 110 million MT of coal equivalents in the 2006 through 2010
period.

In late March 2008, four government agencies in Nanjing issued new regulations
that require all residential, hotel and commercial developments (whether new
construction, expansions or renovations) of 12 stories or less to install a solar hot water
system. Nanjing now joins Jinan and Yantai (in Shandong Province), Guangzhou and
Wuxi, among other cities, in putting in place a requirement that solar hot water systems
be installed in new construction.

New construction in Xiamen, Fujian Province is attaining the goal of 50%
reduction in energy consumption and more than 40 types of energy saving technologies
and products are being used in the Xiamen construction industry; these technologies and
products include “break bridge” aluminum profile windows, air-filled glass windows,
energy saving lights, solar powered hot water heaters and aerated concrete (aerocrete).
According to reports from Xiamen, through the end of 2007 the city had registered a total
of 3584 energy saving building projects relating to a total building area of 32.509 million
square meters, including 2184 residential energy savings projects totaling 23.342 million
square meters and 1400 public building projects, totaling 9.167 million square meters.

Regional Developments in China's Renewable Energy Industries
Harbin, the capitol of Heilongjiang Province, has begun an effort to reduce its
dependence on coal for fuel. In 2007, Harbin consumed a total of 33.76 million MT of
coal equivalent energy and of that total 45% was generated from coal-fired power plants.
Presently, Harbin is actively developing wind power. According to a survey which was
conducted by the climate bureau of Harbin, the areas in Heilongjiang Province which are
particularly rich in wind resources include Tailai, Zhaoyuan, Harbin, Bin county, Bayan,
Tonghe, Fangzheng, Yilan, Shuangya Mountain, Fujin and areas along the Songhua
River. Of all of these locations, the Yilan area is considered to have the best potential for
wind power production. The Harbin Climate Bureau already has conducted a study
analyzing 30 years worth of data to establish specific locations, times, reserves and other
characteristics of Harbin’s wind resources; they also have done studies of particular
locations to determine their suitability for wind farm development, including erecting 30
test towers. Harbin already has built wind farms at Mulan and Yilan for a reported total
investment of 980 million Yuan; the total installed capacity of these wind farms is 85.9
MW. Of these two sites, the Yilan site has a total of 87 windmills. There are two wind
farms at Yilan Mabian Mountain and Niaoguan Lizi Mountain which are under
construction and which are to be completed and put into operation by the end of 2008. In
addition to the construction of wind farms, Harbin also is beginning to use compressed
natural gas; at present there are a total of 100 taxis in Harbin that use compressed natural
gas.

According to Shen Xiaoping, the Chairman of the Hebei Province Development
and Reform Commission, during the 11th Five Year Plan period, Hebei Province will
invest a total of 30.2 billion Yuan on clean energy projects. The land-based wind power
potential of Hebei province is estimated to be as much as 74,000 MW. Presently the
corridor between Zhangjiakou in Hebei’s south and Chengde in Hebei’s north has five
wind farms operating. In early 2008, Zhangjiakou revised its 2010 goal for installed
wind power capacity to 3000 MW. In addition to the land based wind farms which are
taking advantage of the northwest winds, there are wind farm projects in the coastal areas
near Tangshan, Cangzhou and Qinhuangdao that are either operating or under
construction. In Cangzhou city, the 1.5 billion Yuan wind farm, which is located offshore
of Haixing county, recently went into operation and another project that will have a total
of 99 MW in Huanghua city is nearing completion. The development of wind farms,
particularly along the Zhangjiakou---Chengde plains, is helping to enrich this previously
impoverished area; the city of Zhangjiakou estimates that by 2010 the income generated
from the sale of wind power will be as high as 3 billion Yuan, which will mean
approximately 700 million Yuan in additional tax revenues for the city of Zhangjiakou.

International Cooperation in Renewable Energy Initiatives
The United States and China will be establishing an independent mechanism for
dialogue about clean and renewable energy, separate from the Sino-U.S. Strategic
Economic Dialogue. In December 2007, as part of the Sino-U.S. Strategic Economic
Dialogue, the parties reached agreement on a “Ten Year Energy Plan”, in which they
would launch a range of cooperative initiatives to address energy and environmental
issues. According to Senator Maria Cantwell of Washington, who is a member of the
Finance Committee and the Energy and Natural Resources Committee of the Senate, this
focused dialogue will help China achieve its objective of becoming a more efficient user
of energy, while helping to equalize trade between the two countries as U.S. companies
have energy efficiency technologies that they can sell to China.

Laws and Policies Governing Renewable Energy and Sustainable Development
Though the Chinese profess to want to move to a market price for energy, the
pace at which these reforms take place depend on several factors, including the “ability of
Chinese society to accept” such reforms and a resolution of the authority to set power
pricing policy between the newly established Energy Bureau and the National
Development and Reform Commission. On March 12, 2008 the Chinese central
government failed to give the newly created Energy Bureau overall control over energy
policy and administration. Rather Beijing split authority between the new Energy
Bureau, which will be in charge of developing energy strategy and an energy bureau
under the National Development and Reform Commission, which will have control over
administration and oversight of the energy sector.

In 2008 the Chinese government will be allocating 41.8 billion Yuan from several
funds to support energy conservation and emissions reductions projects.
Developments in Environmental Protection and Energy Conservation in China
As part of the reorganization of the central government that occurred in mid-
March, 2008, Beijing elevated the status of the State Environmental Protection
Administration’s by designating it a Ministry. As a consequence of its new status the
Ministry of Environmental Protection will be able to contend better with other ministries
and is expected to have more authority with the Chinese government.

China’s Energy Production and Consumption
On March 23, 2008, Zhang Guobao, a vice-chairman of the National
Development and Reform Commission stated a more ambitious target for installed
capacity of nuclear power than previously set out. Zhang Guobao indicated that China
would try to reach a goal of nuclear power accounting for 5% of total installed power
generating capacity by 2020; previously, the stated goal was nuclear power accounting
for ~2% of total installed power capacity in China by 2050.

The Commission on State-Owned Assets issued an order on March 19, 2008
prohibiting personal within power networks and personal at the province level and above
with authority over the power networks from being shareholders in power generating
enterprises in the same region as the power networks with which they are associated. As
for those who already own shares in power generating enterprises within the coverage
area of the power grid, those shares must be divested within one year of the date of the
March 19th order.

The State Statistical Bureau will add an energy consumption survey to its Second
National Economic Survey to provide a better statistical basis for central government
policies with respect to energy conservation.
On March 20, 2008 Sinopec announced that the company had received financial
subsidies totaling 12.3 billion Yuan, 4.9 billion of which will be included in 2007 income
and 7.4 billion of which will be included in income for the first quarter of 2008. The
reason for the subsidies is that Beijing has not allowed the price of refined oil to keep
pace with the increases in the price of crude oil; this has resulted in losses for a number of
Chinese oil refineries and as a result some have gone out of business. Sinopec estimates
that its losses from refining and sales of refined oil exceeded 20 billion Yuan, so it
believes that the 12.3 billion Yuan subsidy is not sufficient to account for all of the
company’s losses. In the fourth quarter of 2007 the National Development and Reform
Commission increased the price of refined oil, but that increase was insufficient to keep
pace with the rapid increase in crude oil prices. Sinopec estimates that at a price of
$100/barrel for crude oil, each MT of refined oil the company sells results in a loss of
2000 Yuan. The price of refined oil in China is equivalent to $68-70 U.S.D./barrel.