Technical Assistance Consultant’s Report Project Number: 43356 / TA 7402 Capacity Development Technical Assistance (CDTA) January 2012 People’s Republic of China: Concentrating Solar Thermal Power Development (Financed by the Climate Change Fund) Prepared by: Team Leader: Jorge Servert; Co-Team Leader: Wang Zhifeng; International Technical Expert: Diego Martinez; International Financial Expert: Zhu Li; Coordinator: Hu Jicai; National Technical Experts: Ma Chongfan, Huan Dongfeng, Lu Zhenwu, Zhang Suhua, Lin Bao, lui Huaiquan, Chen Changzheng. Revisions: Revision Date Comment Signatures Originated Checked Approved by by by ABBREVIATIONS ADB – Asian Development Bank AEBIOM – European Biomass Association AEEG – Gas and Electric Energy Authority ARRA – American Recovery and Reinvestment Act CAPEX – Capital Expenditures CAS – Chinese academy of Sciences CHEC – China Huadian Engineering Company CO – Coordinator CNRS – Centre National de la Recherche Scientifique CRS – Power Towers or Central Receiver Systems CSIRO – Commonwealth Scientific and Industrial Research Organization CSP – Concentrating Solar Thermal CSP – Concentrating Solar Power CTL – Co-Team Leader DE – Dish/engine Systems DLR – Germany's national research center for aeronautics and space DNI – Direct Normal Irradiation DSG – Direct Steam Generation EA – Environmental Analyst EEC – Energy Economist EGEC – European Geothermal Energy Council EIRF – Environmental Impact Registration Form EIS – Environmental Impact Statement ENEA – Ente Nazionale per l’Energia, l’Ambiente e le Nuove Tecnologie EPC – Engineering, Procurement and Construction EPCM – Engineering, Procurement, Construction and Management EPIA – European Photovoltaic Industry Association EREC – European Renewable Energy Council EREF – European Renewable Energies Federation ESHA – European Small Hydropower Association ESTELA – European Solar Thermal Electricity Association ESTIF – European Solar Thermal Industry Federation EUBIA – European Biomass Industry Association EU-OEA – European Ocean Energy Association EUREC – Agency - European Association of Renewable Energy Research Centers EWEA – European Wind Energy Association FA – Financial Analyst FIT – Feed In Tariff FLG – Federal Loan Guarantee GDP – Gross Domestic Product GHG – Greenhouse Gas GME – Gestore del Mercato Elettrico GW – Gigawatt ha – hectare HTF – Heat Transfer Fluid HVAC – High Voltage Alternating Current HVDC – High Voltage Direct Current IEA – International Energy Agency IRENA – International Renewable Energy Agency ISCCS – Integrated Solar Combined Cycle System ISES – International Solar Energy Society ISO – International Standard Organization ITC – Investment Tax Credit ITE – International Technical Expert (ITE) ITL – International Team Leader JEDI – Job and Economic Development Impact kWe – electric kilowatt kWh – kilowatt-hour kW – thermal kilowatt LCOE – Leveraged cost of Electricity LF – Linear Fresnel reflector system MENA – Middle East and North Africa MGP – Mercato del Giorno Prima MITC – Manufacturing Investment Tax Credit MOST – Ministry of Science and Technology MTC – Manufacturing Tax Credit MW – Megawatt MWe – Electric Megawatt MWh – Megawatt per Hour MWt – Thermal Megawatt NDRC – National Development and Reform Commission NEA – National Energy Administration NREL – National Renewable Energy Laboratory NSI – Nevada Solar One NTE – National Technical Expert OECD – Organization for Economic Cooperation and Development OPEX – Operational expenditure O&M – Operation and Management costs PPA – Power Purchase Agreement PPP – Power Purchase Price PPPa – Public Private Partnership PRC – People's Republic of China PROTERMOSOLAR – Spanish association of thermo-electric industry PSA – Plataforma Solar de Almería PSI – Paul Scherrer Institute PT – Parabolic Troughs PTC – Parabolic-trough collector PV – Photovoltaic RE – Renewable Energy REC – Renewable Energy Certificate REN21 – Renewable Energy Policy network for 21st Century CNY – Renminbi R&D – Research and Development SDPC – State Development and Planning Commission SDS – Social Development Specialist SEGS – Solar Energy Generating System SEIA – Solar Energy Industries Association SERC – State Electricity Regulatory Commission S – State Economic and Trade Commission SNLA – Sandia National Laboratories Albuquerque SPC – State planning commission SPM – Suspended Particle Matter SRFU – Solar Research Facilities Unit SSPS – Small Solar Power Systems SWOT – Strength, Weakness, Opportunities, Threats TA – Technical Assistance TEIAR – Tabular environmental Impact Assessment Report TES – Thermal energy storage TGP – Treasury Grant Programs WACC – Weighted Average Cost of Capital WREN – World Renewable Energy Congress INDEX 1 EXECUTIVE SUMMARY (KEY FINDINGS) 10 1.1 Outputs 10 1.2 Key findings 10 2 PROJECT BACKGROUND AND CONTEXT 16 2.1 Project Background & rationale 16 2.2 Scope of the Technical Assistance 17 3 TASK 1: ROAD MAP FOR CSP DEVELOPMENT IN GANSU AND QINGHAI 20 3.1 Key Findings 20 3.2 Road map rationale 20 3.3 Background and situation analysis 20 3.3.1 The solar concentrating technologies 20 3.3.2 Worldwide current situation 24 3.3.3 People´s Republic of China (PRC) 25 3.3.3.1 People´s Republic of China energy mix 25 3.3.3.2 Gansu and Qinghai energy mix 26 3.4 Strategic analysis 26 3.4.1 SWOT 27 3.4.2 Benchmarks 28 3.4.3 Risk, mitigation and contingency 29 3.4.3.1 Risks associated to regulation 29 3.4.3.2 Risks associated to population and society 31 3.4.3.3 Risks associated to manufacturing industry 31 3.4.3.4 Risks associated to investors 33 3.4.3.5 Risks associated to weather: 35 3.4.3.6 Risks associated to plants needed supplies 36 3.4.3.7 Risks associated to grid 37 3.4.4 Barriers 38 3.4.5 Potential barriers 38 3.5 CSP deployment: electricity generation, cumulative installed capacity, value proposition & share on the national energy mix by 2040 39 3.5.1 CSP developing scenario in PRC 39 3.5.2 Business-as-Usual scenario (BAU) 43 3.5.3 Intermediate Scenario 44 3.5.4 Proactive Scenario 45 3.5.5 Deployment 2012-2017 46 3.5.6 Deployment 2017-2022 47 3.5.7 Deployment 2022-2027 47 3.5.8 Deployment 2027-2032 48 3.6 Toward competitiviness, grid parity, cost for society. 48 3.6.1 Introduction 48 3.6.2 Investment reduction 49 3.6.3 Operation and maintenance costs 50 3.6.4 Financial hypothesis 50 3.6.5 Cost for society 51 3.7 Key actions to promote and support CSP 54 3.8 Action plan 55 3.8.1 Actions for National, regional and local government 55 3.8.2 Actions for Utilities and National State Grid 58 3.8.3 Actions for financial institutions 60 3.8.4 Actions for Universities and Research Centers 60 3.8.5 Technologies and R&D 60 4 PILOT PROJECT 1 MWE DAHAN TOWER PLANT 63 4.1 Background 63 4.2 Key Findings and lessons learned 64 4.3 Pilot MW-scale project review 64 4.3.1 Background information 64 4.3.2 Project funding 64 4.3.3 Main research tasks 65 4.3.4 Stakeholders in the pilot project 65 4.3.5 Major barriers in implementation 66 4.4 1MW Dahan tower plant review 66 4.4.1 Location 66 4.4.2 System design 67 4.4.3 Equipment procurement 67 4.4.4 Stakeholders in the pilot project 67 4.4.5 Status of Dahan tower plant 68 4.5 Economic and financial analysis on 1MWe Dahan tower plant 70 4.5.1 Economic analysis 71 4.5.2 Levelized Cost of Electricity 71 4.5.3 Financial analysis 72 4.5.4 Return on Equity based on Cash Flow 72 4.5.5 Suggested power purchase price 72 4.6 Measures to promote the CSP development 72 4.6.1 Cost reduction 72 4.6.2 Political incentives 73 5 SITE SELECTION & PREFEASIBILITY ASSESSMENT FOR 50 MW DEMO CSP PLANTS IN GANSU AND QINGHAI 74 5.1 Background 74 5.2 Key Findings 74 5.3 Rationale of a CSP project in Gansu and Qinghai 75 5.4 Project sites description (Site selection rationale description) 76 5.4.1 Qualitative multi-criteria analysis 77 5.4.2 Technical Criteria 77 5.5 Socio-Economic Criteria 77 5.5.1 Environmental Criteria 78 5.5.2 Site Selection for Gansu 78 5.5.3 Site Selection for Qinghai 78 5.5.4 Gansu 79 5.5.5 Qinghai 79 5.6 Prefeasibility assessment 80 5.6.1 Technical 80 5.6.2 Economical and Financial Analysis 82 5.6.2.1 Economic Assessment 82 5.6.2.2 Financial Assessment 83 5.6.3 Social analysis 88 5.6.4 Possible social impacts 88 5.6.5 Land used 89 5.6.6 Demographic impact 89 5.6.7 Involuntary resettlement 89 5.6.8 Economic impact 89 5.6.9 Employment and income 89 5.6.10 Social acceptance issue 89 5.6.11 Environmental Impact 90 5.6.12 EIA requirements for the Project 90 5.6.13 Soil erosion 90 5.6.14 Biodiversity conservation and sustainable natural resources management 90 5.6.15 Pollution prevention and abatement 91 5.6.16 Management of hazardous materials and pesticide use 91 5.6.17 Greenhouse gas emissions 91 5.6.18 Health and safety 91 5.6.19 Induced and cumulative impacts 91 5.6.20 Physical cultural resources 92 5.6.21 Conclusions and recommendations 92 5.6.22 Risk analysis 92 5.7 Suggestions on CSP incentive policies 94 5.7.1 Tariff or electricity price set up 94 5.7.2 Supply information and promote training 94 5.7.3 Policy 94 5.7.4 New technologies 95 5.7.5 Value chain development 95 5.7.6 International cooperation 95 5.7.7 Promote the development of High Voltage Direct Current lines 95 6 ASSESSMENT AND STRENGTHENING OF INSTITUTIONAL CAPACITY 97 6.1 Background 97 6.2 Key Findings 97 6.2.1 Catalogue of capacities needed for CSP 98 6.2.2 Institution capacities needed for CSP 99 6.2.3 Assessment of institutional capacities in PRC 100 6.2.3.1 Overview of CSP development in PRC 100 6.2.3.2 Institution capacity existing in PRC 101 6.2.4 Gap Identification 109 6.3 Formulation