Chinese Proverb
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“When you want to test the depth of a stream, don’t use both feet.“ Chinese Proverb (C)2007 * GWI MARKET ACCESS: DESALINATION IN CHINA 1 GWI MARKET ACSESS: DESALINATION IN CHINA Acknowledgments The authors would like to thank for their contribution to this report (in alphabetical order) Elisha Arad, IDE Gireesh Bhat, Hyfl ux Stephen Buonagura, SITIndustrie Lily Cai, Vontron Jackie Cao, Brack Capital Yousheng Chang, Beifang Leslie Chapple, Hyfl ux Haichen Cong, Chinese Desalination Association Charles Desportes, Entropie (Veolia) Xiong Fan, Development Centre of Water Treatment Technlogy Susanna Floth , Aqualia Congjie Gao, Chinese Academy of Engineering André Hansen, Danfoss Guofeng Huang , ROPV Access Xiazhen Jia, Tianjin Waterworks Zhizhong Li, Aqualia Xiaolin Liu, Degrémont Jing Liu, LH International Binghui Liu, MegaVision Runming Pang, Koch Guoling Ruan, Tianjin Institute of Seawater Desalination Beat Patrick Schneider, Calder Spike Shao , LH International Albert Sone, Pump Engineering Mitch Summerfi eld , Siemens Yongwen Tan , Xidoumen Jianguo Tang, Shanghai Water Authority Hattie Wang, ERI Daxin Wang, Dow Sherry Wang, Qianqu Zhaohui Wang, Beidouxing David Wu, GE Jacky Wu, MemShell Kun Yang, Chinese Desalination Association Jason Zhao, Hydranautics Market Nancy Zheng, Motimo He Zhu, Jun He Law Offi ces This report was researched, written and edited by Jensen & Blanc-Brude, Ltd. for Global Water Intelligence Jensen & Blanc-Brude, Ltd. Global Water Intelligence 22 Leathermarket Street, Unit 6 Published by Media Analytics, Ltd. London SE1 3HP The Jam Factory, 27 Park End Street United Kingdom Oxford OX1 1HU [email protected] United Kingdom www.jensenblancbrude.com [email protected] www.globalwaterintel.com While every eff ort has been made to ensure the accuracy of the information in this report, neither Global Water Intelligence, Jensen & Blanc-Brude Ltd or Media Analytics Ltd, nor any of the contributors accept liability for any errors or oversights. Unauthorised distribution or reproduction of the contents of this publication is strictly prohibited without the writ- ten permission of the publisher and authors. Contact Media Analytics Ltd or Jensen & Blanc-Brude Ltd for permis- China sion. 2 (C)2007 * GWI MARKET ACCESS: DESALINATION IN CHINA GWI MARKET ACCESS: DESALINATIONIN CHINA GWI MARKET ACCESS: DESALINATION IN CHINA 淡化海水市场Drivers, Competition and Access in the Chinese Desalination Sector Table of Contents 5 Minute Report 10 Things you need to know about Chinese desalination 4 5 Recommendations 5 Who’s Who 6 The Map of Chinese desalination 7 The Brief From Liaoning to Zhejiang: planning for desalination 8 Drivers Projected Capacity How Projects Get to Market 10 Institutional Set Up The Project List Market Development and Potential 13 Market Developments Market Size Municipal vs. Industrial Clients Research & Technology Trends: past, present, future 15 Brief History Research Trends The Future: RO or Thermal? Competition Analysis 20 Developers & EPC Companies Can the Chinese make RO membranes? ERD, HP Pumps and Pressure Vessels Reality Check 25 Risks 2010-15 What is realistic? By Invitation: Jun He’s George Zhu 30 Selected legal issues on developing desalination projects in China Economics: 34 Market development and forecast Unit cost analysis The List: Planned, awarded and operational projects 46 Case Studies Huangdao MED and RO 66 Tianjin TEDA MED 68 Huanghua MED 70 Yuhuan RO 71 The Players Projects: Key active players 73 Projects: Other active players 77 Projects: New Entrants 80 Equipment: Membranes 82 Equipment: HP Pumps/ERD 92 Equipment: Pressure Vessels 94 Equipment: Metals and Alloys 96 Glossary 97 (C)2007 * GWI MARKET ACCESS: DESALINATION IN CHINA 3 5 MINUTE REPORT 概略 10 things you need to know about the Chinese desalination sector 1. In the coastal north of China, the supply and b) the burden of fi nancing for munici- gap of fresh water is already a reality and palities. Private fi nancing of desalination is badly hurting the Chinese economy. The projects has so far failed to take off because relevant area stretches from the province of municipal clients are reluctant to sign long- Zhejiang to that of Liaoning and represents term purchase agreements. 25% of Chinese annual GDP. The main cities 6. Procurement for small desalination facili- where desalination projects will be devel- ties is done under turnkey contracts but this oped are Tianjin, Dalian and Qingdao. The is not the norm in China and larger projects south of China also has a severe brackish will not be procured as turnkey. Municipali- water problem. ties choose to pick erection teams and tend 2. Desalination, as a source of fresh water, to contract separately for each aspect of a has received full offi cial support in 2004 and project. Developers also have to release all the central government is gradually enact- their designs to the local Design Institute, ing legislation which requires large water- the approval of which is necessary for con- intensive businesses (electricity, chemicals, struction to start. etc.) to have self-suffi cient water supply 7. Local competition originates in the re- and to use desalination in coastal areas. search and academic sector. A couple of Municipal water tariff reform is ongoing in desalination research institutes under the coastal areas and a convergence between SOA have been working on desalination water tariff s and the cost of desalination is for several decades. A handful of active in- expected by 2010-2015. dividuals, the “professor-entrepreneurs”, 3. In 2006, online installed capacity in China have set up corporate entities attached to (including HK and Macau) was 380,000m3/ research institutes which compete with for- d. Forecast desalination capacity for 2012- eign companies for project development 15 is 2.5Mm3/d. The size of the desalination contracts and the supply of membranes project market (capex) was US$55-70m in and other equipment. These research insti- 2006 and should reach US$600-860m in tutes work hand-in-hand with the local de- 2012-15. sign institutes mentioned above (they can 4. There is little or no regulation of the sec- be one and the same). In 2006, the “profes- tor. Desalination projects fall under the sor-entrepreneurs” are a dominant force in State Development and Reform Commis- the Chinese desalination market. However, sion and the State Oceanic Administration, their future ability to compete for large and not the Ministry of Construction which scale projects may be limited. regulates the water sector. When desalina- 8. The municipal and industrial markets for tion becomes more mainstream and proj- desalination are not evolving at the same ects are larger, the sector will pass to MoC pace. Industrial solutions have so far domi- control. nated the market in terms of installed ca- 5. There is no target for desalination capac- pacity. Water tariff reform in cities is ongo- ity in China. The offi cial ‘targets’ often men- ing and tariff levels will not reach suffi cient tioned are only an indication of how much levels for another 5 years at least. However, desalination capacity is scheduled to come the bulk of planned capacity for industrial online according to two infl uential Chinese application in China is still to come and its desalination research institutes. Neither is timing is equally uncertain because pro- there a ministerial level approval process. posed plants are mostly linked to nuclear Projects are proposed for grant funding power stations and other very large projects 5Minute Report (such as the relocation of the Beijing steel (10% of capex) to NDRC by municipalities and the remainder of fi nancing has to be industry to the coast) so delays are likely. In- raised locally. For all practical purposes, dustrial clients will still use the majority of desalination projects are approved and ne- planned capacity. gotiated at the municipal level. For this rea- 9. The use of desalination processes in Chi- son, many projects will not become a reality na is diff erent from world averages. China because of a) the low level of water tariff s is a young desalination market and there is 4 (C)2007 * GWI MARKET ACCESS: DESALINATION IN CHINA 5 MINUTE REPORT wider use (and planned use) of MED, while pressure vessels, full-MED solutions but most of the few existing MSF facilities have limited in size) and the products that only been decommissioned. RO is the dominant foreign companies can provide (SWRO technology in terms of number of projects membranes, energy recovery devices, high but the planned capacity for the power and pressure pumps, and large scale, complex petrochemical sectors will mostly use MED. MED solutions). With the help of design Nuclear desalination should play an impor- institutes, Chinese makers are catching up. tant role in China beyond 2010. Most foreign equipment makers reckon 10. The equipment market is split between that they will face direct Chinese competi- what Chinese suppliers can already provide tion within fi ve years if they do not develop (pre-treatment for RO, BWRO membranes, a new generation of systems. Five Recommendations 1. Get in touch: The Chinese desalination market is a small world. Meet the “professor-entrepreneurs” and de- velop a strong relationship (see Who’s Who, next page). They are involved in everything from advising the government to bidding for projects, administrating tenders or approving designs. A good fi rst step would be to become involved in the follow-up of Professor Ruan’s RO/MED project in Huangdao (See The List) 2. Have a Chinese face: Find a decent Chinese project developer with experience and contacts in the sector and buy them out. This is how Siemens or Dow intend to maintain their lead in the sector. 3. Go local: There is not much point courting people in Beijing to get a desalination project. Everything, from project proposal to fi nancing to water tariff reform is a local aff air.