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Technical Assistance Consultant’s Report

Project Number: 49438-001 May 2018

People’s Republic of : National Heat Supply Development Strategy (Financed by the Technical Assistance Special Fund)

Prepared by

CECEP Consulting Co., Ltd.

Beijing, China

For New and Department, National Energy Administration

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

TA-9112 PRC Asian Development Bank

China Biomass-To-Heat Development Strategy Research Project Final Report

CECEP Consulting Co., Ltd.

May, 2018

Members of Team

Advised by: Han Jiangzhou

Reviewed by: Huo Zhonghe

Chaired by: Yuan Baorong

Compiled by: Joachim Clemens Jesper Werling

Mark Ramsay Xiong Shaojun

Meng Haibo Zhou Hongjun

Hong Hao Dong Yuping

Shi Jingli Dou Kejun

Zhao Fang Wang Min

Tian Zhibin Wang Bo

Yu Guanglin Wang Chao

Zhao Shuli

Contents

Executive Summary ...... 1 I. Background ...... 7 II. An overview of the development of international Biomass-to-Heat ...... 9 (i) Biomass-based CHP ...... 9 (ii) Biomass ...... 15 (iii) Technologies for Biomass-to-Heat: Biomethane ...... 21 (iv) Technologies for Biomass-to-Heat: Gasification ...... 27 III. Current Development of Biomass-to-heat Industry in China ...... 36 (i) Analysis of Biomass ...... 36 (ii) Biomass-based combined heat and power generation ...... 39 (iii) Biomass Molding Fuel (BMF) ...... 53 (iv) Biomass Gasification ...... 67 (v) /Biomethane ...... 78 IV. Selected Cases of Biomass Heat Supply in China ...... 97 (i) Selected Biomass-based CHP Projects ...... 97 (ii) Selected Projects of Biomass Molding Fuel Heat Suppy ...... 104 (iii) Selected Projects of Biomass Gasification for Heat Supply ...... 111 (iv) Selected Biogas Projects ...... 121 V. Economic Assessment Model and Analysis for Biomass-to-Heat ...... 146 (i) Establishment of Economic Assessment Model ...... 146 (ii) Relevant Foreign and Domestic Economic ...... 153 (iii) Cost Benefit Analysis and Economic Policy Demand Assessment ...... 162 (iv) Proposal of Supportive Economic Policies on Biomass-to-heat ...... 172 VI. Naitonal Biomass-to-Heat Market Evaluation ...... 180 (i) Market Competitiveness Analysis ...... 180 (ii) Analysis on the Development Potential for Commercial-scale Biomass-to-Heat in China ...... 183 (iii) Opportunities and Challenges for Commercial-scale Development of Biomass-to-Heat ...... 190 VII. Policy Recommendations ...... 199 (i) Policy Recommendations on Improving Secured Supply of Biomass ...... 199 (ii) Recommendations for Commercial-scale Development of Biomass-To-Heat ...... 205

List of Figures

Figure 1 Conventional processes of pellet production from sawdust ...... 16

Figure 2 Average annual prices for heating fuels in Austria ...... 20

Figure 3 Biogas upgrading steps ...... 23

Figure 4 Relative share of the costs for biomethane production ...... 26

Figure 5 Entrained flow gasifier schematic ...... 30

Figure 6 Principle of Biomass Gasification ...... 74

Figure 7 Process Flow Diagram of High Temperature Gasified Biomass Gas Directly Fired Heating.... 75

Figure 8 Process Flow Diagram of Purified Gas Fired Heating ...... 76

Figure 9 Process Flow Diagram of Biogas Project ...... 89

Figure 10 BMF Heat Project of Changchun Xinglong Free Trade Zone ...... 104

Figure 11 Process Flow Diagram of BMF-to-heat Project ...... 105

Figure 12 Process Flow Diagram of Fuwei BMF-to-heat Project ...... 109

Figure 13 JQ-C400x2 Biomass Gasification Unit and Biogas Storage Tank ...... 112

Figure 14 Extension of Centralized Gasification Heating Project...... 112

Figure 15 Process Flow Diagram of Biomass Gasification-to-heat Project ...... 113

Figure 16 Buchang Pharmaceuticals Gasification-to-heat Project ...... 117

Figure 17 Process Flow Diagram of Buchang Pharmaceuticals Gasification-to-heat Project 118

Figure 18 Process Flow Diagram of Shandong Minhe Biogas CHP Project ...... 123

Figure 19 AD Tanks of Shandong Minhe Biogas CHP Project ...... 124

Figure 20 Process Flow of Integrated Household Waste Utilization Project ...... 130

Figure 21 Waste Sorting System of Integrated Household Waste Utilization Project ...... 131

Figure 22 Garage-type Fermentation Workshop of Integrated Household Waste Utilization Project ... 132

Figure 23 Wet Fermentation Tanks of Integrated Household Waste Utilization Project ...... 133

Figure 24 Waste Incineration of Integrated Household Waste Utilization Project ...... 134

Figure 25 Biogas Purification Plant of Integrated Household Waste Utilization Project ...... 134

Figure 26 Biogas Station of Harbin Longneng Resource Recycle Co., Ltd...... 135

Figure 27 Process Flow of Yuanyi Biogas Demonstration Project ...... 140

Figure 28 Corn Stalk Smashing System of Yuanyi Biogas Demonstration Project ...... 140

Figure 29 Corn Stalk Pretreatment System of Yuanyi Biogas Demonstration Project ...... 140

Figure 30 Fermentation Tanks of Yuanyi Biogas Demonstration Project ...... 141

Figure 31 BNG Gas Station of Yuanyi Biogas Demonstration Project ...... 142

List of Tables

Table 1 Data for small and medium sized biomass-based CHP ...... 13 Table 2 Costs to produce biogas (according Urban et al. 2008) ...... 25 Table 3 Summary of costs for biomethane production ...... 25 Table 4 Suitability of feedstock for different gasifiers ...... 28 Table 5 Summary of environmental factors ...... 34 Table 6 Environmental permitting and regulators for UK nations ...... 36 Table 7 Policies and Regulations Relating to Biomass Energy Development and Utilization in China ... 42 Table 8 Standards and Technical Specifications of Biomass CHP in China ...... 45 Table 9 Summary of Biomass-based CHP Project in China ...... 46 Table 10 Typical Waste Incineration CHP Projects in China ...... 49 Table 11 Issued and Implemented Biomass BMF Industry Standards in China ...... 57 Table 12 Comparison of Different Types of Straw Collection, Storage and Transport Models ...... 59 Table 13 Comparison of Biomass Modling Technologies ...... 60 Table 14 Advantages, Disadvantages and Applicability of Different Firing Technologies ...... 63 Table 15 Standards and Technical Specifications for Biogas/Biomethane ...... 83 Table 16 Classification Criterion of Large-scale Biogas Projects in China ...... 85 Table 17 Comparisons of Technological Characteristics of Different Fermentation Processes .... 90 Table 18 Comparisons of Different Technologies of Biogas Purification ...... 92 Table 19 Financial Analysis ...... 99 Table 20 Financial Analysis ...... 103 Table 21 Analysis of Economic Benefits ...... 106 Table 22 Analysis of Sensitive Factors ...... 107 Table 23 Analysis of Economic Benefits ...... 110 Table 24 Analysis of Sensitive Factors ...... 110 Table 25 Economic Accounting for Centralized Biogas Supply for Shasan Villagers ...... 114 Table 26 Economic Accounting for Centralized Heat Supply for Shasan Villagers .. 115 Table 27 Analysis of Economic Benefits of Buchang Gasification Heating Project ...... 119 Table 28 Analysis of Sensitive Factors ...... 119

Table 29 Analysis of Costs and Benefits of Shandong Minhe Biogas CHP Project .. 126 Table 30 Financial Evaluation of Shandong Minhe Biogas CHP Project ...... 127 Table 31 Main Technical Parameters of Integrated Household Waste Utilization Project ..... 130 Table 32 Analysis of Costs and Benefits of Integrated Household Waste Utilization Project 137 Table 33 Financial Evaluation of Integrated Household Waste Utilization Project ... 137 Table 34 Technical and Economic Indicators of Yuanyi Biogas Demonstration Project ...... 143 Table 35 Return on Investment of Yuanyi Biogas Demonstration Project ...... 144 Table 36 Preset Common Parameters for 3 Economic Assessment Models of Biomass-to-Heat...... 150 Table 37 Fixed Feed-in Tariffs and Subsidies for Biomass and Biogas in Denmark 156 Table 38 A Summary of Policy Documents for Promoting the Development of Biomass Energy ...... 160 Table 39 Cost Structure of Biomass CHP Project ...... 164 Table 40 Cost Structure of BMF-based Heating Project ...... 166 Table 41: Cost Structure of Biomass (CTM Residue) Gasification-to-Heat Project . 168 Table 42 Actual Cost Structure of Chifeng Yuanyi Biomethane Project ...... 170 Table 43 Cost Structure of Biomethane Project ...... 171 Table 44 Economic Comparison between Biomass CHP and other Heat Sources for Heat Production 180 Table 45 Economic Comparison between BMF and Other Sources for Heat Production ..... 181 Table 46 Economical Comparison between Biomass Gasification and , Diesel and for Heat Production ...... 182 Table 47 Biomass Gas Cost Analysis (Unit: Yuan/m3) ...... 183

Executive Summary Since initiation of the project in November 2016, the project team from CECEP Consulting Co., Ltd. (CECEP) has, per TOR requirement and with reference to advanced biomass-to-heat technologies, government policies and best practices for commercialization from foreign countries, analyzed and summarized the business models for biomass-to-heat to be scaled up and commercialized in China. After literature study, the team carried out extensive on-site researches on various utilization technologies, including biomass-based combined heat and power (CHP) generation, biomass molding fuel (BMF) heating, biomethane/biogas-to-heat, and biomass gasification-to-heat, etc. They also hosted international expert workshops, interim review and capacity building training and others, and proposed their recommendations on government policies for scaling up and commercialization of biomass-to-heat in China. In January 2017, the project team from CECEP held a meeting and launched the project. During the meeting, the technologies for scaling up and commercialization of biomass-to-heat were discussed with representatives from National Energy Administration of PRC, Asian Development Bank and others, as well as with biomass energy experts from Denmark, and UK and those from domestics, and the roadmap and plan were defined. From April to October 2017, an experts panel set up by the project team went to Shandong, Jilin, Hebei, Inner Mongolia, Heilongjiang, Hubei, and Zhejiang for on-site research. They visited and researched 18 biomass projects with different biomass-to-heat technologies utilized, including biomass-based CHP, biomass gasification-to-heat, BMF and biomethane/biogas, etc. Their key focuses were on the operations, economic efficiency and existing problems and obstacles of the individual projects. On March 21, 2018, the project team held an interim review & capacity building training meeting. More than 50 representatives and experts attended, including those from National Energy Administration, East Asia Department of Asian Development Bank, China National Renewable

1 Energy Center, Beijing Representative Office of World-Wide Fund for Nature, Renewable Energy Subcommittee of China Association of Circular Economy, China Biomass Energy Association, Minsheng Financial Leasing Co., Ltd., Tsinghua University, and from businesses dedicated to the development and utilization of biomass energy, as well as the project team members and the experts panel from CECEP. They shared their views on and discussed around the topic of biomass-to-heat, and proposed their valuable observations and recommendations on the project research. Major research events carried out and achievements made by the project team so far are summarized as follows: Achievement I: An introduction to International Biomass-to-heat Practices The research focused on diverse biomass-to-heat technologies adopted in Denmark, UK, Germany, US, , etc., including biomass-based CHP, BMF heating, biomass boiler heating, biomethane/biogas-to-heat, and biomass gasification-to-heat, etc. It collated and analyzed government policies, technical specifications, and practices for biomass-to-heat in these countries. It also analyzed the business models, economic efficiency, environmental impacts and others of biomass-to-heat projects through demonstrative cases studies. Achievement II: China Biomass-to-heat Market Assessment Current development of biomass-to-heat industry in China was analyzed and summarized through extensive on-site researches. Demonstrative cases of biomass-based CHP, BMF heating, biomass gasification-to-heat, and biomethane/biogas-to-heat were selected for comprehensive analysis. An economic assessment model was built to evaluate economic efficiency of biomass-to-heat projects, and used to assess the demonstrative project cases selected. 1. Current Development of Biomass-to-heat Industry in China This research focused on analyzing the accessible quantities of biomass feedstocks in China, which included agriculture waste, agricultural

2 processing residues, waste, animal waste, urban household and kitchen waste, , sludge and industrial organic waste, etc. It was estimated that annual accessible quantities of above biomass feedstocks were as follows: crop straw, about 900 million tons; agricultural processing residues, about 100 million tons; forest residue, about 160 million tons; animal waste for biogas, about 550 million tons; urban household and kitchen waste, over 300 million tons. In terms of current development of biomass-to-heat industry, specifically biomass-based CHP, BMF heating, biomass gasification-to-heat, and biomethane/biogas-to-heat, it analyzed associated supportive government policies, standards and technical specifications, current development, key technologies adopted, as well as existing problems and obstacles. 2. Selected Cases of Biomass Heat Supply in China Two to three demonstrative cases were selected for each of biomass CHP, BMF, biomass gasification, and biogas/biomethane so as to study their feedstocks collection, transport and storage, technical process, operations and management, financial analysis and evaluation, socio-economic and environmental benefits, and to provide a base for economic assessment model for biomass-to-heat projects to build upon. 3. Economic Assessment for Biomass-to-heat in China To facilitate in-depth analysis and assessment of cost and efficiency of different technologies of biomass-to-heat in China, an economic assessment model, designed and developed for biomass-to-heat projects in China, was used to assess the selected projects. The assessment showed that in terms of cost: material cost of biomass-based CHP and BMF heating projects had the lion‘s share at about 75%-85% and significantly impacted on economic efficiency, while others such as investment, operating and financial costs accounted for small proportions. For Biomass Gasification-to-Heat projects, the operating cost for selected case was much higher than ordinary gasification projects, and accounted for more than 40%. Usually, such cost for a gasification project accounted for no more than 10%. For the biogas/biomethane-to-heat projects, project investment, material and other operating cost accounted for about

3 20% to 25% each. And proceeds from digestate accounted for relative high proportions. They had significant impact on the economic efficiency of heat production projects. 4. National Biomass-to-Heat Market Evaluation This research focused on comparative analysis on the economic efficiency of Biomass-to-Heat with that of traditional modes of heat production by coal, and natural gas in a bid to determine the competitiveness, and potential for scaling up and commercialization. Existing opportunities and challenges are analyzed and summarized. The research showed that in term of economic efficiency: biomass CHP is more competitive than natural gas and fuel oil in heat production, but slightly less than coal-fired boilers. BMF is also competitive and its cost is equivalent to coal in some regions in China, especially where with a higher demand for clean energy, BMF will become the best alternative. However, in regions where coal price is low, BMF is less competitive and supportive government policies are required to further promote its application. Biomass gasification and biomethane/biogas are slightly less competitive than coal, but slightly more than gas. They are relatively promising to commercialize. As Action Plan for Prevention and Control and plan for coal control and reduction implemented, especially Guidance on Clean Heating in Winter in Northern China (2017-2021) and Guideline for Promoting the Development of Biomass-to-Heat were promulgated, biomass-to-heat will embrace great development opportunities. Further market expansion can be expected and huge development potential will be realized. Achievement III: Government Policy Recommendations on scaling up and Commercialization of National Biomass-to-heat Industry 1. Supply Guarantee of Biomass Resource Recommendations on supply guarantee of biomass feedstock are proposed for three major materials - agriculture and forestry biomass, urban household waste, and livestock and poultry manure. For agricultural and forest biomass, it is recommended that a system of

4 regulations, and supportive government policies be improved for collection, storage and transport; a special and dedicated fund be in place; and diverse investment across all levels be encouraged. For the urban household waste, it is recommended that classification and treatment be highly promoted and supported; an entire process management system be established; and collection and transport system, management practices and fiscal supporting policies be continuously improved. For livestock and poultry manure, it is recommended that supports to manure recycling be enhanced with funds and budgetary investment from central government; operation be market-driven and social capital be attracted; feedstock be maintained; favorable and supportive policies be implemented effectively; and resource utilization rate be improved. 2. Biomass-based CHP For biomass-based CHP from agricultural and forest waste, it is recommended that approval of new projects be strictly controlled; a sound development plan be in place; additional feed-in tariff for renewable energy be granted by energy category with priority to the biomass CHP; projects transformation be facilitated from existing power generation to CHP; and emission standards for CHP boilers with agricultural and forest biomass as feedstock be in place. For power generation by waste incineration, it is recommended that two critical problems - NIMBY (not in my backyard) and substandard in terms of environmental protection – be solved; medium- and long-term planning be developed; a system of policies for project planning and site selection be in place; an operation monitoring and assessment system be set up and improved; and a sound mechanism for granting additional feed-in tariff for renewable energy be in place. 3. BMF Heating It is recommended that BMF be recognized as a clean energy and included in the national strategy for environmental protection. It is also recommended that industry standards be established and improved, and

5 emission criteria for BMF-filed boilers be established; policies be in place that facilitate competition between BMF and natural gas at a level playing ground, and that grant subsidy to BMF heating. 4. Biomass Gasification to Heat It is recommended that policy support be enhanced and an industry development planning be in place as early as possible to provide guidelines for project approval, construction and ; standards and specifications be improved; a priority utilization mechanism be established and eligibility for fiscal subsidies be expanded; a commercialized development promoted by government and funded with diverse investment be set up to expand the financing sources and to facilitate the development. 5. Biogas/Biomethane It is recommended that a co-leading with cross-sector partnership be in place to promote the development jointly. However, planning and construction of biomass energy projects should be strictly controlled by local governments so as to avoid chaotic competition. In term of industry development, it is recommended that innovative government participation be explored, and social capital be attracted to the collection, storage and transport business of organic agricultural waste, and associate business mode be explored and established; the policy that guarantees procurement of biogas products produced be fully implemented; subsidies granting be facilitated; a statistics, monitoring and assessment system be established and improved; and performance appraisal in local governments on biomass support be improved.

6 I. Background Biomass energy, a renewable and the fourth major energy after , coal and natural gas, holds a significant share in world energy consumption. There are proven technologies to develop and utilize biomass energy and its applications are diverse. It plays an important role in countering global climate changes, mitigating the imbalance between and demand, and protecting ecosystem. It will be an important contributor in energy transition on a global scale. Biomass energy is also the unique renewable energy that can be converted to several energy products, such as heat, , fuel gas, liquid fuel, etc, among which biomass to heat accounts for large proportion, and is an important clean heating source that can be flexibly deployed and broadly applied. China has abundant biomass resources. Thanks to favorable government policies since the Twelfth Five-year Plan, biomass-to-power and biogas among others have grown rapidly. Their commercialized development and utilization began to take shape, and associated technologies are basically sound and reliable. Since the 18th CPC National Congress, China government put ecosystem health and sustainability as one of their priorities. Environmental protection has been enhanced and air pollution prevention and control have been increasingly strengthened. In such a favorable circumstance, BMF and biogas have been growing steadily and are ready for scaling up and industrialization. However, biomass-to-heat is still at its start-up stage. A complete industrial system hasn‘t been established yet, lack of specialization, under-commercialization, inadequate deployment experiences, as well as insufficient supportive government policies are still challenges faced the industry. On December 21, 2016, China President Xi Jinping required to promote clean heating in winter in North China at the 14th Session of Leading Group for Financial and Economic Affairs (LGFEA). And in the report of the 19th CPC National Congress, this requirement is further stated as ―to facilitate revolutionary energy production and consumption; build an energy system that is clean, low-carbon, safe and efficient; grow clean

7 to promote green development and build a healthy and sustainable ecosystem‖. To move toward this vision, in December 2017, Guidance on Clean Heating in Winter in Northern China (2017-2021) and Guideline for Promoting the Development of Biomass-to-Heat were promulgated by national ministries per requirement proposed at the 14th Session of LGFEA. These two policies provided strong support and great opportunities for biomass-to-heat to grow further. To significantly promote the scaling up and commercialization of biomass-to-heat in China, to effectively solve air pollution problem due to heat supply during winter in North China, and to improve the government policies and mechanism that facilitate the commercialization of biomass-to-heat in China, CECEP initiated a project named ―China Biomass-to-Heat Strategic Research‖ at the beginning of 2017, with support from National Energy Administration and Asian Development Bank. This research analyzed the overall performance of biomass-to-heat market in China. It explored the business models for biomass-to-heat to be scaled up and commercialized in China, with reference to advanced biomass-to-heat technologies, government policies and best practices for commercialization from foreign countries. It also proposed their recommendations on government policies. The achievements from this research will support the sound and of biomass-to-heat industry in China.

8 II. An overview of the development of international Biomass-to-Heat This section describes all kinds of biomass-to-heat technologies, policy and institutions and international best practice on biomass-to-heat commercialization. From each technology, all sub technologies are listed and only the ones relevant for China are described. The technologies addressed in the sourcebook are:  Biogas and biomethane  Combustion of biomass  Combustion of biomass with other energy sources  Gasification. It is assumed that there is a district heating system or a gas distribution system available to integrate with the technologies described. The size of the facilities depends on the chosen technology: Biogas facilities tend to be smaller (maximum 16.5 MW in average around 1 MW) as compared to combustion facilities. Gasification plants using biomass as feedstocks are limited to date, due to technical challenges in dealing with non-homogenous feedstocks such as MSW. There has been more success with homogenous feedstocks such as waste or virgin wood chip. Examples of biomass gasification range from very small scale – 1.5MWth for heat production to 10-100MW and even larger for projects generating both heat and power. This source book document focusses on gasification technology sized between 5 and 30MW (total plant capacity MWe plus MWth). (i) Biomass-based CHP 1. Feedstocks The fuel input can in general be described as biomass; e.g. residues from wood industries, wood chips (collected in ), straw and energy crops. Sometimes, it is possible to change fuel on a plant from one type of biomass to another but it needs to be explicitly guaranteed by the supplier of the plant. Below is a broad description of biomass fuels:  Wood (in particular in the form of chips) is usually the most favourable biomass for combustion due to its low content of ash, nitrogen and alkaline metals, however typically with 45 % moisture for chips and

9 below 10 % for pellets.  Herbaceous biomass like straw, miscanthus and other annual/fast growing crops have higher contents of K, N, Cl, S etc. that leads to higher primary emissions of NOx and particulates, increased ash, corrosion and slag deposits.  Other exotic as empty fruit bunch pellets (EFB) and palm kernel shells (PKS) are available in the market; however, operation experience seems to be limited.  Urban solid waste: refers to the urban residents' , kitchen, production and domestic waste. 2. Technology Biomass-based (chips, straw) CHP. In Denmark, biomass-based CHP technology using straw (average moisture content 25%) and wood chips (average moisture content 60%) as raw materials has matured, and a certain number of plants have been built. Plants firing wood chips are usually equipped with flue gas condensation, which could significantly increase the thermal efficiency. In the plant that buring straw, the feedstock is usually delivered in rectangular bales with dimensions of 1.2 x 1.3 x 2.5 meter (W*H*L) and a weight of 300 to 800 kg each (for older plants ~500 kg). The bales are most commonly loosened/shredded and fed into the boiler by use of stoker screws. The furnace technology can be of different nature: Grate firing, suspension firing (where the bio-mass is pulverized or chopped and blown into the furnace, optionally in combination with a ) and different types of fluidised bed. Grate combustion is a well-established and robust technology with regard to using different types of biomass. There are examples of combination boiler technologies with both suspension- and grate firing. There is a limit to how big a grate fired plant can be constructed. Only a few fluid bed boilers exist in Denmark and are typically used for CHP plants in situations where the plant size exceeds the maximum for grate firing. In particular wood chips are an excellent fuel for fluid bed boilers. Suspension firing is suitable for very large power plants (substantially above 200 MJ/s thermal heat input) and it requires a

10 pulverisation of the fuel before it is fed into the furnace. Another type of plant is the ORC plants; in this the (biomass-) boiler is used for heating (no evaporation) thermal oil to slightly above 300 C. This heated oil is then transferring the heat to an ORC plant which is similar to a steam cycle but it uses a refrigerant instead of as working media. The reason for an interest in ORC plants is that such equipment is delivered in standardized complete modules at an attractive price and in combination with ‗a boiler‘ that only is used for heating oil, the investment is relatively modest. For any of the above factories, regardless of which technology is adopted, the equipment mainly includes material pretreatment and loading systems, high-pressure boilers (using steam or refrigerant), steam turbines, generators, and flue gas waste heat recycle devices (condensers/ Washing tower) etc. Waste incineration CHP. Residual municipal solid waste (MSW) is taken from a storage bunker by a crane and dropped into a chute. Waste at the bottom of the chute is mechanically pushed onto the combustion grate, the pusher rate is carefully controlled to ensure an even feed of waste. The waste on the grate is combusted at a temperature of 1,000°C or more, with combustion air injected from below the grate. The waste is moved forward on the grate and the resultant incinerator bottom ash (IBA) drops into a water bath at the end of the grate. Complete gas phase combustion is reached by injection of secondary air above the grate. The system ensures that a temperature of at least 850°C for a minimum of 2 seconds is reached (IED requirement) in the secondary combustion zone. Auxiliary fuel is only used for start-up and shutdown to achieve temperature conditions for waste feed. The roller grate is a variation of the pushing-type grate; instead of moving the waste forward, the roller grate passes waste over a series of inclined rotating rollers. This form of combustion grate is much less common than the walking grate. A rotary kiln may also be used to combust MSW. In the rotary kiln, the waste is mechanically pushed into the top of a tapering cylinder or kiln. In order to pass the waste through the kiln and control the rate of combustion,

11 the kiln oscillates from side to side, passing the waste between paddles set into the internal walls of the kiln. In other respects, the rotating kiln is a conventional combustion process. There are more applications of the rotary kiln in the treatment of hazardous waste (due to the ability of the kiln to operate at elevated temperatures) than for MSW, but both are established. Typically, hot gases from the combustion chamber pass to a boiler, which converts the energy from gases into superheated steam which powers steam turbine generators that make electrical energy. Such a process generates heat as a by-product which can also be recovered in a combined heat and power system. The most efficient designs incorporate an integrated furnace-boiler, rather than the transport of hot gases via ducting to a separate boiler. Typical steam data are 400°C and 45 . The boiler system typically can have an energy efficiency of around 85% for steam production. Boiler feed water should be preheated in an economiser, which recovers the maximum heat from the flue gases leaving the boiler. All boilers in WI plants have passes (empty, waterwalls for heat transfer) and convective passes (bundles in the gas stream). The final superheater in most cases is located in the convective section. High pressure steam generated by the boiler is fed to the steam turbine. Steam enters the turbine and expands through the turbine blade system, converting energy (Enthalpy) in the steam to mechanical motion. A typical net electrical efficiency of 25% (of the waste input energy) is achieved at the typical standard steam conditions of 400°C and 45 bar. To maximise the energy recovered for electrical energy recovery, a condensing turbine is specified, where the expansion of the steam across the turbine is maximised and at the exhaust of the turbine, steam will generally be below atmospheric pressure. Where significant heat load (process or heat network) is required, a back pressure turbine can be specified where the pressure drop will be less, thus retaining more energy in the condensed steam for heating purposes. CHP enabled condensing turbines have a controlled bleed point to extract steam mid-way along the turbine casing at a pressure suitable to provide high

12 grade heat for district heating / cooling purposes. The turbine is mechanically linked to a generator through a gearbox. The generator rotation is synchronised to the grid at 50 Hz, with electrical output stepped up to a voltage of 11kV through a transformer. Typically, air-cooled condensers are installed onsite to condense the exhaust from the steam turbine, depending on the local features (ambient climate, river for cooling water supply etc.) 3. Economics of biomass-based CHP projects Table 1 gives relative technical data for the different technologies described in the text above. The technical and economic data is based on the current state of the technologies (2017). In the future, improvements of technical and economic data can be expected – but since most technologies are mature the improvement of the technologies are not expected to be very significant. The data tables focus on small and medium sized units which are the unit sizes suitable for the district heating systems considered in China in this project. The fuel efficiency for CHP is increased through introduction of a flue gas condenser. The humidity in the flue gas is condensed just before the stack. The condensing heat is used to preheat district heating water. In case fuel with low humidity such as straw is used, the combustion air can be humidified in order to increase the heat output from flue gas condensation. In particular, for straw the flue gas condensation also has the function of scrubbing (cleaning) the flue gas.

Table 1 Data for small and medium sized biomass-based CHP plants Technology Small Medium Large Small Medium straw- ORC straw - grate straw-grate wood chips wood chips - ORC - grate Technical data Fuel Straw Straw Straw Wood chips Wood chips Input capacity 20 80 132 20 80 (MW) Electric capacity 3.3 25.6 43.7 3.2 23.9 (MWe) Electric efficiency 16.7 32.0 33.1 16.1 29.9 (%)

13 Heat efficiency 74.8 65.4 65.0 80.7 73.2 (%) Technical 25 25 25 25 25 time (years) Construction time 1 2.5 3 1 2.5 (years) Environment

SO2 (degree of 96.3 96.3 96.3 97.5 97.5 desulphuring %) NOx 70 80 70 70 60 (g/GJ fuel)

CH4 11 0 0 10 2 (g/GJ fuel)

N2O 3 1 1 3 1 (g/GJ fuel) Particles 1 0 1 0.3 0.3 (g/GJ fuel) Financial data Nominal 1.1 1.5 1.2 1.0 1.0 investment (M€/MWth) (heat output) Fixed O&M 57,000 66,000 56,000 46,000 40,000 (€/MWth) (heat output) Variable O&M - - - - - (€/MWth) (heat output)

4. Policy and Regulation Regional heating related policies. Biomass plants for district heating are subject to the Danish district heating regulation that defines the framework for implementing new biomass heating plants. Public heating supply is regulated under the heating supply . According to the heating supply law, the city councils, in cooperation with

14 companies and other stakeholders, has the responsibility to carry out heat planning for the municipal area. The overall objectives of the planning are: to promote the heating form with the most net benefits to society; to promote the most environmentally friendly heating form (including promotion of cogeneration of heat and power); and to reduce the energy supply‘s dependency on oil and other fossil fuels. The municipalities are the central players in the collective heating supply. They carry out heating planning and are responsible for ensuring that the extension of DH and changes in DH systems are in line with the heating supply law. The public heating supply is subject to non-profit rules and regulation. The states that the heating price paid by the consumers should cover all necessary costs related to supplying heating. However, the heating supply company is not permitted to make a profit. With regard to ownership of plants in Denmark, there are various forms. The largest plants are owned by large energy companies with private or public ownership, while smaller plants are typically owned directly by municipalities or cooperative societies.

The main driver for establishing new production units – including biomass plants – has therefore historically been to reduce the costs of district heating in order to reduce heat prices for consumers. Denmark has quite high on energy including taxes on fuels for district heating. However, biomass is not subject to a fuel tax which gives a very significant indirect subsidy to biomass. This indirect subsidy is around 8 €/GJ heat depending on the competing fuel. In addition to this, electricity production from biomass receives a subsidy of 20 €/MWh electricity produced in addition to the electricity market price. Currently (May 2017), the market power price is around 30 €/MWh. (ii) Biomass pellet fuel 1. Material Densified in this book denote solid biofuels made by

15 mechanically compressing biomass to increase its density and to mould the fuel into a specific size and shape pellets (Φ ≤ 25 mm, Standard EN ISO 16559:2014) or briquettes (Φ > 25 mm; maybe also shaped as cubes or pressed logs). If the feed stock is branches, thinning residues, saw mill shavings or other matter of considerable length the first step would be primary size reduction. Special concern may have to be taken to reduce the content of , sand or other foreign/impurity matter that may follow with the bark. Bark may also have to be separated to a certain degree depending upon the intended final use of the pellets. The content of ash and foreign matters are normally elevated in bark. Using too much bark may consequently cause combustion related problems for small scale users. The preferred way of the primary size reduction would be to use a micro drum chipper to produce wood chips with 4-6 mm length. Using various other types of combinations of crushers, shredders and sizers is also possible. When using sawdust, microchips or other crushed woody residues as feedstock it is essential to make sure that as much as possible of any foreign matter that may cause damage to the wood pelleting process is separated. This is accomplished by using screens, stone traps, magnetic and/or inductive separators. When using microchips these must be further disintegrated prior to drying by means of additional milling. The processes of wood pellet production would normally comprise the following steps (Figure 1).

Sawdust Drying Grinding Conditioning Pelleting Cooling Screening Storage

Figure 1 Conventional processes of pellet production from sawdust

2. pellets for heating In this section, available combustion systems are presented and their preferred use is discussed.

16 Suspension firing (5-400MWth). Suspension firing of coal is very common and the possibilities to convert existing coal fired boilers to use pelletized wood are almost endless. The direct fired super critical boiler Avedöre block 2 in Denmark has a firing capacity of wood pellets up to 400 MW. However just converting a coal fired condensing Power station to pelletized wood will not solve the problem with low efficiency. The losses of latent heat when condensing the vapour from the turbine remain very high. The boiler capacity may be slightly reduced after a conversion from coal to pelletized wood. This has however not been the case at Avedöre nor at Hässelby. The preferred large-scale use of pelletized wood is consequently in CHP plants or even better in combines where integration of production of electricity, drying, district heating and or cooling or other potential heat sinks are being executed in a thermally integrated process. Direct firing. In this case, the mill is pressurized with hot primary air and the burners are connected ―directly‖ to the mill. The mill in in general a vertical roller mill or a ball and race mill equipped with an internal rotary classifier. The rotation velocity of the classifier determines the product size distribution of the fuel within the limit of the mill capacity. The method has several advantages such as:  Very high fuel feed stability is ensured due to an internal recirculation of 4-6 times within the mill. This should be understood as the average particles in the product from the mill has been re-recirculated over the grinding elements 4-6 times before being accepted in the product from the mill. Further to this it is significantly easier to achieve a precise and uniform continuous dosing of pelletized wood, i.e. constant fuel feed rate (kg/s or MW). Wood powder is compressible and the bulk density is hence far from constant at various silo levels.  Pre-drying and pre-heating of the fuel prior to combustion using hot primary air makes ignition easier (improved flame root stability) as the gasification starts early.  Dust explosion as every component of the dust exposed system is

17 designed for 10 bar. There is in other words no need for an abundance of spark detection and fire distinguishing equipment with limited availability and occasional problems related to leakage, wear and or blindness due unexpected formation of deposits.  A vertical mill for coal would on wood have availability high enough for any peak load boiler. There is in other words no need for redundancy solutions  If olive waste, palm nut shells or other similar bio fuels may be an interesting alternative for the future a vertical roller mill is a far better choice than comparable hammer mills. Modern history clearly suggests that the importance of high fuel flexibility has been underestimated. Using rotary air classifiers with high efficiency in the comminution system provides an excellent tool to reduce the work needed for comminution as coarse particles may be separated with a minimum of ―over production‖ of fine particles. The work needed is proportional to the amount of fine particles in the fuel powder Another advantage of using rotary air classifiers is the ability to precisely adjust the size distribution of wood flour in order to achieve a kind of natural staged combustion which will reduce primary formation of NOx in any burner. In-direct firing. In-direct firing is usually adopted when considering conversion of oil or gas fired boilers. It may hence be very difficult to fit new mills in the near vicinity of the boiler. In this case, the milling process is separated from the actual firing system. Cold air is used to aspirate the mill. The supplied energy to the mill is usually wasted. Using cold air during winter time that will reduce fuel temperature is not beneficial for the combustion in any aspect. The total pressure drop over the system is increased as cyclones and or bag filters are added. This increases the axillary power consumption. There are several problems that may have a negative impact on the fuel feed stability to the burners. Semi direct firing. Semi direct firing is a solution of the problem that the

18 air to fuel ratio in standard coal suspension burners deviates from the requirement for optimal aspiration of Hammer mills. The standard suspension burner has evolved during constant development over a very long time worldwide. The risk for self-ignition of coal deposits in the wind box of the mill has proven to be acceptably low at a primary air to fuel ratio of approx. 1.7/1. High tip speed hammer mills suitable for comminution of pelletized wood would normally require approx. 2.5/1. The difference may seem low but the ratio of heat value between coal and wood will add to the problem. There are obviously burners that have been developed for in direct firing using roots blowers for flour injection. The state of the art of such burners are beyond any doubt very far from as good as from traditional coal suspension burners. As Hammer mills are normally designed for under pressure operation there is only one solution available. Replacing the Primary air fan that pressurizes the mill in case of direct firing with a high dust fan after the mill. Recirculation of air and (oversized matter) is achieved by installing a cyclone or a (rotary air classifier) after the high dust fan. When using a high efficiency rotary air classifier on pulverized wood, the content of particles large than 1 mm should preferably be reduced as much as possible as they tend to have a negative impact on the combustion performance. The Hammer mill may be equipped with substantially coarser outlet screens in comparison with in direct firing hence providing longer life time as the classifiers take control of the final size distribution. The product size distribution may easily adjusted be altering the rpm of the classifier making it easier to ensure low load combustion performance. Fluidised bed combustion or Grate firing (10-400MWth). Almost any kind of virgin biofuel may be used in fluidized beds and or on gates. The only major concerns are in essence:  Chlorine and alkali content that may cause ash related problems and or

19 super heater corrosion  High moisture content will require extra refractory area in the bottom of the furnace to add drying capacity  Oversized and/or foreign maters. Pelletized wood may certainly be used in a fluidized bed or on a grate hence substituting coal for instance. This is however not the prime alternative and may only be of interest when logistics or local site conditions won‘t allow using other kinds of virgin biofuels. 3. Economics of using pellets for heating Although wood pellets are generally more expensive than coal (WBA 2014), but cheaper than heating oil and natural gas. In most EU countries, the use of pellets in heating market is rather economic, there is no subsidy from governments. However, the subsidies may apply for power plant conversion using pellets to replace coal.

Figure 2 Average annual prices for heating fuels in Austria

4. Environmental impact Greenhouse gases. Using biofuel pellets for heat and power has

advantage to reduce greenhouse gas emissions. CO2 reduction by conversion of a heating system or a power plant from using fossil fuels to

20 fuelling by pellets is typically between 80 and 90 % (Hansen et al. 2009). In case of short transport distances from local pellet producers to

residential consumers, CO2 reduction compared to use of heating oil can reach 95 %. Other gaseous emissions. NOx formation is dependent on the ration of N to other elements (e.g., O/N, H/N, CH/N) in the fuel composition, the level of excess air (oxygen), and the combustion temperature. The latter two variables are closely related to the combustion configuration, including the structure of the burner (Örberg et al. 2014). It has to be aware that the agro-based fuels can understandably produce a higher NOx in flue gas than wood fuels because their biomass has a higher N concentration than wood. All primary NOx reduction measures shall be technically in essence various ways to achieve staged combustion i.e. to avoid the combination of high temperature and access to oxygen.

Likewise, SO2 formations are positively correlated to the S concentration

in the biofuels. However, SO2 emission is normally not a big problem due to a low content of S (< 0.2%; Tao et al 2012) in most biomass.

Modern technologies of reducing NOx and SO2 have been rather widely used. (iii) Technologies for Biomass-to-Heat: Biomethane 1. Feedstocks Feedstock is produced at the site itself (manure) or it is transported to the plant. The biomass is either transported by road or pumped in pipes. At the plant, the biomass is treated in an anaerobic process, which generates biogas. The biogas is converted into heat and power in a CHP plant, upgraded to biomethane or is used as fuel for vehicles. The biomass is received and stored in pre-storage tanks. Most of the plants are using continuous digestion in fully agitated digesters. This implies removing a quantity of digested biomass from the digesters and replacing it with a corresponding quantity of fresh biomass, typically several times a day. The digesters are heated to either 35 – 40°C

21 (mesophilic digestion) or 50 – 55°C (thermophilic digestion). For Municipal Solid Waste and bio-waste garage type fermenters are used as well. These are batch fermenter. The material is placed into the garages. Then the garage is closed and the material is percolated with a water/leakage solution that contains methanogenic bacteria. 2. Biogas technology

Biogas output. Biogas containing 60-70% methane (CH4), 30-40% carbon dioxide (CO2) and < 500 ppm H2S (after gas cleaning). Methane has a lower heating value 35.9 MJ/Nm3. Biogas with 65% methane thus has a heating value of 23.3 MJ/Nm3. For biogas plants based on energy crops, the methane content may be as low as 50%. The output of biogas depends much on the amount and quality of supplied organic waste. For manure the gas output typically is 14 – 14.5 m3 methane per tonne, while the gas output typically is 30 – 130 m3 methane per tonne for industrial waste. The digested biomass is used as fertiliser in crop production. Biogas plant sizes differ from small scale units with biogas production rates of about 50 m³/h biogas up to 2000 m³/h biogas. Especially smaller biogas plants (< 400 mn³/h biogas) use the produced biogas to produce electricity. In 2016, in Germany the smallest biomethane production unit realized, was at a biogas plant that produces more than 700 m³/biogas, all other biomethane production units were realized at biogas sites with more than 1,400 m³/h biogas. Biomethane. Biomethane is upgraded biogas. Biogas upgrading steps are summarized in figure 3.

22

Figure 3 Biogas upgrading steps

For Germany, more recent data are available. In 2016 193 biogas plants upgraded 202.000 Nm³ biogas/h to biomethane (Bensmann, 2017). Carbon dioxide removal is the most relevant gas to be removed before upgrading to natural gas quality. In European countries, the most commonly used processing methods are water scrubbing and pressure swing adsorption, followed by chemical scrubbing. Other technologies are physical scrubbing with non-water solvents, membrane separation and cryogenic systems. Biomethane injection. After biomethane production the gas is conditioned and injected into the grid. This technical unit is the technical interface between biomethane production and gas grid. Usually it is also the operational interface where the activities of two companies meet. The gas grid operator receives the biomethane and its responsibility starts. The gas grid operator adapts the gas quality, the injection pressure and the injection amount. Gas grid operator and biomethane producer need to work together closely during planning, construction, start up and operation of the gas grid injection. According to DVGW VP 265-1 the

23 gas grid injection includes:

• Gas is fed into the grid via compression of biomethane according to a defined pressure or gas pressure or gas amount

• Process control that measures, controls and regulates the technical components and its parameter

• Safety control of the unit considering the protection regarding pressure, temperature and gas quality of all connected technical units in front of and behind the gas grid injection units

• Analysis of gas quality including the heat value/Wobbe index using calibrated methods

• Calibrated analysis of the amount of biomethane • Access to all relevant data for the gas grid operator • In some cases, Odorization unit and biogas buffers Dependent on the type of gas grid available, the gas must be compressed. In the case of the production of Heat from biomass it is assume that the biomethane is injected to the regional distribution grid with low pressures (< 1 bar). In that case, usually the additional compression of biogas is not necessary. However, odorization may be needed to add a significant smell for end consumers. The odorization allows end consumers to smell leakages. 3. Biogas Economy of grid injection In the context of this study, the costs of biomethane does not consider costs from existing natural gas grids and existing such as boilers or natural gas driven CHPs. The costs are summarized for the three subunits:

 Biogas production incl. H2S-removal.

 CO2-separation.  Gas conditioning and injection.

24 Table 2 Costs to produce biogas (according Urban et al. 2008) Animal slurry 90%/ silage 250 Nm³/h 500 Nm³/h 10% Investment (€) 1,080 1,850 Machinery 147 252 Construction costs 620 1,080 Process control 95 144 others 219 374 Operation and capital costs (€/a) 514 927 Specific costs: €cent/ Nm³ raw gas 25,7 23,2 €cet /N³ ethae 45.1 40.7

The treatment of biogas, especially desulphurization is calculated with 2.3 – 1.24 €ct/Nm³ methane for the treatment of biogas from feedstock 90% animal waste and 10% maize silage.

Table 3 Summary of costs for biomethane production excluding costs for gas grid and gas use (in €ct/kWh) (€ct/kWh) Comment Biogas production (€ct/Nm³ 4.07 500 Nm³ biogas/h

CH4), (90% animal slurry (no cost for feedstock) and 10% maize silage (feedstock costs) Desulphurization (biological 0.12 500 Nm³ biogas/h desluphurization)

CO2-removal 1.96 – 2.52, 250 Nm³/h produced CH4 for calculation: 2.24

Gas conditioning and 0.4 – 0.6, 350 Nm³/h produced CH4 injection for calculation: 0.5 8.01 Sum：

The highest costs are contributed to the biogas production followed by the costs for CO2-removal and Desulphurization. Gas conditioning and injection contribute to only about 6% to the costs (Figure 4).

25

Figure 4 Relative share of the costs for biomethane production

4. Environment Biomethane production produces an off gas. In this gas, CH4 concentrations may be high. Therefore, an oxidation of the CH4, is necessary. For this purpose, different technologies are available such as flares, RTOs or small-scale incinerators. In Germany, the CH4 emission with off gas is limited to < 0.2% of the produced CH4. In addition, the updated regulation ―TA Luft‖ will limit the VOC emission (including CH4) to lower concentrations in future. Own leakage services showed that leakage control at the biomethane units is necessary -including LPG tanks- to avoid CH4-losses via small leakages. 5. Political and administrative framework There are different ways to use biomethane. The most common one is to inject it into an existing gas grid. To promote biomethane production a clear definition of the obligations and rights of both biomethane producer and gas grid operator is necessary. In Germany, the Energiewirtschaftsgesetz (EnWG), Gasnetzzugangsverordnung (GasNZV), the Gasnetzentgeltverordnung (GasNEV), the Anreizregulierungsverordnung (ARegV) and the Erneuerbare Energien-Gesetz (EEG) provide the necessary legislative base for a sustainable production and use of biomethane.

26 (iv) Technologies for Biomass-to-Heat: Gasification 1. Gasification feedstocks Different types of gasification are suitable for different fuels. Particle size, ash content, trace components and combustion (e.g. ash melting temperature) can make a significant difference to the type of gasification which is suitable for a feedstock, its efficiency, sintering, slagging and syngas composition and tar content. Most gasification manufacturers operate a pilot scale plant on which new feedstocks can be trialled. Such trials will provide valuable data on syngas quantity and quality, particularly on factors that may influence operation and maintenance levels (e.g. of boilers or gas engines). Many fixed bed gasifiers operating on biomass are relatively small scale and they tend to need good quality fuels. The better the fuel (in terms of contaminants and moisture content), the better the performance of the gasifier in terms of electrical efficiency and char production. Important characteristics for fuels in gasification include whether or not sintering or melting of ash occurs in the reactor (i.e. the ash melting temperature is important) and the amount of tar produced (i.e. the syngas clean up required). The amount of char produced is also important. VTT, the Finish Energy Research Agency, has spent many years conducting gasification research. They define fuels in terms of ‗reactivity‘, which is a measure of the gasification of the char after the fuel pyrolysis stage– it shows how much time is required for achieving the final fuel conversion (mass change is measured to represent conversion of the fuel during gasification and sintering potential can be inspected from residual ash). They have concluded (VTT 2016):

 Reactive biomass with no ash melting (high ash melting point) → easy to gasify  Reactive biomass with ash melting (low ash melting point) → lower gasification temperature  Not very reactive biomass and signs of ash melting → challenging fuel to gasify

27 It is also important to realise that biomass and other fuel characteristics vary, much in the same way that coal varies. These variations include moisture content, ash content, heavy metals and alkali and chlorine content. This is particularly important for waste fuels such as waste wood and refuse derived fuel (RDF), but it is also important for wood fuels from different areas or different parts of the tree (e.g. residues, bark or round wood) and food processing residues. This means that an important part of operation of the gasification plant is constant sampling and monitoring of fuels. Table 4 summarises the suitability of feedstock for different gasifiers.

Table 4 Suitability of feedstock for different gasifiers Type of gasifier Feedstocks tested Comments

Fixed bed gasifier - Good quality, clean fuels Particle size generally <20mm, No fines downdraft such as wood off cuts, Low moisture content (<25%) straw, shells, leather Low ash content (<1%) residues and sludges. High ash melting temperature. Small gasifiers (<2MW) may have precise particle size requirements (10-100mm) Fixed bed gasifier Wood chip, residual wood, Clean fuels, no fines – updraft bark, straw, maize cobs, Moisture content <50% RDF Particle size 10-100mm Fixed bed gasifiers have been used on plastics, but there are high operation/maintenance costs. Fluidised bed Woodchip and wood Suppliers claim both pellet fuels and wood gasifier pellets, shells, olive pits, chips are suitable, but particle size will be coal and petroleum coke, important: generally <80mm for bubbling municipal solid waste fluidised beds and <40mm for circulating derived RDF, waste wood, fluidised bed. poultry manure, plastic Generally fluidised beds can take higher ash waste and forestry waste. content fuels, but chlorine, alkali and heavy metal content may be important. Fuels that have ash melting points lower than the bed temperature may result in bed agglomeration. Elemental analysis of ash may be important. Moisture content generally<50%, preferably 8-20% for energy efficiency.

28 Entrained flow Demonstration biomass Wood feedstocks powdered or milled to gasifier entrained flow gasification produce a stream of fines. plants have focused on Short residence time so particles must be using wood (wood chips, small to ensure conversion, particle size up to forestry residues, sawdust, 1mm for biomass. waste wood, etc) as the 15% moisture content is typical, otherwise preferred feedstock. low efficiency again due to short residence Entrained flow gasifiers time. have the most stringent Composition should not change over time. feedstock requirements of Stringent feedstock requirements would the gasifier types suggest that waste biomass is an unlikely considered. feedstock. High temperature Wide range of biomass Waste is sometimes shredded to make a gasification and feedstocks, including homogenous fuel. melting systems wastes. Plasma Wide range of biomass Waste shredded to make a homogenous fuel. gasification feedstocks, including Low moisture content ~ 20%. wastes.

2. Gasification technology The two most common types of gasifiers used for biomass are fixed bed gasifiers and fluidised bed gasifiers. According to the US Environmental Protection Agency (2007), fixed bed and fluidised bed gasification technologies for use in energy recovery applications were considered to be an emerging technology in 2007. According to the same study:  A review of gasifier manufacturers in Europe, USA, and Canada identified 50 manufacturers offering commercial gasification plants from which 75% percent of the designs were fixed bed and 20% fluidised bed systems.  Prime movers have been commercially proven with natural gas and some medium heating value biogas. Operation on syngas (product gas) and the effects of impurities on prime mover (energy recovery system) reliability and longevity need to be demonstrated.  Modular or packaged systems (up to 5 MW) with engines, turbines and fuel cells were considered commercial technologies but demonstration of syngas combustion on a large scale was still considered a challenge and

29 needed to be demonstrated. Entrained flow gasification. Powdered biomass is fed into a gasifier with pressurised oxygen and/or steam as shown in figure 5. A turbulent flame at the top of the gasifier burns some of the biomass, providing large amounts of heat, at high temperature (1200-1500°C), for fast conversion of biomass into very high quality syngas. The ash melts onto the gasifier walls and is discharged as molten slag.

Figure 5 Entrained flow gasifier schematic

3. Energy recovery for heat (and power) The gasification of biomass with downstream gas engine conversion of syngas into electricity and heat is only one option for gasification plants. The most common option is steam turbine-based energy recovery where the syngas is combusted for steam generation in a secondary combustion chamber / boiler. A third option is to convert the syngas to synthetic natural gas (BioSNG) which can be utilised in the same way as natural gas (methane). Gas turbine-based energy recovery where the syngas is directly combusted in a gas turbine and a combined cycle gas turbine (CCGT) which involves electricity generation using both a gas turbine and a steam turbine are other options. These are however only suitable for very large plants (>200MW) and are therefore not examined any further. The three options for energy recovery which are suitable for smaller scale

30 plants (steam boiler and gas engine) are described in the following sections. Steam boiler - Brief technology description In biomass gasification, where energy is recovered through a steam boiler, syngas from the gasification chamber passes to a secondary chamber where the gas is combusted and energy from the hot flue gases is recovered in a conventional water tube type boiler. This is sometimes referred to as ‗close coupled‘ gasification. Different close coupled gasification processes use varying degrees of clean up between gasification and energy recovery as described above and in Reference 7. Steam boilers operate on the Rankine Cycle where water is heated to produce steam and then condenses back to water to start over. The simplest boilers for heat energy recovery produce saturated steam (which contains a mix of water vapour and water droplets) or just hot water. These boilers will be one of two varieties, water tube or fire tube:  Fire tube boilers are the smallest scale heat recovery boiler. In a fire tube boiler, the hot flue gases pass through steel tubes which transfer energy to the water surrounding the tubes. The ‗fire‘ tubes will need to be regularly cleaned (daily) to avoid a build-up of soot.  In a water tube boiler, water is passed through tubes which are exposed to the hot flue gases. The advantage of this type of boiler is that the tubes themselves do not become fouled, but periodic cleaning of the tube external surfaces is required to remove the build-up of soot and other fouling products which gradually reduce heat transfer efficiency. To recover both heat energy and electrical energy, it is usually necessary to produce superheated steam at much higher temperatures and pressures (where the steam contains no water droplets and can therefore be fed to a steam turbine without any damage to the turbine blades). The boiler normally consists of a vertical multi-pass water tube section (vertical to allow soot and ash to drop out of the flue gases under gravity) and is sometimes referred to as the radiant section, where the water tubes surround the flue gas.

31 This is followed by a horizontal pass superheater stage. In the superheater stage, tube bundles are directly exposed to the hot flue gases so that convection type heating occurs, significantly raising the temperature and pressure of the steam passing through the tube bundles. In most biomass gasification plants, the flue gas temperature at the entrance to the superheater pass is below 700°C, which makes it possible to have the heating surfaces inside the flue gases. This superheated steam is then passed to the steam turbine / generator set for electricity generation. The boiler system typically has as an energy efficiency of around 80% for steam production. As the steam temperature and pressure increase, the efficiency of the steam turbine also increases. With some biomass sources such as waste, there is a limit on the temperatures and pressures that can be achieved, as contaminants in the biomass such as chlorine causes very rapid corrosion of the boiler at high temperatures. Conversely, cleaner biomass such as wood pellets which contains far less aggressive contaminants can be operated at much higher boiler temperatures and pressures. Typical capacities. Steam boiler capacities for heat energy recovery only are commercially viable from around 5MWth upwards. A steam boiler producing superheated steam for both heat and electrical energy production is likely to be commercially viable from around 20MWth upwards. Advantages/disadvantages. Steam boilers and turbines are a simple, proven technology and have been commercially demonstrated on gasification plants with reasonable performance. However, flue gases from waste biomass can be acidic and highly corrosive. Contamination can also cause fouling of the boiler leading to lower heat transfer rates. Pressure and temperature characteristics of the steam can also be limited to minimise corrosion. Where the syngas is extensively cleaned up and cooled before being combusted, the steam cycle can be made more efficient and less prone to fouling, but increased increments in efficiency come at significant extra cost. 4. Gas engine - Brief technology description

32 A gas engine is an internal combustion engine which runs on a gas fuel. The gas is combusted within the cylinders of the engine, turning a crank shaft within the engine. The crank shaft then turns an alternator which results in the generation of electricity. Heat from the combustion process is released from the cylinders and can be recovered and used in a combined heat and power configuration. Typical capacities. Our experience is that most recent developments in packaged biomass gasification CHP technology involve small units ranging in size between a few kWe (electric) to 180 kWe. The increasing sales of these units in recent years is attributed to the increasing demand due to the support available under the UK Incentive (RHI)1 for the heat delivered. Small gasification units are currently used and being proposed across the UK to provide heat to poultry sheds, for drying woodchip and for space and water heating on farms. Larger gasification systems with CHP engine units are not very common yet and are associated with high challenges due to the need to clean the syngas and due to the issues encountered with syngas combustion, which include high combustion temperatures and backfiring of the engine. Many of the manufacturers we have come across provide units with large electrical capacity (range of 500 kWe to 15 MWe) but based on woodchip combustion rather than gasification. Examples of large gasification CHP systems are available but for systems where the prime mover is a steam turbine rather than a gas engine Some manufacturers and suppliers provide larger gas engine units. Host for example, have installed several systems including a 1 MWe engine in Portugal using dried chicken manure and woodchip. No further information is, however, available on this system. Advantages/disadvantages. The advantages of utilising syngas in a gas engine is it enables an efficient and economic combined heat and electricity supply, and has a high electrical efficiency compared to other power generation technology (i.e. steam or gas turbines).

1 Section 5 provides more information on government incentives for biomass heat and electricity generation, including support for ACTs.

33 The key challenge with gasification coupled to a gas engine for energy recovery is to create a stable gasification process that minimises the production of heavy tars that cause blockages and are not able to burn in the gas engine. Some of the issues with gas engine CHP systems are:  Variable gas composition. The systems do not perform well with variable quality and moisture content of wood (typically fines and moisture above 10-15% are not desirable);  Gasifiers can produce tar on gas engine valves and seats, where tar has heavily fouled the engine valve train; and there are many examples of plants abandoned several years after commissioning. The composition of syngas is highly dependent upon the inputs to the gasifier which can be more variable than conventional fuels. The components of syngas which cause challenges - including tars, hydrogen levels and moisture - are generally addressed through treatment and upgrading. Hydrogen gas burns at a much faster rate than methane, which is the normal energy source for gas engines. This can lead to issues such as potential of pre-ignition, knocking and engine backfiring. Therefore, in order to counter this, an engine designed for syngas will have a number of technical modifications and the output of the engine is typically reduced to between 50-70% of its natural gas output. 5. Emissions and environment Emissions to air. As an EU member state, the UK has transposed the requirements of the Industrial Emissions Directive (IED) and Renewable Energy Directive (RED) into UK legislation. The environmental impacts of biomass gasification are summarised in Table 5 below. Table 5 Summary of environmental factors Aspect Greenhouse Similar to conventional combustion, but typically higher energy requirement gas emissions may reduce performance in relation to GHG emissions. Traffic Traffic flows are mainly linked to the quantity of waste received at a facility. All waste facility types require removal of residues. Attention must be given to appropriate location of facilities to avoid local traffic impacts and minimise distances from waste arisings.

34 Noise Fully enclosed facility. Noise impacts can normally be controlled by design, although may be some residual noise e.g. from fans or cooling systems. Dust Fully enclosed facility. Dust control is facilitated by use of combustion air for most facility types. Dust not likely to be a significant issue. Pollutants Pollutants include: Particulate matter, (including PM10) are present in fine ash entrained in flue gas. Products of incomplete combustion, including carbon monoxide and organic compounds (VOCs, TOCs) Acidic substances (NOx, SOx) – present in flue gas, either from the conversion of nitrogen present in the waste stream, or conversion of atmospheric nitrogen. Sulphur Dioxide – occurs in flue gas if sulphur is present in waste stream (i.e. in waste paper) Heavy metals - can be present in particulate matter in the form of metal oxides and chlorides. Also present in bottom ash and fly ash. Dioxins and Furans Localised and Gasification facilities result in emissions to air of a range of pollutants. regional air Emissions may in principle be lower than those associated with pollution conventional combustion, but there is little information to substantiate this. impacts Emissions can normally be controlled to avoid significant localised or regional impacts. Visual impact Engineering requirements for gasification plant result in buildings and structures of significant size. Chimneys serving gasification facilities are typically similar to conventional combustion facilities – while in principle chimneys could be lower reflecting lower emissions, this has not been borne out in practice. There may be a visible plume for some of the time. Hence, visual impacts can be significant. Health impacts Well managed in general has a minor impact on health. No specific information available on health impacts of gasification, but analogy with conventional combustion processes indicates that health impacts are unlikely to be significant. Odour Fully enclosed facility. Odour control is facilitated by use of combustion air for most facility types. Odour not likely to be a significant issue.

6. Subsidy and Relevant The principal subsidy mechanisms for renewable energy in the UK are as follows:  Contacts for Difference (CfDs).  Feed-in-tariffs (FiTs).

35  Renewable Heat Incentive (RHI). The requirements of Article 4 of the IED (Obligation to hold a permit) within the UK are separately regulated between England and Wales, Scotland and Northern Ireland. The relevant regulations and corresponding regulators for the different UK nations are presented below in Table 6 below. Table 6 Environmental permitting regulations and regulators for UK nations Nation(s) Regulations Regulator England and Wales Environmental Permitting Environment Agency Regulation (England and (England) Wales) 2016 Natural Resources Wales (Wales) Scotland Pollution Prevention and Scottish Environmental Control (Scotland) Regulations Protection Agency (SEPA) 2012 Northern Ireland Pollution Prevention and Northern Ireland Department Control (Industrial Emissions) of Agriculture, Environment Regulations (NI) 2013 and Rural Affairs (DAERA)

 All three sets of regulations distinguish between ‗Part A (1)‘, ‗Part A (2)‘ and ‗Part B‘ installations.  Part A (1) and Part A (2) installations typically are those that fall under the IED and pose the potential for emissions to , water and air while Part B installations will generally only pose the potential for emissions to air.  Permitting and monitoring of Part A (1) installations will generally be handled by the relevant Regulator identified in Table 4.9 while Part A (2) and Part B will be handled by a local authority (e.g. a district, county or borough council).

III. Current Development of Biomass-to-heat Industry in China (i) Analysis of Biomass Resources China is rich in biomass resources, which can be used for heat supply. These include agriculture waste, agricultural product processing residues, forestry waste, animal waste, urban household waste, sewage, sludge and organic waste from industry, etc. Since the sewage, sludge and organic waste from industry account for smaller proportions in the overall

36 resources, and there are much less demonstrative cases of application in the biomass heat supply region, the analysis in this Chapter will mainly focus on biomass resources of the agriculture waste, agricultural product processing residues, forestry waste, animal waste and urban household waste. Different resources of biomass energy are as follows: 1. Agriculture wastes and agricultural processing residues Agriculture wastes: it mainly includes of corn, grain, , bean, tuber, etc. which are the most important biomass energy resources in China. In 2015, the amount of theoretical resource for crop straw in China was 1.044 billion tons, about 900 million tons of collectable resource were mainly distributed in the 13 grain production (autonomous regions) on the North Plain, Mid- and Lower-reach Plain along the Yangtze River, Northeast Plain, etc. The resource distribution of crop straws in China is uneven, and the richest resources of such crop straws are in the North and the mid- and lower-reach of Yangtze River have the amount (more than 50% of total amount). Those regions that accounted for over 10% of the total are the Northeast and the Southwest regions. Other regions except Qinghai and Tibet accounted for 5% to 10%. Agricultural processing residue: it mainly includes husks, maize cobs, , etc., which were mainly gained from grain processing plants, food processing plants, sugar factories and breweries, etc. Featured with higher resource concentration and lower collection cost, they are good resources for biomass heat supply. In 2015, the annual available amount of energy utilization of agricultural processing residues in China reached to around 100 million tons. Rice husks were mainly in the regions of Heilongjiang, Jiangsu, Anhui, Hunan and Hubei, and maize cobs mainly in the regions of Liaoning, Jilin, Heilongjiang, Hebei, Shandong and Sichuan, while bagasse mainly in the regions of Guangdong, Guangxi, Taiwan, Fujian, Yunnan and Sichuan. 2. Forestry waste Forestry waste mainly includes the logging waste (branch, treetop, bark,

37 residue, leaf, rattan, bush, etc.), manufacturing waste (bucking cut) and processing waste (slab, panel, wood and bamboo cut, sawdust, wood shavings, wood block, leftover materials, etc.). Statistics show that the annual average wood consumption in China is 365 million cubic meters or about 329 million tons. If 40% of waste from the total wood consumption is calculated, China has about 131 million tons of logging and manufacturing waste per year. In addition, if 34% of waste from the total amount of wood processing is calculated, the total amount of wood waste is around 29 million tons per year. Therefore, the annual available amount of forestry residue in China is around 160 million tons. 3. Animal waste Animal waste mainly includes the manure from cows, sheep, pigs, chickens, etc. In 2015, the amount of manure resources from pigs, cows and chickens in China reached to 1.9 billion tons. At present, yearly fecal treatment reaches to about 800 million tons, of which about 550 million tons can be used to produce biogas. Regionally speaking, the Huang Huai Hai region, the Yangtze River mid- and lower-reach region and the Southwest region have the greatest potential of development where the potential amount of biogas produced from animal waste resources could account for more than 66% of total production potential in China. Potential amount of biogas produced from animal wastes in Sichuan, Yunnan, Henan, Hunan and Shandong Provinces could account for 5% of the total potential in China. 4. Urban household waste Household waste: Along with the accelerating process of urbanization, amount of municipal household waste and waste cleanup are increasing year by year. In accordance with the statistics of China urban construction yearbook, the urban waste cleanup amount in China reached to 280 million tons in 2015. Kitchen waste: The 2015National Economy Operation Situation published by the State Statistical Bureau, China had around 770 million permanent resident populations in the urban areas. If the daily kitchen

38 waste of 0.1kg per resident is calculatedthe total amount of urban kitchen waste in China could reach over 28 million tons in 2015. 5. Others Other biomass resources mainly include the urban sewage, sludge and organic waste from industry, etc. The utilizable amount of Chinese urban household sewage and sludge is around 10.74 million tons. The organic waste from industry mainly comes from the sewage and sludge of sectors like alcohol, starch, beer, rice wine, pharmacy, bean products, papermaking, butcher, etc., and the utilizable amount of organic wastes from the industrial enterprises is 32 million tons of standard coal equivalent. (ii) Biomass-based combined heat and power generation The biomass-based combined heat and power generation refers to the power generation and heat production technology by using the agricultural and forestry biomass and household wastes as the feed, which is an important way of energy utilization of biomass. Based on different feedstock, biomass for combined heat and power generation can be categorized to the agricultural & forestry biomass CHP and the waste incineration CHP. Since the waste incineration CHP plants in China are mostly for power generation, there are few typical cases for heat production. Therefore, this section mainly analyzes and studies the development of agricultural and forestry biomass CHP industry and discusses the relevant industry supportive policies, technical standards and rules, current , and primary technology roadmaps. 1. Supportive policies on biomass-based combined heat and power generation At present, China's policies and measures on power generation by agricultural and forestry biomass are are more on project management, grid connection tariff and preferential tax, etc. According to the actual operational experience in power generation by agricultural and forestry biomass over the last decade, the promulgation and implementation of the following policies and measures have ensured the healthy development of

39 the sector: (1) Project management policy Project approval: according to the Circular on Strengthening and Standardizing the Relevant Requirements on Biomass Power Generation Project Management (F.G.N.Y. [2014] No.3003), China encourages the development of biomass for combined heating and power generation, so as to improve efficiency for utilizing biomass resources.For those new biomass power generation projects with feasible technical and economic conditions, they should be designed for combined heat and power; the CHP reconstruction of the existing biomass power generation projects in service is encouraged in line with the conditions of heat power market and technology and economy feasibility. The new agricultural and forestry biomass power generation projects should be involved in the planning while the urban household waste incineration power generation projects should comply with the national or provincial planning of construction of urban household waste harmless treatment facilities. The agricultural and forestry biomass power generation projects and the urban household waste incineration power generation projects should be reiewed and approved by the local governments. Audit of annual plan: for the purposes of rationalizing project planning layout, preventing vicious competition for fuel and promoting the healthy development of biomass power generation, the NEA in March 2011 issued the Circular on Relevant Requirements on Review of Annual Construction Plan of Agricultural and Forestry Biomass Power Generation Projects, which requires the local governments to prepare the annual work plans of proposed projects and submit them to NEA for approval before construction. For those projects that are only approved by the local governments will no longer enjoy subsidies from the National Renewable Energy Fund. To further standardize the construction of waste incineration power generation projects and reduce the emission of pollutants from such waste incineration, China established the Standards on Construction of Household Waste Incineration Treatment Projects and the Standards on Pollution Control of Household Waste Incineration

40 respectively in 2010 and 2014 respectively. (2) Power feed-in policy The power feed-in tariff is one of the most important factors that decide the economic benefit of power generation by direct incineration of biomass. In accordance with the construction and operation situation at different stages, Chinese government keeps adjusting and improving the feed-in tariff policy of biomass incineration power plants. The feed-in tariff policies of different stages are as follows: Stage I: In accordance with the Provisional Regulations for Administration of Renewable Energy Power Tariff and Cost Allocation (F.G.N.Y. [2006] No.7), the feed-in tariff standards of biomass power generation projects were composed of the provinces‘ (autonomous regions, municipalities directly under the Central Government) feed-in tariff of desulfurization coal-fired power units in 2005 and the subsidy price of CNY0.25/kWh. Stage II: Due to serious deficits suffered by the existing projects, China increased the tariff subsidy. According to the Circular on Additional Tariff Subsidy of Renewable Energy Power and Quota Trade Solution in January to September, 2007 (F.G.J.G. [2008] No.640), a provisional price subsidy was granted to the feed-in power as subsidy provided to straw-burning power generation projects, and the subsidy price was CNY0.1/kWh. Stage III: from 2009 to 2010, considering the universal deficits of projects in service and problems such as wide gap of feed-in tariffs among different provinces, the national ministries and authorities like the National Development and Reform Commission (NDRC), NEA and Ministry of Finance (MOF), etc. jointly conducted an investigation of the existing projects. In July 2010, NDRC issued a Circular on Improving the Tariff Policies of Agricultural and Forestry Biomass Power Generation (F.G.N.Y. [2010] No.1579) that required the universal implementation of benchmark feed-in tariff of CNY0.75/kWh (tax included) for the new agricultural and forestry biomass power generation project, whose

41 investors are not determined by bidding; the benchmark feed-in tariff of CNY0.65/kWh was implemented for the waste incineration power generation projects. The new tariff policy re-aroused the investment enthusiasm of all enterprises. (3) Preferential tax policy Value-added tax (VAT): In accordance with the Circular on Policy of Value-added Tax for Comprehensive Utilization of Resource and Other Products (C.S. [2008] No.156), the electric power or heating produced by wastes (including urban household waste, crop straw, bark residue, sludge, medical waste) as material, the value-added tax collected should be immediately refunded; for , 50% of the VAT collected should be immediately refunded. Income tax: In accordance with the Regulations of PRC on the Implementation of Enterprise Income (G.W.Y.L.No.512), if an enterprise uses the resources on the List of Preferential Tax for Enterprises of Comprehensive Utilization of Resources (hereinafter referred to as the List) as a major feedstock to produce heating or generate power in compliance with the relevant national or industrial standards, the revenue generated should be calculated as 90% of its annual gross income when calculating the income tax. For instance, waste biomass oil and waste lubricating oil are used for producing and industry oil, and crop straws and shells are used for producing electric power, thermal power, fuel gas, etc. Table 7 illustrates the existing policies and regulations in China on the utilization of biomass energy.

Table 7 Policies and Regulations Relating to Biomass Energy Development and Utilization in China

Time of No. File No. and File Description promulgation 1 Aug. 2000 Regulations on Development of Combined Heat and Power Regulations on Technology of Feasibility Study of Combined Heat and 2 Jan. 2001 Power Project 3 Jul. 2004 Decision of State Council on Reform of Investment System

4 Feb. 2005 Law of Renewable Energy

42 Time of No. File No. and File Description promulgation 5 Mar. 2005 Circular on Regulations of Implementation of Electric Tariff Reform Circular on Guidance of Establishment of Coal Heat Price Linkage 6 Oct. 2005 Mechanism Guiding List of Development of Renewable Energy Industry (F.G.N.Y. 7 Nov. 2005 [2005] No.2517) Administrative Rules for Power Generation by Renewable Energy 8 Jan. 2006 (F.G.N.Y. [2006] No.13) Trial Rules for Administration of Renewable Energy Power Tariff and 9 Jan. 2006 Cost Allocation (F.G.N.Y. [2006] No.7) Provisional Rules for Special Fund Management for Development of 10 Jun. 2006 Renewable Energy (C.J. [2006] No.237) Administrative Rules for Recognition of Comprehensive Utilization of 11 Sep. 2006 Resources Encourage by Chinese Government (F.G.H.Z. [2006] No.1864) Circular on Continuation of Relevant Preferential Tax Policies for Heat 12 Nov. 2006 Production Enterprises Provisional Rules for Additional Income Adjustment of Renewable 13 Jan. 2007 Energy Tariff (F.G.N.Y. [2006] No.44) Provisional Regulations on Administration of Construction of Power 14 Jan. 2007 Generation Projects with Combined Heat and Power and Coal Gangue Comprehensive Utilization Circular on Several Opinions of Acceleration of Stoppage and 15 Jan. 2007 Termination of Small Coal-fired Power Generation Units Circular on Lowering the Feed-in Tariff of Small Coal-fired Power 16 Apr. 2007 Generation Units for Their Final Stoppage and Termination 17 Jun. 2007 Rules for Urban Household Waste Management

18 Jun. 2007 Provisional Rules for Heat Production Price Management Rules for Supervision of Full-amount Purchase of Renewable Energy 19 Jul. 2007 Power by Grid Enterprises (G.J.D.L.J.G.W.Y.H. [2007] No.25) Regulations of PRC on the Implementation of Enterprise Income Tax 20 Nov. 2007 Law (State Council No.512) Scheme of Tariff Subsidy, Grid Connection Allowance and Quota 21 2007-2010 Trade of Renewable Energy Circular on Publishing the List of Preferential Tax for Enterprises of 22 Jan. 2008 Comprehensive Utilization of Resources (2008 Edition) (C.S. [2008] No.117) Circular on Further Enhancement of Assessment Management of 23 Apr. 2008 Environment Impact of Biomass Power Generation Project Circular on Policy of Value-added Tax for Comprehensive Utilization 24 Dec. 2008 of Resource and Other Products (C.S. [2008] No.156) Circular on Publishing the Provisional Rules for Subsidy Fund 25 Oct. 2008 Management of Energy Utilization of Straw (C.J. [2008] No.735) 26 Nov. 2009 Law of Renewable Energy (Amendment) Circular on Improving the Tariff Policies of Agricultural and Forestry 27 Jul. 2010 Biomass Power Generation (F.G.N.Y. [2010] No.1579) Circular on Administration of Construction of Biomass Power 28 Aug. 2010 Generation Project (F.G.N.Y. [2010] No.1803) Standards on Construction of Urban Household Waste Incineration 29 Oct. 2010 Project Circularon the Requirements of Review of Annual Construction Plan of 30 Mar. 2011 Agricultural and Forestry Biomass Power Generation Project

43 Time of No. File No. and File Description promulgation (G.N.X.N. [2011] No.51)

Standards on Emission of Air Pollutants by Coal-fired Power Plants 31 Jul. 2011 (GB13223-2003) Circular on Improving the Tariff Policies for Waste Incineration Power 32 Apr. 2012 Generation Standards on Construction of Urban Household Waste Incineration 33 Sep. 2012 Projects (J.B. [2001] No.213) Guidelines of Construction Technology of Biomass-to-heat Projects 34 Oct. 2013 (G.N.Z.X.N. [2013] No.497) Circular on Construction of Demonstration Projects of Biomass 35 Jun. 2014 Briquette Boiler Heat Production (G.N.X.N. [2014] No.195) Standards on Pollution Control of Household Waste Incineration (GB 36 Jun. 2014 18485—2014) 37 Jul. 2014 Standards on Emission of Air Pollutants of Boiler (GB13271-2014) Circular on Enhancement and Standardization of Relevant 38 Dec. 2014 Requirements on Biomass Power Generation Project Management Circular on Publishing the Administrative Rules for Full-amount 39 Mar. 2016 Protective Purchase of Renewable Energy Powers 40 Apr. 2017 Advice on promoting renewable energy heating Notice on the Construction of Clean Heat Supply Demonstration 41 Aug. 2018 Project of Biomass CHP 42 Dec. 2017 Guidance on Promoting the Development of Biomass-to-heat Notice on the Construction of Clean Heat Demonstration Project of 43 Jan. 2018 Biomass CHP in the ―Hundred Cities and Towns‖ 2. Standards and technical specifications of biomass-based combined heat and power generation Biomass for combined heating and power generation: its design, construction and pollutant discharge should be implemented in accordance with the Standards on Emission of Air Pollutants by Coal-fired Power Plants (GB13223-2003), stipulating that the smoke dust emission limit value is under 30mg/m3, the sulfur dioxide emission limit value (newly built) is under 100 mg/m3, the sulfur dioxide emission limit value (in service) is under 100 mg/m3 and the oxides of nitrogen emission limit value is under 100 mg/m3. Waste incineration power generation or combined heating and power generation: in 2009 China formulated the Technical Rules for Household Waste Incineration Treatment Project to regulate the construction of waste-to-power projects; in 2014 the Standards of Pollution Control of Household Waste Incineration (GB 18485-2014) was formulated for

44 stricter standards on the emission of pollutants such as oxides of nitrogen, sulfur dioxide and dioxin, where the emission allowable values of oxides of nitrogen and sulfur dioxide were reduced over 50%, while that of dioxin was one tenth of the original standard. The discharge of waste percolation fluid of waste incineration power plant is required to follow the Comprehensive Sewage Discharge Standard. The ash and slag of waste incineration from power plant is categorized as municiple waste that can be directly dumped into municipal sanitary landfill site. The fly ash collected by deduster is the dangerous waste and could be dumped intodedicated designated area of sanitary landfill site only after stabilization treatment. Table 8 illustrates the existing standards and technical specifications of biomass combined heating and power generation in China.

Table 8 Standards and Technical Specifications of Biomass CHP in China

No. Name Description and protection It strengthens the management of pollutant Standards for pollution control on the emission of waste incineration power plant, and 1 municipal solid waste incineration uplifts the standards values of pollutant (GB18485-2014) (Updated) emission (oxides of nitrogen, sulfur dioxide, etc.) in an all-round way. Standards for supervision on operation It contains brand new requirements on the 2 of municipal solid waste incineration operation supervision of waste incineration CJJT 212-2015 plants. Standards for pollution control on As the fly ash of waste incineration is a kind of 3 hazardous waste storage dangerous waste, this standard should be (GB18597-2001) applied. As the residue of waste incineration is Standards for pollution control on the categorized as municiple waste, the residue can 4 landfill site of municipal solid waste be directly dumped into sanitary landfill site, (GB16889-2008) and this standard should be applied. Emission standards for odor pollutants As the anaerobic waste in the gathering pit 5 (GB14554-93) stinks, the standards should be applied. It mainly contains the provisions of planning, Technical code for projects of design, engineering, acceptance check and 6 municipal waste incineration operation management, etc. of the household (CJJ90_2009) waste incineration treatment project. The engineering noise during the construction Noise limits for construction site 7 process of waste incineration project is (GB12523-90) regulated and limited. Emisson standards for industrial The standards should be applied during the 8 enterprises noise at boundary operation period of waste incineration power (GB12348-2008) plant.

45 3. Current development of biomass-based combined heat and power generaion (1) Biomass-based CHP generation by unilization of ggricultural and forestry waste

At present, China‘s biomass power generation is in the stage of industrialized and stabilized development with steady growth of industry scale year by year. Till the end of 2015, the installed capacity of biomass power plant in China reached to 10,600MW with an average growth rate of 18% per annum, the installed capacity of grid-connected agricultural and forestry biomass for direct-burning power generation was 5,500MW, around 50% of total installed capacity of biomass power generation, among which the installed capacity of CHP project is about 1,000MW and its proportion increases from 3% in 2010 to nearly 20%. Despite the fast growth of biomass direct-burning CHP projects in China, its overall proportion remains small. Table 9 shows the current new and renovated projects of biomass direct-burning CHP in China.

Table 9 Summary of Biomass-based CHP Project in China

Primary Heat Project Investor construction and Project type production Investor name type conversion type descriptions Three new 75t/h sub-high temperature and sub-high CECEP CECEP pressure recycling New Enterprise (Yantai) (Yantai) fluid-bed boiler and (only the part Civil led by Biomass Biomass the auxiliary pipe of turbine was heating Central CHP Heat Power network system for reconstructed) Government Project Co., Ltd. two 15MW extraction condensing turbine units Two new 75t/h high Guoneng temperature and high Bioenergy pressure Group (the water-cooled part within Nangong New State-owned vibrating grate the factory Biomass (only the part Civil enterprise boilers and the zone) CHP of turbine was heating Private auxiliary pipe Huanhui Project reconstructed) enterprise network system for Science and one 30MW Technology extraction Group condensing turbine Corporation unit

46 Primary Heat Project Investor construction and Project type production Investor name type conversion type descriptions Shandong One new CLP Boxing Stockholding 75t/water-cooled Huanyu Huanyu Industrial (collective vibrating grate boiler Biomass New Paper Co., heating enterprise + and one 6MW CHP Ltd. and foreign fund) backpressure heat Project Hong Kong power unit CLP Group Two 35 t/h coal-fired Qing‘an boilers reconstructed Biomass Civil Qing‘an State-owned to biomass-fired Reconstruction Heat Power CHP heating and private boilers and two new Plant Project 75 t/h biomass-fired boilers Two 75t/h recycling Xintai Xintai fluid-bed boilers and Zhengda Civil Zhengda State-owned two 35t/h chain-grate Biomass Reconstruction heating Heat Power stockholding boilers reconstructed CHP Co., Ltd. to biomass-fired Project boilers Xinneng Agricultural Three 35t/h Xinneng State-owned Biomass heating coal-fired boilers Reconstruction Heat Power enterprise CHP Civil reconstructed to Co., Ltd. Project heating biomass-fired boilers

(Information source: online public information) Regional distribution of agricultural and forestry biomass for CHP generation: the biomass direct-burning power plants are mainly distributed in the central and eastern areas where energy load demand is concentrated. The installed capacity in East China, Central China, Northeast and North China accounts for 95% of total installed capacity in China. The southwestern regions are featured with shortage of crop straws, poor conditions of mountain transport and higher collection cost while the local hot and humid climate conditions are not fit for storage of feedstock. As a result, these regions have few biomass direct burning power plants and their proportion in the overall installed capacity accounts for less than 2%. The northwestern regions also rarely have the agricultural and forestry biomass direct-burning power plants due to vast but sparsely-populated areas as well as shortage of resources. Project investors: From investment perspective, investment in biomass CHP projects are higherly concentratedwith a few investors. At present the enterprises participating in investing agricultural and forestry biomass

47 CHP projects in China mainly include those large-sized state-owned enterprises such as Guoneng Biomass Power Generation Group Corporation affiliated to the State Grid (hereinafter referred to as Guoneng), five major power generation groups (Guodian, Huadian, Datang, CLP and Huaneng) and CECEP, and the private enterprises such as Kaidi Holdings Group Corporation (hereinafter referred to as Kaidi). Kaidi and Guoneng are the top two in terms of development of agricultural and forestry biomass CHP projects. By the end of 2015, Kaidi had 35 projects launched into operation with the installed capacity of 880MW, while Guoneng had 27 projects in service with the installed capacity of 700MW. The total installed capacity of these two enterprises accounted for more than 30% of the total installed capacity of biomass direct-burning power plants in China. (2) Waste incineration CHP By the end of 2015, the harmless treatment of wastes in China was about 89.3% where the proportion of wastes landfill was about 70%, while the proportion of waste incineration power generation (as the standard waste incineration plants are all equipped with power generation facilities with feed-in power, the waste treatment volume is equivalent to the waste power generation storage) was about 25.6%. The application scale of waste incineration power generation was around 250,000t/d. Among the 224 waste incineration power plants (including incineration with mixed sludge), there were around 200 plants in service with accumulative installed capacity of about 4,900MW, implemented feed-in power of 29 billion kWh, among which the CHP installed proportion was about 15% while the waste incineration CHP application proportion was about 3% that was far lower than the biomass direct-burning CHP. The investors of waste incineration CHP projects are mostly state-owned enterprises. The current domestic enterprises investing in waste incineration are mainly Jinjiang Group, Everbright International, China Environmental Protection Corporation, Shenzhen Energy Corporation, Chongqing Sanfeng Environmental Industrial Group Co., Ltd, Shanghai Environment Group Co. Ltd, etc. Apart from the investing in waste

48 incineration power plants, these enterprises are also the R&D bases for waste incineration power generation projects in China.For example, Everbright and SEC introduced and realized the nationalization of Seghers grate boiler technology, Sanfeng Environment further improved the Martin grate boiler to develop CTIY2000 grate boiler and GEE‘s fluid-bed technology is a domestic technology. Table 10 shows the current typical waste incineration CHP projects in China.

Table 10 Typical Waste Incineration CHP Projects in China

Installed Annual running hours Location Project description capacity (h) (MW) Wuhu Lvzhou Environmental Wuhu, Anhui Protection 2×6MW household waste 12 8,431 incineration CHP project

Mentougou, Beijing Shougang biomass energy 60 2,426 Beijing project Fuqing household waste incineration Fuzhou, Fujian 12 6,068 power plant Hebei Chengde environmental Chengde, Hebei 24 6,000 protection waste-to-power project Jinzhou household waste Hubei 18 6,630 incineration power plant Yinchuan household waste Ningxia 24 6,569 incineration power plant

Tianjin Binhai New Area waste Tianjin 30 3,476 incineration power plant

Heze Jinjiang environmental energy Heze, Shandong 12 4,305 waste incineration power plant

Zibo, Shandong Zibo waste incineration power plant 24 7,069

(Information source: online public information) 4. Primary technology roadmap of biomass-based CHP The domestic biomass direct-burning power plants usually use the water-cooled vibrating grate boilers or recycling fluid-bed burned boilers, and most of the steam generator units except a few steam extraction steams built in earlier time are the steam condensing turbine units with almost no backpressure unit; the waste incineration power plants

49 generally use reverse-pushing reciprocating grate boilers or recycling fluid-bed boilers and the auxiliary steam power generation nits are mostly the pure condensing turbine unit with a few steam extraction units and backpressure units. The biomass CHP is an optimal arrangement scheme of biomass energy power generation projects. In accordance with different demand of heat supply, the technology roadmaps of biomass direct-burning CHP and waste incineration CHP heat production mainly include three types, steam extraction heat production, deteriorated vacuum (backpressure) heat production and circulating water heat pump heat production. (1) Steam extraction for heating The steam extraction for heating uses existing adjustable steam extraction turbine or non-adjustable (drilled) steam extraction turbine to supply the extracted steam for industry use or supply hot water by steam-water heat interchange for the heating of buildings. Featured with stable heat production and good adjustability, the steam extraction turbine unit has almost no extra investment compared with pure condensing unit. In terms of steam extraction cost, due to the different factors such as benchmark investigation, boiler efficiency, etc., the cost of biomass direct-burning CHP is different from that of waste incineration CHP where the cost of steam extraction heat production of the former is about CNY50/GJ while that of the latter is about CNY40/GJ. In general, the steam extraction heat production scenario is flexible and adaptive for both supply of steam and supply of hot water for heating. Its conversion scenario is simple and cheaper for investment. (2) Low vacuum for heating Low vacuum for heating, also named as deteriorated vacuum for heating, makes use of steam condensing (or steam extracting) turbine to reduce the vacuum of its steam condenser and uses circulating cooling water for heating of buildings. In the heating season, the latent heat of vaporization released by turbine steam discharge is all used for heat production. The amount of steam discharge depends on the heating load of user, the power

50 generation output is restricted by user‘s heating load and cannot be independently adjusted. Such operation mode of ―power decided by heat‖ is only applicable to the heating system with stable user heating load. The low vacuum heat production scheme may provide medium- and high temperature hot water at 60° C that meet the residents‘ heating needs. It is also featured with larger heat productivity and lower heat cost, and the heat production cost is merely about CNY15 to 20/GJ. However, the heat load of such scheme is restricted by residents‘ heating needs so that when the heat load demand of adjacent residents is not less than the maximum heat output of unit, the low-vacuum for heating becomes feasible. (3) Absorption heat pump for heating The heat production by absorption heat pump is a new way of heat production developed in recent years. The absorption heat pump units use the high-temperature steam at about 0.6MPa as the driving heat source to drive the heat pump for recovery of residual heating in the circulating cooling water of power plant and use it for the user heating. The primary equipment is the lithium bromide absorption heat pump units and the whole system consists of generator, condenser, evaporator, absorber, solution heat exchange, canned motor pump, pipes and valves. The COP of heat pump is about 1.6-2.0. The absorption heat pump can provide medium- and high-temperature water between 55° C and 85° C to meet the adjacent heating demand, which is featured with large heat output and convenient adjustment. Compared with other two heat production technologies, the absorption heat pump method requires larger investment and maintenance expense and thus its heating price is between the price of low-vacuum heat production and steam extraction heat production. 5. Problems and obstacles of biomass-based CHP After the development of more than a decade, the agricultural and forestry biomass for direct-burning power generation has been commercialized. However, through the above analysis of China‘s biomass-based CHP industry policy, standards, technology specifications, current development status and heat production technology roadmaps, there are a few existing problems of biomass CHP in China that are

51 negative to its sound and sustainable development, which include: (1) Lack of overall planning and deployment with heavy pressure of resource supply assurance Due to lack of proper analysis of resource supply and guidance for planning in some CHP projects, problems of overlly layout of projects, competing for feedbacks and fast growing prices for such feedstocks occur in many regions of China. Furthermore, in order to ensure the stable and safe supply of heating during the heating season, the installed capacity scale of biomass-based CHP project requires at least two boilers and two generators or two boilers and one generator. But the problem is the larger demand of biomass feedstock supply and heavier pressure for assurance of resource supply. (2) Serious inversion of heating price and difficulty in commercialization Influenced by scattered distribution of biomass resources and heating demand, the biomass CHP projects are generally located in areas far away from cities and towns with lower charging standard. The efficiency of CHP boiler system and power generation system is far lower than conventional coal-fired power station. Given its larger investment, except the favorable national benchmark electric tariff, there is no subsidy for the heating price of biomass CHP, while the cost for biomass CHP is almost twice of that of coal-fired unit. Such serious inversion of price for civil heating results in lower profitability of enterprise and larger difficulty in commercialization. (3) Incomplete standard system and no entry threshold of industry

China‘s biomass direct-burning CHP market has no entry threshold. The unhealthy competition leads to inadequate resource supply and upsurge of resource prices; in the field of waste incineration CHP, the enterprises make use of the minimum price bidding mechanism to maliciously lower the cost of waste treatment leading to the failure of standard emission after completion of projects that worsens the avoidance effect. Therefore, it is of urgent task to improve the standard system for the entire industry with industry entry threshold mechanism.

52 (4) Difficulty to enjoy preferential policies and financial and tax policies require for imrovement As tariff subsidy is not timely provided, biomass direct-burning power generation projects have to wait for the national subsidy for a long time that causes heavy financial pressure of these enterprises. Thus, the implementation of preferential policies needs to be enhanced. Furthermore, there is in fact a difficulty to get VAT invoices for purchased biomass materialsas the material sellers are mostly peasants who are unable to provide such invoices. As a result, the enterprises cannot benefit from the VAT refund policy. Therefore, the relevant financial and tax policies need to be improved. (iii) Biomass Molding Fuel (BMF) The BMF refers to the new clean fuel made of the feedstock of agricultural and forestry residues in shapes of granulate, block or column with certain specifications and density after grounding, drying, molding, etc. and can be directly burned in the biomass boiler. The production fo BMF creates convenience for strorage and transport of biomass raw materials by increasing the energy density of unit volume and greatly improve the biomass combustion efficiency. As a means of low investment and low-cost biomass energy utiliation, the BMF will definitely become a significant direction of technology development for biomass conversion into modern clean energy in the future after the technology for biomass power generation. Featured with positive economic and environmental effect, it is an important supplementation for clean energy heat production. This section will describe relevant policies, standards and technical specifications, current development status, primary technology roadmaps, etc. of the BMF industry. 1. Supportive policies of biomass molding fuel In August 2007, the Medium- and Long-term Development Planning of Renewable Energy (F.G.N.Y. [2007] No.2174) adopted by the State Council and published by NDRC pointed out the clean energy like electric power, fuel gas, BMF etc. were the important measures of

53 environmental protection and meant to make full use of wastes and turne the wastes to valuable energy sources, which were complied with the requirements on development of circular economy. The focus should be on the biomass power generation, biogas, BMF and bio-liquid fuel. In 2010, the annual utilization amount of BMF reached 1 million tons, which would reach 50 million tons in 2020. On May 14, 2010, the General Office of State Council reissued the Circular prepared by nine departments including the Ministry of Environmental Protection of the Guiding Opinions on Promotion of Joint Prevention and Control of Air Pollution and Improvement of Regional Air Quality (G.B.F. [2010] No.33) to speed up the development of rural clean energy, encourage the comprehensive utilization of crop straws, promote BMF technology and strongly develop rural biogas. The exposed burning of crop wastes like straw is prohibited to guarantee the air quality around the cities, road traffic, and airports. The energy-saving kitchens are encouraged to gradually phase out the traditional ones of high pollution. On July 9, 2012, the State Council issued the Circular on Development Planning of National Strategic Emerging Industry in the 12th Five-year Plan (G.F. [2012] No.28), aiming at coordinating the biomass energy development and vigorously promoting the development of biomass gasification, power generation, BMF, etc. On August 6, 2012, the State Council issued the Circular on the 12th Five-year Plan of and Emission Reduction (G.F. [2012] No.40) to promote the clean utilization of coal, build the coal blending plant with low sulfur and low ash, increase the proportion of coal washing and selection and phase out the coal-fired boilers of low efficiency in the key areas. It aims to popularize clean energy like natural gas, coal-to-gas and BMF. On October 29, 2012, after approval by the State Council, the Ministry of Environmental Protection, NDRC and MOF jointly issued the Twelfth Five-year Planning of Air Pollution Prevention and Control in Key Areas (H.F. [2012] No.130) to optimize energy structure, accelerate development of natural gas and renewable energy, realize the diversified

54 supply and consumption of clean energy, and promote the cascade comprehensive utilization of biomass energy in diversified forms like BMF, liquid fuel, power generation, gasification, etc. On December 29, 2012 the State Council issued the Circular on Bio-industry Development Planning (G.F. [2012] No.65) to promote the commercialization of using biogas and BMF. On 1 January 2013, the State Council issued the Circular on the 12th Five-year Plan of Energy Development (G.F. [2013] No.2), with an aim to orderly develop biomass energy, and use crop straws and forestry residues to develop biomass power generation, gasification and BMF according to the local conditions. On October 20, 2016 the Ministry of Environmental Protection issued the Guides on Comprehensive Control Technology of Civil Coal Burning Pollution (Trial), specifying that the biomass energy is to replace civil coal includes biogas, BMF, etc. It intends to reduce the direct burning of household biomass and encourage the use of biomass conversion technology to turn biomass into solid or gas fuel of lower emission. In the regions with abundant biomass resources and proven BMF technology, the BMF may be used for central heating. On 29 November 2016, the State Council issued the Circular on Development Planning of National Strategic Emerging Industry in the 13th Five-year Plan (G.F. [2016] No.67) to promote the use of clean biomass energy. It stressed the research and development of critical technology and equipment with long life cycle and low power consumption like BMF equipment, biomass heat production boiler, distributed biomass-based CHP, etc. so as to promote the BMF to replace coal for central heating and biomass-based CHP. On 28 October 2016, the NEA issued the Circular on 13th Five-year Plan of Biomass Energy Development (G.N.X.N. [2016] No.291) with a target of commercial-scale utilization of biomass energy in 2020. Targests include annual utilization of biomass energy equivalent to about 58 million tons of standard coal, total installed capacity of biomass power will be 15,000MW, annual power output will be 90 billion kWh including 7,000MW agricultural and forestry biomass direct-burning power output,

55 7,500MW urban household waste incineration power output and 500MW biogas power output ; the annual utilization volume of biogas will be 8 billion m3, annual utilization of bio-liquid fuel will be 6 million tons and annual utilization of BMF will be 30 million tons. On 26 December 2016, upon the approval by the State Council, the NEA of NDRC issued the 13th Five-year Plan of Energy Development (F.G.N.Y. [2016] No.2744) aiming at proactivley developing biomass liquid, gas and BMF, promoting biogas-to-power and biomass gasification for power generation, and developing sound plans for wastes to energy. 2. Standards and technical specifications for BMF Given the interior connection features of standard systems and the characteristics of BMF industry, the standards of BMF can be classified into three levels of basic standards, common standards and special standards. From the perspective of industry chain, its standard system should cover the standards of biomass feedstock collection including the feedstock collection, transport and storage; the standards of production equipment and facilities include the instruments, equipment and critical parts, etc.; the product standards include the specifications, testing methods, package, storage and carriage of briquette fuel; the application standards include the technical conditions, testing methods and pollutant discharge of special burning utility; other relevant standards for , safety, environmental protection, etc. should also be covered. Despite of a late start, Chinese national standards and industrial standards of BMF had a fast development and a higher level over the years. China is studying and establishing the standard system of BMF. In recent years, the energy and agriculture industries have issued and implemented 27 standards relating to BMF (see Table 11 for details) including 12 standards on briquette fuel, 5 standards on briquette equipment and 10 on biomass furnaces. Such issuance and implementation of BMF have greatly promoted the healthy and sustainable development of the industry.

56 Table 11 Issued and Implemented Biomass BMF Industry Standards in China

NY/T 1915-2010 Densified biofuel-Terminology and definitions NY/T 1878-2010 Specification for densified biofuel NY/T 1879-2010 Densified biofuel-Methods for sampling NY/T 1882-2010 Technical conditions for densified biofuel molding equipment NY/T 1883-2010 Testing methods for densified biofuel molding equipment NY/T 1880-2010 Densified biofuel-Methods for sample preparation NY/T 1881.1-2010 Densified biofuel-Test methods Part 1: General principle NY/T 1881.2-2010 Densified biofuel-Test methods Part 2: Total moisture NY/T 1881.3-2010 Densified biofuel-Test methods Part 3: Moisture in general analysis sample NY/T 1881.4-2010 Densified biofuel-Test methods Part 4: Volatile content NY/T 1881.5-2010 Densified biofuel-Test methods Part 5: Ash content NY/T 1881.6-2010 Densified biofuel-Test methods Part 6: Bulk density NY/T 1881.7-2010 Densified biofuel-Test methods Part 7: Particle density NY/T 1881.8-2010 Densified biofuel-Test methods Part 8: Mechanical durability NB/T 34018-2014 Specification for biomass briquette equipments of ring type die Major industry NB/T 34019-2014 Specification for biomass briquette equipments of round standards flat type die NB/T 34020-2014 Specification for biomass briquette equipments of poiston ram type NB/T 34005-2011 General specifications for domestic densified biofuel heating stove NB/T 34006-2011 Test method for domestic densified biofuel heating stove NB/T 34007-2012 General specification for biomass cooking and heating stoves NB/T 34008-2012 Test method for biomass cooking and heating stoves NB/T 34009-2012 General specification for biomass cooking and radiant heating stoves NB/T 340010-2012 Test method for biomass cooking and radiant heating stoves NB/T 340014-2013 Test method for biomass institutional stoves NB/T 340015-2013 General specification for biomass institutional stoves NB/T 340016-2014 Test method for biomass kang stove NB/T 340017-2014 General specification for biomass kang stove NY/T 2369-2013 General technical specification of domestic biofuel cooking stove NY/T 2370-2013 Test performance method of domestic biofuel cooking stove 3. Current development of BMF China started the research on BMF in the 1980s, which was mainly made of forestry residue, crop straw and urban household wastes. According to relevant domestic statistics, till the end of 2013, China had more than 600 BMF manufacturing plants using biomass feedstocks like straw and more than 80 crop straw charring production units with an annual output of 5.5 million tons of BMF and 260,000 tons of biomass charcoal, which were mainly used for the cooking, heating of rural residents, heat supply

57 boilers and biomass power plants. The production scale of BMF industry in China keeps growing up over the years and presently more than 30 enterprises‘ annual output is over 10,000 tons and several of them exceed 100,000 tons of annual output. The straw briquette fuel plants are mainly located in North China, Central China and Northeast regions and they are used for cooking and heating of rural residents and some urban boilers with higher demand of environmental protection; the wood particle manufacturers are mainly located in East China, South China, Northeast and Inner Mongolia and the products are used for the urban boilers with stricter requirement for environmental protection, even export to Europe and Southeast Asia. In terms of biomass briquette equipment, China currently has several hundreds of briquette equipment manufacturers mainly located in Henan, Hebei, Jiangsu, Beijing and Southeast with average annual output of over 50 sets. In general, the molding equipment market is still in its early development stage and needs to improve its technical standards and product quality. The mass production has not been realized yet. Nowadays the biomass briquette particle production equipment is advanced in scale, high output and intelligentization. In the booming development period of biomass boiler manufacturers, quite a number of domestic large-sized coal-fired boiler manufacturers turn to research and develop BMF boilers, which are widely recognized by users for the advantages of advanced technology, high efficiency, standard emission and intelligentization. The heat is mainly supplied to industry parks, hotels and resident community. The current primary business models include the contractual energy management, BOO, BOT, PPP, etc. 4. Roadmap for key technologies of BMF The roadmap for key BMF-to-heat technology includes biomass feedstock collection, storage and transport, biomass briquette production technology and combustion-to-heat technology. (1) Biomass feedstock collection, storage and transport model The collection, storage and transport of crop straws in China have certain

58 foundation, which is divided into the distributed model and centralized model. Under the distributed model of collection, storage and transport, the peasants, specialized households or straw brokers gather and provide straws directly to enterprises, which may be further classified as ―company + individual‖ and ―company + broker‖; under the centralized model of collection, storage and transport, the professional straw collection, storage and transport company or farm performs the collection, drying, storage, custody and transport of feedstock with quality assurance of the straws provided by peasants or brokers as per the requirements of energy enterprise, and then completes the bundling, stacking and storage of straws, which may be further classified as ―company + base‖ and ―company + collection, storage and transport company‖ models. Table 12 shows the advantages and disadvantages of different types of collection, storage and transport models of straws.

Table 12 Comparison of Different Types of Straw Collection, Storage and Transport Models

Centralized collection, storage and Distributed collection, storage and transport model transport model Company + Company + collection, storage Company + broker Company + base individual and transport company The collection, Peasants send straw Brokers purchase Farms sign the storage and to the company by straw and then send agreement of transport company Characteristics themselves to the company supply collects, stores and supplies straw Low storage and Perfect system and Short supply time Long supply time transport cost stable supply Enterprise with Enterprise with Long distance and small Small demand and large consumption Scope of large demand, e.g. consumption e.g. short distance e.g. e.g. large-scale application straw power straw straw gasification biomass straw generation gasification, power plant solidification Large and stable supply volume, Stored and transported by peasants with Advantage advanced technology and equipment, lower investment and lower cost high utilization rate Loose management, unstable price, fit High maintenance and management Disadvantage for the regions of larger quantity and less cost of land occupancy, proof competition and fire prevention, etc.

Because of the development for modernized agriculture over the years, the sustainable ―industrialized, large-scale and mechanized‖ supply of

59 agricultural and forestry biomass resources has become the trend, which can effectively decrease the cost of feedstock collection. In particular in the biomass sector, direct-burning power generation of higher industrialization extent, all major investors have effectively explored the protection of feedstock supply sustainability and concentrated on the ―industrialized, large-scale and mechanized‖ collection, storage and transport of feedstocks. (2) Biomass molding production technology At present, China has achieved a breakthrough in the critical technology of straw briquette, and in particular the die-roll compression particle briquette technology has reached the advanced level compared with international similar products. After years of field verifications and on-site testing by technology experts, the self-developed machinery of straw particle briquette in China has reduced the energy consumption from 100kWh/t in 2008 to only 50kWh/t in 2012; the energy consumption of straw compression block briquette has reduced from 60 kWh/t in 2008 to less than 40kWh/t in 2012; the continuous operation hours of briquette machinery has increased from the original 20 hours to present 300 hours. See Table 13 for the comparison of different briquette technologies.

Table 13 Comparison of Biomass Modling Technologies

Type of Requirements Present development Major Development technology on feedstock advantage strength and disadvantage High productivity Requiring In the briquette industry, and good Circular feedstock Fir for large-scale it is in the product mould moisture production to commercialization stage quality; mould compression 15%-20% and reduce cost and while the briquette fuel easily damaged roller granularity realize in the initial stage of and blocked briquette less than commercialization commercialization. with higher 10mm maintenance cost Requiring Simple Flat mould feedstock equipment, Mature technology and compression moisture lower Fit for small-scale in the stage of roller 15%-20% and manufacturing production commercialization briquette granularity cost and lower less than productivity

60 Type of Requirements Present development Major Development technology on feedstock advantage strength and disadvantage 10mm Lower energy consumption, product Requiring endurable with feedstock Technology in large density; Supportive to Mechanical moisture less semi-commercialization poor stability boiler, fit for piston than 20% and and commercialization and large commercialized briquette granularity stages vibration of power generation less than equipment 40mm with problem of lubricating pollution Extended longevity, reduced energy consumption and more Requiring stable Improve feedstock compared with productivity and Pressure moisture less Technology in mechanical the adaptability to piston than 12% and semi-commercialization piston feedstock briquette granularity stage operation; humidity, fit for less than lower scale development 40mm productivity with frequent blowout and cracked products Product endurable with large density that can be processed into Requiring any shape; feedstock Technology in easy wear and Rotary heat moisture Fit for medium- semi-commercialization tear of sleeves pressure 8%-12% and and small-scale and commercialization with higher briquette granularity production stages maintenance less than cost, stricter 40mm adaptation requirement to feedstock and frequent blowout Product Requiring endurable and feedstock Rotary with moisture Fit for medium- normal Technology in testing diversified 15%-20% and and small-scale temperature and demonstration stage shape and no granularity production briquette blowout; less than Fast wear and 40mm tear of screw

61 Type of Requirements Present development Major Development technology on feedstock advantage strength and disadvantage and mould with higher maintenance cost Strong adaptability to feedstock, Requiring simple feedstock equipment; Rotary wet moisture of Lower pressure 30% and Technology in testing productivity, Fit for small-scale briquette granularity and demonstration stage lower fuel production between density, poor 30mm and combustion 80mm performance, fast wear and tear of briquette parts

(3) Biomass molding fuel–to-heat production BMF can effectively increase the unit energy density of biomass fuel to facilitate its storage and transport and significantly improve its combustion efficiency. Therefore, China presently has the majority of BMF boiler for the biomass boiler heat production that directly burns the briquette fuel to produce heat for the industry and commerce and civil production/heating. The biomass briquette fuel heat production mainly burns through the combustion equipment like fixed bed, circulating fluidized bed, entrained flow, bubbling bed, etc. to produce hot water or steam to supply heat to users. The BMF heat production technology has presently attained its maturity and the boiler firing technology is divided into three types, namely, grate firing, fluid bed and suspension firing (see Table 8 for details). The advantages of BMF heat production mainly include: It is close to the emission standards of natural gas. With no need of desulfurization, the content of SO2 in exhaust gas is generally below 50mg/m3 that is far lower than the 200mg/m3 required by the Standards on Emission of Air Pollutants by Boiler (GB13271-2014). At present the biomass briquette fuel boilers mostly use the technology of dust

62 abatement by vortex plus bag filter that the flue gas emission concentration can be controlled below 30mg/m3; since the biomass briquette fuel generally does not contain heavy metal like mercury, the limit value of 0.05mg/m3 can be easily attained with no extra measure; shown by the existing test reports, the biomass briquette fuel boilers can 3 basically satisfy the NOx standard of 200mg/m . It can solve the problem of air pollution caused by exposed burning of straws. In exposed burning, the straws and forestry wastes generate huge amount of carbon black and volatile organic that seriously contaminate the air environment. As shown in the analysis of PM2.5 sources in Beijing and Shanghai, the local contribution rates of agricultural pollution sources such as individual burning of straw reached 4.5% and 4% respectively. It can reduce the emission of greenhouse gas (GHG). The carbon dioxide volume emitted in burning of BMF is equivalent to that absorbed in the process of plant growth. Therefore, the process of using biomass briquette for firing is carbon neutral. It can be flexibly arranged with wider scope of application, which can offer distributed heat production to the business facilities like enterprises, hotels, shopping malls, the resident communities and the public like government agencies, schools, hospitals, etc.

Table 14 Advantages, Disadvantages and Applicability of Different Firing Technologies

Firing Advantages Disadvantages technology Less than 6MW, low system Only applicable to the biomass fuel of investment low ash content and high ash melting Uninterrupted feedstock and point Grate firing convenient control of feed Higher requirement on the size of fuel Good quantified feed and low particles and less flexibility discharge of pollutants in low-load operation Use of mixed fuel of wood and herbal fuel not allowed Less than 20MW, low system Need of special technology to reduce investment NOx emission Fire grate Low operation cost High air flow coefficient and low technology Low dust concentration in flue gas efficiency Lower sensitivity to ash slag Firing state not as even as fluidized bed compared with fluidized bed Difficult to control pollutant emission in low-load operation

63 Firing Advantages Disadvantages technology High air flow coefficient and high Limit value fuel particle size efficiency (<10-20mm) Efficient staged air distribution and Fast damage speed of fire-resistant Suspension good mixing to significantly reduce materials firing NOx emission Need of extra assistant burner Good feed control to quickly change load Large investment and only applicable to the system above 20MW No moveable part within the High operation cost combustion chamber Low flexibility of fuel particle size Staged air distribution to reduce NOx (<80mm) Bubbling emission Large dust abatement volume of flue gas fluidized bed Flexibility of fuel moisture and types Need of special technology during Low air flow coefficient to improve low-load operation efficiency and reduce flue gas flow Medium sensitive to ash slag Medium corrosion of heat interchange pipe of fluidized bed Large investment and only applicable to No moveable part within the the system above 30MW combustion chamber High operation cost Staged air distribution to reduce NOx Low flexibility of fuel particle size emission (<40mm) Even firing state Circulating Large dust abatement volume of flue gas Strong turbulence with high fluidized bed Need of standby bed during low-load coefficient of heat transfer operation Flexibility of fuel moisture and types Highly sensitive to ash slag Easy to use addictive Loss of bed materials in ash Low air flow coefficient to improve Medium corrosion of heat interchange efficiency and reduce flue gas flow pipe of fluidized bed 5. Existing problems and obstacles in biomass molding fuel (1) Constrait of the BMF industry development due to lack of technical standards The current problem in biomass briquette fuel industry involves in standards such as fuel standards, molding and combustion equipment standards, biomass boiler emission standards, etc. Till now, China has no systematic BMF standards system, and the present available standards only cover part of the technical requirements of BMF production, and no standards are established for environment protection during collection, storage and transport of molding fuel feedstock and fuel production process. That is far from the setup of the whole molding fuel standard system. There are no standards on collection, storage and transport equipment system or processing, manufacturing, and emission standards of biomass boilers where only the coal-fired boiler standards are applied.

64 In addition, the lack of emission standards of for BMF boilers also has a big impact on the industry development. (2) Unregulated industry development and difficulties in project operation maintenance For project engineering and operation maintenance, as the biomass energy enterprises have low qualification of infrastructure construction, almost all the boiler engineering and installation are completed by the manufacturers with no participation of any qualified third-party constructor. There is no control over uniform technique in project operation and production and no links between sections during production. This causes not only higher production, operational and labor costs but also low efficiency. In addition, the lack of standards requirements for post-service is also negative to the long-term sustainability of industry. (3) Low biomass heat utilization ratio and weak capability for technical innovation The biomass heat production equipment usually occupies large land area, and it has lower automation level. Compared with fuel oil heat production system, it has shorter ash slag cleaning cycle. As the biomass heat production equipment has lower heat utilization ratio, some BMF combustion equipments available on market are converted from the coal-fired equipment while others are redesigned based the coal-firing standards with low efficiency. Such equipment should be further improved to reduce pollutant discharge e.g. CO2, hydrocarbon, oxides of nitrogen, etc., prolong the maintenance cycle of heat production system, realize remote control, reduce heat loss and improve heat efficiency. (4) Inadequate recognition of BMF and lack of fair competition environment Firstly, inadequate recognition of biomass heat production clean energy: pursuant to the Law of Renewable Energy, biomass energy is a kind of renewable energy. The biomass energy should be integrated into local laws, regulations and policies with guiding and supportive policies. The

65 use of natural resources like BMF is in conformity with the renewable energy resource law, and by using certain denitration and dust abatement technology, the emission standards may be equivalent to that of natural gas. Once falling into the scope of clean energy, the national authority encourages and supports the development and use of biomass briquette fuel and its related sectors. Secondly the unfair treatment of market access and policy compared with natural gas: the unfair competition environment between biomass energy and fossil energy like natural gas should be removed together with the limitation for regional ccess. Equal access policy should be practised (as long as the emission of BMF reaches to the standards for natural gas), and interaction with environmental protection authorities should be strengthened. Traditional bias on biomass energy should be abandoned, and specific plan dedicated to the development of biomass energy should be introduced. (5) Low profitability of industry that needs more incentive policies The BMF heat production has higher operational cost while the biomass feedstocks are featured with great varieties, different dimensions, difficult collection and extensive but scattered distribution of resources. From the perspective of critical technology on equipment for industrialized collection, storage and transport of biomass briquette, there is a need to conduct research and development of supporting equipment and tools to make them efficient, flexible, robust and endurable so as to reduce the cost of fore-end resource collecting and processing. In terms of incentive industry policies, governments at all levels have not included the BMF heat production as clean energy in their work planfor air pollution prevention and control with positive support. China offers equipment investment subsidies and tariff subsidies to coal-to-power and coal-to-gas or even the coal, low-sulfur coal, briquette coal, etc. but there are no reasonable government subsidies or policy support for BMF production. (6) Lack of comprehensive coordination in industry management

66 The construction of BMF heat production projects involves in agriculture, environmental protection, forestry and other sectors but the authorities have different awareness of biomass heat production industry. Although the NEA and MEP have formulated policies supporting the industry development, but in practice, different management standards of relevant authorities result in prolonging initial work period, leading to the problems to get approval from local governments for the replacement of coal-fired boiler by biomass boiler. Hence there is an urgent need to unify technical management standards and evaluation criteria to effectively push forward the coordination and management of developing biomass heat production projects. (iv) Biomass Gasification

With national government‘s emphasis on biomass energy utilization, technologies of biomass energy utilization have been increasingly mature. China has made significant achievements in biomass gasification for heating in the areas of basic theoretical research, R&D of cutting-edge technology and integration & demonstration, commercialization of research findings, etc. This Section discusses the development of China‘s biomass gasification for heating industry from the perspectives of supportive policy for biomass gasification industry, standards and technical specifications, current status of industrial development, and major technical routes. 1. Supportive Policy for Biomass Gasification In order to facilitate production and effective utilization of biomass raw materials and promote healthy and orderly development of bioenergy industry, Chinese Government has enacted and promulgated following biomass-related policies and regulations: ―13th Five-Year National Plan for the Development of Strategic Emerging Industries”; “13th FYP Development Plan for Biomass Energy”, “National Plan for Agricultural Modernization (2016-2020)”; “Guidance Note on Preparation of Implementation Plans for Comprehensive Utilization of Straw in 13th FYP Period”; “Guidelines for Accelerating Circular Economy of Agriculture”; “Guidance on Accelerating the Construction of Ecological Civilization”;

67 “The 13th Five-Year Plan for the Protection of Ecological Environment”; “the National Development Plan (2015-2030)”; “the 13th Five-Year Work Plan for the Energy Conservation and Emission Reduction”; “Circular on Pilot Cleaning Heating of Northern Regions in Winter under Financial Support from Central Government” “Plan for Promoting Pilot Program of Agricultural Waste Recycling Guiding Catalogue for Industrial Structure Adjustments (2015 Version)”.Meanwhile, the local governments have supporting implementation policies with respect to biomass energy development & utilization , such as ―13th Five-Year Plan for the Development of Strategic Emerging Industries”; “Guidance Note on Implementation of Heat Supply in Rural Area” ; “The CPC Central Committee and the State Council's Opinions on Implementing the Strategy of Revitalizing Villages” and so on. 2. Standards and Technical Specifications for Biomass Gasification As biomass gasification for heating is categorized as a non-standard industry, design of specific projects is individualized which depends on actual technical conditions, scale, location, resource characteristics, customer demands and other factors. Since there are no systematic standards, local, naitoal and industrial standards with respect to biomass gasification, fuel gas purification, gas boiler, heating equipment and pollutants emission in various segements are mainly applied for biomass gasification project design and operation. These standards are described below: (1) Standards for Biomass Gasification As for biomass gasification, industrial standards issued by the Ministry of Agriculture and the National Energy Administration as well as standards of provincial governments are applied in the absence of national standards. For selection of gas supply capacity and gasification process (gasification efficiency ＞70%, lower calorific value of fuel gas under standard condition ＞4,600kJ/m3, carbon monoxide and oxygen content ＜20%

68 and <1% respectively), Construction Standard for Centralized Supply Station using Biomass Gasification (NYJ/T 09-2005) is applied; for constant pressure fixed bed gasification process, Biomass Gasification Gas Operation and Management Practices (NY/T 2907-2016) and Technical Conditions for Constant Pressure Fixed Bed Biomass Gasifier Units (DB37/ 256-2007) are applied; for testing and calculation method of gasification efficiency of gasifier, testing method of tar and dust content in fuel gas, testing method of oxygen, nitrogen oxide, hydrogen and methane content in fuel gas and calculation of LHV of fuel gas, Testing Method for Stalk Gasification System (NY/T 1017-2006) is applied. For performance (gasification efficiency of gasifier >60%, caloric value of fuel gas shall be >4,000 kJ/m3, gas production output per unit stalk ≥1.0m3/kg), safety and environmental protection requirements, testing method and testing rules of gasifier, Technical Specification of Quality Evaluation for Straw Gasification Furnace (NY/T 1417-2007) isapplied.

For performance (gasification efficiency of fixed bed gasifier ≥70% energy conversion efficiency of fluidized bed and retort pyrolysis gasification bed ≥70%, LHV of fuel gas ≥4,600kJ/m3), type selection, manufacturing, gas storage device sized 30% higher than daily gas supply, project construction and equipment installation of gasification unit, as well as testing and acceptance of gasification unit, Technical Conditions and Acceptance Specifications for Biomass Gasification Gas Supply System (NY/T 443-2016) isapplied. For firefighting safety facility, water and power supply, pre-start equipment check, operation ignition, safety precautions, routine operation management and equipment maintenance, (NY/T 2908-2016) isapplied. For basic requirements on testing of biomass fuel gas, parameter testing and calculation method, and testing method of fuel gas quality parameters, Operation and Management Specifications for Centralized Gas Supply of Biomass Gasification is applied. (2) Standards for Biomass Fuel Gas Purification

69 For biomass fuel gas purification process, standards pertaining to gasification and other involved standards are applied. In case of tar and dust content in fuel gas upon purification less than 30 mg/Nm3, Construction Standard for Centralized Supply Station using Biomass Gasification (NYJ/T 09-2005) is applied; for testing method, Determination of CoaI Tar and Dust of Gas in Urban Area (GB/T 12208-2006) is applied; in case of temperature of fuel gas entering into gas storage vessel of ＜35° C upon cooling and purification, tar and dust content in fuel gas ＜15mg/Nm3, and oxygen, nitrogen oxide, and hydrogen sulfide content ＜20%, 1%, 20 mg/Nm3 respectively, Technical Conditions and Acceptance Specifications for Biomass Gasification Gas Supply System (NY/T 443-2016) is applied. For sewage water treatment during purification, Specifications for Sewage Treatment Device of Biomass Gasification System (NB/T 34011-2012) and Waste Standards for Discharge to Municipal Sewers (CJ 343-2010) are applied. For testing method of fuel gas quality, Gas analysis - Comparison Methods for Determining and Checking the Composition of Calibration Gas Mixtures (GB/T 10628-2008) is applied. (3) Standards for Biomass Fuel Gas Combustion Fuel gas combustion process focuses on design of gas-fired boiler and flue gas emission so that relevant standards for smoke & dust control of conventional boilers are mainlyapplied. For basic requirements and parameter testing and calculation method for smoke & dust testing of boiler, Measurement Method of Smoke and Dust Emission from Boilers (GB5468-91) is applied. Emission limits of newly-built gas-fired boiler: 3 3 3 for particles of 20 mg/Nm , SO2 of 50 mg/Nm , NOx of 200 mg/Nm , Ringelman emittance ≤ level 1, Emission Standard of Air Pollutants for Boiler (GB 13271-2014) and Emission Standard of Air Pollutants for Boiler of Shandong (DB 37/ 2374-2013) are applied. The smoke concentration and blackness is measured as per Ringelmen smoke chart. (4) Standards with respect to Heating Biomass gasification for heating focuses on laying of gas pipelines and

70 selection of heating equipments. For design of heating pipeline network and indoor pipeline, Technical Conditions and Acceptance Specifications for Biomass Gasification Gas Supply System (NY/T 443-2016) is applied. For air tightness testing of pipeline network, Testing Method for Stalk Gasification System (NY/T 1017-2006) is applied. For basic requirements, performance requirements, operation management and circuit connection, Gas-fired Heating and Hot Water Combi-boilers (GB 25034-2010) is applied. For heating energy efficiency grades and limits, Minimum Allowable Values of Energy Efficiency and Energy Efficiency Grades for Domestic Gas Instantaneous Water Heaters and Gas Fired Heating and Hot Water Combi-boilers is applied. For wall-mounted heating furnace, Biogas/Biomass Gas Doubleduty Heating Furnace is applied. 3. Current Status of Biomass Gasification Development Biomass pyrolysis gasification is a key technology to produce clean fuel by agricultural and forestry wastes. The fuel gas generated is an alternative replacing natural gas and other fossil fuels and to provide clean fuel gas, heat and power supply. The straw gasification and centralized gas supply are biomass energy utilization technologies evolved since 1990s in China. Straw is converted into clean fuel gas by building straw gasification station in villages and then the gas is delivered to household for cooking via pipeline network. Since the establishment of a biomass gasification and centralized gas supply pilot project in Dongpan Village, Huantai County, Shandong Province in 1994, the first case in China, biomass gasification & centralized gas supply technology has been popularized and applied successively in Shandong Province, Hebei Province, Liaoning Province, Jilin Province, Heilongjiang Province, Beijing City and Tianjin City. The year 2000 witnessed a climax of popularization of this technology. Since then, relevant specifications and regulations have been progressively refined. A series of administration measures have been formulated by local governments, which allows application of biomass gasification & centralized gas supply to steadily progress in China‘s rural energy

71 development. Subsquently, the technology is popularized and applied in all suburban counties of Beijing, such as Shunyi and Huairou, etc. ―New Biomass Gasification & Centralized Gas Supply System Construction‖ is the key science and technology program of Huairou County. The construction of more than 1,000 straw pyrolysis gasification and centralized gas supply stations have been completed throughout China by the end of 2013 with a supply of gas to 209,600 households. On average, each operating gasification station supplies gas to around 350 households. In terms of industrial heating, with increasingly stringent regulatory efforts against emission of environmental pollution nationwide, some economically well-developed regions have consecutively promulgated mandatory measures ban the use of fuel coal and promoting clean energy projects reconstruction. Biomass fuel gas has become an ideal alternative to fuel oil and natural gas due to its desirable cleanliness, combustibility and cost-efficiency. Before the year of 2000, small-sized fixed bed gasifiers played a predominant role in pyrolysis gasification process equipment due to distributed sources of agricultural straw. Complete industrial model was not formed due to low energy conversion efficiency. During the 11th FYP and 12th FYP, large-sized pyrolysis gasification equipment with continuous operation mode (e.g. fluidized bed and rotary kiln) found its application on the basis of demand for large scale disposal of solid biomass wastes and development of oxygen-enriched gasification, anaerobic pyrolysis, tar cracking and other technologies. Through construction and operation of numerous demonstration projects, biomass pyrolysis gasification technology system is gradually formed.

With over three decades of development, China‘s biomass pyrolysis gasification now has completed demonstration and layout of distributed biomass gas supply system for civilian use and laid solid technological foundation for the industry in the areas of large scale fuel gas production, power generation and heat supply. Straw gasification for heating technology now has found wide application in district heating, in drying , crops and other farm and sideline products, and in supplying steam to enterprises, etc. Presently, there are more than 1,000 different straw biomass pyrolysis gasification and clean energy utilization projects

72 in operation in China, which is distributed in Beijing, Tianjin, Jiangsu Province, Shandong Province, Heilongjiang Province, Jiangxi Province, Anhui Province, Hubei Province, Henan Province, Hebei Province, Jilin Province, Liaoning Province, Inner Mongolia, Shanxi Province and Shaanxi Province. These projects provide centralized gas supply, heating and electricity to industry, residents and greenhouses. 4. Major Technology Routes for Biomass Gasification Biomass gasification for heating technology is mainly a process where biomass gaseous fuel is produced through thermal chemical reaction, and gasified fuel gas is used for clean combustion so as to supply heat to end users by multiple energy transfer ways. Its technology route starts with biomass gasification for gas production, followed by gas-to-heat process. It is classified as two types of biomass gasification according to difference in fuel gas heating method, namely, gasified high-temperature biomass gas directly fired heating and gasified & purified biomass gas fired heating. (1) Biomass gasification and purification technologies Biomass gasification mainly contains oxidation combustion process, pyrolysis precipitation process and anoxic reduction process. Apart from heat, a large number of gasified fuel gases are also generated. These gasified fuel gases are applicable for centralized gas supply, heat supply and power generation, etc. Principle of biomass gasification is shown in Fig. 6.

73 H2O, CO, CO2, H2,

CH4, O2 Condensation polymerization Inflammable Pyrolysis Cracking H2O, CO, Macromolec gas Biomass CO2, H2, First ule organics Second CH4, O2

Carbon H2O, CO2, O2

Carbon (C) Ash

H2O, CO, CO2, H2, CH4, O2 Figure 6 Principle of Biomass Gasification

In terms of centralized gas supply, heating and power generation, biomass gasification technology in China has progressed to demonstration & application research stage. Despite that, China still lags behind Europe, USA and other developed countries in gasfication technology as this is reflected by small-scale, low gasification efficiency, low LHV of gas, high tar content, low economic efficiency, etc. Key technical challenges and future development trends to be addressed in biomass gasification technology include in the areas of gasifier technology with high gasification efficiency and high caloric value, new tar removal technology to reduce tar content in fuel gas, fluidized bed gasifier with higher economic benefits and development potentials, and large-scale fluidized bed gasifier technology. Developmet in these key aeras is critical for large-scale biomass gasification and application in the future. (2) High-temperature gas directly fired heating Heating through gas combustion means the direct heating of water with the burning of biomass fuel and transferring the heat carried in hot water or steam to users. It is applicable for centralized heating. Process flow of high temperature gasified biomass gas directly fired heating is as shown in Fig. 7.

74

Figure 7 Process Flow Diagram of High Temperature Gasified Biomass Gas Directly Fired Heating

This process is simple with no need of purification. The high-temperature fuel gas is directly fired to fully utilize sensible heat of high-temperature fuel gas and pyrolysis & combustion of tar with high thermal efficiency and comprehensive energy utilization efficiency above 85%. As such, the secondary pollution brought by tar treatment is avoided and purification cost is saved, allowing for desirable environmental and economic benefits. However, this process has undesired control of steam production output, for which needs to be treated during gasification process. (3) Purified gas fired heating The process is to remove tar and ash content in raw purified gas to obtain purified fuel gas for firing and preparation of hot water or steam, which then will be delivered to user via gas pipeline. This process has strong controllability of steam production output and is applicable to distributed heating, together with fuel gas supply to resident user for cooking. Process flow diagram of purified gas fired heating is as shown in Fig. 8

75

Figure 8 Process Flow Diagram of Purified Gas Fired Heating

5. Challenges and obstacles in biomass gasification (1) Absence of policy basis and difficulty in regulation In absence of basis for approval and regulation as well as unified standardization of biomass gasification for heating projects, initiation of the projects is difficult and positioning thereof is inaccurate. With difficulty in regulation, operation management of the projects by enterprises is chaotic, which enterprises liberally change raw materials without approval, causing efficiency and emission to considerably beyond standards. Given unclear positioning of biomass fuel, regulation tends to be conservative and thus most of enterprises choose to wait and see. (2) Absence of incentive policy and weak competitiveness Biomass gasification for heating industry involves a multiple of links like raw material collection, processing and conversion, consumption of energy products, disposal of byproducts and so on. With scarce policy, joint driving force can not be formed. The mechanism giving priority to biomass gasification in heating is yet to be established, and support by terminal subsidy policy is insufficient. Given that cost per heat unit of biomass gasification for heating is far higher than fuel coal, simple use of biomass gasification as alternative to fuel coal is of no cost-effectiveness, as cost-effective problem of biomass gasification for heating still may not be addressed by subsidy policy of national government.

76 (3) Incomplete standards and technical specifications The industrial standard system for biomass gasification is yet to be established. In the absence of equipment, product and engineering technical standards and specifications, waste gas, water and residue emission standards for biomass gasification are in urgent need of formulation. Since biomass gasification is featured by low caloric value and complex and diversified gas components, quality is unstable and flame temperature at user end is occasionally unstable. Absence of unified technical standards is a hindrance to popularization and application. With incomplete purification and treatment standards for biomass gasified fuel gas, tar content therein is rather high so that tar will combine with water and ash and thus deposit on gasification equipment, pipelines, valves and downstream equipment. Given that, the pipelines and equipment are very easily to encounter clogging, wearing and other problems, leading to complex fuel gas purification system and relatively high operation cost. (4) Immature raw material market with uneven quality Due to lack of marketized regulation to biomass fuel industry chain, price fluctuation in industrial chain of biomass fuel is significant and obstacles exist among production, supply and sales thereof. With non-uniform market access standards and fuels are in endless variety, high-quality raw materials are difficult to be secured. With unevenly distributed resources, an effective biomass storage and transport system has not been formed up, making it difficult to guarantee supply of biomass fuel in urban and non-agricultural area. With poor correlation between producers and consumers of biomass fuel, sale is difficult and fuel source is insecure, heavily impeding raw material market from forming. (5) Poor economic benefits and simplex investment and financing channel Biomass industry is a strategic emerging industry. With its high investment, risk and absence of financial attractiveness, investment enthusiasm of social capitals is difficult to be stimulated, thus it can barely access to capital market. Diversified investment channels are yet to

77 form up. A vast majority of biomass energy enterprises are high-tech enterprises with assets thereof mostly intangible assets. In the absence of sufficient fixed assets for mortgage and guarantee, it is difficult to obtain bank loans, leading to simplex investment and financing channel of the industry, which mainly relies on government investment. With its small single project scale and significant technology spillover effect, the free rider problem in terms of technology is frequently occurred in biomass energy industry. Therefore, risks in renewable energy technology innovation are high and enterprises often are unwilling to invest large amount of funds. (v) Biogas/Biomethane The development of biomethane industry are highly depends on the conventional biogas industry. In biomethane industry, animal and poultry manure, stalks of crops, urban household garbage, industrial organic wastes and the like, are used as raw materials, from which biogas is obtained through anaerobic fermentation and then produces renewable fuel gas through purification with composition and caloric value thereof substantially identical to natural gas. The biomethane after purification has high energy grade, which allows it to be blent into conventional fossil energy supply system and thus achieve the goal of trinity of clean energy production, wastes control and ecological agriculture. Biogas and biomethane are described in this section from perspectives of industrial support policy, existing standards and technical specifications, current development status and major technical route. 1. Supportive policies of biogas/biomethane At present, among various policy measures promulgated in China, those which are applicable to biogas/biomethane industry include, among others, laws and regulations, industrial development planning and fiscal and taxation policies with respect to biogas. According to experiences of biogas/biomethane industry development, the promulgation and implementation of following policy measures have provided assurances of a healthy development of the industry:

78 (1) Laws and regulations Currently, there are six laws & regulations promulgated in China which are related to biogas, including ―Agriculture Law of the People's Republic of China(2013)”; ―Regulations on Restoring Farmland to Forest of the People's Republic of China(2003)”, ― of the People's Republic of China(2010)” ―Energy Conservation Law of the People’s Republic of China(2016)”; ―Circular on Economy Promotion Law of the People's Republic of China(2009”), and “Regulation on the Prevention and Control of Pollution from Large-scale Breeding of Livestock and Poultry(2014)”. The promulgation of these laws and regulations has guided the development of the biogas industry and provided legal protection for the raw material supply, technology development and product application of the biogas industry. Also, it provides legal basis for the formulation of corresponding development plans, management regulations and fiscal & taxation policies by various functional departments and local governments. (2) Industrial planning Starting from 2015, the national government has successively issued a series of development plans for the "13th Five-Year Plan", of which many plans are closely linked to the future development of the biogas industry

In May 2015, the Ministry of Agriculture promulgated the ―National Plan for Sustainable Agricultural Development (2015-2030)”, which will become the programmatic document guiding the sustainable development of agriculture in the future. The Plan explicitly indicates that, in future, a series of key projects, including water and projects, agricultural and rural projects, agricultural and ecological protection and restoration projects, pilot demonstration projects, etc., will be developed and implemented to comprehensively consolidate the material basis for sustainable agricultural development. It is clearly stipulated that, when developing agricultural and rural environmental governance projects, large-scale energy utilization of livestock and poultry farms and construction of organic fertilizer plant need to be developed and implemented.

79 On July 20, 2016, the National Energy Administration consulted with relevant agencies such as the Development and Reform Commissions, the Energy Bureaus and development enterprises of various provinces (autonomous regions and municipalities) on the "Guidance Note on Promoting Industrialization of Bio-methane (Draft for Comment)". The "Guidance Note" provides a new direction for the development of biomass energy industrialization. In October 2016, the National Energy Administration issued the "13th Five-Year Plan for Biomass Energy Development" and proposed to vigorously promote the large-scale development of biomethane. By 2020, the annual utilization of biomethane will reach to 8 billion cubic meters, and 160 biomethane demonstration counties and recycling agriculture demonstration counties will be established. In January 2017, the NDRC and the Ministry of Agriculture jointly promulgated the "13th Five-Year Plan for National Rural Biogas Development." As indicated in the Plan, the total rural biogas production in China will reach to 20.7 billion cubic meters and the production of biogas manure will reach to 97.51 million tons by 2020, with a total number of 197 large-scale biogas projects. On May 31, 2017, the General Office of the State Council issued a ―Guidance Note on Accelerating Resource Utilization of Livestock and Poultry Wastes” (Guobanfa [2017] No. 48), stressing once again that the utilization of livestock and poultry farming waste shall be fully promoted as the main sources for biogas and biomethane production".

In July 2017, the Ministry of Agriculture issued “Action Plan for the Utilization of Livestock and Manure Waste (2017-2020)” ([2017] No. 11), stating that the development of livestock and poultry manure utilization should be intensified and accelerated，promoting the green development of animal husbandry. (3) Finance and taxation policies In China, financial supportive policies are made available for biogas industry in areas ofresource utilization, project construction and products,

80 mainly in the form of investment credits, subsidy and tax incentives. Investment credits: The national government included rural biogas-related construction in the scope of national debt support in 2003. The Ministry of Finance, Ministry of Agriculture, NDRC and other ministries have successively introduced policies including “Administrative Measures for Rural Biogas Construction Projects with National Debt (Trial Implementation)”, ―the Plan for the Construction of the National Rural Biogas Service System (Trial Plan); and the ―Circular on Construction Plan for Cultivation Communities and Joint Household Biogas Pilot Projects”, and formulated investment credit standards. For large and medium-sized biogas projects, the amount of the credits from central government shall be determined depending upon the volume of the fermentation device in principle. In western region, the credits from central government amounts to 45% of the total investment, totaling up to RMB 2 million; in central region, the credits from central government amounts to 35% of the total investment, totaling up to RMB 1.5 million; in eastern region, the credits from central government amounts to 25% of the total investment, totaling up to RMB 1 million. In the meantime, in principle, local governments in the western, eastern and central regions invest no less than 5%, 15% and 25% of the total investment respectively in the projects that apply for investment credits from central government. By 2014, the national government has invested RMB 37 billion on a cumulative basis to support the development of agricultural biogas industry. In 2015, the Ministry of Agriculture and the NDRC jointly promulgated the ―Work Plan for Transformation and Upgrading of Rural Biogas Projects in 2015”, explicitly stating that a batch of large-scale biogas projects will be constructed in 2015, and pilot large-scale biomethane projects will be implemented. The central government will provide investment credits to eligible large-scale biogas projects and large-scale biomethane pilot projects, as per following standards: for a large-scale biogas project, RMB 1,500 per cubic meter of biogas production capacity; for large-scale biomethane project, RMB 2,500 per cubic meter of biomethane production capacity. Upper limit of quota for the credit is

81 RMB 50 million per single project. Subsidy of feed-in tariff of biogas-to-power generation：The national government has started to provide feed-in tariff for grid-connected power generation technologies since enactment of the "Renewable Energy Law" in 2006. NDRC and other ministries have issued a number of documents including the ―Administrative Provisions on Renewable Energy Power Generation”; ―Trial Measures for the Management of Prices and Allocation of Costs for Electricity Generated from Renewable Energy”; ―Interim Measures for the Provision of Additional Income from Renewable Energy Tariffs”; ―Circular on Perfection of the Price Policy of Agro-forestry Biomass Power Generation”; ―Regulatory Measures for Grid Enterprises' Full Purchase of Renewable Energy Electricity, stating in details the subsidy measures for grid-connected power generation of renewable energy and standardized management thereof. Price standards is benchmarking on-grid tariff of coal-fired FGD units plus feed-in tariff of provinces (autonomous regions and municipalities) in 2005, of which standards for feed-in tariff is RMB 0.25 per kilowatt hour. Preferential tax policies: Since 2001, the State Administration of Taxation and the Ministry of Finance have released documents on a number of occasions to continuously adjust the tax rebate policy for products produced from agricultural and forestry residues as raw materials. The ―Circular on Adjusting and Improving the Value-added Tax Policies for Products and Labor Services that Comprehensively Utilize Resources” was issued in November 2011, stipulating that the policy of 100 % immediate collection and refunding of value-added tax on electricity, heat and fuel products produced from the biogas generated from the fermentation of agricultural and forestry resources be implemented. Organic fertilizer produced from biogas slurry can enjoy the policy on exemption of VAT as stipulated in the ―Circular on Exemption of Value-added Tax on Organic Fertilizer Products” issued by the State Administration of Taxation and the Ministry of Finance 2. Standards and technical specifications of biogas/biomethane By the end of 2015, a total of 55 national and industrial standards for all

82 types of biogas have been in effect in China, including 1 standard practice and criteria, 21 household biogas standards, 19 biogas project standards, 4 standards regarding biogas digester for sewage treatment, 5 digestate treatment standards, 2 biogas power generation standards, 1 feedstock collection, storage and transportation standard, and 2 biomass fertilizer standards. Among these 55 standards, there are 5 national standards and 50 agricultural industrial standards. These standards involve terminology, digester atlas, construction acceptance norms, comprehensive utilization of biogas and associated products, biogas projects, biogas development modes and more. At present, China's biogas standard system has been initially formed. The standards thereof related to the construction of large-scale biogas projects are shown in Table 15.

Table 15 Standards and Technical Specifications for Biogas/Biomethane

NY/T 667 Classification of Scale for Biogas Engineering NY/T 858 Biogas Pressure Meter NY/T 1220.1 Technical Code for Biogas Engineering - Part 1: Process Design NY/T 1220.2 Technical Code for Biogas Engineering - Part 2: Design of Biogas Supply NY/T 1220.3 Technical Code for Biogas Engineering - Part 3: Construction and Acceptance NY/T 1220.4 Technical Code for Biogas Engineering - Part 4: Operation Management NY/T 1220.5 Technical Code for Biogas Engineering - Part 5: Evaluation of Quality Main industrial NY/T 1221 Technical specification for operation maintenance and safety of standards biogas plant in scale animal and poultry farms NY/T 1222 Criteria for designing of biogas plant in scale livestock and poultry breeding farms. NY/T 1700 Determination of Methane and Carbon Dioxide in Biogas - Gas Chromatography NY/T 1916 Technical Specification of Fixed Discharge Facilities for Digested Sludge and Slurry NY/T 2065 Technical Code for Application of Anaerobic Digestate Fertilizer NY/T 2139 Processing Equipment of Anaerobic Digested Fertilizer NY/T 2141 Construction Operational Regulation of Crop Straw Anaerobic Digestion Engineering NY525-2012 Organic Fertilizer

In terms of large-scale biomethane projects, the “2015 Agricultural Biogas Project Transformation Program” stipulates that the large-scale

83 biomethane project utilization system shall comply with the standards of the ―Code for Design of City Gas Engineering (GB50028)‖, the ―Code for Construction and Acceptance off City and Town Gas Transmission and Distribution Works (CJJ33)‖ and other standards. In addition, ultra-large scale biogas projects shall be equipped with monitoring system, which shall comply with the “Technical Specifications for Biogas Remote Information Management”. 3. Current development status of biogas/biomethane Biogas production and utilization in China can be traced back to the 1950s and 1960s. With change of people's life style and increasingly advanced biogas technology, China‘s biogas industry has undergone several development phases as follows: household biogas - large and medium-sized biogas - biomethane. At present, biomethane is in the early stages of its development. (1) Industrial scale At present, the biogas industry in China has formed a layout in which household biogas, joint household centralized gas supply and large-scale biogas are jointly growing. The utilization of biogas is in the form of a multiple utilizationin rural domestic gas supply, captive biogas power generation, biogas CHP and grid-connected power generation, biogas purification for production of pipeline gas and automotive gas. Despite that, scale of biogas purification industry remains small. By the end of 2014, there have been 43.8 million biogas users nationwide, and the nationwide large-scale biogas projects have grown to 103,000. It is estimated that the national rural biogas projects can process 2 billion tons of manure, straw and household garbage annually, with an annual production capacity of up to 16 billion m3, an annual savings of over 26 million tons of standard coal and an annual reduction of 63 million tons of carbon dioxide. Classification criterion of large-scale biogas projects are listed in Table 16.

84 Table 16 Classification Criterion of Large-scale Biogas Projects in China

Total volume Daily Unit volume of anaerobic Project biogas of anaerobic digestion Associated system Scale output Q digestion device V (m3/d) device V (m3) 2 1 (m3) Pretreatment system with complete fermentation feedstock; feeding and discharging system; temperature increasing, thermal insulation and mixing system; biogas purification, Ultra-large V V storage, transmission & distribution scale Q≥5000 1≥2500 2≥5000 and utilization system; metering devices; safeguarding system; monitoring system; digestate comprehensive utilization or post-treatment system Pretreatment system with complete fermentation feedstock; feeding and discharging system; temperature increasing, thermal insulation and Large mixing system; biogas purification, 5000>Q≥ 2500>V 5000>V scale 500 1≥ 500 2≥500 storage, distribution and utilization system; metering devices; safeguarding system; monitoring system; digestate comprehensive utilization or post-treatment system Pretreatment system with complete fermentation feedstock; feeding and discharging system; temperature increasing, thermal insulation and mixing system; biogas purification, Medium 500＞ 500>V1≥300 1000>V2≥300 storage, transmission & distribution scale Q≥150 and utilization system; metering devices; safeguarding system; monitoring system; digestate comprehensive utilization or post-treatment system Fermentation feedstock metering, feeding and discharging system; temperature increasing, thermal insulation and mixing system; biogas Small 150＞ purification, storage, transmission & 300>V1≥20 600>V2≥20 scale Q≥5 distribution and utilization system; metering devices; safeguarding system; monitoring system; digestate comprehensive utilization or post-treatment system The above table shows that China's biogas projects are mainly in small scale, mostly in rural households or small-scale centralized gas supply and other non-profit mode of operation. Large-scale biogas projects only account for a small propotion, of which biogas projects in livestock and

85 poultry farms with single digester capacity above 1,000m3 only account for around 5% of total large-scale biogas projects in China. Although the scale of single industrial organic waste biogas projects are generally more than 2,000m3, the number of projects is small, accounting for about 10% only. The large-scale biogas projects constructed in China mainly adopt animal manure and straw as major feedstock, a vast majority of which adopts medium-temperature CSTR anaerobic fermentation process. Presently, China has been able to carry out design, construction and operation of the entire biogas project including pretreatment, anaerobic fermentation, biogas transmission and distribution, fertilizer production and digestate post-treatment for different feedstock. In terms of biogas equipment, China has successfully developed biogas power generation units and produced mature product families of anaerobic fermentation tanks, automatic control system, biogas desulphurization and dehydration equipment, and biogas liquid-solid separation device, etc. After development over decades, enterprises such as Qingdao Tianren, Hangzhou Energy Environmental Engineering Co., Ltd., Beijing Deqingyuan Agriculture Technology Company Limited, and BeijingYingherei Co., Ltd etc. have gained extensive experiences in construction and operation management of medium- and large-scale biogas projects. Since 2015, the NDRC, jointly with the Ministry of Agriculture, have been actively promoting the transformation and upgrading of biogas projects. In that year, it supported the construction of 386 large-scale biogas projects in suitable geograghic areas as well as the development of pilot projects for large-scale biomethane. It approved construction of 25 additional biomethane gas projects with daily production output above 10,000 cubic meters, allowing for an annual additional biogas production capacity of 487 million cubic meters (equivalent to biomethane gas production capacity of 192 million cubic meters) and annual processing capacity of 1.5 million tons of crop straw or 8 million tons of fresh animal and poultry manure and other agricultural organic wastes.

86 (2) Application of biogas/biomethane At present, China's biogas is mainly used for residential gas supply. Gas consumption of rural residents accounts for more than half of biomethane utilization with a minority thereof for purification for use as city and vehicle fuel gas. In 2015, the annual biogas production capacity of domestic biogas projects was 2.5 billion cubic meters, with a supply of centralized gas to 2.90 million households, as well as installed power generation capacity of 220 million kW and annual generating capacity above 570 million kWh. The main utilaization of biogas/biomethane is as follows: Centralized gas supply: In order to address the problem of energy use in rural areas, the biogas generated from most of the existing biogas projects in China is dehydrated and desulfurized, and then delivered to rural households for cooking through the laid gas transmission pipeline network. Over years, most of the biogas projects funded with government bondby the Ministry of Agriculture have been used for centralized gas supply. In 2015, the number of biogas users of ultra-large and large-scale biogas projects in China hit 12,000 and 630,000 respectively.

Biogas power generation: China‘s biogas power generation technology R&D can be traced back to more than 3 decades ago with biogas power generation initially only serving as captive power source in breeding farms. In 2009, China‘s first domestic biogas project utilizing biogas for power generation, the Beijing Deqingyuan Biogas Project, formally generated power and was grid-connected. Afterwards, the domestic grid-connected biogas power generation projects including Inner Mongolia Mengniu and Shandong Minhe Projects are successively constructed. At present, installed capacity of China's ultra-large and large-scale biogas projects has reached 140,000 kW with a total power generation of 380 million kWh, of which installed capacity of the grid-connected biogas power generation projects has reached roughly above 20,000 kilowatts Vehicle fuel: The application of biogas purification is still in its infancy in China. China's first vehicle biogas purification project, large-scale

87 automotive biogas project of Henan Zhongdan Biomass Energy Company in Anyang, Henan Province, has been commissioned and put into production with annual treatment capacity of 185,000 tons of organic wastes and annual automotive gas production capacity of 4 million cubic meters. Since 2014, the Ministry of Agriculture and the NDRC have jointly promoted the transformation and upgrading of large-scale biogas projects. A number of large-scale biogas and biomethane projects have been set up, commissioned and put into production. By 2015, the number of large-scale biogas projects in service has reached to 34 with annual biogas production volume of 127 million cubic meters. In most of these biogas projects, biomethane is produced upon purification and used as automotive fuel or directly integrated into the natural gas pipeline network. 4. Main Technical Route of Biogas/ Biomethane A biogas project refers to a complete set of engineering facilities, which is used to produce biogas from organic wastes by applying anaerobic fermentation, as well as to control pollution. The main technological process includes five parts: the pretreatment, anaerobic fermentation, biogas purification and transport, post-treatment of fermentation residue (biogas slurry and biogas residue) and monitoring information subsystems for whole system, as shown in Fig. 9. Domestic biogas projects are mainly used for treatment of livestock and poultry droppings and rinse water. In recent years, the mixtures of crop straws with livestock and poultry droppings have been adopted as feedstock in super-large or large biogas projects, with crop straws mainly being maize straws. The core technology of biogas project is anaerobic fermentation technology. In addition, with the development of biological natural gas, biogas purification technology has been paid more and more attention and has made continuous progress and development.

88

Figure 9 Process Flow Diagram of Biogas Project

(1) Anaerobic Fermentation Technology According to different fermentation materials, it can be divided into livestock and poultry manure, industrial organic waste, straw and mixed raw materials. The biogas projects in China mainly treat the manure from livestock and poultry farms. The development of biogas technology that using straw as raw material started in 2007 with main raw material being maize straw. At present, the technology is still in initial development stage, and about 10 biogas projects in considerable scale that using straw have been built and under the normal operation nationwide; in addition, China has set up 16 pilot projects in 13 provinces (municipalities or autonomous regions). The biogas technology of using multiple raw materials is still in research stage, with raw materials mainly being a mixture of livestock and poultry droppings, straws and residues of fruits and vegetables. According to different anaerobic digestion processes, it can be divided into continuous stirred tank reactor (CSTR), plug flow anaerobic reactor (HPFC), upflow anaerobic sludge bed (UASB), upflow solids reactor (USR), anaerobic contact (AC) process, anaerobic sequencing batch reactor (ASBR), anaerobic baffled reactor (ABR), upflow blanket filter (UBF), internal circulation anaerobic reactor (IC) and expanded granular sludge bed (EGSB) reactor, etc. Among them, the most widely used techniques are CSTR and USR, which accounting for more than 65% of total engineering work in biogas projects that used livestock and poultry

89 manure, and the mixed fermentation of multiple raw materials basically uses CSTR process. As to different anaerobic fermentation processes, the comparisons of their requirements for materials as well as their advantages and disadvantages are shown in table 17.

Table 17 Comparisons of Technological Characteristics of Different Anaerobic Fermentation Processes

Applicable Fermentation Material Advantages Disadvantages process Varieties The materials in digester is The digestier can't make evenly distributed to avoid SRT and MRT greater than the stratification state, thus HRT while it is running, increasing the contact of therefore it requires a larger substrate and volume; the stirring shall be microorganism; the Suitable for sufficient, so its energy temperature distribution in treatment of high consumption is high; the digester is even; The concentration or large-scale digester for CSTR inhibiting substances that high content of entered the digester can production purpose can‘t suspended solid ensure complete-mixing; disperse rapidly and materials When substrate is flowing maintain a low level of out of the system, it has not concentration; such been fully digested, and phenomena as scumming, microorganisms are crusting, blockage, gas running away with the escape and short flow, are discharged substance. avoided. Solids may be deposited at the bottom of digester and affect its effective volume, Suitable for the thus reducing HRT and treatment of SRT; it needs the reflux of waste with high Simple structure and low solid and microorganism to SS (suspended energy consumption; HPFC serve as inoculum; since solid) content, convenient operation, less surface-to-volume ratio of especially for the failure, and high stability. the digester is large, it is digestion of cow difficult to maintain dung. consistent temperature, and efficiency is low; it is susceptible to crusting. Except for three-phase Three-phase separator is segregator, the structure of required; the effective digester is simple, without water distributor is required stirring device and filler; to make thefeeded material the long SRT and MRT be distributed evenly at the Suitable for the enables equipment has high bottom of digester; SS UASB、EGSB、 treatment of farm load rate; the formation of content in feeding water IC、ABR wastewater with granular sludge makes the requires to be low; it is easy low SS content. microorganism be to lose solids and immobilized and increases microorganisms at high the stability of the process; hydraulic load or high SS the SS content in effluent is load,technical requirements low. for operation are high.

90 Applicable Fermentation Material Advantages Disadvantages process Varieties Suitable for raw materials with high SS contents; can be used for Simple structure, and treatment of USR suitable for raw materials alcohol waste, with high suspended solids livestock and poultry droppings and so on. According to material status in reactor, it can be divided into liquid digestion, solid digestion and solid-liquid two-phase digestion. Liquid digestion refers to anaerobic digestion process implemented by the straw materials under the condition of flowing water, which is represented by the complete mixing process and autogenous-carrier biofilm anaerobic digestion process. Solid digestion means straw anaerobic digestion process under the condition of no flowing water or almost no flowing water, which is represented by membrane-covered trough dry process mainly with sequencing batch charging, garage (container) type and red-sludge plastic anaerobic digestion process. Solid-liquid two-phase anaerobic digestion refers to the process of anaerobic digestion in different devices by solid and liquid fermentation materials, which are represented by the anaerobic digestion techniques with separated two phases and the integration of two phases. (2) Technology of Biogas Purification

The main combustible component of biogas and natural gas is CH4; however, they have significant differences both in component composition and content, so in most cases biogas cannot replace natural gas directly. The experiment shows that when the content of CH4 in biogas is more than 95%, it can reach the level of natural gas after purifying wobbe index of biogas. Therefore, the primary goal of biogas purification is to remove CO2 from biogas, and next to remove H2S. With the development of biogas purification technology, today the technology methods of pressure water washing, chemical absorption, PSA and membrane separation have already been commercialized. The technical

91 performance comparison can be seen in Table 18.

Table 18 Comparisons of Different Technologies of Biogas Purification

Physical Amine Water Washing Parameters Organic Absorption PSA Method Method Solvent Process Process CH4 volume fraction % 95.0-99.0 95.0-99.0 >99.0 95.0-99.0

Methane recovery /% 98 96 99.6 98 Typical distribution 4-8 4-8 0 4-7 pressure Consumed electric 0.46 0.49-0.6 0.27 0.46 energy Need of heating and Medium - High 120-160°C - temperature level 70-80°C Need of desulfurization Subject to process Need Need Need Activated Antifoulant, Organic solvent Ammonia solution Required consumables carbon desiccant (nontoxic) (toxic, mordant) (nontoxic) Within the range of 50-100 50-100 50-100 85-115 fluctuation Number of projects can Many Few Medium Many be taken for reference

Among these methods, pressure water washing and PSA are the two methods mostly used in Europe due to their comprehensive advantages in

CH4 content of produced natural gas, CH4 recovery rate, energy consumption, refining costs and technical maturity. Each of the two technologies accounts for about one-third of biogas purification market share in Europe. The method of membrane separation is in early stage of development and with the continuous improvement of technology and further reduction of cost, there should be a greater space for its development. 5. Existing Problems and Obstacles in Heat Supply by Utilization of Biogas/ Biomethane (1) Unsound Guarantee System of Material Supply At present, a system for collection, storage and transport of crop straw has been established preliminarily in China; however, the system for collection, storage and transport of multisource raw materials used in large-scale biogas engineering is still not established. The technical standards and norms for collection, transport and storage of raw materials,

92 such as livestock and poultry waste, rotten vegetable leaves, municipal sludge, etc., are urgently needed to be improved. (2) Low Operational Efficiency of Biogas Engineering Compared with developed countries in biogas utilization, the operational efficiency of Chinese biogas engineering is not high with low volume loading rate, which limits the profits of Chinese biogas engineering and constrains its sustainable development. Meanwhile, China is lack of technical reserve in respect of key and core equipment of this industry. As a result, the equipment manufacturing level cannot meet the needs of the industrial development, and the original development mode mainly focuses on the practice of technology import before absorbing it gradually. At present, there is still a certain gap between the domestically-produced large-scale core equipment for generating biogas and similar foreign products, particularly in terms of biological gas technology and equipment, there is a big gap compared with the international advanced level. In China, there is a lack of core technology and equipment, including fermentation technology with high volume loading rate and complete sets of equipment, high efficient biogas purification equipment, and effective treatment or comprehensive utilization technique of biogas slurry. (3) Deficient Manufacturing Capacity for Core Equipment and Delayed Popularization of Biogas Projects At present, the Chinese manufacturing technology level of biogas equipment is low, with single variety or lack of varieties, poor durability, poor product compatibility, plus that many technical bottlenecks in terms of oversize reactor design, power generation and heat exchange equipment, feeding and discharging of high solid materials fermentation, solid-liquid separation and mixing equipment, etc. have not been resolved or broken through, and automation level of support equipment for conveying and mixing raw material, materials feeding and discharging, etc. is low. All these factors have limited the rapid popularization of biological gas engineering, causing the relatively backward development.

93 (4) Market Barriers to Biomethane The purified biogas is basically identical with natural gas in composition and , and biogas has been successfully purified and compressed for sale at natural gas filling stations in individual areas. Under the circumstances of an enlarging supply gap in domestic natural gas resources and heavy dependence on imports, the conditions for purifying biogas and bringing it into natural gas pipeline network are available from the perspectives of both technology and market demand; however, the effective policy support has not been formed in industrial management level, and regulatory procedure for incorporating the purified biogas into natural gas market has not yet been established, making it difficult to open the promising market of biomass fuel gas rapidly and efficiently. Thus, the development of biogas industry has been constrained to a certain extent. The existing special fund of biological gas for treasury bond is the most important funding source to support the development of biological gas, but it stipulates that the fund must support the construction of biological natural gas project with farm as the owner, and limits the construction of large and medium-sized biological gas engineering by energy investment company that specializes in this sector, which is not conducive to the specialized development of the industry. In addition, since the franchise rights of gas have been granted in cities at prefecture level or above and most of counties nationwide, there is a phenomenon that some enterprises having obtainted franchise rights put downward pressure on lowering the prices of biological gas, thus it is extremely urgent to remove structural and institutional obstacles. (5) Desired Improvement of Industrial Service System For biogas engineering that uses fecal residue and waste water, it has always been lack of technical specifications, product standards, and testing and certification service system of products in terms of design process, equipment manufacturing technology, etc., and the existing standard fails to serve as effective guidance for biogas project construction. The inadequate industrial standard and service system has caused numerous problems, such as quality varies in different projects,

94 energy consumption for construction and production is high, low production efficiency, high failure rate, poor compatibility, smooth operation all the year round cannot be achieved; all these have constrained the healthy, sustained and steady development of this industry. Therefore, it is urgent to improve the practicability of existing industry standard and establish the design standard of engineering construction and product testing and certification service system. (6) Lack of Vitality in Biogas/ Biomethane Market The poor economic benifet has severely constrained the scale development of biogas engineering. Currently, the initial investment in biogas power generation engineering is still large, especially the cost of biogas production and power generation is high with the cost for installed capacity of per kilowatt amounting to RMB 20,000-30,000, and high capital investment is unaffordable for animal farming enterprises. Most of the existing biogas projects are not profitable, the produced biogas and electric power are mainly for self use, and various products of biogas engineering have not yet been circulated on the market. For medium-sized biogas power generation project (installed capacity is less than megawatt grade), it is difficult to integrate with power grid, investment cost is high and it is hard to get subsidies, resulting in a too long investment payback period. At the same time, the market demand of biogas industry remains in a lower level. The lack of comprehensive supporting measures and market orientation, poor economic performance and low enterprises' enthusiasm, have affected the comprehensive benefits of biogas engineering. In term of biogas users, with the increase of mobile rural labor force, the improvement of popularization of commodity energy as well as the gradual decrease of free-range farming, many biogas generating units are not functioning well or even have been abandoned. In term of farm biogas engineering, since the comprehensive utilization ratio of biogas, biogas residues and biogas slurry is not high, operational benefit of biogas project is poor, breeding scale fluctuates greatly due to influence by market, and it is difficult to ensure the supply of raw materials. As a result, some biogas projects are in a state of half shutdown.

95 (7) Policy Issues For a long time, the national support for biogas engineering mainly reflected in subsidies for upfront investment. The support mode is unitary with a big shortage of fund; the cooperation mechanism between governmental and social capitals has not been effectively established, social funds invested in construction and operation of biogas engineering are insufficient, the amplification effect of governmental investment has not been given full play. There is a lack of policies in such aspects as agricultural waste treatment charges, subsidies for end products, guaranteeing the purchasing of biological natural gas products, and product circulation, etc. A robust system of supportive policies has not been established.

96 IV. Selected Cases of Biomass Heat Supply in China

To further understand the current status on the development of Chinese biomass-to-heat industry, the Project Team has conducted site investigations for a total of 18 selected biomass-to-heat projects (as shown in Appendix I) including biomass combined heat and power supply, BMF-to-heat, biomass gasification-to-heat, and biogas-to-heat as follows.

(i) Selected Biomass-based CHP Projects 1. CECEP (Yantai) Biomass-based CHP Project (1) Project Overview The Yantai Biomass-based CHP Project is owned by CECEP (Yantai) Biomass CHP Co., Ltd., which is the first biomass CHP enterprise in Yantai City, Shandong Province. Construction of the project commenced in October 2010 and was synchronized for power generation in March 2012, wiith a total investment of RMB 420 million, the designed power generation capacity of 180 GWh/year, and a heating capacity for 3 million square meters. The project was constructed in two phases. During phase one, 2x75t/h sub-high temperature and sub-high pressure CFB boilers and 2x15MW steam-extracted condensing steam turbine generators were built, and during phase two, an additional backup boiler was built for the purpose of improving the reliability of heat supply in winter. At present, the project provides centralized heat supply for the urban area of Qixia City in winter. In 2016, the project covered a total heating network of 2.55 million square meters and provided heat supply service for a total area of 1.85 million square meters in winter. The project has generated a total of 730 GWh power, fed a total 620 GWh power into the power grid, and supplied a total of 2.7 million GJ heat since its operation. (2) Transport and Storage of Biomass Feedstocks The biomass feedstocks mainly include tree branches, fruit tree twig, waste wood and building templates, peanut shells and others which account for 33%, 25%, 25% and 13% respectively. The biomass 97 feedstocks are mainly purchased and supplied by brokers, the surrounding farmers in a small quantity, as well as other sources as a supplement. The maximum annual collection of biomass feedstock is up to 300,000 tons, with a unit cost of 260 RMB/t (for moisture content of 40%) or 340 RMB/t (for moisture content of 20%). (3) Technical Process The project is provided with two 75t sub-high temperature and sub-high pressure CFB boilers, equipped with two condensing steam turbines, which have a steam extraction at the pressure of 0.98MPa and the temperature of 300°C to meet the demand of the surrounding industrial users for heating. The second phase of the project is designed to supply heating for the residents around the urban area of Qixia City, and therefore, the turbine flow sections has to be transformed for heating with low-vacuum exhaust steam. Heating with low-vacuum exhaust steam uses low- or medium-temperature hot water as a base-load heat source and meets the peakload demand of city heating in combination with additional peaking units. (4) Operations and Management Though the steam turbine unit has adjustable bleed point to extract steam, it has no heat load in the practical operation. The turbine exhaust vacuum is deteriorated on purpose to heat the circulating water for heating with the turbine exhaust team. The heating circulation water is then piped to the users with a total heating area of up to 3 million square meters. CECEP (Yantai) Biomass CHP Co., Ltd. is responsible for the construction and management of the heat-supply piping system. The heat-supply piping system is equipped with three heat exchange stations, which connect to a total heating area of 2.55 million square meters. At present, the project provides centralized heating supply for the urban area of Qixia City in winter. In 2016, the project covered a total heating network area of 2.55 million square meters and supplied heating service for a total area of 1.85 million square meters in winter. The project has generated a total of 730 GWh power, fed a total 620 GWh power into the power grid, and supplied a total of 2.7 million GJ heat since its operation. 98

(5) Financial Analysis and Evaluation Table 19 shows the financial analysis of the CECEP (Yantai) Biomass CHP Project. The project has an average annual utilization of 6,281 hours, an average system thermal efficiency of 24% and a rate of return of -9.8%.

Table 19 Financial Analysis

No. Indicator Unit Value

x104 768 RMB/MW 1 Unit investment x104 917 RMB/MW Fixed cost x104 RMB 146 Operating 2 Variable cost (excluding fuel) x104 RMB 606 cost Fuel price (standard fuel) RMB/ton 340 3 Feed-in tariff RMB/kWh 0.75 4 Annual power supply x102 GWh 1.88 Base price RMB/m2 23 5 Heat price Governmental subsidies (decreasing on RMB/m2 4-0 a year basis) 6 Annual heat supply x104 GJ 68 8 Annual Electricity sales income x10 RMB 1.03 7 revenue Heat supply income x108 RMB 0.41 8 Rate of return % -9.8

Heat-electrici Yearly % 116.94 9 ty ratio In heating season % 335.85 10 Average system efficiency % 24% 11 Average annual utilization hours hours 6281

While the annual power generation is kept unchanged, the backup boiler is used as the secondary heating source and the turbine exhaust vacuum is deteriorated to a lower value for heating. Compared with pure condensing power generation, lower vacuum for heating requires a maximum increase of 66% in turbine steam flow and an increase of 20% in annual straws consumption (about 48,000 tons). The project has an average auxiliary power consumption rate of 13.6%, which is 13.3% higher than that under pure condensing conditions, with a heating area of 1.85 million 99 square meters and an annual power generation of 188 GWh. The average system thermal efficiency increases from 24% to 45%, but the rate of return is -9.8% due to the following reasons: 1) The equipment is relatively old and has relatively low system efficiency; 2) The project has a high unit construction investment and a great pressure of financial costs in the later period. Particularly, the project also has a large investment in the transformation of the heat-supply piping system, resulting in a higher debt. 3) The feedstock costs account for about 80% of the total operating costs for CHP projects, and higher feedstock costs directly increase the operating costs of the project. (6) Socio-economic and Environmental Benefits Environmental benefits: The CHP transformation of the project can reduce its fuel consumption by about 30,000 tons of standard coal, its

CO2 emissions by about 79,000 tons, its dust emissions by 289 tons, its

SO2 emissions by 494 tons and its NOx emissions by 469 tons per year. Socio-economic benefits: On the premise that the heating price is maintained and unchanged for residents, the project meets the heating requirements of nearly 3 million square meters building area in Qixia City, contributing to the improvment of the living quality of urban residents and playing a catalytic role in eliminating small coal-fired boilers in local communities. In addition, the CHP project will increase the demand for biomass which can generate more income for the neighboring farmers. 2. Nangong Biomass-based CHP Project in Hebei Province (1) Project Overview In 2012, 6 scattered heating enterprises were closed in Nangong City, meanwhile Huanhui Technology Group Co., Ltd. was introduced through investment attraction. Huanhui has invested, constructed and operated the heating supply project, and used the waste heat from Nangong Biomass CHP Plant for providing centralized heating supply for the urban districts. 100

The project was put into operation in November 2013, with a total investment of RMB 270 million. The first phase has an investment of 163 million RMB, with pipes totalling 60.4 kilometers long. Meanwhile, all heat distribution stations were reconstructed and 58 additional valve wells were built. During phsase one, the Nangong Biomass-based CHP Plant constructed a heating station, with a total investment of 12 million RMB. Huanhui Luneng Nangong Heat Supply Co., Ltd. was granted with franchise for providing centralized heating franchise for Nangong urban districts. At present, the heating network covers an area of 2.61 million square meters, of which heating services are acutally provided for an area of 1.59 million square meters, involving a total of 63 residential quarters and public buildings, and accounting for 70.15%. (2) Transport and Storage of Biomass Feedstocks The biomass feedstocks mainly consist of agroforestry residues, some construction wastes, and biological wastes, with straw accounting for 70% -90%. The biomass feedstocks are mainly purchased and supplied by brokers, the surrounding farmers in a small quantity as well as other sources as a supplement. The maximum annual collection of biomass feedstocks reaches to 300,000 tons, with a unit cost of 292.5 RMB/t (for standard fuel with a low calorific value of 2,500 kcal/kg). (3) Technical Process Nangong Biomass-based CHP Project is equipped with a 130t high-temperature and high-pressure grate fired boiler, and a condensing steam turbine generator. Low vacuum heating is used because of large heating demand in the surrounding area. The process only needs to transform the steam turbine exhaust so as to produce low-temperature hot water at a temperature of about 80°C for heating, with the characteristics of small construction amount, low cost, mature process and reliable operation. This project is often replicated in China. (4) Operations and Management Nangong Biomas-based CHP Plant uses a deteriorated vacuum and an auxiliary steam system to provide medium- and high-temperature hot

101 water for the heating system of Huanhui Luneng Nangong Heat Supply Co., Ltd. Nangong Biomass-based CHP Plant is responsible for the reconstruction of the equipment within the boundary of the power plant. The main reconstruction covers the steam turbine systems, the piping systems and the first-stage heating station. The heat supply price is 15 RMB/GJ, which is lower than the breakeven price of 18 RMB/GJ. Huanhui Luneng Nangong Heat Supply Co., Ltd. is responsible for the construction, operations and management of the piping system outside the boundary of the power plant. Up to now, a total investment of 93,939,500 RMB has been made in the reconstruction of the piping system. Maximum area of supplying heating covers up to 2.6 million square meters, but actual coverage area for supplying heatingis about 1.6 million square meters. Though Huanhui Luneng Nangong Heat Supply Co., Ltd. has reconstructed part of the old heat supply pipe, the remaining old pipes, which have not been reconstructed yet, still account for a large proportion and the problem of leakage and heat loss is serious. Huanhui Luneng Nangong Heat Supply Co., Ltd. has to bear substantial debts and interests to reconstruct the piping system. If not reconstructed, the piping system continues to cause severe heat loss and much higher operating costs then expected. (5) Financial Analysis and Evaluation The project has an average annual utilization of 7,600 hours and an annual power generation of 228 GWh and can basically realize its maximum power output. At the same time, the project uses deteriorated vacuum (low vacuum) process to provide medium- and high-temperature hot water heating for residential areas, with a heating area of about 1.6 million square meters. The project has an investment of RMB 12 million and an annual operating cost of about RMB 11 million. Compared with those under pure condensing conditions, the annual straw consumption is increased by about 16%, the auxiliary power consumption rate is increased by 1.5% and the average thermal efficiency is increased from 25.95% to 48% on the premise of no power generation loss, but the rate 102 of return is 15.11% because of the following reasons: 1) The expected straw price rise and heat price are too low when economically estimated. 2) The heat loss in the old piping system is too large, while the heat supply company has operating difficulties and the heat price cannot be adjusted upwards. 3) Straw price continues to rise, thus increasing the operating costs.

Table 20 Financial Analysis

No. Indicator Unit Value

x104 RMB 1 Unit investment 22 /GJ 4 Operating cost of Fixed cost + variable cost x10 RMB 1101 2 thermal power plant Including fuel price (standard fuel) RMB/ton 292.5 3 Feed-in tariff RMB /kWh 0.75 4 Annual energy production x102 GWh 2.28 5 Heat price charged by power plant RMB /GJ 15 6 Base price RMB /m2 22 Heating price Governmental subsidies RMB /m2 0 7 Heating area X104 m2 159 8 Power plant’s annual income for heat supply x104 RMB 915 9 Rate of return % -15.11% 10 Overall heat-electricity ratio % 98% 11 Boiler thermal efficiency % 87% 12 Average system thermal efficiency % 25.95 13 Average annual utilization hours hours 7594

(6) Socio-economic and Environmental Benefits Environmental benefits: The CHP transformation of the project can reduce its fuel consumption by about 27,000 tons of standard coal, its

CO2 emissions by about 71,300 tons, its dust emissions by 260 tons, its

SO2 emissions by 445 tons and its NOx emissions by 422 tons every year. Socio-economic benefits: The project involves 63 residential quarters and can meet the heating requirements of 2.61 million square meters building area in Nandu City (with an actual heating area of 1.59 million square meters). The project will help improve the living quality of urban

103 residents and play a catalytic role in eliminating small coal-fired boilers in local communities. In addition, the project consumes a large amount of biomass feedstock, mainly straws, and thus helps increase the income of the surrounding farmers. (ii) Selected Projects of Biomass Molding Fuel Heat Suppy 1. The BMF Heat Project of Xinglong Free Trade Zone in Changchun, Jilin Province (1) Project Overview The heat source plant of this project is located in the north section of Changchun Economic and Technological Development Zone, at the northeast corner of the intersection between Bingyi Street and Bingba Road, an area of 50,792 m2 is reserved for the centralized heat source plant in the north section of Changchun Economic and Technological Development Zone.

Figure 10 BMF Heat Project of Changchun Xinglong Free Trade Zone

According to the area heat load provided by the construction unit, and taking into consideration of the special heating plan for the north section of Changchun Economic and Technological Development Zoneas well as the heat supply piping route specified in the detailed control plan for Changchun Xinglong Free Trade Zone, Hongri Company has installed one 20t, one 10t and three 1t and one 2t biomass-fired boilers to meet the heating needs of the free trade zone since 2012, with a total of 23 heating exchange stations set up and each covering an area of about 200m2. The planned heating supply pipes extend to 11.9km long. The mobile biomass-to-heat technology is used to supply heating for the Joint Inspection Building, the Commodity Inspection Center, the Customs 104

Inspection Center, the main entrances to the Free Trade Zone, Nos. 2, 3 and 4 factory buildings and warehouses, with a total heating area of 500,000m2. (2) Transport and Storage of Biomass Feedstocks The project consumes densified solid biofuel of agroforestry residues, mainly consisting of wood, rice hulls and straw. The biomass feedstocks aretransported to the warehouses of the project for storage through centralized purchasing. The biofuel is transported by truck to the plant, where a closed storage yard and a closed dry shed are provided. The dry shed is 44m long, 50m wide and 7m high on average, with a storage capacity of 25,667t for 30 days operation at the maximum load and 42 days operation at the average load. Four 2.5t bridge grabs are provided in the dry shed for handling and loading of biomass. (3) Technical Process The project mainly uses layer-burning chain grate fired boilers arranged on double floors. The boilers are laid out from the front to the rear in the order of silos, boiler house, ID fans and dust collectors, flue duct and stack. Each boiler is equipped with a silo, from which the fuel falls into the charge hopper through a chute, and then spread into the furnace for firing through layer feeders. The boilers use balanced draft, and each boiler is provided with an ID fan. The flue gas is cleaned with a two-stage dust collector, then introduced into the flue duct with an ID fan and last discharged into the atmosphere through the stack. Figure 6 shows the technical process of the project.

Figure 11 Process Flow Diagram of BMF-to-heat Project of Changchun Xinglong Free Trade Zone 105

(4) Operations The project was constructed by Great Resource Company and operated in the mode of BOO. Main technical parameters: 1) Boiler efficiency: 86%; comprehensive thermal efficiency: above 90%; heat production: 21MW; 2) Boiler Supply water temperature: 115°C; return water temperature: 70°C; supply water pressure: 0.80MPa; total circulating water flow: 11850t/h; 5 high-efficiency 400SS94B type double-suction circulating pumps, 3 for operation and 2 on standby; diameter of supply water piping: DN800mm. 3) The project has an average annual utilization of 4000 hours and a design life of 10 years. (5) Financial Analysis The project has a total investment of RMB 12.85 million, with an equipment operation life of 5 years. The project is of clean-energy, supplying 100,000 tons of steam annually for enterprises, making RMB 2 million of economic benefits, saving 3,500 tons of standard coal, and solving the environmental problems, and at the same time giving good economic benefits. Table 21 shows the analysis of economic benefits, and Table 22 shows the analysis of sensitive factors.

Table 21 Analysis of Economic Benefits

No. Item Unit Quantity

x104 RMB 1 Unit investment 61.2 /MW

2 Annual operating cost x104 RMB 489.9

3 Fixed cost x104 RMB 133.5

4 Variable cost x104 RMB 356.3

5 Fuel cost RMB/t 620

106

No. Item Unit Quantity

6 Annual sales revenue x104 RMB 766.9

7 Rate of return % 22.56

8 Payback period yrs 3.66

9 Service life yrs 5

10 Total investment tax rate % 16.31

11 Internal rate of return % 23.48

Table 22 Analysis of Sensitive Factors

Project evaluation index Index Change rate After-tax Uncertain of financial No. factor uncertainty net present After-tax internal Sensitive Critical (%) value rate of return coefficient point

10 460.24 19% 4.26 5 312.43 16% 4.35 Unit 1 service price 0 164.24 13% 23.09 -5 16.06 10% 4.54 -10 -132.13 7% 4.68 10 -8.96 10% 2.67 5 77.64 12% 2.63 Unit 2 variable cost 0 164.24 13% 23.18 -5 250.85 15% 2.56 -10 337.45 17% 2.53 10 287.41 16% 1.81 5 225.83 15% 1.82 Service 3 area change 0 164.24 13% 120140 -5 102.66 12% 1.85 -10 41.07 11% 1.88 The analysis of sensitive factors show that the internal rate of return is only 13%, which is slightly higher than the cost of capital (the average cost of capital is 10%), and the service price has the greatest impact on the project. When the service price is reduced by 5%, the internal rate of 107 return is 10.34 %, the financial net present value is RMB 160,600, and the profits vary 5 times the price fluctuates. The costs also have great impact on the profits, which vary inversely nearly 3 times the costs fluctuate. All these indicate that the project has very weak anti-risk ability and needs supports from governments. (6) Social and Environmental Benefits As the heat source plant is located within a Class II environmental protection area, two-stage dust collectors are designed to clean the flue gas, with the SO2 and dust emissions further reduced. The total efficiencies of dust removal and SO2 removal can reach over 99.5% and 80% respectively. A total of 3,500 tons of standard coal can be saved, with the CO2 emissions reduced by about 9000 tons, and the contents of 3 SO2, NOx and particulates in the discharged flue gas reduced to 5 mg/m , 180 mg/m3 and 20 mg/m3 respectively, which meet the environmental requirements of the national standard Emission Standard of Air Pollutants for Boilers (GB 13271-2001). 2. FAW Fuwei Biomass BMF-to-heat Project in Changchun (1) Project Overview The heat source plant of the project is located in the yard of FAW Fuwei Company, No. 3458, Youth Road, Kuancheng District, Changchun, Jilin Province. According to the external heating load, load distribution and construction planning, Hongri Company built a heat source plant in 2015, with two high-temperature biomass-fired hot water boilers installed, one 7MW and one 10.5MW, with a total design heating capacity of 17.5 MW. The project can meet the heating demand of an area of 200,000 m2. (2) Transport and Storage of Biomass Feedstocks The biomass consumed in this project are mixed agro-forestry pellets purchased outside and processed in the captive factory, including wood pellets, rice husk pellets, straw pellets and the like. The biomass feedstocks are purchased in a unified way, transported to the warehouses of the project for storage.

108

(3) Technical Process The project uses the most advanced biomass-to-heat Swedish mobile boiler house technology and adopts distributed heating to meet the yearly increasing heating demand. The fuel falls into the charge hopper through a chute, and then spread into the furnace for firing through layer feeders. The boilers use balanced draft, and each boiler is provided with an ID fan. The flue gas is cleaned with the first-stage cyclone dust collector and the second-stage bag-type dust collector, then introduced into the flue duct with an ID fan and last discharged into the atmosphere through the 45m high stack. Figure 12 shows the technical process of the project.

Figure 12 Process Flow Diagram of Fuwei BMF-to-heat Project

(4) Operations The project was constructed by Hongri Company and operated in the mode of EPC. Main technical parameters: 1) Boiler efficiency: 82%; comprehensive thermal efficiency: above 90%; heat production: 17.5MW; 2) Biomass moisture content: 8%; biomass consumption: 3,000 t/yr; supply water temperature: 85°C; return water temperature: 60°C; supply water pressure: 0.80MPa; total circulating water flow: 661.7t/h; 2 high-efficiency circulating pumps, 1 for operation and 1 on standby; diameter of supply water piping: DN300mm. 109

3) The project has an average annual utilization of 3,120 hours and a design life of 8 years. (5) Financial Analysis The project has a total investment of RMB 3.576 million, an average annual profit of RMB 1.3906 million, a paid income tax of RMB 347,600 and an after-tax profit of RMB 1.0429 million. The rate of return on investment is 8.95%, the investment profit tax rate is 16.31%, the pre-income tax financial internal rate of return is 23.42%, the financial net present value is 5.1723 million RMB, and payback period is 4 years. Table 23 shows the analysis of economic benefits, and Table 24 shows the analysis of sensitive factors.

Table 23 Analysis of Economic Benefits

No. Item Unit Quantity

1 Unit investment x104 RMB/MW 20.5

2 Annual operating cost x104 RMB 223

3 Fixed cost x104 RMB 32.6

4 Variable cost x104 RMB 190.7

5 Fuel cost RMB /t 680

6 Annual sales revenue x104 RMB 280.7

7 Rate of return % 19.28

8 Payback period yrs 4

9 Service life yrs 8

10 Total investment tax rate % 16.31

11 Internal rate of return % 23.48

Table 24 Analysis of Sensitive Factors

No. Uncertain Change rate of Project evaluation index Index factor uncertainty (%) After-tax After-tax Sensitive Critical financial net internal rate coefficient point present value of return 10 178.08 26% 6.35 Unit 5 119.27 21% 6.52 1 service 0 60.46 16% 26.79 price -5 1.65 10% 7.03 -10 -57.16 4% 7.43 110

10 -14.79 9% 4.56 Unit 5 22.83 12% 4.43 2 variable 0 60.46 16% 25.43 cost -5 98.08 19% 4.21 -10 135.71 22% 4.14 10 102.83 19% 2.37 5 81.64 18% 2.40 Service 3 0 60.46 16% 56652 area change -5 39.28 14% 2.46 -10 18.09 12% 2.50 The analysis of sensitive factors show that the internal rate of return is only 16% (all the sensitive factors have kind of an increase due to higher fixed costs), and the service price has the greatest impact on the project. When the service price is reduced by 5%, the internal rate of return is 10.16%, the financial net present value is 16,500 RMB, and the profits vary 6 times the price fluctuates. The costs also have great impact on the profits, which vary inversely nearly 5 times the costs fluctuate. All these indicate that the project has very weak anti-risk ability and needs supports from governments. (6) Social and Environmental Benefits The project consumes a total of 2,970 tons of biomass, equivalent to 1,500 tons of standard coal, and reduces carbon dioxide emissions by

4,000 tons. The main pollutants are dust, SO2 and NOx. The flue gas is treated with a bag-type dust collector and then discharged through a no less than 45m high stack. The contents of SO2, NOx and Particulates in the discharged flue gas are reduced to 125 mg/m3, 156 mg/m3 and 11.9 mg/m3 respectively, which meet the environmental requirements of the national standard Emission Standard of Air Pollutants for Boilers (GB 13271-2014). (iii) Selected Projects of Biomass Gasification for Heat Supply 1. Jinan Shasan Village Biomass Gasification-to-heat Project (1) Project Overview Jinan Shasan Village Straw Gasification Heating Project is a small public project constructed through open tender by the Ministry of Agriculture in 2001, and was put into service in 2002. It has been operated stably for 15

111 years, equipped with a JQ-C400x2 biomass gasification unit, a 1000m3 wet biogas storage tanks with a total volume, supporting piping, gas stoves and other facilities to supply biogas for kitchen cooking of Shasan Village of 518 households. Figure 13 shows the JQ-C400x2 biomass gasification unit and the biogas storage tank.

Figure 13 JQ-C400x2 Biomass Gasification Unit and Biogas Storage Tank

In 2012, the existing equipment was repaired and the project was extended because of the aging of some equipment and the expansion of surrounding residents, with the heating for the village office building newly provided. The project has accumulatively consumed over 5,000 tons of straw and supplied nearly 10 million cubic meters of clean biogas, economically and cleanly substituting for coal firing and highly spoken of by the villagers.

Figure 14 Extension of Centralized Straw Gasification Heating Project in Shasan Village, Jinan

(2) Transport and Storage of Biomass Feedstocks Agro-forestry biomass has the characteristics of light weight, large volume, wide distribution and seasonal harvest. In view of these characteristics and the basic conditions of the present rural village access roads, the project adopts road transportation mode. At their idle time, the

112 farmers or individual purchasers collect the straw left in the field after harvesting, and transport the straw to the nearest transfer station where bricks and soil mass are removed from the straw and the straw is air dried (if necessary for quality), bundled or smashed for storage, and transported to the gasification site on demand. (3) Technical Process Straw is pretreated, then conveyed into a gasifier for pyrolysis gasification reaction and converted into a combustible gas, which, containing tar and ash, is fully cracked in a secondary cracking unit, cleaned in a high-temperature ash remover for removal of most of the ash, and then enters an anhydrous gas purification system. Dust, tar and other impurities are removed in the anhydrous gas purification system, delivered to a storage tank after cooling and pressurizing, and then distributed to the users for cooking or heating through a biogas distribution system. Figure 15 shows the technical process of the project.

1-Feeder, 2-Gasification reactor, 3-Cooling unit, 4-Vacuum pump, 5-Absorption tower, 6-Seperation tower, 7-Demist tower, 8-Water sealer, 9-Gas tank, 10-Flame arrester, 11-Gas distribution pipe nets, 12-Users

Figure 15 Process Flow Diagram of Biomass Gasification-to-heat Project in Shasan Village, Jinan

(4) Operations

The project uses rural straw brokers to establish biomass straw transfer stations within the surrounding area of the project site. Straw is collected and transported by farmers or individual purchasers to the nearest transfer station where straw is purified, air-dried, bundled or smashed in a

113 centralized way and transported to the gasification station on demand.

The manager of the gasification station is responsible for its operation and management, and prepares and implements the monthly, quarterly, yearly biogas supply plans according to the demand of the village. The instable supply of biomass fuel and the unreasonable logistics system cause high transportation costs and high labor costs, which seriously hamper the profitability of the biomass gasification project.

(5) Financial Analysis

The project is a rural livelihood project, which consumes rural straw to provide villagers with cleaning cooling fuel and centralized heating in winter at lower prices than those of municipal gas and municipal heating, and also bring some income and significant benefits to the local farmers. The project has a total investment of RMB 3.426 million, an annual operating cost of RMB 154,000, biogas sales revenue of RMB 198,500, and an annual LNG saving of RMB 251,500. Table 25 shows the economic accounting for centralized biogas supply, and Table 26 shows the economic accounting for centralized heat supply.

Table 25 Economic Accounting for Centralized Biogas Supply for Shasan Villagers

No. of households 518 1. Basic Data Use Cooking No. Item Unit Value 1 Rated biogas production m3/h 800 2 Yearly operating time days 365 2. Operating Costs 3 Daily operating time hours 2.27 4 Daily biogas production m3/d 1813 5 Annual biogas consumption m3/y 661745 6 Annual straw consumption kg/y 330873 7 Straw price RMB/kg 0.2 8 Annual straw costs RMB 66174.50 9 System power kW 60 10 Daily power consumption kW·h 135.98 11 Tariff RBM/kW·h 0.75 12 Daily electricity fee RMB 101.98 13 Annual electricity fee RMB 37223.16 114

14 Staffing Men 2 15 Average salary RMB /month 1500 16 Annual wage RMB /y 36000 17 Annual maintenance costs RMB 6000 18 Total costs RMB 145397.66 3. Sales Revenue 19 Biogas price RMB /m3 0.3 20 Annual biogas sales revenue RMB 198523.50 4. Annual Net Income RMB 53125.84 5. Farmers’ Straw Sales Income RMB 66174.50 6. Savings 21 LNG price RMB/kg 7 22 Annual LNG consumption kg 64284 23 Annual LNG costs RMB 449987 24 Savings (compared with LNG costs) RMB 251463

Table 26 Economic Accounting for Centralized Heat Supply for Shasan Villagers

Area 480 1. Basic Data Use Heating No. Item Unit Value 1 Rated biogas production m3/h 700 2 Yearly operating time days 120 2. Operating Costs 3 Daily operating time hours 0.46 4 Daily biogas production m3/d 320 5 Annual biogas consumption m3/y 38400 6 Annual straw consumption kg/y 19200 7 Feedstock price RMB/kg 0.2 8 Annual feedstock costs RMB 3840 9 System power kW 80 10 Daily power consumption kW·h 36.57 11 Tariff RBM/kW·h 0.75 12 Daily electricity fee RMB 27.43 13 Annual electricity fee RMB 3291.43 14 Staffing men 0 15 Average salary RMB/month 1500 16 Annual wage RMB /yr 0 17 Annual maintenance costs RMB 1500 18 Total costs RMB 8631.43 Equivalent to unit heating price for each heating RMB/m2 17.98 season (6) Social and Environmental Benefits The project can meet the demand of 518 households for centralized 115 biogas supply and the demand of the village office building for heating

480 square meters, saving about 120 tons of standard coal, reducing CO2 emissions by nearly 300 tons, SO2 emission by about 9 tons, and weakening the dependence on LNG. At the same time, the project can consume a large amount of straw, and effectively minimize the conditions of land occupation and disorder caused by straw disposal in villages and make the village appearance clean and tidy and improve the overall living environment in rural areas significantly, and also effectively improve the energy consumption structure in villages, increase farmers’ income, improve farmers' living standards and benefit farmers. The project is the first biomass gasification project for centralized biogas supply for more than 15 years in China. It has improved the development and utilization of rural biomass resources, and effectively optimized the utilization of rural resources, improved rural ecological environment, improve the life quality of farmers and promoted the pace of building small rural towns. In addition, the gasification station has been widely concerned by the governments and departments and industry insiders, and has accepted more than 1,000 governmental visits, inspections and media interviews. It has also accepted visits from the , , Nepal and other countries, and has become a leader and highlight in the field of biomass gasification in China, and has demonstrative significance and significant social benefits. 2. Buchang Pharmaceuticals Gasification-to-heat Project (1) Project Overview Under the supports and promotion of Buchang Pharmaceuticals Co., Ltd. and local governments, the first stage of Buchang Pharmaceuticals Gasification-to-heat Project was constructed in June 2015 and put into service successfully in May 2016, with an annual disposal of 51,000 tons of wet medicine residues, an annual utilization of 420,000 m3 biogas produced by the pharmaceutical wastewater treatment plant, an annual utilization of 180,000 m3 hawthorn seed distillation gas (waste gas produced in the pharmaceutical process). The project uses the technical process of “drying-gasification-steam generation” proposed by Shandong 116

Baichuan Tongchuang Energy Co., Ltd., to efficiently and rapidly realize the utilization of high-water-content medicine residues. Figure 16 shows the picture of Buchang Pharmaceuticals Gasification Heating Project.

Figure 16 Buchang Pharmaceuticals Gasification-to-heat Project

(2) Transport and Storage of Biomass Feedstocks The project uses the wet medicinal herb residues with an initial moisture content of more than 75% produced by Shandong Buchang Pharmaceutical Co., Ltd. as the biomass feedstocks, which mainly consists of the residual rhizomes and leaves of codonopsis, polygonatum, salvia, safflower, pine and others left after boiling in water or alcohol. The residues are transported to the storage shed with trucks and then conveyed to the underground hoppers with forklifts for real-time disposal of medicine residues in the factory and thus saving the costs of clearing and disposal. (3) Technical Process

The project uses the technical process of “biomass CFB gasification", including a pretreatment system, a pyrolysis gasification system and a high-temperature incineration system for steam generation. The technical process consists of storage, transportation, smashing and mechanical and thermal desiccation, and make wet medicine residues into biomass pellets meeting the gasification requirements. The dry medicine residues are fed through the feeder system into a CFB for gasification. The generated high-temperature gas is then fired with high-efficiency dense-phase and thin-phase burners to produce high-temperature flue gas. The heat of the flue gas is ultimately absorbed by a heat recovery boiler, an air preheater and an economizer to generate steam for the purpose of efficient use of medicine residues. Fig. 17 shows the technical process of the project.

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Figure 17 Process Flow Diagram of Buchang Pharmaceuticals Gasification-to-heat Project

(4) Operations The project was invested by Buchang Pharmaceuticals Co., Ltd., and contracted by Shandong Baichuan Tongchuang Energy Co., Ltd. in the mode of EPC to realize the clean utilization of medicine residues and residual energy in Buchang Zone. Main technical parameters: 1) Disposal capacity of wet medicine residues: 7.5 t/h; biogas production: 4000 m3/h; biogas production per ton of dry medicine residues: 2000 m³/t; gasification efficiency: 78%; and overall thermal efficiency: >90%. 2) Production capacity: 10t/h (steam) and 5200 kJ/m3 (biogas heat value). 3) The project has an average annual utilization of 7920 hours and a design life of 15 years. (5) Financial Analysis The project has a total investment of RMB 34.86 million, with an equipment operation life of 15 years. The project can realize the clean utilization of medicine residues and residual energy in Buchang Zone, supplying 42,000 tons of steam annually for the company and making RMB 8.9988 million of economic benefits, saving RMB 2 million for the removal and disposal of medicine residues each year and solving the environmental problems, and at the same time giving good economic benefits, saving energy and minimizing environmental pollution. Table 27 shows the analysis of economic benefits.

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Table 27 Analysis of Economic Benefits of Buchang Pharmaceuticals Gasification Heating Project

No. Item Unit Value

1 Steam Quantity required for drying 1t of water t/t 1.30

2 Water quantity removed per hour t/h 2.44 Steam energy required for drying medicine 3 t/h 3.17 residues 4 Net steam output per hour t/h 3.85 Cost of steam production with medicine 5 RMB /t 80.48 residues Cost of steam production with coal burning of 6 RMB /t 145.00 Shandong Buchang Pharmaceuticals Annual savings in cost of steam production 7 (cost of steam production with coal less that x104 RMB 208.56 with medicine residues) 8 Annual operating cost x104 RMB 376.00

9 Total investment in first phase x104 RMB 3486.00

10 Service life yrs 15.00

11 Annual depreciation cost x104 RMB 232.40 Savings of cost for removal and disposal of 12 x104 RMB 200.00 medicine residues per year 13 Payback period yrs 7.5

Table 28 shows the analysis of the construction investment, sales price, operating cost and output changes of the project.

Table 28 Analysis of Sensitive Factors

Project evaluation index Index After-tax Uncertain Change rate After-tax financial No. factor of uncertainty internal Sensitive Critical net present (%) rate of coefficient point value return

Basic 0 801.01 8.89 scheme

10 -446.2 7.54 12.76

-10 2048.22 10.48 Construction 1 investment 5 177.41 8.19 1.57

-5 1424.61 9.65

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10 2594.34 10.82 -8.84

-10 -992.32 6.87 2 Sales price 5 1697.67 9.86 2.18

-5 -95.65 7.89

10 352.44 8.39 35.38

-10 1249.58 9.38 Operating 3 cost 5 576.73 8.64 0.56

-5 1025.3 9.14

10 2360.85 10.57 -10.17

-10 -758.82 7.14 Output 4 change 5 1580.93 9.74 1.91

-5 21.09 8.02

The analysis of sensitive factors shows that the sales price has the greatest impact on the project. When the sales price is reduced by 5%, the internal rate of return is 6.87%, which is lower than the benchmark rate of return in the industry, and the financial net present value is -956,500 RMB. All these indicate that the project has very weak anti-risk ability and needs some supports from governments. (6) Social and Environmental Benefits The project can dispose of all the medicine residues, fully utilize the biogas and distillation gas, and thus can not only avoid and soil pollution caused by the medicine residues but also comprehensively utilize the residual energy in the factory, saving more than 4,000 tons of standard coal and reducing CO2 emissions by about

10,000 tons. The contents of SO2, NOx and Particulates in the discharged flue gas are reduced to 25 mg/m3, 116 mg/m3 and 8 mg/m3 respectively, which meet the environmental requirements of the national standard Emission Standard of Air Pollutants for Boilers (GB 13271-2014). The

120 wastes produced in biomass gasification can be used as fertilizer in the field and turned into treasure. The project is in line with the requirements of the national industrial policies and is an industry encouraged by circular economy. In response to the call of the state for low-carbon economy, the project implements the national strategy for sustainable development and improves the comprehensive utilization of resources. It is a project using the brand new technology of comprehensive medicine residue utilization. The project has a positive role in promoting the disposal of residues and wastes and the utilization of residual energy in Chinese medicine industry and the like. (iv) Selected Biogas Projects 1. Shandong Minhe Biogas CHP Project (1) Basic Information Shandong Minhe Biogas CHP Project is located in Penglai City, Shandong Province. It is invested and constructed by Shandong Minhe Animal Husbandry Co., Ltd. and is now operated and managed by Shandong Minhe Co., Ltd. The project mainly disposes of the chicken manure and sewage from the poultry farms of Shandong Minhe Animal Husbandry Co., Ltd. The project was constructed in two phases, with the first phase constructed in 2007 and put into service for power generation in 2009. The biogas production system has a total of eight 3,200 m3 anaerobic digestion (AD) tanks, with an annual biogas output of 10,950,000 m3. The power generator has an installed capacity of 3MW, with an annual generation of 21.9 GWh. The project is currently the largest biogas-fired grid-connected power generation project in China and has successfully applied for CDM. The second phase includes twelve 3,200 m3 AD tanks and now is in normal service, and the produced biogas is fed into the local natural gas pipeline after purification.

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(2) Transport and Storage of Biomass Feedstocks The project has the biomass feedstocks from 23 breeder poultry farms and 8 broiler poultry farms owned by Shandong Minhe Animal Husbandry Co., Ltd., with a daily chicken manure production of about 500 tons and a daily sewage production of about 500 tons. Shandong Minhe Biotechnology Co., Ltd. is responsible for the operations of project and has internal accounting arrangement with Shandong Animal Minhe Husbandry Co., Ltd. to purchase chicken manure from the poultry farms, which transport the chicken manure to the project site at the price of 50 - 60 RMB/ton. The sewage is treated free of charge. The TS content is about 9% - 10% in the chicken manure. (3) Technical Process The first phase of the project uses the CSTR process for anaerobic fermentation. The produced biogas is biologically desulfurized and then introduced into an internal combustion engine to generate electricity. Main technical parameters: 1) Daily treatment amount: 500 t/d of chicken manure (TS 9%-10%) and other agricultural wastes; 2) Process type: CSTR; 3) TS: 8% - 10%; 4) Fermentation temperature: medium temperature (38°C) 5) Gas production amount: > 1.5 m3/(m3·d); 6) Residence time: 26 days; 7) Design biogas output: 30,000 m3/d; 8) Designed power generation: > 60,000 kW·h/d Figure 13 shows the technical process of the project.

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Figure 18 Process Flow Diagram of Shandong Minhe Biogas CHP Project

Feedstock pretreatment. Chicken manure is placed into a hydrolysis tank, where it is acidified and hydrolyzed with sand and impurities removed. The hydrolysis tank is equipped with a submersible agitator, a sand scraper and a spiral sand remover. CSTR anaerobic fermentation. The project uses the CSTR process for anaerobic fermentation, including a total of eight 3,200 m3 AD tanks, which are paralleled in two groups for two-stage fermentation. The feedstocks stay in the first-stage tanks for 18 days and in the second-stage tanks for 6 days, totaling 24 days. The project is also equipped with a 2,000 m3 post-fermentation tank, where the feedstocks stay for 2 days. Each tank is equipped with a low-speed agitator at the top, thermally insulated and provided with a warming device, which utilizes the exhaust heat of the steam turbine to increase the temperature to a medium temperature of 38°C for fermentation. The project has a gas production of 123

1.5 m3/(m3·d). Fig. 19 shows the AD tanks. Biogas purification. The biological desulfurization process is used to 3 remove H2S in biogas. The project is equipped with two 8 m (biogas) / 3 (m ·h) desulfurization towers. After biological desulfurization, the H2S content in biogas can be reduced from the 3000 - 5000 ml/m3 to 200 ml/m3. Biogas-fired power generation. Biogas is pressurized, filtrated and dehydrated in the pre-treatment system, and then goes into internal combustion engines for power generation. The project is equipped with three 1MW GE internal combustion generators with a power generation efficiency of 38%. The thermal efficiency is 42%, the overall efficiency is 80% and the annual power generation is 21.9 GWh. Organic fertilizer production. The biogas slurry is discharged from the post-fermentation tank and stored in the biogas slurry tank as a raw material for producing organic water-soluble fertilizer. The biogas residues in the AD tanks are regularly cleaned and removed into a storage tank as a raw material for producing organic solid fertilizer.

Figure 19 AD Tanks of Shandong Minhe Biogas CHP Project

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(4) Operations and Management The first stage of the project is the largest biogas-fired grid-connected power generation project in China, and has been operated for six years since 2009. As the project is one of the few CDM biomass power projects in China, its CDM transaction was formally ended in 2014, which is one of the important factors to ensure the normal operation of the project. Currently, the company has no application for CDM or no other carbon trading. The second phase of the project has had its infrastructure construction completed, but has not been put into service because the company has not reached any agreement with the local natural gas supplier on the sales price of biogas. This shows that the normal operation of a biogas project requires the smmoth sale of natural gas so that the project can operate normally. Organic fertilizers are the products that the company is promoting at present. However, according to its marketing and sales promotion, it is hard for users to accept organic fertilizers, and it is difficult and expensive to lay out the sales network and promote organic fertilizers. However, according to the current marketing situation, organic fertilizers will become a new revenue source after CDM transaction, if they are normally sold. (5) Financial Analysis Investment. The project has a total of eight 3,200 m3 AD tanks, with a total installed power generating capacity of 3MW and a total investment of RMB 63 million, covering an area of 50 mu. The equipment investment accounts for about 70% of the total investment. The loan ratio is estimated at 70%, with a loan interest rate of 5.76%. Operating costs. The project has about 40 biogas equipment operators with an average annual salary of 38,000 RMB (including benefits). The feedstocks are mainly chicken manure purchased at the price of 50 RMB/t, with an annual disposal capacity of 180,000 tons. Sewage is transported by the poultry farms to the project site free of charge. The

125 costs of water and electricity for the project are about RMB 850,000 with other consumables for desulfurization, generator lubrication and others cost of about 470,000 RMB. The costs of maintenance are RMB 1.1 million at the rate of 1.5% of equipment investment. Depreciation is calculated according to the depreciation period of 20 years, with a salvage value of 5%. Benefits. The project mainly has two benefits. One is the electricity sales income, with an annual feed-in electricity of 21.9 GWh and a feed-in tariff of 0.6474 RMB/kWh. Another is the income from CDM transaction, equivalent to RMB 6.35 million /yr. Governmental financial subsidies. The project has obtained the national policy supports including tax preference and tariff subsidies, which are equivalent to about RMB 7.59 million each year, including RMB 1.48 million of VAT exemptions and reductions, RMB 630,000 of income tax exemptions and reductions, and RMB 5.48 million of power generation subsidies. Financial analysis. It is estimated that the project has a total annual operating cost (including depreciation) of RMB 16.93 million, an annual income of RMB 20.52 million, a gross annual profit of RMB 1.96 million and a net annual profit of RMB 1.31 million. Table 29 shows detailed estimations.

Table 29 Analysis of Costs and Benefits of Shandong Minhe Biogas CHP Project

No. Item Amount (x104 RMB) 1 Costs 1693.3 1.2 Wage 152.0 1.3 Fuel and power 1032.0 1.3.1 Chicken manure 900.0 1.3.3 Electricity fee 70.0 1.3.4 Water fee 15.0 1.3.5 Lubricating oil 20.0 1.3.6 Desulfurization cost 27.0 1.4 Maintenance cost 110.3 1.5 Depreciation 399.0 2 Benefits 2051.9 2.1 Electricity sales income 1416.9 126

2.5 CDM income 635.0 3 Taxes 14.8 3.1 VAT 0 Urban maintenance and construction 3.2 tax (7%) 10.4 3.3 Education surcharge (3%) 4.4 Income 343.9 Income tax (33%) 67.2 Net income 276.7 Table 30 shows the results of financial evaluation.

Table 30 Financial Evaluation of Shandong Minhe Biogas CHP Project

All funds Financial indicator Before tax After tax Financial internal rate of return (%) 7% 6% Financial net present value (x104 RMB) 691.01 -230.04 Payback period (yrs) 10.94 11.81 Even with fiscal policy support, the project is in operation with difficulty and unsatisfactory economic returns. However, organic fertilizers have been produced in the last two years. If the income from the sales of organic fertilizers is included at the unit profit of RMB 1,000 per ton and the annual output of 10,000 tons, the annual profit will increase by RMB 10 million, and the financial return will be up to 21% or more. And as a result, the project can operate normally and will take a lead in revenue with in the industry. (6) Socio-economic and Environmental Benefits Environmental benefits: The project has an annual power generation of 21.9 GWh (only the first phase in service), saving 7,337 tons of standard coal a year and reducing CO2, SO2, NOx and dust emissions by 16,500 tons, 121 tons, 117 tons and 70 tons each year respectively. At the same time, the project can innocuously treat about 200,000 tons of organic wastes (including 182,500 tons of chicken manure) each year, which is of great significance for reducing local organic pollution and improving the urban environment. Socio-economic benefits: The project has annual revenue of RMB 20.52 million and a payable tax amount of nearly RMB 1 million each year,

127 which can not only increase the local financial revenue but also solve the local employment problem. In addition, the project generates 21.9 GWh of electricity each year, which can effectively alleviate the shortage of local power supply and increase the proportion of green power supply in Penglai City with significant social benefits. 2. Integrated Household Waste Utilization Project in Tonghe County of Heilongjiang Province (1) Basic Information The integrated household waste utilization project, located in Tonghe County of Heilongjiang Province, was invested and constructed by Harbin Longneng Resource Recycle Co., Ltd. The project disposes of the household wastes and corn stalks around Tonghe City through the combination of anaerobic fermentation and waste incineration power generation, to build a new type of waste disposal mode of biogas, heat and power. The project has a total investment of RMB 110 million, occupying a total area of 40,000 square meters. The project is equipped with a total of six dry garage type AD , four 2,500 m3 Lipp tanks, one waste grate incinerator processing 120 tons of wastes per day and one 3MW steam turbine generator. The project can produce 3 million cubic meters of biogas per year, generate 25 GWh of electricity, and heat an area of 200,000 m2. (2) Transport and Storage of Biomass Feedstocks The feedstocks of the project are mainly the household wastes and corn stalks around the Tonghe County, including 70,000 tons of household wastes and 20,000 tons of corn stalks each year. The sanitation department of Tonghe County collects and transports 200 tons of household wastes to the project site and pays Harbin Longneng Resource Recycle Co., Ltd. the disposal fees of 50 RMB/t. The feedstocks mainly consist of domestic garbages and kitchen wastes produced by the urban residents, and are processed in the plant. Organic wastes are anaerobically fermented, combustible wastes are incinerated for power generation, and recyclable wastes are directly sold out.

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Corn stalks are collected free of charge in the field by the Harbin Longneng Resource Recycle Co., Ltd., which should guarantee the normal farming requirements of the farmers. Harbin Longneng Resource Recycle Co., Ltd. has been granted the corn stalk collection franchised by Mulan County, and will be responsible for the disposal of the corn stalks produced in the cultivated land of 200,000mu in the county. The company guarantees that the corn stalks produced in 1/3 of the cultivated land (about 60,000 mu) are returned for farming and the remaining corn stalks can be used free of charge. The company will collect and store yellow corn stalks in the future at the costs for collection, storage and transportation of 140 - 150 RMB/t. (3) Technical Process The project produces biogas through dry-fermentation of household wastes and wet fermentation of corn stalks, and generates power by means of waste incineration, to form an integrated mode of biogas, heat and power supply. Household wastes are sorted manually, with organic wastes for garage-type dry fermentation. The leachate produced in dry fermentation is mixed with yellow cork stalks for wet fermentation. Some of the biogas residues produced in wet fermentation is re-mixed with the wastes for further dry fermentation, and the remaining biogas residues is incinerated together with the combustible wastes in the incinerator for heat and power supply. The steam exhaust heat can be used to warm up the biogas fermentation system. Process flow diagram is as follows:

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Figure 20 Process Flow of Integrated Household Waste Utilization Project in Tonghe County of Heilongjiang Province Table 31 shows the main technical parameters.

Table 31 Main Technical Parameters of Integrated Household Waste Utilization Project in Tonghe County of Heilongjiang Province

Process Technical Indicator Value Dry fermentation AD chamber volume 4.5m*4.5m*30m Volumetric biogas production rate of 0.7-0.8 m3/(m3·d) Volumetricdry fermentation biogas chamber production rate of 3.0 m3/(m3·d) Residencedry fermentation time biogas slurry tank 28days Fermentation temperature 33°C Wet fermentation Volume of single tank 2500 m3 Volumetric biogas production rate 1.5 m3/(m3·d) Residence time 23 days Fermentation temperature 55°C Grate fired boiler Quantity of wastes treated daily 120t CHP Installed generator capacity 3MW

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The main processes of the project are: 1) sorting and pretreatment of wastes; 2) dry fermentation of wastes; 3) wet fermentation of corn stalks and related purification and gas storage; 4); biogas purification; and 5) waste incineration and power generation. Waste pretreatment. The wastes for the project are transported to the pretreatment unit directly by garbage trucks every day. The wastes are grabbed onto a waste spreader, which convey the wastes into a rotating sieve. The materials falling through the sieve directly enter into a waste receiving box. The materials on the sieve are conveyed onto a manual sorting station, with wood and paper used for incineration fuel, plastic, glass and metal directly sold out for recycle, and other inorganic wastes forklifted to the landfill. All the wastes have to pass through a magnetic separator before entering into the waste receiving box, and then forklifted directly to the fermentation chamber for dry fermentation. Fig. 21 shows the waste sorting system.

Figure 21 Waste Sorting System of Integrated Household Waste Utilization Project in Tonghe County of Heilongjiang Province

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Figure 22 Garage-type Fermentation Workshop of Integrated Household Waste Utilization Project in Tonghe County of Heilongjiang Province

Dry fermentation. Figure 22 shows the dry fermentation workshop, which has six 4.5m * 4.5m * 30m garage-type fermentation chamber, an underground leachate sump and an underground biogas slurry pool. The leachate produced in fermentation overflows to the leachate sump, and then pumped into the biogas slurry pool with a submersible sewage pump. The biogas slurry pool is provided with a spray pump at the top to spray the bacteria into the fermentation chamber for leachate recycling. This is a dry intermittent fermentation process, with the TS content above 25% and a biogas fermentation cycle of about 28 days.

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Figure 23 Wet Fermentation Tanks of Integrated Household Waste Utilization Project in Tonghe County of Heilongjiang Province

Wet fermentation. Corn stalks are mainly treated in wet fermentation. Fig. 23 shows the wet fermentation tanks. The project is equipped with four 2,500 m3 wet fermentation tanks and uses the CSTR fermentation process. About 20,000 tons of corn stalks can be treated each year. Yellow corn stalks are collected and stored nearby in the field, and then transported to the plant. The corn stalks are mixed with the leachate produced in the dry fermentation of wastes and kept into the wet fermentation tanks for fermentation at the temperature of 55°C, with a volumetric gas production rate of about 1.5 m3/(m3·d). The biogas residues are directly incinerated in a grate fired boiler. Waste incineration and power generation. Figure 24 shows the plant for waste incineration and power generation. A grate fired boiler is used to incinerate the sorted combustible wastes and the biogas residues produced in corn stalk fermentation, with an incineration capacity of 120 t/d. The dried biogas residues have a heat value of about 4000 kcal/kg. The steam generated by wastes incineration is used for power generation. The steam turbine generator has an installed capacity of 30MW and an annual generation of 25 GWh, and supplies heat for an area of 200,000 m2. Steam is used for warming of wet fermentation as well as the plant

133 heating, and is also possible to supply heat to the nearby businesses in the future.

Figure 24 Waste Incineration Plant of Integrated Household Waste Utilization Project in Tonghe County of Heilongjiang Province

Biogas purification and application. A variable-pressure absorbing purification system is used to purify biogas to methane content of 97% or above, with an annual output of 3 million cubic meters of purified biogas, which is transported with tanker to biogas stations for vehicle use.

Figure 25 Biogas Purification Plant of Integrated Household Waste Utilization Project in Tonghe County of Heilongjiang Province

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Figure 26 Biogas Station of Harbin Longneng Resource Recycle Co., Ltd.

(4) Operations and Management The project is built and upgraded by Harbin Longneng Resource Recycle Co., Ltd. on the basis of the existing Binxian Waste Treatment Project. Binxian Waste Treatment Project was technically supported by German GIZ, and identified as "Sino-German Best Biogas Practice Project” by Chinese Ministry of Agriculture and the German Government. Binxian Waste Treatment Project uses the garage-type dry fermentation technology to dispose of household wastes and produce biogas purified for vehicles, and has operated normally for nearly two years. Harbin Longneng Resource Recycle Co., Ltd. uses an additional wet corn stalk fermentation system and an additional waste incineration power generation system based on the original dry fermentation of the existing Binxian Waste Treatment Project, and forms a new integrated waste treatment mode of biogas, heat and power supply. The model expands the processing scope of the project so that the project is developed from a single treatment of organic wastes to a variety of feedstocks including organic wastes, combustible wastes and corn stalks and has more diversified products. The Owners' income channels are changed from single biogas sales to sales of biogas, heat and electric power, which will greatly enhance the returns of the project significantly. 135

(5) Financial Analysis Investment. The project has a total investment of RMB 110 million, including about RMB 30 million in the dry waste fermentation system, about RMB 7 million in the wet fermentation tanks. The investment in the main equipment accounts for about 70% of the total investment. Operating costs. The project has a staffing of 68 employees at the average wage of 3,000 - 5,000 RMB/person-month. The feedstocks are transported to the plant at the cost of about 150 RMB/t, and the annual consumption is 20,000 tons. The annual costs of fuel and power are about RMB 5.375 million, mainly covering electricity fees and water fees. Desulfurization and power generation costs and other expenses are about RMB 1.9 million. The costs of maintenance are at the rate of 1.5% of equipment investment. Depreciation is calculated according to the depreciation period of 20 years, with a salvage value of 5%. Benefits. The project revenue includes a total of four parts. The first part is the sales income of purified biogas, which has an annual sales volume of 3 million cubic meters at the sales price of 4 RMB/m3. The second part is the sales income of electric power, which has an annual feed-in generation of 25 GWh at the feed-in tariff of 0.65 RMB/kWh (including subsidies for waste power generation). The third part is sales income of centralized heat supply for the surrounding users, covering an area of about 200,000 m2 at the sales price of 30 RMB/m2 for resident users and 60 RMB/m2 for industrial users. The fourth part is the income for waste disposal, which is about 3.5 million RMB/yr. Tax subsidies. The project has obtained the national policy supports including tax preference and tariff subsidies, which are equivalent to about RMB 10.63 million each year. Financial analysis. It is estimated that the project has a total annual operating cost (including depreciation) of RMB 22.367 million, an annual income of RMB 37.75 million, a gross annual profit of RMB 14.98 million and a net annual profit of RMB 11.735 million. See the following table for detailed estimations.

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Table 32 Analysis of Costs and Benefits of Integrated Household Waste Utilization Project in Tonghe County of Heilongjiang Province

No. Item Amount (x104 RMB) 1 Investment 2236.7 1.2 Wage 340.0 1.3 Fuel and power 1007.5 1.3.1 Corn stalks 280.0 1.3.3 Electricity fee 487.5 1.3.4 Water fee 50.0 1.3.5 Desulfurization cost 15.0 1.3.6 Other power generation costs 175.0 1.4 Maintenance cost 192.5 1.5 Depreciation 696.7 2 Revenue 3775.0 2.1 Electricity sales income 1625.0 2.2 Biogas sales income 1200.0 2.3 Heat sales income 600.0 2.4 Waste disposal fee 350 3 Taxes 40.2 3.1 VAT 0 Urban maintenance and construction 3.2 tax (7%) 28.3 3.3 Education surcharge (3%) 12.1 Income 1498.1 Income tax (33%) 324.6 Net income 1173.5 The following table shows the main financial evaluation items.

Table 33 Financial Evaluation of Integrated Household Waste Utilization Project in Tonghe County of Heilongjiang Province

Internal capital All funds Financial indicator Before tax After tax Before tax After tax Financial internal rate of return (%) 30% 27% 16% 14% Financial net present value (x104 RMB) 8756.90 8643.18 10920.34 7167.25 Payback period (yrs) 3.34 3.41 6.19 6.63 With the supports of the fiscal policy, the internal rate of return of the project is good and economically sound among the similar projects. The main reasons are: first, the costs of feedstocks are basically controllable and the waste disposal fees are fixed; second, the products are diversified and can satisfy the regional climate characteristics, and thus can increase 137 the returns of the project and ensure the normal operation of the project. (6) Social and Environmental Benefits Environmental benefits: The project can dispose 73,000 tons of household wastes and 14,000 tons of corn stalks annually, totalling 87,000 tons per year, with an annual biogas production of 3.5 million cubic meters, an annual power generation of 26.28 GWh and an annual heat supply of 3.9 million GJ, saving nearly 10,000 tons of standard coal a year and reducing CO2, SO2, NOx and dust emissions by 26,000 tons, 165 tons, 159 tons and 96 tons each year respectively. The project has good environmental benefits. Social benefits: The project not only effectively disposes of municipal organic wastes, but also provides biogas, electric power and heat supply to urban residents with good social benefits. In addition, the project has an annual economic benefit of RMB 33.73 million, with a payback period of less than 5 years, with good economic benefits. 3. Yuanyi Biogas Demonstration Project (1) Basic Information Yuanyi Biogas Demonstration Project, located Tianshan town, Ar Horqin Banner, Chifeng City, Inner Mongolia Autonomous Region, is invested and constructed by Yuanyi Biomass Technology Co., Ltd., with a total investment of RMB 110 million. The project disposes of corn stalks and cow manure by means of anaerobic fermentation, with a design capacity of 20,000 m3 of daily production and 10,000 m3 of biogas production. The actual biogas production is 7,000 m3 per day. The biogas produced by the project is piped to the 700 households in Shuangsheng Village for living use and transported to BNG gas stations for vehicle use, 30% for the former and 70% for the latter. (2) Transport and Storage of Biomass Feedstocks The project uses corn stalks and cow manure for fermentation. The corn stalks used in the project are mainly purchased and transported to the plant by brokers at the price of 200 RMB/t, and stored in

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1.8m×1.2m×0.7m and 370kg bundles. The cow manure used in the project is provided free of charge by the surrounding cattle farms, but transported by the biogas plant at the cost of about 40 RMB/t. In order to ensure the stable supply of feedstocks, Yuanyi Biomass Technology Co., Ltd. is exploring the collection of feedstocks through the modes of "agricultural nanny", “product replacement” and "energy nanny".

The model of "agricultural nanny” means that an agricultural nanny company is established under the leadership of Yuanyi Biomass Technology Co., Ltd., to ally with the production material suppliers (seed companies, fertilizer companies and pesticide companies), production service providers (agricultural machinery service companies and field management companies) and production supporters (commercial insurance companies and financial institutions) to provide agricultural supplies such as seeds, fertilizers and pesticides needed for planting for farmers, large growers and farmer cooperatives, and provide farming services and planting techniques such as land preparation, sowing and harvesting management, risk protection, financial support, sowing and harvesting, and unified pest control and disaster prevention, so as to ensure the collection of corn stalks. The mode of "product replacement" relies on the distributed gas stations and piping network in villages and towns, to distribute the biogas to farmers’ home, in exchange for dispersed livestock manure and crop stalks.

The mode of “energy nanny” means contracted energy management, mainly for large livestock farms to ensure the collection of livestock manure. (3) Technical Process The project uses the CSTR anaerobic fermentation process and pressurized water purification process, as shown in the following process flow chart.

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Figure 27 Process Flow of Yuanyi Biogas Demonstration Project

Feedstock pretreatment. Dry corn stalks are unbundled and sent to the smashing plant, where the corn stalks are smashed after removal of soil, sand and gravels on a sieve. The smashed feedstocks are then piped to the pretreatment plant. The smashed corn stalks are soaked in NaOH solution at the pH value of 7 - 7.1 in order to speed up the process of anaerobic fermentation, and then turned and mixed with cow manure.

Figure 28 Corn Stalk Smashing System of Yuanyi Biogas Demonstration Project

Figure 29 Corn Stalk Pretreatment System of Yuanyi Biogas Demonstration Project 140

Anaerobic fermentation. The project uses the process of CSTR anaerobic fermentation. The project is equipped with four 5,000 m3 fermentation tanks, with the first phase 5m above the ground and 4m under the ground and the second phase 1.8m above the ground and 7.2m under the ground for the purpose of easy maintenance. The fermentation tanks are well thermally insulated so that the temperature is stably maintained for fermentation in the winter. Each fermentation tank is equipped with 7 agitators, 4 on the top and 3 on the side, for vertical agitation. Biogas purification. The biogas is chemically desulfurized and then has a methane content of 54%. The biogas is purified in pressurized water and then has a methane purity of up to 97%. Biogas utilization. The biogas is purified and transported to BNG gas stations with tankers for vehicle use and piped to the 700 households in the surrounding village for living use, 70% for the former and 30% for the latter. Disposal of biogas residues and biogas slurry. All of the biogas slurry produced in the project basically flows back to mix with cow manure and corn stalks. The project is now still at the initial stage of operation. The annual biogas residues are about 10,000 tons, and only simply mixed with humic acid (10%) and N, P and K ingredients (less than 4%) for sale as nutrition soil.

Figure 30 Fermentation Tanks of Yuanyi Biogas Demonstration Project 141

Figure 31 BNG Gas Station of Yuanyi Biogas Demonstration Project

(4) Operations and Management Yuanyi Biomass Technology Co., Ltd. follows the operating mode of professional division, standardized management, large-scale production and market-oriented operations. The whole industry chain is divided into four systems: feedstock supply system, biogas conversion and purification system, biogas residues and slurry fertilizer system, and distributed energy station and distributed piping network system. These four components are self-contained systems and can also be combined into a complete circular economy industrial chain. Profit can be produced at every stage of the cycle. The feedstock supply system provides services, and the modes of “agricultural nanny", “product replacement” and "energy nanny” can ensure the safe and stable supply of feedstocks. The biogas conversion and purification system produce biomethane. The biogas residues and slurry fertilizer system produce organic fertilizers. The standardized modular design of the project has the features of flexible site selection, controlled scale and complex process. The distributed energy station and distributed piping network system sells biogas and organic fertilizers to expand the product market and improve the overall efficiency of the project. (5) Financial Analysis The project has a total investment of RMB 110 million and an annual 142 operating cost of RMB 11.405 million (RMB 3.741 million for feedstock, accounting for 32.8% of the total operating costs), with the central and local governmental investment subsidies totaling RMB 32 million. As Yuanyi Biomass Technology Co., Ltd. has been granted the local gas sales franchise, the biogas produced in the project can be sold directly as for domestic use and vehicle use, with an annual sales income of RMB 11.971 million. The VAT is returned while levied, and the income taxes enjoy three exemptions and three half-reductions. Table 34 shows the technical and economic indicators of Yuanyi Biogas Demonstration Project. Table 34 Technical and Economic Indicators of Yuanyi Biogas Demonstration Project

Technical and Economic Amount (x104 RMB) Remarks Indicators

1. Total investment 11000

Investment subsidies 3200

Internal capital 2340

Loan 5460

2. Annual operating costs 1091

Feedstock cost 635

Labor cost 76

Power cost 166

Other costs 214

3. Annual revenue 1933.1

Sales of domestic gas 490.6 Price: 6.4 RMB/m3

Sales of vehicle gas 706.5 Price: 3.95 RMB/m3 Sales of biogas slurry and 736 residues

4. Taxes 19.1

VAT Immediate return Three exemptions and three Income tax half-reductions

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According to the estimates, without considering the governmental subsidies, the project has an after-tax internal rate of return of 5.1%, which can basically achieve a small profit margin, and a payback period of 19.6 years; considering the governmental subsidies, the project has an after-tax internal rate of return of 11.68% and a payback period of 8.5 years, which are significantly better than those without subsidies.

Table 35 Return on Investment of Yuanyi Biogas Demonstration Project

Category With Subsidies Without Subsidies

Rate of return on 11.68% 5.1% investment (%)

Payback period (yrs) 8.5 19.6

Note: Subsidies refer to investment subsidies Yuanyi Biomass Technology Co., Ltd. has been granted the local gas sales franchise. No national natural gas trunk pipeline goes through Chifeng City, and gas is mainly purchased from other places at high costs. As a result, the sales price of domestic gas is much higher than that in other regions (average: 2.5 RMB/m3). Without considering the profit from organic fertilizers, the sales price of biogas of 5.672 RMB/m3 is the breakeven point of the project (the rate of return on investment is 0%), and is 11.38% lower than the current sales price of domestic gas. However, compared with the price of domestic gas in other regions, the sales price of biogas has no advantage. In order to reach the benchmark rate of return of 8% in the industry, the sales price of biogas has to reach 12 RMB/m3. The average market prices of solid organic fertilizers and biogas slurry are supposed to be 600 RMB/t and 5 RMB/t, the sales price of biogas has to be at least 2.5 RMB/m3, if the project achieves the industry rate of return of 8%. (6) Social and Environmental Benefits Environmental benefits: The first phase of the project has an annual biogas production of 10 million cubic meters, equivalent to about 12,100 tons of standard coal, reducing CO2, SO2, NOx and dust emissions by 2 tons, 2 tons, 17.6 tons and 1.4 tons each year respectively. At the same 144 time, the project can innocuously treat about 50,000 tons of organic wastes each year, which is of great significance for improving the local environment and promoting the energy utilization of organic wastes. Socio-economic benefits: The project has good social benefits and can meet the biogas demand of 20,000 households, local public facilities and natural gas vehicles (280 natural gas vehicles) at the same time, which can effectively improve the local energy utilization and the local residents' living quality. In addition, the project has a moderate payback period, a high internal rate of return and a good profitability and viability. The completion of the project is also of practical significance for promoting the local economic growth and increasing the farmers' income.

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V. Economic Assessment Model and Policy Analysis for Biomass-to-Heat (i) Establishment of Economic Assessment Model 1. Purpose Biomass-to-heat has diversified features in terms of material sources, technical appraoches, and product types. Currently, key technologies of biomass-to-heat are mature. Through CHP, BMF, gasification, anaerobic digestion (AD) and other mature technologies, final heat products can be obtained from agriculture and forest wastes, organic wastewater and wastes generated by wine and food production, urban household wastes, and animal manure. With regard to technical feasibility, a biomass-to-heat project may be large or small as appropriate for actual available resources and heating demand. However, in consideration of resource guarantee, product stability, system efficiency, project economic efficiency, environmental protection and other factors, industrialized biomass-to-heat and distributed district biomass-to-heat, with a proper scale, are important directions of biomass energy development in the near future. So far, besides taxation policy, China has no nationwide economic incentives for biomass-to-heat development, and policy support at local level is rather limited. Nevertheless, the cost of biomass-to-heat may vary from regioan to region since China has vast territory and different geographic areas which vary greatly in terms of variety, quantity and distribution of biomass resources, economic development level, fossil energy price, demand for energy products in quality and quantity, and affordability. It is more difficult to compare the economic benefits of different means of biomass heating with local conventional coal-fired and other fossil energy-based heating. From April to May 2017, the Project Team investigated 12 selected biomass-to-heat projects, which is divided into four categories: biomass CHP, BMF, biomass gasification and biogas/biomethane heating. A comprehensive analysis of these selected cases is in Chapter 3. The Project has designed and developed an economic assessment model to facilitate in-depth analysis and assessment of cost and efficiency of 146 different technologies of biomass-to-heat in China. The purposes and objectives are: firstly, to conduct economic assessment for key biomass-to-heat technologies and projects, and conduct cost breakdown and sensitivity analysis to identify key factors that may affect the economic aspects; secondly, to compare cost and economic efficiency of different biomass-to-heat technologies; thirdly, to provide the basis for comparison of biomass-to-heat and fossil energy-based heat supply; fourthly, to introduce quantitative environmental impact assessment for a fairer comparison of the cost of biomass-to-heat and fossil energy-based heat; fifthly, to lay the basis for international and domestic biomass-to-heat cost comparison; sixthly, through above economic assessment, cost analysis and comparison, recommendations are proposed for the formulation of proper economic incentive policies. 2. Economic Assessment Approach

The model is used to conduct the Project‘s economic assessment and cost measurement.

(1) Economic Assessment

The economic assessment model may be directly used for a project‘s financial assessment, and if other environmental benefits are incorporated as opportunity cost, it may also be used for national economic evaluation. The methods as described in the Economic Evaluation Methods and Parameters for Construction Projects (3rd Edition, 2006) will be used for financial assessment and national economic evaluation NPV and IRR are main indicators for economic assessment. The formula below may be used to calculate NPV (Net Present Value):

—— Of which, NPV means the net present value, CFi is the net cash flow in year i, and IRR is the preset internal rate of return for capital or total investment. The formula below may be used to obtain IRR by assuming zero for NPV: 147

—— In assuming NPV to be at zero, product price may be adjusted to make for anticipated IRR, and the formula is the same with .

Net cash flows (CF) can be calculated as follows:

CFi = Pi — Ci —— Of which: Pi is the revenue in year i, Pi= power generation feed-in tariff + heat supplyheat price + gas supply gas price + other proceeds —— Ci is the cost in year i, Ci = fixed asset investment + principal of loan + financial cost + operation cost + circulating capital + taxes —— Of which: Operation cost = biomass material cost + other material cost + maintenance cost + wage & welfare + insurance + others Taxes = VAT + VAT surcharge + income tax VAT =proceeds/ (1 + applicable VAT rate)  applicable VAT rate- input VAT credits VAT surcharge= VAT  rate of surcharge Income tax = (proceeds-depreciation-operation cost-financial cost-VAT & surcharge)applicable rate of income tax

(2) Cost Measurement For the purpose of cost breakdown and measurement, the model has offered two approaches on the basis of the economic assessment approach generally adopted in China and the LCOE approach adopted in international power industry. First approach: total project cost is decomposed to obtain the percentage of each component in total cost, and such percentage may vary when different preset IRR is applied.

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Second approach: when there is only a single energy product, for example, power-only, heat-only or gas-only, unit cost may be calculated and broken down, and the cost of each component may vary when different preset IRR is applied. This approach of economic and cost breakdown and assessment may be used for cost comparison between projects using the same biomass-to-heat technology, between different biomass-to-heat technologies, between biomass-to-heat and other means of heating, or between international and domestic biomass-to-heat solutions.

——

Of which, LC is the product‘s leveled cost, and Ei is the single energy production in year i. 3. Model Description As for the 4 categories of biomass-to-heat technologies and their characteristics, 3 economic assessment models have been designed. The names and funcations are as follows:  Economic Assessment Model for Biomass Power Generation and/or Heat Supply (direct-fired/gasification/biogas): intended for economic assessment for biomass direct-fired power generation, CHP, heat-only supply, biomass gasification and power generation (BGPG), biogas power generation, heat supply or CHP.  Economic Assessment Model for Biomethane: intended for economic assessment for biogas/biomenthane production.  Economic Assessment Model for BMF Heat Supply: intended for economic assessment for BMF heat supply.

These models can be used for the Project‘s financial assessment, national economic evaluation, corresponding cost breakdown and unit product cost breakdown, and moreover, environmental impact may be incorporated into such economic assessment.

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4. Key Parameters (1) Preset Parameters Considerring the same features of above 4 categories of biomass-to-heat projects, some common parameters have been preset for these 3 models and may be divided into two types: the one type includes those with alteration not recommended under existing structure, and in case that any alteration is necessary, the model has to be adjusted to some extent. Preset parameters (see Appendix I) shall have the value in 3 models.

Table 36 Preset Common Parameters for 3 Economic Assessment Models of Biomass-to-Heat

Parameters with alteration not Preset value Parameters preset but to be altered from time recommended to time

Project construction period 1 year VAT rate

Project operation period 20 years VAT surcharge rate

Loan period 15 years Income tax rate

Depreciation period 15 years Percentage of VAT refund upon collection

Preset IRR (for NPV calculation)

The second type is mostly policy-related and may vary from model to model, and generally, no alteration is recommended, but can be altered directly as input data when appropriate for policy changes or other purposes (for example, sensitivity analysis, policy solution preparation, etc). For details, see Table 36. (2) Economic Assessment Model for Biomass Power Generation and/or Heat Supply (direct-fired/gasification/biogas) See attached Table I for input parameters, verification parameters and output parameters for the Economic Assessment Model for Biomass Power Generation and/or Heat Supply (direct-fired/gasification/biogas). Input data include:  Installed capacity, annual equivalent generation hours, service power consumption rate, feed-in tariffs (power-related input data shall be 0 for

150 heat-only or gas-only cases); gasified product‘s caloric value, annual gas production, gas supply price (input data related to gas supply shall be 0 if no gas is supplied); heat boiler‘s capacity, annual heat supply, heat supply price (input data related to gas supply shall be 0 if no gas is supplied); other proceeds on an annual basis  Total static investment, share of capital, borrowing rate, borrowing rate for construction period, fixed assets‘ residual value ratio  Raw material: water content, caloric value, annual consumption and price

 Power generation system‘s efficiency (not compulsory)  Annual equipment maintenance cost/total investment, annual water and other fuel cost/total investment, annual other operation & maintenance cost/total investment, circulating capital/total operation &maintenance cost  Tax-included investment/initial investment, VAT/material cost, VAT/other operation & maintenance cost  Environmental benefit: power generation, sulphur dioxide, nitrogen oxide, smoke and other emissions Verification parameters, unable to be input, may be treated as output parameters not directly related to economic assessment. There are two verification parameters, including overall system efficiency and material‘s unit caloric cost. Output parameters include IRR for capital, IRR for total investment, NPV (IRR=0 or IRR=preset value), cost breakdown ratio, result of environmental benefit assessment, etc. (3) Economic Assessment Model for Biomethane See attached Table II for input parameters, verification parameters and output parameters for the Economic Assessment Model for Bio-natural Gas. Input data include:

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 Fermentation tank‘s volume, daily biogas/natural gas production, biogas content, bio-natural gas‘s concentration, caloric value of bio-natural gas, annual operating days, price of bio-natural gas  Other proceeds on an annual basis  Total static investment, share of equity capital, borrowing rate, borrowing rate for construction period, fixed assets‘ residual value ratio  Raw material: type (not compulsory), caloric value, annual consumption, price  Annual equipment maintenance cost/total investment, annual water and other fuel cost/total investment, other annual operation & maintenance cost/total investment, circulating capital/total operation &maintenance cost  Tax-included investment/initial investment, VAT/material cost, VAT/other operation & maintenance cost  Environmental benefit: unit sulphur dioxide, nitrogen oxide, smoke and other emissions Verification parameters, unable to be input, may be treated as output parameters not directly related to economic assessment, including biomethane production (per day or per year) and overall system efficiency. Output parameters include IRR for capital, IRR for total investment, NPV (IRR=0 or IRR=preset value), cost breakdown ratio, result of environmental benefit assessment, etc. (4) Economic Assessment Model for BMF Heat Supply See attached Table III for input parameters, verification parameters and output parameters for the Economic Assessment Model for biomass direct-fired/gasification. Input data include:

 Heat boiler‘s capacity, annual heat supply, heat supply price; other proceeds on an annual basis 152

 Total static investment, share of equity capital, borrowing rate, borrowing rate for construction period, fixed assets‘ residual value ratio  Raw material: type (not compulsory), caloric value, annual consumption, price  Annual equipment maintenance cost/total investment, annual water and other fuel cost/total investment, annual other operation & maintenance cost/total investment, circulating capital/total operation &maintenance cost  Tax-included investment/initial investment, VAT/material cost, VAT/other operation & maintenance cost  Environmental benefit: unit sulphur dioxide, nitrogen oxide, smoke and other emissions Verification parameters, unable to be input, may be treated as output parameters not directly related to economic assessment, including aggregate efficiency of BMF heat system. Output parameters include IRR for capital, IRR for total investment, NPV (IRR=0 or IRR=preset value), cost breakdown ratio, result of environmental benefit assessment, etc. (ii) Relevant Foreign and Domestic Economic Policies 1. Foreign Policies In Europe, over the past decade, biomass-to-heat has become a primary way for renewable energy development and utilization. According to AEBIOM statistics, in 2016, biomass-to-heat accounted for 73% of total biomass application. The fast growth of biomass-to-heat in Europe is mainly due to effective incentives adopted by EU countries. This section, in the first place, will summarize the characteristics of biomass-to-heat policies in North Europe, Western Europe and Central Europe, and then, will focus on relevant policies of the countries with typical biomass energy development and utilization, for example, Sweden and Denmark. Nordic countries have put in place a combination of product subsidy,

153 carbon tax, energy tax, emission tax and other green taxes. In Finland, the government may receive about 3000 million Euros every year from energy taxation, and this portion of proceeds has been used to promote energy technology development, including biomass-to-heat; in Sweden, as a result of carbon tax adopted by the government, biomass accounts for a much higher percentage in the district heating system. In 2011, bio-fuel accounted for 50% of its district heating system and biomass energy accounted for 31.4% of its gross energy consumption. In Sweden, energy is mainly subject to fuel tax, energy tax, carbon dioxide tax, sulphur dioxide tax, etc. As for Western Europe, the UK has adopted biomass-to-heat policies, with renewable obligation as the core, to promote biomass-to-heat development through subsidies and incentives to renewable energy-based heat supply (non-household) and quotas and equipment subsidies, and has made use of quota and ROC (Renewable Obligation Certificate) to ensure the growth of renewable power generation. In Germany, compulsory feed-in for renewable energy power generation (preemptive full purchase) and fixed tariff (classified and decreasing) have been introduced to ensure that renewable power be fed in at a price higher than that for conventional energy and to mitigate power plant‘s investment risk, attract investment and promote sustainable development of renewable power generation. In Central Europe, such as Austria, strict emission criteria are imposed on the use of conventional energy, while subsidy is provided to biomass boilers. Such a measure, though effective for BMF market development, is costly and inefficient to be implemented, and its success in Austria is indebted to its people‘s fair quality and environmental protection awareness. Below is a detailed introduction of biomass-to-heat policies and practices adopted by Denmark and Sweden. (1) Biomass-to-Heat Policies in Denmark Among EU countries, Denmark has one of the highest energy utilization efficiency and one of the lowest energy intensity. Energy saving and

154 efficiency is an important part of its energy policies and has a significant role in restricting energy consumption. There are two policies instruments mainly adopted by Denmark goverment for enhancing the application of renewable energy, i.e. incentive measures and regulatory measures. Incentive measures consist of financial support and preferential tax. Regulatory measures refer to any market intervention well targeted at any specific sector requiring compulsory development of a particular technology or limited use of certain fuels so as to promote renewable energy development. For instance, Denmark prohibits the use of electric heating and requires the supply of hot water from central natural gas or district heating system. As from the 1990s, heat production in Denmark has been gradually converted from oil and coal to natural gas-fired CHP and biomass-to-heat, and biomass fuel began to account for a rising share in the district heating system. Below are relevant policies and measures: Energy conservation policies. In the 1970s and the 1980s, the Danish government started to use taxation to encourage the use of environmental friendly fuels in the heating system and offer tax exemption to heat produced from biomass and biogas. As an important financial support, ―public service responsibility‖ tax was introduced to subsidize feed-in tariff in connection with renewable energy. ―Public service responsibility‖ tax is levied in accordance with electricity consumption, and pursuant to the Power Supply Act, shall be used to support the development of renewable energy and distributed CHP, promote the research and development of environmental-friendly energy production technologies and energy efficiency technologies and to pay expenses incurred for ensuring energy supply security. Unlike energy tax, ―public service responsibility‖ is collected by Energinet.dk, the state-owned power operation company, rather than by the Danish government. Not bound by the and budget consultation under the Finance Act, this tax can offer stable financial support to low-carbon energy production and its proceeds can be fully dedicated to the development of renewable energy technologies. Rules in connection with ―public service responsibility‖ tax are formulated by the Parliament, and the standard for subsidy is at the 155 discretion of the government. The table below has listed out subsidy policies for biomass and biogas.

Table 37 Fixed Feed-in Tariffs and Subsidies for Biomass and Biogas in Denmark

Item Policy

Small-scale biomass utilization Subsidy: DKK0.15 /kWh

Large-scale biomass utilization Subsidy: DKK0.10 /kWh

Biogas Fixed feed-in tariff: DKK0.745 /kWh

Energy and environmental tax. In Denmark, energy tax is imposed on fossil fuel-to-heat process, including production, manufacturing, ownership, reception, distribution, etc, while renewable energy is not included. As an important supplement to ―public service responsibility‖ tax, energy tax is collected by the Danish government and plays an important role in funding the Danish welfare system and promoting transformation to sustainable low-carbon economy. By exempting energy tax and carbon dioxide tax, energy tax is mainly intended for improving energy efficiency and increasing the percentage of biomass in the district heating system. Green energy tax. Green energy tax is imposed on all fossil fuels and estimated in accordance with the energy contained in a particular fossil fuel (unit: GJ). Green energy tax includes carbon dioxide tax, sulphur dioxide tax, nitrogen dioxide tax, etc. In 1992, the Danish Parliament decided to impose carbon dioxide tax as per quantity of emission (tons), with a view to reduce carbon dioxide emission and encourage low-carbon energy development. Carbon dioxide tax rate applicable to a particular fossil fuel is linked to its carbon dioxide content so as to restrict the use of coal and other fossil fuels with high carbon content and to improve renewable energy‘s competitiveness. As a result of such a fiscal policy, renewable energy-to-heat has a cost lower than fossil fuels. The foregoing taxes have played an effective role in restricting energy consumption, promoting the industrial application of low-sulphur fuels, smoke cleaning facilities and metering devices and encouraging biomass application in

156 the field of heating. (2) Biomass-to-Heat Policies in Sweden With regard to administration structure, in Sweden, energy policies are formulated by the central government, supported by government authorities across the country and implemented by local authorities. Local administration committees exercise their powers on behalf of the government and work with competent regional authorities to formulate regional energy and climate strategies. Polices and measures adopted by the Swedish government in connection with heat supply mainly include: energy tax, carbon dioxide tax, Tradable Renewable Energy Certificate (TREC), EU ETS and the like. Energy tax and carbon dioxide tax. Sweden introduced carbon tax in 1991 and collects it at SEK250 per metric ton (about 28 Euros) in respect of heat production, district heating, CHP and heat production in industrial, household and service sectors. With regard to district heating, exemption is granted to bio-fuels. This policy has effectively improved the competitiveness of biomass as a raw material in heat production sector. TREC. The Swedish government introduced the TREC in May 2003 with a purpose to increase annual capacity and achieve the nation‘s target of renewable power generation. As a market-based means, TREC is priced in accordance with supply and demand. TREC is allocated to a power plant that generates power with renewable energy and peat in accordance with power production (one certificate for every MWH). TREC demand is obligation-based, and a power user/supplier may purchase TREC in accordance with its power consumption/supply (statutory allowance). This scheme is funded by end users of electricity, who have contributed to the growth of renewable power generation. In order to restrict the cost to of electricity consumers, TREC for power production facilities may have a term up to 15 years. Biomass CHP can obtain such certificate by power production, and so, this scheme offers indirect support to district biomass-to-heat. EU ETS. The EU ETS, applicable to all EU member countries, is meant

157 to reduce carbon dioxide emission arising from power generation and heat supply. Covering only facilities with fuel consumption above 20MW, the ETS has set a maximal value (upper limit) for greenhouse gas emission (GGE) by all participants, and emission allowances can be auctioned off or allocated for free. In Sweden, district heating suppliers have been included into the ETS, and as from 2013, are allocated emission allowances in accordance with reference value for district heating supply. Investment subsidy. From 1991 to 2002, investment subsidy, far more than SEK1000 million in aggregate, was provided to biomass-fueled CHP plants. This subsidy was also available to reconstruction of fossil fuel-fired CHP plants and district heating plants (reconstructed into CHP plants). From the experience and evolution of relevant biomass policies in Europe we can see some common features: in the first place, energy legislation and planning plays a significant role in guiding the direction of biomass-to-heat development, and relevant enactments and directives are the basis and safeguard for the enforcement of relevant schemes and measures and may help enhance people‘s awareness of BMF utilization and ensure producers‘ stable expectation for biomass-to-heat sector; in the second place, policies are diversified. Proper policies and measures have been designed to accommodate varying resource and economic conditions in different countries. For example, incentive policies may include: strategic planning, laws and regulations, scheme, pricing mechanism, preferential tax, green tax, production equipment and product subsidy, emission reduction trading, investment subsidy, investment guarantee, cost sharing, accelerated depreciation, low-interest loan, etc; in the third place, there is a proper policy administration and supervision system. For the purpose of effective implementation of relevant plans, enactments and regulations, a management system is formed, consisting of government, producers and third party entities, with a view to promote sustainable development biomass-to-heat sector by organizing and coordinating various industry participants, evaluating the effect of policy implementation throughout 158 the process and making timely adjustment to promote sustainable development of biomass-to-heat industry. 2. Domestic Policies In 2006, China promulgated the Renewable Energy Law, and since then, competent authorities have published a number of supportive policies and implementation rules to form a complete set of biomass energy policies, including, among others, administrative measures for renewable power generation, administrative measures for price and expense allocation, catalogue for guiding industry development, administrative measures for special funds, relevant application technology specifications, a series of preferential tax policies and renewable energy development plans for medium or long term, the 11th FYP, 12th FYP and 13th FYP. This policy system has played an important role in promoting biomass-fired power generation, but contains few incentive policies and measures for biomass-to-heat development. Polices related to biomass power generation. In 2006, the NDRC issued the Trial Measures for Administration of Price and Expense Allocation of Electricity Generation from Renewable Energy (NDRC [2006] No.7), specifying that feed-in tariff for electricity generated from biomass will be the sum of benchmark feed-in tariff 2005 for desulphurized coal-fired power generation as decided by various provinces (autonomous regions, municipalities) and a subsidy of 0.25 RMB/KWh. On July 8, 2010, the NDRC issued the Notice on Improving the Price Policy for Power Generation from Agriculture and Forest Biomass (NDRC [2010] No.1579), deciding to subject agriculture and forest biomass power generation projects to fixed tariff, that is, a uniform benchmark feed-in tariff shall apply, i.e. 0.75 RMB/kWh (tax included). With regard to sectors related to biomass-to-heat, the NDRC, the NEA, the Ministry of Agriculture, the Ministry of Finance and other relevant departments have promulgated a number of policies to encourage biomass-to-heat application (see Table 33 for details), and such policies have effectively promoted the development of biomass-to-heat sector. In July 2008, the General Office of the State Council issued the Guidance 159

Note on Accelerating Integrated Utilization of Agricultural Straw ([2008] No.105), requiring to vigorously promote biomass energy utilization and other industrialization efforts, to realize industrialized integrated straw utilization by 2015, with more than 80% of straw subject to integrated utilization, and offering VAT refund upon collection and favorable income tax to integrated straw utilization, including energy-from-straw projects. In the same year, the Ministry of Finance issued the Interim Administrative Measures for Subsidy Funds for Energy from Straws ([2008] No.735), providing support to energy-from-straw businesses, such as biomass briquette, gasification and dry distillation (whose products are fuel, gas, coke, carbon dust, tar, etc). In most cases, an integrated subsidy will be provided, at RMB 140 per ton (straw material). This policy has greatly promoted energy-from-straw development as well as BMF application in the field of heat supply.

Table 38 A Summary of Policy Documents for Promoting the Development of Biomass Energy

Document Name Issued Brief Introduction Require thorough renovation of coal-fired boilers, and specifically, by 2017, cities at or above prefecture level shall eliminate 10t/h coal-fired boilers, prohibit new constructions of 20t/h coal-fired boilers, and Action Plan for Air elsewhere, in principle, no new constructions of 10t/h Pollution Prevention and Sept 2013 coal-fired boilers shall be approved. Meanwhile, Control accelerate clean energy substitution, carry out active and orderly development, and develop and utilize , wind energy, and biomass energy. Explicitly point out that in areas with serious air Technical Guidelines for pollution, heavy environmental protection pressure, Biomass-to-heat Project Oct 2013 huge heat demand and plenty biomass materials, Construction ([2013] biomass-to-heat shall have the priority to be included No.497) into the district heating planning. Work Plan for Energy Sector to Strengthen Air Explicitly require accelerating biomass-to-heat March Pollution Prevention and application, with emphasis over promoting biomass 2014 Control (NDRC [2014] CHP. No.506) Propose to support 120 BMF-to-heat boiler Notice on Building demonstration projects across the country, and upon BMF-to-Heat Boiler Jun 2014 completion and acceptance of these demonstration Demonstration Projects projects, the National Renewable Energy Fund will (NEA [2014] No.295 grant certain award or subsidy. Implementation Plan for Clarify that in areas not covered by heating and gas Integrated Coal-Fired network, district heating may be realized by building Oct 2014 Boiler Energy Efficiency large and efficient coal-fired boilers or back-pressure and Environmental thermal power plants, or shifting to electricity, BMF 160

Performance Enhancement or other clean energy-fired boilers. Projects (NDRC [2014] No.2451) Speed up the formulation of criteria in respect of moulding fuel, moulding equipment, biomass boiler, engineering construction and boiler emission, carry out BMF-to-heat projects, construct 120 large and Notice on Issuing and advanced BMF-to-heat boiler projects in the Printing the ‗Circular Beijing-Tianjin-Hebei-Shandong region, the Yangtze Economy Promotion Plan April 2015 Delta and the Pearl River Delta to replace coal-fired 2015‘ (NDRC [2015] boilers; in grain-producing areas, promote biomass No.769) CHP in an orderly manner, encourage CHP renovation of conventional biomass power plants, and by the end of 2015, the capacity of CHP units shall be more than 1000MW. Guidance Note of the CPC Central Committee and the Restate that by 2020, non-fossil energy shall account State Council on for about 15% of primary energy consumption, April 2015 Accelerating the overall bio-environmental quality be improved, green Development of industries be developed, etc. Ecological Civilization Interim Measures for the Management of Special Define the scope of priority for special funds for Funds for Renewable April 2015 renewable energy development. Energy Development ([2015] No.87) Actively develop BMF-to-heat, and accelerate the promotion of BMF-fired boilers, particularly in the Beijing-Tianjin-Hebei-Shandong region, the Yangtze 13th Five-Year Plan for Delta and the Pearl River Delta, where air pollution Biomass Energy Dec 2016 are severe and the task of eliminating coal-fired Development boilers is heavy, and in rural areas with bulk coal consumption, so as to provide renewable and clean heating to villages, industrial parks and public and commercial facilities.

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3. Lesson China can Learn from Policies Adapted by Other Countries Biomass-to-heat has become a primary means for Europe to develop and utilize renewable energy, and biomass-to-heat policies adopted by European countries may serve as an important inspiration for biomass-to-heat industrialization and commercialization in China. EU countries have pushed biomass utilization to the market through legislative measures. For example, Denmark prohibits electric for heat supply and requires hot water to be supplied from central natural gas or district heating system. China also needs to formulate laws and regulations to apply and promote biomass-to-heat technologies, and engage in targeted policy intervention in particular sectors and areas by restricting fossil fuel-to-heat, requiring compulsory development of biomass-to-heat technologies and promoting energy structure transformation. Green energy quota incentive, as adopted in other countries and proved to be effective, may also be introduced into China. China shall consistently improve the distributed energy construction plan and make this as a national strategy taking reference of the successful experience and practice of green electricity incentive in Europe and the US, establish green heat incentive system based on national conditions, expand the biomass-to-heat market and enhance the profitability of biomass-to-heat projects. Nordic countries have introduced a variety of energy tax and carbon tax and used the proceeds thus obtained to support the development of renewable energy technologies. For instance, Sweden offers tax exemption to biomass-to-heat plants and investment subsidy to new projects. In addition to financial support such as preferential tax and materials purchase subsidy, China needs to introduce investment subsidy, loan with discounted interest and other similar measures to further encourage construction investment. At the same time, it is necessary to regulate the rapid development of third party evaluation and guarantee entities to ensure the implementation of financial support policies. (iii) Cost Benefit Analysis and Economic Policy Demand Assessment

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This section will analyze and assess the cost and economic policy demand of different biomass-to-heat technologies on the basis of respective models, domestic policy data in Section 4.2, case study data in Chapter 3 and designed project capacity. 1. Biomass CHP The economic analysis of biomass CHP technology is made on the basis of CECEP (Yantai) Qixia Project. Project parameters:  Installed capacity: 30MW, annual equivalent generation hours: 6267, service power consumption rate: 13.6%, feed-in tariff: 0.75 RMB/KWh

 Heat boiler‘s capacity: 3*75t/h, annual heating area: 1,850,000 m2, heat supplied: 370,000GJ, and heat supply price: 46.00 RMB/GJ  Total static investment: RMB 420 million, share of equity capital: 20%, borrowing rate:4.9%  Raw material: water content: 20%, caloric value: 3150 kcal/kg, annual consumption: 300,000t, and on-the-spot price: 340 RMB/t (water content at 20%)  Annual equipment maintenance cost/total investment: 0.53%, annual water and other fuel cost/total investment: 2.2%  Environmental benefit: electricity at 0.126 RMB/KWh 2 , environmental benefit arising from heat is not considered With regard to verification parameters, overall system efficiency is 24.0%, and material‘s unit caloric cost is 0.097 RMB/Mcal. Financial assessment: IRR for capital is negative, and when IRR=0, NPV is RMB -120 million, and for the present, the Project is loss-making. In terms of cost, if discounted in scenarios of IRR=0% and IRR= 8% without considering the profit effect of project losses, material cost will

2 Source of data: A Study of the Roadmap for Parity-Price Feed-in of Wind and Generation, NDRC Energy Research Institute, and external costs related to coal-fired power generation mainly include coal production and transportation, at 0.023 RMB/KWh, coal-fired power generation, at 0.052 RMB/KWh and greenhouse gas emission, at 0.051 RMB/KWh. 163 have the lion‘s share, at about 75%, initial investment will account for about 14%, costs other than materials will account for 4-5%, financial cost will be about 5%, and taxes are negligible as a result of low rate of return and VAT refund upon collection (See Table 39).

Table 39 Cost Structure of Biomass CHP Project

Item IRR=0 IRR= preset value IRR= estimated IRR (8%)

Investment cost 13.6% 16.4% —

Material costs 79.4% 81.1% —

Other operating cost 4.9% 5.0% —

Financial cost 4.7% 6.5% — (interest)

Taxes 1.3% 1.2% —

Profit -3.9% -10.2% —

Note: cost breakdown is not made for the final column, since the Project has negative profit. Price is a key factor affecting the profit of heat supply. Other things being equal, if the Project‘s IRR for capital is 8%, the price of heat supply at least shall be 36 RMB/ m2, 1.6 times of the current price, and to maintain such a price, local governments have to formulate their own heat price or product subsidy policies. This Project has a designed heat capacity of 3,000,000 m2. Just suppose the actual capacity is 3,000,000 m2, heat is supplied from residual heating, and annual material consumption remains unchanged, at 360,000t, system efficiency will be 32% higher and IRR for capital is up to 9.3%. So, improving the system efficiency through CHP is a key factor that may affect the cost. For a biomass CHP project, proceeds from power sale and proceeds from heat supply will be equally important, but, due to existing policies related to electricity and heating price, a biomass CHP project derives most of its proceeds from power generation. So far as this Project is concerned, the national benchmark price for biomass power generation is at a reasonably 164 high level, but the local heating price and subsidy is low when compared with other means of heating (only 4.00 RMB/ m2 and decreasing year by year, not being taken into account in economic assessment), and proceeds from power generation accounts for a lion‘s share, up to 80%, and when the heating area reaches 3,000,000 M2, proceeds from power generation still accounts for 71% of total proceeds. Economic performance of the Project may deteriorate if the share of heat supply is raised without any significant improvement of the efficiency of CHP generating units. When the heating area reaches 3,000,000 m2, system efficiency only rises from 24% to 27%, and NPV is 190 million. This indicates that low heating price is a main reason for the Project‘s losses. Overall, under existing tariff, taxation and lending policies, raw material price, system efficiency and local heat supply price will significantly affect the Project‘s economic performance. When environmental benefit in connection with power generation is considered, IRR for economic assessment and IRR for national economic evaluation will be up to11.1% and 8.4% respectively. 2. Biomss briquette-to-heat The economic analysis of BMF-to-heat is made on the basis of a typical project in northern China, and in the selected area, heating demand will be estimated as per 1.8 m2/GJ. . Project parameters:

 Heat boiler‘s capacity: 40t/h, annual heating area: 600,000 m2, heat supplied: 330,000GJ, and heat supply price: 63.00 RMB/GJ  Total static investment: RMB 25 million, share of equity capital: 20%, borrowing rate:4.9%  Raw material: blocky BMF, caloric value: 3850 kcal/kg, annual consumption: 29,000t, and price to factory: 600 RMB/t  Annual equipment maintenance cost/total investment: 2%, annual

165 water and other fuel cost/total investment: 0.2%  Environmental benefit: environmental benefit arising from heating is not considered With regard to verification parameters, overall system efficiency is 71.0%, and material‘s unit caloric cost is RMB 0.16/Mcal. Financial assessment: IRR for capital stands at 10.0%, and the Project is cost-efficient to some degree. In terms of cost, if discounted by supposing IRR to be 0%, 8% or 10% without considering the profit effect of project losses, material cost will have the lion‘s share, about 82-85%. The initial investment only accounts for 6-8%. Costs other than materials, financial cost and taxes are negligible (See Table 40). This indicates that, given the same system efficiency unit caloric value‘s heat supply price relative to material cost is the only factor that affects the project‘s economic performance.

Table 40 Cost Structure of BMF-based Heating Project

Item IRR=0 IRR= preset value IRR= estimated IRR (8%)

Investment cost 5.9% 7.2% 7.4%

Material costs 82.6% 84.3% 84.7%

Other operating cost 2.6% 2.7% 2.7%

Financial cost 2.1% 2.8% 3.0% (interest)

Taxes 2.7% 2.3% 2.2%

Profit 4.1% 0.7% 0.0%

When heat supply price is 62.2 RMB/GJ (equivalent to 34.6 RMB/m2), IRR for capital will be 8%, a reasonable lower limit. When heat supply price falls down to 59.6 RMB/GJ (equivalent to 33.1 RMB/ m2, 5.4% lower when compared with the case of 63 RMB/GJ), IRR for capital will be 0%, and the project will make no profit. Material cost is also very important, and when it rises up to 641RMB/t

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(only by 6.8%), IRR for capital will be 0%, and the project will make no profit. Therefore, for a BMF-based heating project, since heat supply is the only source of revenue, unit caloric value‘s heat supply price relative to material cost is a decisive factor for the project‘s economic performance, and Rate on Investment (ROI) is very sensitive to this relative value. For home heating and other livelihood projects, in order to ensure reasonable profit and stable operations, it is quite essential to establish and implement a mechanism that links material price to heat supply subsidy. 3. Biomass Gasification-to-Heat The economic analysis of biomass gasification-to-heat technology is made on the basis of CTM Residue Gasification Project, Buchang Pharmaceuticals, Shandong Province. Project parameters:  Steam production capacity: 10t/h, annual steam supply: 42,000t (equivalent to 118,000GJ), for self-use only, and steam price: 214 RMB/t (equivalent to 76.5 RMB/GJ)  Total static investment: RMB 34.86 million, share of equity capital: 20%, borrowing rate:4.9%  Raw material: CTM residue, annual consumption: 59,400t, price: -35.1 RMB /t (saving of CTM residue processing and disposal expenses);  Other operating cost: RMB 3.76 million per year, accounting for 10.8% of total investment  Environmental benefit: environmental benefit arising from heating is not considered Financial assessment: IRR for capital stands at 52.2%, and the Project has great cost efficiency, and rate of return for national economic evaluation is up to 14.0%. For Buchang Project, CTM residue processing and disposal expenses are treated as proceeds. However, if the gasification project is operated as a

167 separate entity, it in fact will be very difficult to obtain such proceeds. Moreover, if the gasification project uses agriculture and forest wastes, it has to pay a certain amount of material cost. When material cost is 0, financial assessment will have the following result: IRR for capital is 28.2%, and the Project is still quite cost-efficient. When material cost is 34.00RMB/t, IRR for capital will be 8.0%. In terms of cost, if discounted by supposing IRR to be 0%, 28.2% or 8%, a considerable portion will be operating cost, about 40-45%, and next to it is investment cost, about 19-34%, and financial cost and taxes are rather limited (See Table 41).

Table 41: Cost Structure of Biomass (CTM Residue) Gasification-to-Heat Project

Item IRR=0 IRR= preset value IRR= estimated IRR (8%)

Investment cost 19.2% 23.7% 33.7%

Material costs 0% 0% 0%

Other operating cost 41.4% 43.2% 44.6%

Financial cost 6.7% 9.3% 13.8% (interest)

Taxes 6.8% 6.5% 5.9%

Profit 25.9% 17.2% 0.0%

Two reasons may explain Buchang Project‘s fair cost efficiency. In the first place, material cost is negative, and CTM residue processing and disposal expenses are treated as a considerable portion of proceeds. In the second place, its product is a substitute of industrial steam, which has a higher price. If material cost is 0 and it is intended for residential heating, heat supply price will be 56.00RMB/GJ (equivalent to 28.00RMB/ m2), IRR for capital will decline to 4.8%. This indicates that user categories and corresponding prices have a significant effect on cost efficiency. By integrating raw material, operation and production, Buchang Project can fairly ensure its cost efficiency. But, if the Project is a separate entity without proceeds from material processing or having to purchase and pay raw material, cost efficiency will be reduced drastically and revenue risk 168 will be significant. Besides, operating cost per unit of products is much higher than ordinary gasification projects, and accounts for more than 40% of total cost. Usually, operating cost for a gasification project will account for no more than 10% of total cost, or no more than 1/4 if without considering material cost. To some extent, Buchang Pharmaceuticals‘ CTM Residue Gasification Project is a special case. 4. Biogas/Biomethane-to-Heat In China, agriculture, forest and animal wastes as well as various industrial wastewater and wastes have been used to produce biogas (or further upgraded into biomethane), but in most cases, biogas or biomenthane thus produced is directly used as fuel rather than for heat supply. Chifeng Yuanyi Biomethane Project, as described in Chapter III, is chosen for economic assessment, and its final product for sale is biomethane after purification. Project parameters:  Fermentation tank: 4*5000 m2, designed natural gas production capacity: 10,000 m2/day, present actual capacity: 7,000 m2/day. Biogas accounts for 54% of gas thus produced, and after being upgraded, natural gas concentration is above 97%.  Product proceeds are obtained from gas and digestate sales. Of gas, 30% is sold to households at 6.4 RMB/m2, and 70% sold for vehicle use at 3.95 RMB/m2; proceeds from digestate sales amount to RMB 7.36 million per year (at full capacity), accounting for 30% of total proceeds  Total static investment: RMB 110 million, including RMB 32 million of central and local government grants (29%), and share of equity capital: 30%, borrowing rate:4.9%  Raw material: maize straw and cow dung, price to factory: 200 RMB/t for maize straw; cow dung: free supply by livestock farms, but transportation cost at 40.00 RMB/t. If two materials each account for half, material cost will be RMB 6.35 million per year (all at full capacity)

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 Other Cost (except materials) is RMB 4.56 million per year  Environmental benefit: environmental benefit arising from gas supply is not considered With regard to verification parameters, overall system efficiency is 17.7%. Based on actual circumstances of the Project (present actual bio-natural gas production capacity=70% designed capacity, proceeds from digestate and investment subsidy provided by central and local government), financial assessment will have the following result: IRR for capital stands at 12.6%, and the Project is quite cost-efficient. In terms of cost, if discounted by supposing IRR to be 0%, 0.2% or 8%, project investment, material and other operating cost account for the majority, with the percentage of each not varying much, financial cost accounts for about 10%, and taxes are negligible since the Project has a low rate of return and is entitled to VAT refund upon collection (see Table 42).

Table 42 Actual Cost Structure of Chifeng Yuanyi Biomethane Project

Item IRR=0 IRR= preset value IRR= estimated IRR (8%)

Investment cost 22.5% 29.8% 34.0%

Material costs 25.7% 26.7% 27.2%

Other operating cost 23.5% 24.4% 24.9%

Financial cost 6.9% 9.6% 10.9% (interest)

Taxes 3.8% 3.3% 3.0%

Profit 17.7% 6.3% 0.0%

Note: Based on actual circumstances of the Project (present actual annual bio-natural gas production capacity, proceeds from digestate and investment subsidy provided by central and local government) With size, investment and other conditions comparable to Chifeng Yuanyi Project, in a more typical case, supposing bio-natural gas production at full capacity of 10,000m2/day and absence of central and local investment subsidy, IRR for capital will be up to 15.7%, and the Project still has fair 170 performance. However, it should be noted that, proceeds from digestate account for 30%, and without this portion of proceeds, the Project will be loss-making. As it is estimated, when proceeds from digestate amount to RMB 0.95 million per year, the Project will have a zero rate of return, and when proceeds from digestate amount to RMB 4 million per year, the rate of return will be 8.0%. Moreover, in Chifeng Yuanyi Project, gas is sold at a higher price (as a result of franchise agreement and absence of international gas pipelines in Chifeng), in particular gas sold to households, far above national average level of 2-3 RMB/m2. Without government subsidy, production at full capacity of 10,000m2/day, proceeds from digestate and gas price at 3.52 RMB/m2 (70% gas for vehicle use: 3.95 RMB/m2, 30% gas for households: 2.50 RMB/m2), rate of return will be 6.0%. To have a rate of return at 8%, composite gas price has to be up to 3.73 RMB/m2, namely, a reasonable rate of return (9.8%) may be achieved when all gas is for vehicle use only. Therefore, to ensure bio-natural gas project‘s economic performance, it is essential for relevant policies to guarantee gas market size and reasonable gas price. Table 43 Cost Structure of Biomethane Project

Item IRR=0 IRR= preset value IRR= estimated IRR (8%)

Investment cost 24.9% 33.0% 34.8%

Material costs 28.8% 30.0% 30.2%

Other operating cost 20.7% 21.5% 21.7%

Financial cost 7.6% 10.6% 11.2% (interest)

Taxes 2.8% 2.2% 2.0%

Profit 15.2% 2.7% 0.0%

Note: suppose absence of investment subsidy, proceeds obtained from digestate, production at full capacity and gas for vehicle use only (IRR=9.8%)

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(iv) Proposal of Supportive Economic Policies on Biomass-to-heat

1. Incentive Policies for Urban Biomass-to-Heat (1) Strengthen fiscal support. In urban areas already with CHP facilities, the focus is to reinforce heat price and financial support measures. Resource supply is a more challenging issue for biomass CHP than to direct-fired biomass power generation. When installed capacity is the same, a CHP project may require about 1/4 more biomass resources than a power-only project. It is recommended to improve the biomass supply system to ensure stable supply. Since additional cost may arise in respect of materials collection, heating network construction and project operation and management, biomass-to-heat tends to be cost-inefficient, and it is necessary to continue to provide fiscal subsidies. (2) Strengthen heating network construction and improve interconnectivity of urban heating network. It is necessary to strengthen the construction of the heating network connecting heat sources and the heat users, and undertake energy conservation retrofit by improving existing network‘s heat preservation performance, reducing leakage anddamages of pipes, and reducing power consumption of circulating water pumps. The biomass-to-heat industry also needs to adapt the intelligent control system, optimize network adjustment capacity, enhance energy-efficiency and reduce loss arising from hydraulic imbalance. (3) Strengthen the management and service system for urban heating. It is necessary to clarify the authority for urban heating management and its relevant responsibilities, and optimize the management process and mode of urban heating; improve relevant technical standards systems for biomass-to-heat; study and formulate technical criteria for ―coal-to-biomass heating‖, and harmonize standards for BMF and emission standards for various biomass boilers. (4) Make full use of heating capacity of existing CHP facilities in neighboring areas. CHP may be a proper choice for large and medium cities and counties (with a population over 200,000) in northern China.

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Based on local conditions and biomass resources in neighboring areas, it is necessary to prioritize biomass CHP and retrofit existing biomass power plants to CHP. New installations shall focus on back-pressure CHP, and large-scale gas-fired CHP construction is not encouraged. It is necessary to transform existing large coal-fired CHP plants to biomass gas-fired CHP. It is necessary to encourage stable biomass supply. An area in need of heating can improve its air quality and urban by reducing direct coal burning and building biomass-to-heat facilities. Heat is produced by using biomass enegy techonologies including BMF boilers, biomass gas-fired boilers and other technical means from biomass sources such as agriculture, forest and urban domestic wastes, organic wastewater, and livestock farms‘ animal wastes. (5) Actively promote the application of biomass-to-heat in commercial facilities and residential heating. Along with close-down of coal-fired boilers, it is necessary to take advantage of flexible user-side arrangement and agile load response of biomass-to-heat and actively promote the application of biomass boilers in urban commercial facilities and public facilities by supplying hot water, steam or a combination of cooling and heating. (6) Actively promote centralized biomass-to-heat in industrial parks. Based on the action plan for air pollution prevention and control and the clean heating planning in northern China, in retrofitting coal-fired boilers, it is necessary to prioritize biomass-to-heat, attach importance to utilization of available biomass resources to obtain clean energy and effectively improve environment while utilizing agriculture and forest wastes. 2. Incentive Policies for Rural Biomass-to-Heat (1) Strengthen the awareness of the priority of biomass-to-heat deveopment. Heating technologies tend to be diversified and a variety of clean heating options are available in rural areas. In the process of urbanization, biomass-to-heat is a good choice for urban areas to ensure

173 sustainable clean heating by collecting and utilizing biomass resources on the spot. Compared with ―coarse‖ promotion of ―electrified‖ heating, biomass-to-heat may be more proper for rural areas in terms of economic cost and environmental benefit, since, on the one hand, it can make effective use of agriculture and forest wastes, and on the other hand, it can replace coal and other fossil and facilitate transition from conventional energy to modern clean energy. (2) Increase subsidies to biomass-to-heat in rural areas. Biomass-to-heat is relatively costly, and raw material subsidies and preferential taxes can help keep heat price within an acceptable range for to biomass heat supplyer‘s normal operation and local residents. For the present, it can facilitate development and popularization of biomass-to-heat in rural areas by providing heating price subsidies, lowering heating price and ensuring rural residents‘ access to clean energy produced from biomass resources. (3) Establish and improve the rural heating management system. It is necessary to define the authority for rural heating managemet and its relevant responsibilities, clarify specific requirements for heat supply quality, service, security, price, payment collection, and environmental protection. Improvement of the rural heating managment system can lay a solid institutional basis for clean heating in rural areas. It is necessary to subject bulk coal circulation to strict supervision, reinforce environmental supervision and coordinate environmental protection with other competent authorities to oversee the whole biomass-to-heat process. (4) Strengthen heating infrastructure construction in rural areas. To develop biomass-to-heat in rural areas, heating infrastructure construction will be a prerequisite. Generally, heating conditions in rural areas are lagging behind urban areas, and heat and gas network construction is inadequate. So, it is necessary to strengthen heating infrastructure construction, subject rural houses to energy conservation renovation, improve housing quality, gradually build and improve gas and heating network and create favorable conditions for connecting biomass-to-heat and biomethane to rural households.

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(5) Take biomass-to-heat as an important way to realize optimal, clean and modern energy use in rural areas and promote equal public energy services in urban and rural areas. In areas with advantage of biomass resource collection and utilization, coal-fired boilers need to be replaced with biomass boilers. For new project construction, priority needs be given to biomass-to-heat projects. Biomass-to-heat is suitable for urban areas with rich biomass resources and heating demand, and rural areas with concentrated population or areas not beingcovered by urban heating network. Distributed district heating can be used to replace old coal-fired boilers and bulk coal for heating and cooking purposes. (6) Choose proper areas and make use of biomass-to-heat as appropriate for local conditions. In rural areas with rich biomass resource and dense population, it is necessary to construct central biomass gas supply facilities, build biomass gas network and promote gas property management and service. In heat-needed rural areas in northern China, the focus is to promote BMF-to-heat technologies. In forestry areas and areas that return farmland to forest, the focus is to develop distributed biomass technologies, make full use of forest wastes to construct biomass gasification and BMF facilities, provide clean fuels, reduce consumption and return farmland to forest. Active support is needed to promote the use of clean biomass fuels in schools, hospitals and other public facilities in rural areas. (7) Take the opportunity of bulk coal control to vigorously promote the application of BMF in rural heating and cooking. It is necessary to central coal-fired heating facilities to make scientific co-firing of biomass fuels, take advantage of flexible user-side arrangement and agile load response of biomass-to-heat and actively promote demonstration biomass boiler projects in areas with rich biomass resource and heating demand. (8) Give priority to biomethane-to-heat. It is imperative to implement the Renewable Energy Law, treat biomethane facilities as fundamental energy infrastructure, give priority to biomethane utilization, and further expand the scope, approaches and modes of clean gas application. It is

175 necessary to actively explore the application of biomethane for cooking, heating and clean fuel purposes and promote its sustained and commercialized development. Since biomethane has the feature of flexible allocation, in medium and small towns and rural villages not being covered by urban gas network, it is necessary to build village-level gas stations and small-scale local network, actively promote the application of biomethane, and overall gas service level and upgrade energy consumption in rural areas. 3. Recommendations for supporting measures for Biomass-to-Heat development (1) Integrate urban and rural development planning and establish the development priority. Planning shall be a primary basis for biomass-to-heat development and construction, and provincial biomass development and utilization plans shall be prepared to incorporate a variety of biomass resources and modes of utilization. At county level, plans for biomethane and biomass-to-heat development and utilization needs to be formulated and aligned with other plans, such as plans for environmental protection and agriculture. It is also necessary to formulate specific regional biomass CHP plans. Based on these plans,is necessary to actively promote demonstration projects of biomass-to-heat technologies and utilization patterns, deploy various means of clean heating and supporting facilities, make overall arrangement for heating from biomass and other diverse clean energies on the basis of local heating demand and conditionsincluding clean energy resource, economic level, power grid and gas network, and strengthen heating, electricity, gas network and other infrastructure construction. (2) Incorporate biomass-to-heat into local integrated development planning as one of priorities of clean heating. In planning bulk coal substitution in rural areas in northern China, new city area construction, old city reconstruction, new countryside construction, non-local resettlement and industrial park (zone) construction, it is necessary to give precedence to biomass heating or other clean energies, evaluate various biomass-to-heat resources, demonstrate the feasibility of clean

176 heating development and complementary utilization of multiple energies, incorporate biomass-to-heat into local integrated planning and if possible, use biomass and other clean energies to satisfy any additional heating demand. Urban areas may gradually give priority to development and utilization of biomass-to-heat and other clean energies. (3) Formulate specific financial support policies and explore new mode of financing cooperation. Financial support shall be available from a variety of channels. Central and local government each shall bear a certain portion of financial subsidies, incorporate biomass-to-heat projects into the scope of national investment support, support biomass-to-heat project construction and operation, and reinforce heat source, heat supply network and other infrastructure construction. It is necessary to coordinate the use of special funds for energy efficiency, environmental protection and air pollution prevention and control, increase biomass-to-heat subsidies, and maintain a green passage for provinces. Cities and rural areas that have rich biomass resources and are qualified for biomass-to-heat project development can apply for relevant subsidies. Land may be allocated to biomass-to-heat projects as if it is for public welfare. The cost of clean heating may be reduced by exempting public utility surcharges and relevant taxes. It is necessary to offer differentiated awards and subsidies, and stronger financial support shall be provided to projects with active response to local heating demand, heavy renovation task, effective renovation and strict compliance with environmental protection criteria. It is necessary to encourage and support biomass-to-heat projects to shift to CHP and provide certain investment support to these projects, and include heat supply network construction into the scope of investment support financed out of central budget. Biomass CHP plants is entitled to timely payment of power generation subsidies. (4) Actively explore innovative financing mechanism. Low-interest policy lending shall give priority to biomass-to-heat and other clean heating projects, and lending to a biomass-to-heat project may have a longer term and a lower interest rate. It is necessary to support biomass-to-heat projects to expand channels of financing through green 177 bonds, public-private partnership (PPP) and other means, and encourage private capital to set up industrial investment fund and invest in clean heating projects and R&D. It is necessary to optimize the institutional arrangement for main board, SME board and growth enterprise market, support eligible clean heating providers to make IPO and get listed, encourage listed companies to refinance through public placement, private placement, shares allotment or other means, support listed companies to make use of capital market for merger, acquisition, restructuring and overall listing, and encourage and support eligible enterprises to expand the size of financing by issuing enterprise (corporate) bonds, short-term financing bills, medium-term notes, SME collective notes, SME private placement bonds registered at the stock exchange and other debt financing tools. (5) Improve the regulatory system and the standardized service system for heating. Competent authorities need to work together to oversee biomass-to-heat project construction and operation, ensure product quality and safety, strengthen certification management, supervise environmental protection and establish a monitoring platform and a service system for biomass industry. It is necessary to conduct capacity building in engineering consulting, technical service and other relevant area to facilitate sustaniale development of biomass industry. Relevant government authorities need to be clear about each other‘s responsibilities for urban and rural heating management, determine specific requirements for heat supply quality, service, security, price, payment collection, and environmental protection. The urban heating management process needs to be optimized, and the rural heating system needs to be improved. It is necessary to subject bulk coal circulation to strict supervision, reinforce environmental supervision, and coordinate with relevant authorities to oversee the whole biomass-to-heat process. (6) Improve technical criteria, technical progress and standards system related to biomass-to-heat. It is necessary to formulate relevant technical criteria for ―coal-to-biomass‖ heating, reinforce large biomass boilers‘ essential progress of low-nitrogen burning technology and equipment manufacturing, and promote the formulation of a complete set 178 of equipment manufacturing standards. It is necessary to esbablish criteria for biomass-to-heat engineering design, molding fuels, molding equipment and biomass boilers, implement criteria for energy-efficiency stoves and gas facilities in rural areas, and harmonize specific pollutant emission standards for various types of biomass boilers. It is necessary to strengthen testing, certification, engineering, and product quality supervision systems. (7) Accelerate the reform of heating price and introduce innovative market mechanisms for heat supply. It is necessary to accelerate the reform of heating price and adjust and improve the current price mechanism. Heat may be charged as per ―quantity of heating‖ instead of fixed-price as per ―area‖, and in due time, ―temperature-based‖ charges may be introduced, with a view to encourage heat suppliers and producers to carry out energy conservation retrofit and heating stations to operate in an energy-efficient mode. In the case that household metering is difficult to be implemented, a new mechanism needs to be introduced to combine metering based on individual building and payment collection from individual household. (8) Remove restrictions on accessing heat supply market and encourage private enterprises to enter into the field of clean heating. Heat suppliers need to be chosen through transparent bidding or other market-based measures. A heat supplier that combines heat source, network and payment collection is allowed to make use of franchise operation to determine the heat supply area and corresponding subsidy policy. In case of wholesale of heat to a heat company, the government may coordinate the signing of a long-term heat supply agreement. With regard to users not being covered by central heating, a combination of user investment and government subsidy needs to be adopted to promote the development of distributed biomass-to-heat development.

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VI. Naitonal Biomass-to-Heat Market Evaluation (i) Market Competitiveness Analysis Currrently, the modes of Biomass-to-Heat in China mainly include biomass CHP, BMF, biomass gasification and biogas/biomethane. This section focuses on comparative analysis on the economy of Biomass-to-Heat and the traditional modes of heat production by coal, oil and natural gas in a bid to determine the competitiveness of Biomass-to-Heat in short and long terms. 1. Comparative analysis on the economy of biomass CHP for heat production The economic comparison between biomass CHP and other heat sources for heat production is shown in Table 39. It indicates that the unit energy costs for heating by natural gas and diesel are higher at 90-115 Yuan/GJ and 90-120 Yuan/GJ respectively. The costs for coal-fired heating (small and medium-sized coal-fired boilers with an evaporability of under 35t/h per hour) are about 60 Yuan/GJ. The cost of biomass CHP for heat production is about 50 Yuan/GJ, slightly lower than that of coal-fired heating. Economically, biomass CHP is obviously more competitive than natural gas and fuel oil in heat production. Compared with coal-fired boilers, biomass CHP is more advantageous in comprehensive social and environmental benefits, such as cleanness and environmental protection. Agaist the background of energetically advancing air pollution control and clean energies, biomass CHP has demonstrated evident advantages in heat production.

Table 44 Economic Comparison between Biomass CHP and other Heat Sources for Heat Production

Heating Type Biomass CHP Coal-fired Boiler Natural Gas Diesel

40-60 Yuan/GJ 90-115 Unit Energy Cost 59 Yuan/GJ 90-120 Yuan/GJ (steam) Yuan/GJ

180 2. Comparative analysis on the economy of BMF for heat production Biomass boilers are mature in technology, equivalent to coal-fired boilers in efficiency index but obviously better than coal-fired boilers in flue gas emission index, so biomass boilers have good environmental peformnace. In regions with higher regulator requirements on environment, coal has already been prohibited or restricted for use and BMF is expected to become an ideal alternative fuel. Table 45 below is the comparative analysis on the economy of BMF-fired boilers and coal-fired, gas-fired, oil-fired and electric boilers based on the prices of each type. BMF has different prices in different areas. Currently, southern areas typically use biomass pellet fuels that are mainly processed by forestry residuals, and the price is about 1,000 Yuan per ton; In Northern areas, BMF made from straws are generally used, and the price is 550-850 Yuan per ton. Therefor, if the calculation is based on 900 Yuan/ton for biomass pellets and 600 Yuan/ton for biomass briquettes, then the unit heating cost would be about 66.4 Yuan/GJ and 56.7 Yuan/GJ respectively, meaning heating cost is much lower as compared with the price for heat producd by natural gas, fuel oil and electricity for commercial use. However, under the current situation of lower coal price, the heating cost of coal-fired boilers is even lower at about 51 Yuan/GJ. Yet, with the increasing demand for clean heating, coal-fired boilers have been restricted and BMF-fired heating is becoming a beneficial supplement to coal-fired heating.

Table 45 Economic Comparison between BMF and Other Sources for Heat Production

Boiler Unit Heating Fuel Type Lower Heating Value Fuel Price Efficiency Price

Natural gas 36,000 KJ/m3 3.5 Yuan/m3 92% 148 (Yuan/GJ)

Fuel oil 41,868 KJ/kg 4,600 Yuan/ton 88% 175 (Yuan/GJ)

Coal 20,900 KJ/kg 500 Yuan/ton 65% 51 (Yuan/GJ)

Electricity for 3,600 KJ/kWh 0.7 Yuan/kWh 97% 281 (Yuan/GJ) commercial use

900 Yuan/ton 66.4 (Yuan/GJ) BMF 16,000-19,000 KJ/kg 85% 600 Yuan/ton 56.7 (Yuan/GJ)

181 To sum up, BMF technologies are mature, so it might become the best alternative and rather economical due to the restriction of use of coal in areas with a higher demand for clean energy. However, in regions where coal price is relatively lower, BMF is less competitive and thus difficult for popularization and cotinue to require for government policy support. 3. Comparative analysis of the economy of biomass gasification for heat production For biomass gasification for heating, the technical threshold is lower and the energy conversion process is less harmful to the environment. In addition, the sulphur content (about 0.38%) and ash content (about 10%) are much less than that of coal resources. Therefore, biomass gasification is a relatively ―clean‖ fuel. Without desulfurization, biomass gasification can meet the emission standards by adopting only simple and low-cost ash treatment equipment. Under the existing market environment, biomass fuels have reached the level of competing with traditional fossil energies in heat production. Table 46 shows the comparison between biomass gasification and other traditional fuels including natural gas, diesel and coal in steam production. It indicates that biomass gasification is more economical compared with petroleum and natural gas but a bit less economical than coal for heat production.

Table 46 Economical Comparison between Biomass Gasification and Natural Gas, Diesel and Coal for Heat Production

Biomass Item Natural Gas Diesel Coal Gasification 1,200 8,500 10,200 4,200 Heating value (Kcal/m³) (Kcal/m³) (Kcal/kg) (Kcal/kg)

Unit price 0.5 Yuan/m³ 3.5 Yuan/m³ 6.0 Yuan/kg 0.8 Yuan/kg

Heat conversion 85 90 90 70 efficiency (%) Burning consumption 555.6 (m³) 80.7 (m³) 67 (kg) 163 (kg) per ton of steam Fuel cost per 277.8 Yuan 313.8 Yuan 446 Yuan 186 Yuan ton of steam

182 4. Comparative analysis of the economy of biogas/biomethane for heat production With the improvement of the biomass feedstock collection system, the feedstock supply service standards and system have been further improved. So, the feedstock collection will become more efficient and the collection costs will be effectively controlled. The cost of biomethane is usually calculated on the basis of the cost of biogas, which is the addition of 0.3-0.5 Yuan for per cubic meter adding the biogas purification cost. Table 47 shows that the production cost of biomass fuels will be lower than that of natural gas. In this case, natural gas will be gradually replaced for heat production with the decreasing costs of biomethane. It is estimated that biomethane will be obviously more economical after 2030 and will become a key drive in gas heating in the future.

Table 47 Biomass Gas Cost Analysis (Unit: Yuan/m3)

Type of gas/development 2020 2030 2040 2050 stage

Natural gas 2.71 3.6 4.27 4.52

Biomass pyrolysis gas 2.13 2.47 2.85 2.85

Livestock and poultry 2.76 3.1 3.45 3.45 methane

Industrial biogas 1.72 2.07 2.41 2.59

Biomethane 2.54 2.89 3.23 3.32

Data source: China Bioenergy Development Roadmap (ii) Analysis on the Development Potential for Commercial-scale Biomass-to-Heat in China 1. Development potential of biomass CHP The Biomass-to-Heat industry cannot be developed without the driving force of market demand. With the implementation of action plan for air pollution prevention and control, plan to reduce the use of , greenhouse gas (GHG) emission, etc., the demand for Biomass-to-Heat keeps increasing. China‘s Biomass-to-Heat market mainly consists of two

183 parts, namely centralized residentail heating and industrial boiler-fired heating. (1) Industrial boiler heating market In China, boilers are mainly fueled by coals. In recent years, coal-fired plant boilers have developed rapidly towards high efficiency, and have approached to advanced international level in manufacturing and operation management. The industrial coal-fired boilers are characterized by large inventory, wide distribution, high energy consumption, heavy pollution and huge potential for energy conservation and emission reduction. By the end of 2014, the number of coal-fired industrial boilers in use reached 460,000 units with a total capacity of 3 million MW and an annual coal consumption of 700 million tons, accounting for about 13% of China‘s total energy consumption. Biomass feedstocks are featured by low ash, low sulfur and high volatility, making biomass a type of clean and renewable fuel resouce. Due to the wide distribution of feedstock, biomass provides a new channel for transforming small and medium-sized coal-fired boilers. Therefore, Biomass-to-Heat is expected to be developed rapidly in the near future and have an explosive growth before 2020 reaching the growth peak by 2030. From 2030 to 2050, the pace of growth will slow down, but it will maintain certain growth in terms of total quantity. (2) Central heating market for urban residents In China, the heating is mainly supplied in cities of 15 provinces in the North. Currently, the central heating areas have reached and surpassed to 7 billion square meters, and are growing by about 10% annually. On the basis of proper planning, biomass CHP would have lower costs than small coal-fired boilers and even have better environmental benefits by supplying heating with reduced vacuum. Therefore, there is a huge potential for the popularization of biomass CHP in heating.

China‘s urban central heating markets are mainly concentrated in Liaoning, Shandong, Beijing, Heilongjiang, Hebei, Jilin, Shanxi, Inner Mongolia, Tianjin and Xinjiang, etc. In addition, the provinces with

184 larger central heating areas include Gansu, Henan, Shaanxi and Ningxia, which are all in the North. These areas have a larger demand for heating, but they also enjoy richer biomass resources and thus good conditions for developing biomass CHP projects. (3) Biomass-to-Heat market forecast Assuming Biomass-to-Heat accounts petencially for 15% of the heating market, the market demand for biomass fuels to replace coal-fired boilers would reach 105 million tons of standard coal. As the urbanization and industrialization keep improving, the new demands of the biomass boiler heating market will increase accordingly, and are expected to reach about 250 million tons of standard coal by 2050. Given that the biomass fuel required for coal-fired boiler replacement is mainly agricultural and forestry residues and household wastes, the potential for obtaining agricultural and forestry surplus resources in the country by 2050 is estimated to total only about 220 million tons of standard coal, of which the equivalent of only about 120 million tons of standard coal can be used for the heating of biomass boilers, far less than what is needed to meet the projected market demand, provided that the market demand is fully released, which means that the future development space of biomass heating industry will be mainly conditioned on biomass resources. 2. Large-scale and commercialized development potential for BMF As mentioned in the Medium and Long-term Development Plan for Renewable Energy in China, by 2020, the utilization of bioenergy will be basically commercialized and in scale, and the annual utilization amount is expected to reach 50 million tons. Under the support of environmental protection policies and the condition of a fair market, the utilization amount of bioenergy may surpass 100 million tons by 2030, which may replace 80 million tons of coals for heating, reduce more than 100 million tons of straw burning in the open air and decrease 40 billion cubic meters of natural gas import. Among the 100 million tons of BMF, 70 million tons are for industrial use, which can provide 350 million tons of clean

185 steam each year, replace 50% of the coal consumption by coal-fired industrial boilers with a production capacity of less than 10 tons; the rest 30 million tons are used for heat production, which can provide clean heating for 1 billion square meters of civian and commercial buildings. Every additional private investment of 10 billion Yuan each year would create one million jobs and increase 10 billion Yuan rural income, which could form a new strategic emerging industry with an annual output value of 200 billion Yuan. An annual increase of 15 million tons in the BMF industry would mean 150 million tons of CO2 emission reduction by 2030. In around 2005, China started to develop the BMF industry. After going through the initial exploratory stage and the primary transition stage, BMF produced in 2010 was only around 500,000 tons due to insufficient demand for end-users‘ market as well as immature processing and combustion technologies. Starting from 2013, with promulgation of strict domestic environmental protection policies, the trend for replacing coals became obvious. At the same time, the briquette processing technologies and equipment have become basically mature and there have somewhat breakthroughs in the market space. According to statistics of the NEA, the production capacity of BMF reached 8 million tons and the estimated market size was 8 billion Yuan in 2015. On the other hand, biomass only accounted for 1%-2% of the heating industry at present. Driven by policies for coal replacement, the proportation of Biomass-to-Heat is expected to increase. Comparing with Sweden where bioenergy industry is mature, the proportion of bioenergy in the energy utilization structure in 2015 exceeded 34%, and 60% of the bioenergy were used for heat production. During the same year, China‘s annual utilization of bioenergy was equivalent to 35.4 million tons of standard coals, but BMF produced was only 4 million tons, representing less than 0.1% of the total energy consumption, and thus there is an enormous potential for BMF development. 3. Potential for large-scale and commercialized development of biomass gasification

186 Opportunities and challenges co-exist in China‘s energy utilization that is shifting from the existing traditional mode based on fossil energy to the development of new energy. Presenting one type of new energy for energy industry development directions, biomass gasification has a huge market potential in heating. After more than a decade of healthy development, the Biomass-to-Heat industry is ushering a new era due to the flexibility of raw materials and the carbon neutrality and sustainability of the products. At present, the treatment of forestry residuals has become a strict demand for environmental protection, and industrial solid wastes treatment has become an indicator for enterprise operation assessment. As the use of coal has caused an increasing pressure on environment protection, biomass gasification is well positioned to offer an effective solution for heat production, which becomes a key development direction for the substitution of coal for urban heating, central heating and heating supply for industrial parks, and provides clean energy for new cities, towns and villages. With the gradual establishment of the market order of biomass resources, regional centralized collection and storage system and the price system have been improved a lot. In the meantime, as advanced research on biomass gasification technologies continues, biomass gasification efficiency will be subtaitially improved, thereafter issues related to environmental protection and energy conservation will be properly resolved. Driven by multiple favorable factors, such as the formation of the market mechanism, industrial and technological innovation, and the gradually clear direction of demestic policies, there should be a speeding substitution of coal-fired and oil-fired heat production by the Biomass-to-Heat system driven by biomass gasification technologies. Therefore, it is possible to see a large-scale and commercialized application of biomass gasification for heat production. It is anticipated that, between 2020 and 2050, the projects for biomass gasification heat suppy will be all-round promoted for commercialization driven by maturity of biomass technologies and improved bioenergy system.

187 4. Potential for commercial-scale development of biogas/biomethane (1) Natural gas market potential With similar chemical compositions as fossil gas, biomethane can be used as an effective alternative to fossil energy. The potential demand for natural gas in China should be primarily taken into consideration when it comes to the development of the biomethane market. According to the research result of China Petroleum and Petrochemical Engineering Institute (CPPEI), China‘s potential demand for natural gas would be 324.5 billion cubic meters by 2020 that will be mainly used for urban gas, power generation, industrial fuel, transportation and chemical industry. Among which,  Urban gas is typically for residentail and commercial use. With vigourous promotion of ―New Urbanization‖, demand for urban gas has maintained a steady growth. It is estimated that, in 2020, the urban gas (residentail and commercial) demand would be 48 billion cubic meters, and annual increase of population requiring for gasification will be 27 million on average.  Natural gas fueled power generation mainly includes three aspects, namely peak-load power plant, CHP and distributed energy sources, and enjoys a larger development space due to the characteristics of natural gas power plant, such as cleanness, flexibility and efficiency, etc. Natural gas fueled power generation will be one of the essential development directions of the natural gas industry. It is predicted that the natural gas demand for power generation will reach to 72 billion cubic meters in 2020.  The use of natural gas as industrial fuels typically involves in two areas, namely the replacement of coal by gas and the replacement of oil by gas. With the implementation of the Action Plan for Air Pollution Prevention and Control, the industrial sector needs to upgrade fuels and develop clean fuels with support of natural gas. The estimated natural gas demand will be 123.2 billion cubic meters in 2020.  The use of natural gas in transportation is mainly the replacement of

188 petroleum for vehicles and ships, and the estimated demand will be about 58 billion cubic meters in 2020.  The use of natural gas in the chemical industry is mainly for the production of traditional chemical products, and due to excess production capacity of chemical products, there would be no expanded demand for natural gas in the future. The demand for natural gas in this sector in 2020 will be about 23.3 billion cubic meters, less than the demand in 2014. (2) Biomethane market potential According to its production characteristics, the biomethane will be primarily used as domestic fueland vehicle fuel as well as for power generation. In addition, biomethane may also be used as fuel for heating. Therefore, the use of biomethane as urban natural gas, power generation, industrial, and transportation fuels is similar to the use of natural gas in the same market. Considering natural gas is widely used in these areas, the development of future market for biomethane should focus more on the new demand of the natural gas market. The estimate of the above types of new market demand indicates that the future market demand for biomethane use will be about 98 billion cubic meters, mainly including:  Urban gas: demand for additional 17.1 billion cubic meters is expected. This mainly contributes to the construction of ―new-type urbanization‖. Due to its production characteristics that fit for urban gas, this will become the key area for biomethane development.  Natural gas for power generation: in such markets, biomethane can be primarily used as CHP or distributed energy, and the new demand of these two types of market is 35.5 billion cubic meters. For large-scale natural gas fueled power generation, it is difficult for a complete replacement by biomethane due to limited production scale of biomethane. Therefore, although the demand of such markets is huge, there are some difficulties technically to meet the demand.  Industrial fuel: fuel for replacement of coal-fired boilers and heating boilers is the main feature in such a market, and the new demand for such fule is 29.4 billion cubic meters. Driven by the implementation of the

189 Action Plan for Air Pollution Prevention and Control and the clean heating policies in Northern areas, the substitution of biomethane in such market will be more important, but the energy used for industries and residential heating requires a secure and stable supply. The use of biomethane in this area still needs the combination with traditional fossil energies and the full integration with local energy supply system for the realization of secure and stable supply. (iii) Opportunities and Challenges for Commercial-scale Development of Biomass-to-Heat 1. Opportunities and challenges facing biomass CHP for heat production With the constant improvement of the biomass collection and transportation system and the maturity of heating technologies and commercial mode, there have been more biomass CHP market opportunities and investment enthusiasm of developers. Thus, biomass CHP is faced with an unprecedented development opportunity. However, biomass belongs to a special energy source and has such characteristics of lower energy density and higher costs, as compared with traditional fossil energies (coal). At the same time, the biomass CHP technical index system and industry policies need further improvement. All these will become the obstruction and challenge for the development of the biomass CHP industry. (1) Opportunities The macro policy environment turns better and the market opportunities keep increasing. In September 2013, the Action Plan for Air Pollution Prevention and Control and the Rules for the Implementation of the Action Plan on Air Pollution Prevention and Control in Beijing, Tianjin, Hebei and Surrounding Areas (Huan.Fa. [2013] No. 104) were released, clearly requiring for accelerating the elimination of small coal-fired boilers for heat production and industrial use through the replacement by clean energy sources. In April 2017, National Energy Administration issued the Guidance Note on Promoting Renewable Energy Based Heating supply. It requires for a comprehensive

190 development of such bio-energies from forestry residuals and provincial and urban household wastes according to different local conditions. In areas where there is a large quanity of crop straw resources, biomass CHP for central heating or industrial heating supply should be promoted. While in areas where there is a traditional central heating system, renewable bioenergy for heating supply should be energetically promoted in combination with the replacement of bulk coal as fuel for urban heating supply and propmotion of technologies in CHP by bioenergy and briquette heating, etc. The introduction of these policies will boost a rapid development of the Biomass-to-Heat industry. The technologies and commercial modes become gradually matured and the market investment enthusiasm is continuously increasing. With the advancement of air pollution prevention and control, the demand for replacing fossil fuels with clean energies is ever growing. In recent years, Biomass-to-Heat has an obvious advantage in price compared with natural gas due to the requirement for low-carbon and clean heating supply. In regions where coal is prohibited, such as the Yangtze River Delta and the Pearl River Delta regions, stable market demand has taken shape and good results have been achieved in popularization and application of Biomass-to-Heat. Currently, the market demand for Biomass-to-Heat in the Beijing-Tianjin-Hebei region is also increasing rapidly, and this region is well placed to become the third largest Biomass-to-Heat market in China. The system to ensure Biomass-to-Heat development continously is improved and social fund investment increased yearly. The Biomass-to-Heat industry belongs to a clean energy industry in line with the national macro policy guideline. At the same time, due to dramatic market demand and certain economic benefits, the Biomass-to-Heat industry has attracted the investment from social fund, which has injected vitality to the industry for its rapid development. (2) Challenges The industry policies need to be further improved. There would be no healthy and rapid development of the Biomass-to-Heat industry without

191 the guidance and support of national policies. The government has rolled out a series of supporting policies for renewable energies and the guiding policies for the construction of biomass briquette heating demonstrated projects, which have boosted the development of the Biomass-to-Heat industry to some extent. However, the existing supporting policies are not targeted at the Biomass-to-Heat industry, and issues in the development of the Biomass-to-Heat industry cannot be effectively addressed. Therefore, incentive policies need to be improved for the Biomass-to-Heat industry. The key is to establish and improve an energy product price formation mechanism that can reflect the scarcity of resources and the external harms to the environment and roll out a policy subsidy mechanism for product improvement, technological innovation and heating prices. The technical standards system is not yet complete. Currently, the Biomass-to-Heat industry is growing rapidly. Most enterprises of the industry are small in size. National Energy Administration and the Ministry of Agriculture are actively promoting the development of standards for the biomass briquette industry, but there has been no perfect technical standards system covering product classification standards, burner technologies and key parts and components of briquette equipment, etc. Therefore, there exists extensive pattern in processing and operation; the boiler equipment manufacturing capacity is scattered; and the technological level is not high. Moreover, the usage of raw materials for production is less standard and the briquette equipment are less durable, which are not conducive to improving the threshold and the overall competitiveness of the industry as well as the economy of bioenergy usage. The price is less competitive for coal replacement. The most effective way to promote the development of the Biomass-to-Heat industry is to rely on the driving force of the market, which is mainly the replacement of fuel coal, heavy oil and other fossil energies. However, coal is the major energy consumed in China as the price is relatively low. In consideration of the economic cost, users still prefer to use coal, so it is still difficult to popularize biomass for heating production, especially for

192 realizing the commercialized and market-based application of biomass for residentail use. 2. Opportunities and challenges facing BMF heating

China‘s heating industry is large in scale and stable in demand as a whole. With the increasing strict requirements of environmental and energy policies in recent years, coal substitution has become a must trend. In the meantime, the energetic implementation of clean energy heating policies and the strong momentum of heating market demand have boosted the continuous development of the Biomass-to-Heat industry which has absolute advantages in resource, environmental and economic effects. At the heating market level, in 2014, China had 620,000 units of boilers in use, 10,000 units of utility boilers, 650,000 units of industrial boilers of various capacities. The aggregate capacities of these boilers were about 3.52 million MW. The number of coal-fired industrial boilers totaled 460,000 units, accounting for about 85% of the total, and the annual coal consumption reached 720 million tons. BMF can replace coal for heat production and the Biomass-to-Heat market value may reach 600 billion. At the level, 30% of the natural gas in China relies on import and the proportion will keep rising. In recent years, the severe haze has further driven up the consumption of natural gas. It is expected that, by 2020, China‘s annual consumption of natural gas will surge to 350-400 billion cubic meters, resulting a demand-supply gap of 150-200 billion cubic meters. As a supplement to the natural gas market, BMF is paralleled with natural gas in replacing coal. Out of the requirement for national energy security, BMF is the best choice. At the policy support level, the notice of the NEA on printing and issuing the 13th Five-Year Plan for Biomass Energy Development (Guo.Neng. Xin.Neng. [2016] No. 291) requires for a basic realization of the commercialized and large-scale development of bioenergy, with an annual bioenergy utilization amount of 58 million tons of standard coal and an annual biomass briquette utilization amount of 30 million tons by 2020. Compared with the 12th Five-Year Plan for Biomass Energy

193 Development, the 13th Five-Year Plan for Biomass Energy Development has increased the planning targets. Looking from the perspective of the development trend of the heating industry, coal substitution will present good opportunities for the development of Biomass-to-Heat. 3. Opportunities and challenges facing biomass gasification for heat production With the growing global consumption of non-renewable energies, such as petroleum, coal and natural gas, energy security has become a major challenge faced by most countries. As a renewable, energy-saving and environmental-friendly source and a huge annual output, bioenergy can play an active role in optimizing the energy structure, easing the tension in energy supply, reducing air pollution and increasing rural income. Biomass gasification for heat production is one of the effective means to sufficiently and effectively use bioenergy. Opportunities and challenges co-exist under the condition that China‘s energy demand grows rapidly and China is transforming from old-style energy development to new energy development. Biomass enjoys diversified, rich and extensive sources of feedstock, which have laid a foundation for the large-scale and commercialized application of biomass pyrolysis and gasification. Biomass pyrolysis and gasification can not only utilize agricultural wastes (straw, peanut shell, cotton stalk, livestock manure, etc.) and forestry residuals (wood waste, bark and branch, etc.) but also make use of industrial wastes (herb residue, furfural residue, vinasse and vinegar residue, etc.). On the one hand, the widespread application of biomass gasification for heat production in rural areas can effectively adjust rural energy structure and thus have a significant role in rural development and construction. On the other hand, the application of biomass gasification in industrial areas can realize the recycle of waste sources for energy, reduce burdens on enterprises and create a big room for the increase of economic values. Feedstock diversity and richness have resulted in the complicated composition of bioenergy and thus the increasing technical requirements for biomass pyrolysis and gasification. New technologies for high quality biomass

194 gasification and utilization have become the research hotspot in the field of biomass gasification. The extensive and scattered sources of feedstocks have led to challenging difficulties in collection, storage and transportation. For example, burning straws in the open air keeps emerging despite repeated prohibitions due to the long radius of straw collection and the imperfect collection, storage and transportation system. The ecological civilization construction and the industrial and economic transformation and upgrading have provided the opportunity for developing the green industry, raised new tasks for biomass pyrolysis and gasification and promoted the application of biomass pyrolysis and gasification technologies to such areas as environmental-friendly treatment of industrial solid wastes. Biomass is the sources of clean energy and emits zero CO2 in the whole life cycle, so it has played an active role in protecting the eco-environment and meets the social demand for low-carbon development. After biomass pyrolysis, gasification and combustion, the nitric oxide generated is much less than the sulfur dioxide generated from fossil fuels, and even less than the nitric oxide generated from direct biomass combustion. Therefore, biomass pyrolysis, gasification and combustion are more advantageous in protecting the environment. However, as the environmental protection standards become more and more stringent, the costs for centralized treatment of secondary pollutants generated in the industrialized application have become growingly higher. For instance, Buchang Pharma‘s environmental protection investment is as much as 20% for the treatment of secondary pollutants in the project of utilizing herb residues and other wastes for energy. China has unveiled a series of supportive policies for Biomass-to-Heat, biomass heating, coal substitution and third-party treatment of pollutants, etc., which have provided a broad space for the development of biomass gasification development. However, due to the introduction of policies for urban heating and licensed gas operation, etc., it‘s is difficult for biomass pyrolysis and gasification projects to enter industrial parks. This has restricted the large-scale and commercialized development of biomass pyrolysis and gasification and led to the difficult for biomass gasification

195 for heating supply. The small space for the application of biomass gasification in rural heating market has resulted in the less remarkable economic benefits and the lack of policies for front-end investment allowances and product subsidies for grid connection. 4. Opportunities and challenges facing biogas/biomethane for heating supply industry (1) Improvement of the feedstock collection guarantee system At the moment, the feedstocks for turning agricultural organic wastes into bioga are mainly livestocks, poultry manures and crop straws. Stable supply and relatively lower costs of feedstocks is the key for guaranteeing the continuous and normal operation of biogas projects. Looking from domestic existing successful operation cases, the feedstocks for traditional biogas projects mainly come from the livestock and poultry manures of large farms. The construction and operation of biogas projects usually rely on large farms. Owners of many biogas projects are owners of large farms themselves, which have guaranteed the reliable supply of feedstocks for biogas projects. For examples, DeqingYuan biogas project and Shandong Minhe biogas project were all constructed with the investment of farm owners in their first stage of construction, so the feedstock supplies are stable and the projects realize sustained operation. Being subject to enterprise size, it is difficult for average-sized farms to construct large biomethane projects. While considering the waste treatment of livestock and poultry farms, biomethane projects need to focus on feedstock diversity. With the continuous development of straw biogas in recent years, biogas projects are no longer being limited by the size of farms, which have guaranteed the feedstocks for the construction of super-large biogas/biomethane projects. The total amount of straws collected as feedstocks by biomethane projects is far less than that of straw-fired power plants and other enterprises using straws for energy, but issues still exist in straw collection. Looking from the existing straw biogas projects in operation,

196 enterprises also keep exploring the collection mode of feedstocks, such as the ―agricultural nanny‖ being explored by the proprietor in the Yuanyi biomethane project in Chifeng and the agreement reached by the proprietor within the country on straw collection in the comprehensive domestic waste utilization project in Tonghe County of Heilongjiang province, which both are the explorations of straw collection mode. Under the precondition of guaranteeing the total collections, these modes have also effectively controlled the costs of feedstock. (2) Proper technical process selection Most domestic large-scale biogas projects take livestock and poultry waste treatment as the principal source of feedstocks by adopting CSTR for the anaerobic fermentation process. This process has become fairly mature in domestic application. The three major domestic large-scale biogas projects all adopt this type of process for grid-connected power generation. In recent years, the scale of biogas projects has been gradually expanding, which prompts more enterprises to try new approach, such as adding straws and domestic wastes as sources of the feedstocks for biogas projects. At present, the actually operating domestic straw-fired biogas projects mainly adapt such processes as garage-type dry fermentation process and VPF fermentation technology, but there are fewer successful cases. The multiple feedstocks co-fermentation process needs further study and exploration. (3) Market development for end products Domestic biogas projects are not yet market-oriented and the biggest challenge lies in whether the end products can truly realize commercialized application. Most biogas projects are mainly centralized gas supply for local farmers, so the consumption is limited and the prices are lower. Learning from the existing successful cases, the realization of commercialized biogas projects requires stable product marketing channels, such as grid-connected power generation or the usage as vehicle fuels, etc. At the same time, the treatment of the by-products of biogas residues and slurries are also essential factors for the profitability of biogas projects. According to investigations and surveys, the economic benefits of biogas projects would increase in multiples if the market of

197 biogas residues and slurries are well developed and enjoy stable marketing channels. Therefore, future biogas project construction and operation, and organic fertilizer process and production will be the important ways for guaranteeing the benefits of biogas projects. Therefore, guaranteeing an efficient utilization of biogas residues and slurries and increasing the added value of organic fertilizer products will become an important factor for the market-based biogas/biomethane industry.

198 VII. Policy Recommendations

For the commercialization of biomass-to-heat project development, a secured supply of feedstock plays an important and decisive role. Therefore, this section offers policy recommendations from two aspects which include improving secured feedstock supply and promoting the development of commercial-scale biomass-to-heat industry.

(i) Policy Recommendations on Improving Secured Supply of Biomass Resources 1. Recommendations on Secured Supply of Biomass Resources Biomass resources mainly include agricultural and forestry biomass, urban household waste, livestock and poultry manure, and industrial organic waste. Due to low amount of available industrial organic waste, this section only focuses on the first three types of biomass resources. (1) Agricultural and Forestry Biomass First, improving laws and regulations regarding the collection, storage and transportation of agricultural and forestry biomass and ensuring a stable supply of straw resources. It is recommended that, through introduction of legislation or relevant management measures， violation of open burning of straws and other illegal behaviors should be severely punished, that agricultural and forestry biomass should be included in the market management system of agricultural products, and that pricing mechanism should be regulated, which would help avoid disorderly competition in the collection and storage of agricultural and forestry biomass. Secondly, improving the supportive policies on collection, storage and transportation of agricultural and forestry biomass. It is recommended to improve preferential policies on taxes levied on collection and storage of the biomass, as well as on credit and loan, land, and green transportation pass for agricultural and forestry biomass. Support shall be provided to enterprises in weak areas such as straw collection & transportation and application of end product, so as to

199 accelerate the process of industrialization. Thirdly, establishing special funds and creating diversified investment mechanism. Tangible results for a comprehensive utilization of straws, featured by large quantities and wide scope, can be hardly achieved with local investment only. Therefore, it is recommended to build a multi-level, multi-channel and diversified investment mechanism with government-oriented financial investment and key investment from enterprises and farmers. It is also recommended that a pricing mechanism for straw as a raw material for biomass energy should be improved. (2) Urban Household Waste First, vigorously promoting the classification of household waste and establishing a system to manage an entire process of classification. It is recommended that, according to the local actual situation, the scope, varieties, requirements, methodologies, collection and transportation methods for waste classification should be defined, which will form a complete, collaborative and effective whole-process management system on waste collection, transportation, resource utilization and terminal disposal. It is proposed that the current system should be improved to report and register the whole process for household waste from generation to collection, transportation and processing. Secondly, improving the garbage collection and transportation system. It is proposed that the collection of urban household waste should be strengthened, and an interconnected collection and transportation system that integrates with the classification, recycling and harmless disposal of household waste should be established. Meanwhile, household wastes transfer stations should be upgraded and remolded. Collection and transportation of wastes in closed and compressed vehicles should be popularized in urban built-up areas, and vehicles to collect and transport wastes should be properly distributed, based on volume and distance for transportation. At the same time, it is recommended to effectively monitor the flow of kitchen waste and resource-based products. Thirdly, strengthening support for waste collection and processing as

200 well as management measures. It is proposed that the waste disposal fee charge system should be improved, and that reasonable charging standards should be defined. Such fee collection standards should cover, as far as possible, all costs for waste collection, removal, transportation and disposal. It is recommended that governments‘ responsibilities should be strictly implemented, that public financial investment at all levels should be increased, and that preferential tax policies regarding waste disposal should be put into effect. (3) Livestock and Poultry Manure First, increasing financial support. It is proposed that, with central government funds and investment by central government budget, the support for recycling use of livestock and poultry manure should be increased. Taking major animal husbandry raising counties and large scale farms as the targeted areas, it is to promote the resource utilization of livestock and poultry manure and support the establishment of an efficient system for collection, storage and transportation. Local governments should increase financial resources in resource utilization of livestock and poultry waste, and support scale-up of farms, third-party processing companies, and social service organizations in building waste collection, storage, and transportation facilities. Secondly, attracting investment of social capital. It is recommended that, based on the principles of government-supported and enterprise-oriented market operation, market-oriented, corporatized and professionalized construction and operation of biogas CHP projects should be vigorously promoted, and protection of livestock and poultry manure resources should be further strengthened. It is proposed to explore the popularization of Public-Private Partnerships (PPP) in the collection and disposal of livestock and poultry manure. It is also proposed to actively explore carbon emission permit trade mechanism, encourage specialized operating entities to improve carbon emission reduction plans for biogas projects, and set pilot for carbon emission permit trading. Thirdly, implementing relevant support policies. It is proposed to

201 improve the collection and storage and transportation system of livestock and poultry manure, and include the equipments for waste collection and transportation, biogas fermentation, and other related equipments on the list of agricultural machinery purchase for subsidies. At the same time, it is proposed to establish and implement preferential policies on land using, electricity and taxes for scaling up biogas projects development. 2. Measures for Securing the Supply of Biomass Resources (1) Agricultural and Forestry Biomass First, strengthening organizational leadership. It is recommended that competent energy authorities at all levels shall promote the construction of collection and storage system of agricultural and forestry waste as an important component of biomass development and utilization. In this regard, a leading group and an evaluation team should be established to strengthen supervision and management over market-oriented enterprises and provide guidance, and protect their legitimate interests. Secondly, building a sound biomass industrial system. It is proposed that support should be provided to enterprises for rational deployment of collection and storage network based on the principle of proximity, localization and local conditions, and establishment of a specialized collection system of biomass raw materials to guarantee availability of biomass resources. Meanwhile, an effective linkage among major clients, brokers, transport companies, and processing companies for the collection and storage of agricultural and forest biomass storage should be strengthened, and a market-oriented service system promoted by government, led by enterprises (cooperatives) and participated by farmers should be established for the collection, storage and transportation of agricultural and forest biomass. Thirdly, intensifying demonstration of best practices. It is recommended that pilot projects for the collection and storage of biomass should be developed in regions with abundant resources and advanced degree of development and utilization of biomass. Based on managerial experience, policies and typical examples in the collection and storage of agricultural

202 and forestry biomass, best practices of pilot projects should be demonstrated, so as to comprehensively improve social services in biomass collection and storage and accelerate the pace for the development of industrialization. Fourthly, intensifying advocacy activities. It is proposed that competent energy authorities in all regions should intensify advocacy on agricultural biomass collection and storage to raise public awareness, especially in areas such as fire safety, significance, and stability risk assessment. Guidance should be provided to local governments in project locations on public communication, media advocacy, and other related work, creating a favorable social environment for the collection and storage of agricultural and forestry biomass. (2) Urban Household Waste First, strengthening supervision and management. It is proposed that management of market access to household waste disposal should be strictly reinforced, that market exit mechanism should be established and improved, and that standardized construction and credible operation of specialized enterprises for waste disposal should be encouraged while guidance in this regard should be provided. Supervision and evaluation should be strengthened over the operation status and disposal effect of household waste disposal facilities that have been completed and operated. Results of the evaluation should be publicized for receiving supervision by the public. It is recommended that a dishonesty disciplinary mechanism and blacklist system for household waste operators should be established. Establishment of supervision and tour inspection systems for household waste disposal should be studied and local governments‘ supervision over household waste disposal and construction and operation of facilities should be strengthened. It is proposed to explore introduction of third-party professional institutions to scientifically improve supervision. Secondly, establishing a diversified investment mechanism. It is proposed that a diversified investment mechanism should be established in order to accelerate industrialization and socialization of household

203 waste collection and disposal. It is recommended to improve public finance-oriented investment system for urban waste disposal facilities, and gradually build up a diversified investment mechanism featured with "government guidance, social participation, and market operations". It is proposed to encourage cross regional and departmental cooperation to cultivate and develop professional and large-scale waste disposal enterprises, and further improve the market access system. It is also proposed to accelerate the application of Public-Private Partnerships (PPP) model in household waste disposal. Thirdly, strengthening publicity and guidance. It is proposed to utilize traditional and modern media to vigorously advocate various policies and measures as well as results for the collection and disposal of urban household waste to shape a public opinion atmosphere conducive to urban household waste disposal. It is recommended that various publicities and educational activities should be undertaken to popularize the scientific knowledge of waste classification, promote household waste classification and recycling, and strive to raise the public awareness of waste classification and environmental resources, especially for all students and young people. (3) Livestock and Poultry Manure First, strengthening environmental protection and regulation. It is proposed to strictly implement environmental impact assessment system for large-scale livestock farms, and regulate the assessment contents and requirements. For newly built or expanded livestock and poultry farms, they should be equipped with necessary facilities for animal waste collection, storage, disposal and utilization, while environmental impact assessment on these farms should be undertaken according to relevant laws. It is proposed to use the connected information system set up by the Ministry of Agriculture and Rural Affairs for large scale livestock and poultry farms for direct reporting, to build a management platform featured with unified management, used at different levels and shared by all directly. For large scale livestock and poultry farms that have not conducted environmental impact assessments

204 in accordance with relevant laws, the environmental protection departments should strengthen supervision for law enforcement, urge the farms to utilize manure resources and provide them with guidance on how to use livestock and poultry manure for biomass-to-heat generation. Secondly, strictly implementing the local management accountability system. It is proposed to strengthen the awareness of responsibilities of local governments at all levels for recycling livestock and poultry waste in their respective administrative districts. They should, according to the actual local conditions, clarify departmental responsibilities based on laws, define detailed distributions of labor, improve coordinating mechanisms, increase capital investment, improve policy measures and strengthen daily supervision, to ensure tasks for disposal and utilization of livestock and poultry manure are acomplished.

Thirdly, establishing a reasonable mechanism linked with stakeholders’ interests. It is proposed that incentive mechanisms in different forms should be improved to encourage enterprises to dispose and recycle livestock and poultry waste, and that a collection and payment mechanism for agricultural waste disposal should be established. It is proposed to encourage livestock and poultry manure disposal companies to sign agreements with large-scale farms. A collection and payment mechanism shared with benefits and risks should be established. Fourthly, improving the services for the collection, storage and transportation of livestock and poultry manure. It is proposed to integrate resources and improve technology and industrial service systems to comprehensively improve innovation capability of agricultural biomass technology and services for the industry. It is recommended that a service mechanism should be explored for the collection, storage and transportation of livestock and poultry manure, that government funds should be sought for the industry, and that guidance should be provided to form a three-level social service network at levels of county, township, and village. (ii) Recommendations for Commercial-scale Development of Biomass-To-Heat

205 1. Heat Production by Biomass-based CHP (1) Agricultural and Forestry Biomass-based CHP First, strictly control the approval of new project construction and rationalize the distribution. It is proposed that provincial (and Autonomous Region and Municipalities directly under the Central Government) governments, in accordance with availability of local biomass resources and their utilization status as well as based on scientific resource survey and evaluation, need to formulate plans for the development of biomass power generation for heating supply, rationalize the distribution of biomass power generation for heating supply projects, and approve new projects strictly according to plans. This will help prevent unwarranted development of projects and malignant competition, ensure the long-term and stable operation of existing projects and those under construction, and make sure that biomass power generation projects support agriculture and environment for achieving sustainable development benefits of the rural economy. Secondly, it is suggested to disburse national renewable energy feed-in tariff subsidies by energy category and give priority to biomass-based CHP projects. The national renewable energy feed-in tariff subsidies cover projects in PV, wind power, waste incineration, and agricultural and forestry biomass power generation, among which, biomass power generation accounts for only a small proportion, but it is of great significance to people‘s and environmental protection. Therefore, it is proposed that the national renewable energy projects should be subsidized for feed-in tariff by energy category and the biomass power production projects should be subsidized preferentially and timely to support the project sustainable operation. Simultaneously, the project's heat-electricity ratio, heat consumption ratio of power generation and heat production, as well as associated pollutant emissions shall be taken into full consideration in the allocation of financial subsidies. Thirdly, improving the transformation of agricultural and forestry biomass electricity production projects into biomass-based CHP. In order to reduce air pollution and haze occurrence and promote clean

206 heating in the northern regions, national authorities have promulgated the “Plan of Clean Heating in North China in Winter” (2017-2021) and the “Guidance on Facilitating the Development of Biomass Energy Heating” in which heating production by agricultural and forestry biomass has been taken as the key to clean heating. However, as 80% of agricultural and forestry biomass energy projects remain solely for power generation, the central government is urged to timely develop supportive policies to transform these projects for power generation only into combined heat and power projects, providing more clean heat to urban areas. Fourthly, establishing special standards on air pollutants emission of boilers for agricultural and forestry biomass electricity generation (biomass-based CHP). At present, the “Standards for Air Pollutants Emission of Boilers” or “Standards for Air Pollutants Emission of Thermal Power Plants” are being used as standards for air pollutants emission in agricultural and forestry biomass electricity generation projects. However, it is not fully reflecting agricultural and forestry biomass as clean fuels, but more likely to cause local disputes on environmental protection, or damage the economy of the projects. (2) Power Generated by Waste Incineration First, resolving two core problems of Not In My Back Yard (NIMBY) and failure to reach environment standards for some projects. To address NIMBY involves efforts by government, public, enterprises and even individuals which requires for coordination between central and local governments. Since 2016, the central government has attached great importance to the prevention of NIMBY of electricity generated by waste incineration, which provide a solid basis to address the problem. However, due to easier access to emission data by the public as a result of information being highly transparent, the failure to reach environment standards for some projects has adversely impacted on waste incineration power generation. The public has no confidence on waste incineration. Therefore, the most important thing is to resolve the problem of pollutant emissions once and for all. Waste incineration power generation must meet the new ―three standards‖, i.e. clean, modern and international

207 standards, based on the original ―three standards‖, i.e. harmless, quantity reduction and resource-based waste incineration‖. Secondly, preparing a medium and long-term plan for waste incineration power generation. As of now, five ministries including the National Development and Reform Commission, the Ministry of Housing and Urban-Rural Development, and the Ministry of Ecology and Environment have jointly promulgated the “Notice on Further Planning and Site Selection for Household Waste Incineration Power Plants”, and arranged the development of a medium and long-term plan. It is therefore proposed that governments at provincial/municipal level shall formulate their own medium and long-term plans based on detailed studies of resource availability, population size, and urbanization, and help develop the entire industry in a standardized and professional manner. Thirdly, creating a mechanism for planning and site selection for waste incineration power generation projects. Planning and site selection are essential to resolve the problem of NIMBY. The development of medium and long-term plans help push local governments to release information on project layout and location in advance, so as to address the concern over NIMBY. Fourthly, establishing and improving monitoring and evaluation system for waste incineration electricity generation projects. Electricity generation by waste incineration aims to dispose waste without pollution, which will benefit every individual in the society. And monitoring and evaluation is a system design with the lowest administrative costs, highest administrative efficiency, and transparency and openness. It is therefore proposed that relevant departments shall be coordinated to establish and improve the monitoring and evaluation system for the whole industry as soon as possible, so as to undertake real-time monitoring of the operation and pollutant discharge of each project with participation of the general public. Fifthly, establishing a national mechanism for disbursing funds of renewable energy feed-in tariff subsidies. Electricity generation by waste incineration is both an environmentally sound industry and a clean

208 energy industry. It enjoys national renewable energy feed-in tariff subsidies. It is proposed that the disbursement of funds for subsidies should be measured by the results of monitoring and evaluation on projects. No funds for subsidies will be disbursed to projects that do not meet the standards for pollutants discharge or those that even produce adverse effects. This would force the industry to move towards cleanliness and modernization speedily. 2. Heat Production by Biomass Molding Fuel First, BMF should be included in the national environmental protection strategy. It is proposed that BMF should be clearly defined as a clean energy and a project that clearly promotes ―Biomass Replacing Coal‖. It is necessary to strengthen the coordination between environmental protection and energy departments, abandon the traditional perception on BMF, and clearly define it as a clean and renewable energy resource for BMF boiler heating, which is also an important solution to prevent air pollution.

Secondly, emission standards should be established to reflect BMF’s clean and renewable feature. BMF boiler, equipped with combustion technology and air distribution adjustment, could meet the natural gas emission standards. Therefore, it is necessary for government to develop emission standards for BMF boiler, reflecting BMF‘s clean and renewable feature, to ensure healthy development of the BMF industry. Thirdly, BMF industry standards should be developed. Industry standards should include collection, storage, transport and other mechanical equipment standards, production and processing technology standards, BMF product standards, BMF boiler design, manufacturing and installation standards, biomass boiler heating operation and management quality system certification standards, biomass boiler heating emission standards, etc. Fourthly, policies to promote fair competition between BMF and natural gas should be provided. In current policies for replacing and transforming coal-fired boilers, it is found that large proportion of

209 subsidies is provided to coal-to-gas projects, while heat production by BMF does not enjoy the same preferential treatment for market access and subsidy policies as compared with those offered to projects for natural gas heating. It is therefore recommended that laws and regulations should be improved to develop subsidy policies suitable for heat production by BMF. 3. Biomass Gasification-to-heat First, strengthening supportive policies and formulating development plans for biomass gasification-to-heat industry, so as to serve as basis for project approval, construction, and supervision. It is proposed that relevant sectors under the guidance of and through coordination among government departments shall develop a plan that will provide guidance to the development of the biomass gasification heat production industry. It is important that strict enforcement of such plan would be a prerequisite to ensure the development of a healthy and well-regulated industry. Secondly, standards and norms of biomass gasification-to-heat should be developed. Biomass gasification-to-heat is industry with no standards. With absence of a well-established and standardized system, it is difficult to supervise biomass gasification-to-heat industry. Therefore, there is a need to develop standards and norms to facilitate supervision in this sector. Such standards and norms should include pollutants discharge standards for the biomass gasification industry, reasonable pollutants emission limits, and pollutants emission density and total amount of limits. Thirdly, establishing a mechanism for utilizing biomass gasification-to-heat as a priority and expanding the range of financial subsidies for biomass utilization. It is recommended that policies to support utilizing biomass gasification-to-heat as priority and subsidies for producers should be developed. Therefore, the industry can enjoy the same preferential policies as offered to other distributed energy sectors. At same time, the coverage of fiscal and taxation favorable policies such as income tax relief and VAT immediate levy and refund should be expanded, and reasonable subsidies should be provided to gasification

210 heat production projects with agricultural waste and leftover, remaining water, and residual slag as the raw materials. Fourthly, establishing a mechanism for commercialized development of biomass gasification-to-heat led by government with investment from multiple sources. It is proposed that such financing mechanism will be, with guidance of central government, driven by enterprises and participated by civil society, with investment from multiple private capitals. This would help gain more access to financing for the whole industry, and thus promote the commercial development of biomass gasification-to-heat. 4. Heat Production by Biogas/Biomethane First, establishing a multi-sectorial collaborative leadership system to jointly promote development of the industry. It is recommended that a collaborative management system for biogas industry needs to be established with participation of multiple sectors including departments of finance, reform and development, agriculture, environment protection, energy, housing and urban-rural development, taxation, and quality control. It is intended to discuss and develop jointly the objectives, plans, policies and standards for the development of the industry, so that policies formed with collective efforts will help promote development of the industry. Secondly, construction and planning of biomass energy development and utilization projects shall be strictly controlled by local governments to avoid vicious competition of biomass resources. It is proposed that a survey on availability of agricultural, industrial, and municipal organic waste resources should be conducted. Based on the survey and according to status quo of comprehensive use of biomass energy and construction of projects, it is recommended that plans for comprehensive use of biomass energy at national and provincial level should be developed. Biomethane projects in the plans should be properly distributed and request for approval of those outside plans must be rejected in order to prevent unhealthy competition for biomass resources.

211 Thirdly, introduction of social capitals to finance the collection, storage and transportation of agricultural organic wastes ， and establishing a new business model. With regard to government‘s innovative investment model, it is proposed that, on the one hand, the government is to use multiple modalities integrated with such funds as straw burning prohibition funds and animal farm wastes discharge fees/environment tax as well as investment subsidies, equity investment, purchasing service and PPP to introduce social capital to finance the collection, storage and transportation of agricultural organic wastes. On the other hand, the government should improve preferential tax policy and list the collection and treatment services of agricultural organic wastes in the refund of value-added tax and tax relief of the income tax as soon as possible. China should also actively support biogas enterprises with high technical capacity, strong capital strength, honesty and integrity to be involved in the treatment of crop straws and animal wastes, and provide them with preferential value-added tax and income tax. Fourthly, implementation of the blanket guarantee policy for purchasing biomethane products. It is recommended that China needs to develop a blanket guarantee policy to purchase biomethane products according to relevant provisions of the ―Renewable Energy Law”. China should include biomethane development in the national energy and ecological strategies, break down industrial barriers and discrimination, promote the integration of biomethane and biogas power generation into gas pipe and grid, and provide enterprises with access to relevant national subsidies. China needs to promote the full purchase or guaranteed purchase of biomethane by pipe network enterprises, improve the supporting policies for central gas supply pipe network construction, and guarantee a fair market treatment for biomethane and biogas power generation and centralized heating supply. China needs to clearly require that enterprises engaged in gas grid operation and sales must purchase full local biogas products at reasonable price. Fifthly, establishing statistical, monitoring and evaluating system for biomass industry, and strengthening the industry management. It is proposed to establish a biomethane information platform to track progress

212 of planned projects. It is recommended that big data technology should be fully tapped in scientifically site selection and risk assessment, so as to provide theoretical basis for the development of the industry. More needs to be done in areas of changing the current perception of ―construction is more important than operation‖, accelerating the establishment of a post-evaluation system, and setting up a system for statistics, monitoring, and evaluation for the biomethane industry. Meanwhile it is proposed to develop a project rating mechanism, so as to rate projects completed based on criteria for environmental impacts, technological advancement, and sustainable operation & innovation capability. The ratings will be linked with subsidies and tax incentives rendered to projects as a way to ensure the project construction quality and performance up to the standards. The blacklist or credit system may be adopted, and for those enterprises which have repeated bad records should be criticized with a circulation of a notice and penalized. Sixthly, strengthening the system of performance evaluation and assessment. It is proposed that China needs to take the utilization of agricultural organic wastes and development of biomethane as key indicators in local government‘s performance evaluation system. Moreover, all relevant management departments need to jointly undertaker regular performance evaluation on biogas supportive policies released and implemented, and timely adjust areas of support and priorities in the policies according to the implementation effect of these policies.

213 Appendix I List of Site Investigation for Biomass-To-Heat Projects in China Table 1: List of Site Investigation for Biomass-To-Heat Projects in China

Heating mode Project name Heating field

Shandong Qixia Biomass Combined Heat Civil heat supply and Power Project

Nangong City Biomass Combined Heat and Civil heat supply Power Project (Xingtai, Hebei)

Biomass power Hebei Anping JingAn Agricultural and Pure power generation Forest Biomass Power Generation Project generation/combined heat and power project Heilongjiang Tonghe County Combined Heat, Power and Biomass Power Industrial gas/heat supply Generation Project Based on Household Waste

CECEP Hefei Waste Incineration Power Garbage power Generation Project

Changchun Free Trade Zone Molding Fuel Industrial Park Heating Heating Project Project

Changchun Hotel Molding Fuel Heating Commercial heat supply Project

Changchun Faway Molding Fuel Heating Industrial heat supply Project

Biomass molding Yantai Lanbai Dining Molding Fuel Heating Industrial heat supply fuel heating project Project

Xinjiang Military Region Jinan Cadre's Civil heat supply Sanatorium Molding Fuel Heating Project

Hubei Bluefire-Wahaha Molding Fuel Industrial heat supply Heating Project

Hubei Bluefire-Mengniu Molding Fuel Industrial heat supply Heating Project

Hebei Anping JingAn Biogas/Natural Gas Biogas power Project generation/gas supply Biogas/biomethane project Shandong Minhe Animal Husbandry Biogas Biogas power generation Power Generation/Biomethane Project On-board gas supply

214 Chifeng Yuanyi Biomethane Demonstration Civil air supply/heat production Project On-board gas supply

Chifeng Ar Horqin Banner Hotel Biomethane Commercial heat supply Heating Project

Shandong Heze Buchang Pharma Gasification Industrial heat supply Project (Industrial) Biomass gasification Huzhou Fusheng Charcoal Straw and Combined heat and gas Heat/air supply project Kitchen Waste Heating Project

Jinan Shasan Village Gasification Heating/Gas Civil gas/heat supply

215 Appendix II Preset Parameters, Input Data, Calibration Parameters and Output Data of the Model for Economic Assessment of Biomass Power Generation and/or Heat Production (Direct Combustion/Gasification/Biogas) Table 1 Preset Parameters

Preset Item Unit Value

Project construction period 1 Year

Project operation period 20 Year

Loan term 15 Year

Depreciation period 15 Year

VAT rate for electricity, heat supply and gas supply products 17%

Value Added Tax 10%

Income tax rate 22.50%

Proportion of immediate levy and refund of VAT for electricity, 100% heat supply and gas supply products

Preset IRR (for the calculation of NPV) 8.00%

Table 2 Input Data

Numeric Setup Item Unit al Value Example

x 104 Installed capacity of generating unit 3 3 kilowatt

Annual equivalent hours of power generation 6,300 Hour 6,300

Station service power consumption rate 15% 15%

On-grid price 0.75 Yuan/kWh 0.75

Gasification product heating value 5,000 kcal/m3 5,000

x 104 cubic Annual gas output of the gasification system 0 0 meters

216 Gas price of the gasification system 0 Yuan/m3 0

Heating boiler 225 Ton/hour 225

Annual heating capacity 60 x 104 GJ 60

Heating price 60 Yuan/GJ 60

Annual other income 0 x 104 yuan 0

Total static investment 27,600 x 104 yuan 27,600

Owned fund ratio 20% 20%

Loan interest rate 4.90% 4.90%

Loan interest rate in the construction period 4.90% 4.90%

Ratio of salvage value of fixed assets 5.00% 5.00%

Moisture content of raw material

Raw material heating value 3,500 kcal/kg 3,500

Annual raw material consumption 30 x 104 tons 30

Power generation system efficiency 24.00% 24.00%

Raw material price 400 Yuan/ton 360

Proportion of annual equipment maintenance 2% 2.00% costs in the total investment

Proportion of annual water, electricity and other 0.40% 0.40% fuel consumption in the initial investment

Proportion of annual salary and welfare 2.00% 2.00% expenses in the total investment

Proportion of annual other maintenance costs in 0.00% 0.00% the total investment

Proportion of liquidity in the annual total 20% 20.00% operating expenses

217 Proportion of the investment containing taxes in 60% 60.00% the initial investment

Proportion of annual salary and welfare 0% 0.00% expenses in the total investment

Proportion of annual other maintenance costs in 10% 10.00% the total investment

Power environmental benefits: unit SO 2 0 Yuan/kWh 0.02 emission

Power environmental benefits: unit NO X 0 Yuan/kWh 0 emission

Power environmental benefits: unit dust 0 Yuan/kWh 0 emission

Power environmental benefits: unit other 0 Yuan/kWh 0 emission

Heating environmental benefits: unit SO 2 0 Yuan/GJ 1 emission

Heating environmental benefits: unit NO Yuan/GJ X 0 0 emission

Heating environmental benefits: unit dust Yuan/GJ 0 0 emission

Heating environmental benefits: unit other Yuan/GJ 0 0 emission

Table 3 Calibration Parameters

Numerical Item Unit Value

Aggregate capacity of CHP/gasification heat supply or 26.80% power generation system

Yuan/M Costs of unit value of raw materials 0.114 cal

218 Table 4 Output Data

Numerical Item Unit Value

Calculated project financial evaluation (excluding environmental benefits)

IRR 4.10%

NPV (IRR=0) 7,859 x 104 yuan

NPV (IRR=preset value) -3,225 x 104 yuan

Calculated project financial evaluation (considering environmental benefits)

IRR 4.10%

NPV (IRR=0) 7,859 x 104 yuan

NPV (IRR=preset value) -3,225 x 104 yuan

Calculated evaluation of national economy (considering environmental benefits)

IRR 6.30%

NPV (IRR=0) 44,934 x 104 yuan

NPV (IRR=preset value) 982 x 104 yuan

Itemized proportion of costs and profits

IRR=calculate Type IRR=0 IRR=preset value IRR

Cost of investment 8.80% 10.60% 9.70%

Cost of raw material 76.30% 78.00% 77.30%

Other operating costs 7.70% 7.90% 7.80%

Financial costs (interest) 3.10% 4.20% 3.70%

Taxation 1.60% 1.50% 1.50%

Profit 2.50% -2.10% 0.00%

219 Appendix III Preset Parameters, Input Data, Calibration Parameters and Output Data of the Model for Economic Assessment of Biomethane Table 1 Preset Parameters

Preset Item Unit Value

Project construction period 1 Year

Project operation period 20 Year

Loan term 15 Year

Depreciation period 15 Year

VAT rate for electricity, heat supply and gas supply products 17%

Value Added Tax 10%

22.50 Income tax rate %

Proportion of immediate levy and refund of VAT for electricity, 100% heat supply and gas supply products

Preset IRR (for the calculation of NPV) 8.00%

Table 2 Input Data

Setup Numeric Item Unit Exampl al Value e

x 104 cubic Fermentation tank volume 4 4 meters

x 104 cubic Daily biogas production capacity 7 7 meters/day

Methane content 65% 65%

Biomethane concentration 95% 95%

Heating value of biomethane 9,000 kcal/kg 9,000

Annual running days 350 day 350

220 Biomethane price 2 Yuan/m3 2

Annual other income 0 x 104 yuan 0

Total static investment 15,000 x 104 yuan 15,000

Owned fund ratio 20% 20%

Loan interest rate 4.90% 4.90%

Loan interest rate in the construction period 4.90% 4.90%

Ratio of salvage value of fixed assets 5.00% 5.00%

Raw material type

Raw material heating value 3,500 kcal/kg

Annual raw material consumption 11 x 104 tons 11

Raw material price 100 Yuan/ton 100

Proportion of annual equipment maintenance 3.00% 3.00% costs in the total investment

Proportion of annual water, electricity and other fuel consumption in the initial 3.00% 3.00% investment

Proportion of annual salary and welfare 1.00% 1.00% expenses in the total investment

Proportion of annual other maintenance costs 0.00% 0.00% in the total investment

Proportion of liquidity in the annual total 15.00% 15.00% operating expenses

Proportion of the investment containing taxes 60% 60.00% in the initial investment

Proportion of VAT in the raw material costs 0.00% 0.00%

Proportion of VAT in other maintenance costs 40.00% 40.00%

3 Environmental benefits: unit SO2 emission 0 Yuan/m 0.2

221 3 Environmental benefits: unit NOX emission 0 Yuan/m 0

Environmental benefits: unit dust emission 0 Yuan/m3 0

Environmental benefits: unit other emission 0 Yuan/m3 0

Table 3 Calibration Parameters

Numerical Item Unit Value

Daily biomethane production 4.79 x 104 cubic meters

Annual natural gas production 1,676 x 104 cubic meters Overall efficiency of the biomethane 39.20% system Table 4 Output Data Numerical Item Unit Value Calculated project financial evaluation (excluding environmental benefits)

IRR 4.20%

NPV (IRR=0) 3,546 x 104 yuan

NPV (IRR=preset value) -1,371 x 104 yuan

Calculated project financial evaluation (considering environmental benefits)

IRR 4.20%

NPV (IRR=0) 3,546 x 104 yuan

NPV (IRR=preset value) -1,371 x 104 yuan

Calculated evaluation of national economy (considering environmental benefits)

IRR 5.20%

NPV (IRR=0) 19,605 x 104 yuan

NPV (IRR=preset value) -1,004 x 104 yuan

222 Itemized proportion of costs and profits

IRR=calculate Type IRR=0 IRR=preset value IRR

Cost of investment 22.10% 27.00% 24.80%

Cost of raw material 32.40% 33.50% 33.00%

Other operating costs 31.00% 32.00% 31.50%

Financial costs (interest) 7.70% 10.60% 9.30%

Taxation 1.50% 1.20% 1.40%

Profit 5.20% -4.20% 0.00%

223 Appendix IV Preset Parameters, Input Data, Calibration Parameters and Output Data of the Model for Economic Assessment of Direct Biomass Combustion/Biomass Gasification Table 1 Preset Parameters

Preset Item Unit Value

Project construction period 1 Year

Project operation period 20 Year

Loan term 15 Year

Depreciation period 15 Year

VAT rate for electricity, heat supply and gas supply products 17%

Value Added Tax 10%

Income tax rate 22.50%

Proportion of immediate levy and refund of VAT for electricity, 100% heat supply and gas supply products

Preset IRR (for the calculation of NPV) 8.00%

Table 2 Input Data

Numerical Setup Item Unit Value Example

Heating boiler 60 Ton/hour 60

Annual heating capacity 40 x 104 GJ 40

Heating price 60 Yuan/GJ 60

x 104 Annual other income 0 0 yuan

x 104 Total static investment 3,000 3,000 yuan

Owned fund ratio 20% 20%

224 Loan interest rate 4.90% 4.90%

Loan interest rate in the construction period 4.90% 4.90%

Ratio of salvage value of fixed assets 5.00% 5.00%

Raw material type Straw briquette fuel

Raw material heating value 5,000 kcal/kg 5,000

x 104 Annual raw material consumption 2.2 2.2 tons

Raw material price 700 Yuan/ton 700

Proportion of annual equipment maintenance 5.00% 5.00% costs in the total investment

Proportion of annual water, electricity and other 3.00% 3.00% fuel consumption in the initial investment

Proportion of annual salary and welfare 5.00% 5.00% expenses in the total investment

Proportion of annual other maintenance costs in 0.00% 0.00% the total investment

Proportion of liquidity in the annual total 20.00% 20.00% operating expenses

Proportion of the investment containing taxes in 60% 60.00% the initial investment

Proportion of VAT in the raw material costs 100.00% 100.00%

Proportion of VAT in other maintenance costs 30.00% 30.00%

Environmental benefits: unit SO2 emission 0 Yuan/GJ 0.2

Environmental benefits: unit NOX emission 0 Yuan/GJ 0

Environmental benefits: unit dust emission 0 Yuan/GJ 0

Environmental benefits: unit other emission 0 Yuan/GJ 0

225 Table 3 Calibration Parameters

Item Numerical Value Unit

Total efficiency of briquette fuel heating 0.87

Costs of unit heating value of raw materials 0.14 Yuan/Mcal

Table 4 Output Data

Item Numerical Unit Value Calculated project financial evaluation (excluding environmental benefits)

IRR 15.30%

NPV (IRR=0) 2,862 x 104 yuan

NPV (IRR=preset value) 587 x 104 yuan

Calculated project financial evaluation (considering environmental benefits)

IRR 15.30%

NPV (IRR=0) 2,862 x 104 yuan

NPV (IRR=preset value) 587 x 104 yuan

Calculated evaluation of national economy (considering environmental benefits)

IRR 14.70%

NPV (IRR=0) 13,100 x 104 yuan

NPV (IRR=preset value) 2,730 x 104 yuan

Itemized proportion of costs and profits

Type IRR=0 IRR=preset value IRR=calculate IRR Cost of investment 6.20% 7.50% 8.60%

Cost of raw material 64.00% 65.40% 66.40%

Other operating costs 16.20% 16.60% 16.80%

Financial costs (interest) 2.20% 3.00% 3.60%

Taxation 5.50% 5.10% 4.70%

Profit 5.90% 2.50% 0.00%

226