University of Twente School of Management and Governance (MB) NIKOS CLEAN COAL TECHNOLOGY IN CHINA A strategy for the Netherlands Rik van den Berge January 2009 CLEAN COAL TECHNOLOGY IN CHINA A strategy for the Netherlands Master thesis Rik van den Berge S0065005 University of Twente NIKOS – International Management Program Principal Representative: A. van Pabst Project supervisor university: M.R. Stienstra MSc. Co-reader: prof. dr. ir. J.J. Krabbendam ii ABSTRACT Purpose of this research report Clean coal technologies (CCT) are technologies designed to enhance both the efficiency and the environmental impact of coal extraction, preparation and use. This report mainly focuses on clean coal technologies that are employed in the power generation and fuel-oil substitution sector. China is world’s third largest country, the second largest economy measured by purchasing power parity (after the US), the most populated country, as well as the most heavily polluted country, and the second largest energy consumer (after the US). All these elements indicate that China operates on a large scale, both in a positive and negative sense. Coal is the backbone of China’s energy system. It meets just over 60% of the country’s primary energy needs. Coal’s importance in the overall fuel mix has been growing in recent years, due to booming demand for electricity, which is almost 80% coal-generated. Since China is characterized by its striking dependence on coal, now and in the future, China is potentially the biggest market for clean coal technologies. This market is increasingly attracting international attention from countries (including The Netherlands) and organizations, some of which have already been exploring on clean coal technologies in co-operation with China for years. Design/methodology/approach This research centers around the question ‘What strategy does the Netherlands has to apply regarding the transfer of its clean coal technology to China?’. With the help of specific sub- questions, the main question is answered. Through the study of relevant theories and empirical practices, literature reading and comparisons, a case study and interviews with industry experts and industry players, this research intends to critically analyze the main opportunities in the field of CCT in China, for Dutch organizations. The specific clean coal situation for China and the Netherlands are studied with a hybrid approach that confronts macro level factors with specific factors of clean coal technologies on a micro-level. In order to get a deeper insight into the Dutch competence of one technology, CO 2 sequestration: an analytical framework is added for a future meso-level study. Findings The findings of this research indicate that the clean coal technologyand activities of the Netherlands are not well understood in China. Chinese research institutes and business organizations do not have enough knowledge about specific activities and expertise about CCT of Dutch organizations. As a result, the Netherlands should focus on specific clean coal technologies in which it could become a renowned key player, instead of covering a wide range of CCT. The first step in starting co-operation in CCT must be research. China is described as the ‘mainboard’ of clean coal technology: the most advanced technologies are being explored by China. China collects and absorbs technologies, and then develops them further. The Netherlands can tag along with these developments by putting more effort in knowledge and expertise transfer with China, for instance by setting up joint training and R&D programs and exchange of employees (engineers) and students (MSc, PhD.). The Chinese situation Future development of Clean Coal Technologies in China Short term (one year or less) Medium term (2 -10 years) Long term (10 or more years) • Coal washing • Larger scale fluidized bed • Carbon Capture and Storage • Various efficiency boilers (CCS) improvements • Supercritical boilers for coal • Small circulating fluidized fired power plants bed boilers • IGCC • Flue Gas Desulphurization • Coal liquefaction (FGD) • Coal gasification iii Opportunities By further developing knowledge and technology in the Netherlands regarding coal blending (mixing of coal for a better composition), Integrated Gasification Combined Cycle (IGCC), Carbon Capture and Storage (CCS), Enhanced Coal Bed Methane (ECBM), and other efficiency-based clean coal technologies, opportunities arise to support upcoming coal based economies, like China, with the development of a modern and clean energy system. When China does not set emission targets for CO 2 reduction, CCS standalone, is not very advantageous for China. Dutch activities should therefore focus among other things on Enhanced Coal Bed Methane (ECBM) in China. This technology improves the gas winning by injecting CO 2 into coal beds and pushing the methane gas out. Besides an efficiency improvement of up to 50%, application of ECBM also lowers the pressure on China’s scare gas supplies. In the beginning of July 2008, a financial support program (Asia Facility) of the Dutch government was granted to a mutual knowledge transfer program with Dutch and Chinese parties. This program is interesting in itself, but possible future spin-offs could be even more interesting. Competition and collaboration The competition on the Chinese market for clean coal technologies is high. On the one side, there is competition from giants like Japan, the US, Canada and Australia who are investing billions in Sino-research programs to position their technologies on the Chinese market. On the other side, China is developing clean coal technologies very rapidly by itself. The forms of collaboration are not limited to the Dutch border, simply because teaming up with other European organizations can drive an even stronger attempt to seize a share of the Chinese market. The Dutch focus to become a key-player in CCS can be of future importance for building a competitive advantage over other countries but also to reach its own climate targets for CO 2 reduction. Besides this, the focus on CCS fits perfectly into the European framework, especially in the European strategy for China. Attractive organizational modalities are available for Dutch organizations that intend to co-operate with China in the field of CCT. Yet a number of obstacles hinder successful technology transfer to China. Examples of these obstacles lie in the field of intellectual property rights, finance, technological capabilities, and unfavorable governmental policies. By reading this report, organizations will better understand the current situation and will be more favorably positioned to overcome potential obstacles in seizing opportunities on CCT in China. Research limitations and future research The sample contains of 11 players with very different backgrounds (energy producer, governmental organizations, research organization) this limits the generalization of the outcome. Because of the ‘snapshot’ that is taken of the clean coal technology market, no developments can be measured during the research based on own primary research data. Also the research findings are limited to the Chinese and Dutch borders and cannot be generalized for other countries that are dependent on coal as a primary resource of energy. More research is needed on all technical aspects of carbon sequestration, fundamental processes (e.g., pore behavior), leakage rates and safety, storage capacities, and measurement-monitoring- verification, as well as on policy aspects including permitting and liability. Also the Dutch competence on CO 2 sequestration needs to be analyzed further. Therefore, this research presents an analytical framework that can be used. Origin/value of this paper While current studies provide insight in clean coal technology opportunities in China on different research levels, this research provides interesting opportunities specifically for the Netherlands. The proposed approach aims to study the clean coal technology market in China at both a macro- as in a micro level and makes a connection with Dutch activities so that knowledge with regards to the Chinese and Dutch practices, opportunities and threats can be achieved by organizations, universities and businesses. iv PREFACE This report is the result of the research executed to obtain my Master of Science degree in Business Administration. This research was carried out in Enschede, Beijing and Kortenhoef. I would like to thank all the people who have invested their time, energy and haven given their support to make this research a success. I hope that this report forms a positive stimulation for future cooperation with- and clean coal technology transfer to China. Kortenhoef, January 2009. Rik van den Berge ACKNOWLEDGEMENTS Special thanks goes to China Coal Information Institute (CCII) Freek Jan Frerichs - Assistant Counselor Jinyan Wu – Master mineral processing for Science and Technology Li Hongjun – Ph.D. Shell Global Solutions China University of Mining and Eur.Ing Henry K.H.Wang - GM & Principal Technology Service -Manager Clean Coal – Energy - Xie Qiang – Ph.D. Professor China Shu Xinqian – Ph.D. Professor Flora Yang – Section chief of foreign Shell Gas & Power experts co-ordination Gu Jing - Strategy and Portfolio Manager - Dr. Zhu Shuquan – Professor Clean Coal Technology EU-China Energy and Environment Shenhua Group – Coal to Oil & Chemicals Program Department Bert Bekker - EU Natural Gas Manager Gao Min – Business Manager Royal Netherlands Embassy in China Shenhua