China - Improving the technical efficiency of decentralized power companies

China Improving the Technical Efficiency of Decentralized Power Companies ESM222 *~~A Energy Sector Management Assistance Programme FE SA4AA n Report 222/99 ai1 Y1 \J September 1999  JOINT UNDP / WORLD BANK ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) PURPOSE The Joint UNDP/World Bank Energy Sector Management Assistance Programme (ESMAP) is a special global technical assistance program run as part of the World Bank's Energy, Mining and Telecommunications Department. ESMAP provides advice to governments on sustainable energy development. Established with the support of UNDP and bilateral official donors in 1983, it locuses on the role of energy in the development process with the objective of contributing to poverty alleviation, improving living conditions and preserving the environment in developing countries and transition economies. ESMAP centers its interventions on three priority areas: sector reform and restructuring; access to modern energy for the poorest; and promotion of sustainable energy practices. GOVERNANCE AND OPERATIONS ESMAP is governed by a Consultative (Group (ESMAP CG) composed of representatives of the UNDP and World Bank, other donors, and development experts from regions benefiting from ESMAP's assistance. T'he ESMAP CG is chaired by a World Bank Vice President, and advised by a Technical Advisory Group (TAG) of four independent energy experts that reviews the Programme's strategic agenda, its work plan, and its achievements. ESMAP relies on a cadre of engineers, energy planners, and economists from the World Bank to conduct its activities under the guidance of the Manager of ESMAP, responsible for administering the Programme. FUNDING ESMAP is a cooperative effort supported over the years by the World Bank, the UNDP and other United Nations agencies, the European Union, the Organization of American States (OAS), the Latin American Energy Organization (OLADE), and public and private donors from countries including Australia, Belgium, Canada, Denmark, Germany, Finland, France, Iceland, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Sweden, Switzerland, the United Kingdorn, and the United States of America. FURTHER INFORMATION An up-to-date listing of completed ESMAP projects is appended to this report. For further information, a copy of the ESMAP Annual Report, or copies of project reports, contact: ESMAP c/o Energy, Mining and T-elecommunications Department The World Bank 1818 H Street, NW Washington, DC 20433 U.S.A.  China Improving the Technical Efficiency of Decentralized Power Companies September 1999 Joint UNDPNWorld Bank Energy Sector Management Assistance Programme (ESMAP)  Copyright a 1999 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing July 1999 ESMAP Reports are published to communicate the results of the ESMAP's work to the development community with the least possible delay. The typescript of the paper therefore has not been prepared in accordance with the procedures appropriate to formal documents. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, or its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The Boundaries, colors, denominations, other information shown on any map in this volume do not inply on the part of the World Bank Group any judgement on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the ESMAP Manager at the address shown in the copyright notice above. ESMAP encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee.  Contents Executive Summary ..............................................................1 Project Implementation Assessment ..............................................................3 Project Background .............................................................3 Decentralized Power Companies . .............................................................3 Project Objectives ..............................................................4 Achievement of Project Objectives .............................................................. 5 Implementation Record and Factors Affecting the Project .............. ....................5 The Changing Structure of Rural Power Markets .....................................5 Approach of Pilot Efficiency Studies .........................................................6 Overview of Power Efficiency Process .....................................................6 Key Intervention Strategies .............................................................. 7 Distribution Planning Handbook ..............................................................7 Training ..............................................................8 Xin Chang (Zheijang Province) Pilot Study ...............................................9 Dong An County (Hunan Province) Pilot Study ....................................... 10 Project Sustainability and Assessment of Outcome .................... ...................... 12 Future Operation ............................................................. 12 Dissemination of Efficiency Measures .................................................... 12 Prospects for Efficiency Improvements .................................................. 13 Strategy for Introducing Power Loss Reduction Methodologies to MWR Counties ....................................................... 13 Key Lessons Learned ....................................................... 14 ANNEXES Annex A: Xin Chang County (Zhejiang Province): First Power Efficiency Study ......... 15 Annex B: Dong An County in Hunan Province: Second Power Efficiency Pilot Study. 35 BOXES Boxi: Remarkable Progress by Xin Chang Electricity Supply Company ........................ 10 Box2: Impressive Loss Reduction Activity in Dong An County ....................................... 12   Abbreviations & Acronyms DACPC Dong An County Power Company DPC Decentralized power company ESMAP Energy Sector Management Assistance Programme IHRC Hangzhou Regional Center for Small Hydropower ICN Implementation Completion Note IERR Intemal economic rate of return LAN Local area network LV Low voltage MIS Management information system MV Medium voltage MWR Ministry of Water and Resources SHP Small hydro plant Units of Measure GW Gigawatt GWh Gigawatt-hour km Kilometer KWh Kilowatt-hour kVA Kilovolt-ampere m Meters MW Megawatt MWh Megawatt-hour MVA Medium voltage amperage t Metric ton tC Metric tons of carbon TWh Terawatt-hours V Volts V  Currency Equivalency 8.5 yuan renrinbi (RMB) = US$1.00 (1999) 8.3 yuan renminbi (RMB) = US$1.00 (1999) 100 fen = I yuan (Y) vi  Preface This Implementation Completion Note (ICN) summarizes assistance provided to the Ministry of Water and Resources (MWR) by ESMAP beginning in 1989. The MWR asked for assistance from ESMAP to improve the technical, institutional, and financial performance of decentralized power companies (DPCs). The following year, a joint team from the MWR and ESMAP completed preliminary analysis of the sector and identified areas for further study. Three studies were completed in their entirety, including the design improvements for small hydropower plants, power efficiency study, and the restructuring of the DPCs. This ICN reviews the results of the power efficiency pilot study, which sought to improve the technical efficiency of the rural power generation and transmission system. Limitations of the reform process in the rural power sector were the impetus for this study as DPCs became forced to adapt their operations to a new environment of restricted central budgets and increased emphasis on company responsibility. Technical efficiency measures were seen as an important way not only to address the question of efficiency losses but to confront the restricted financial resources many DPCs faced. Last, although there are of course many institutional issues that must be addressed, this ICN focuses exclusively on technical responses in the energy sector. Many individuals participated in the preparation of reports, which are summarized by this ICN. They include Noureddine Berrah, Winston Hay, Ranjit Lamech, Frederick Jouve, Chrisantha Ratnayake, and Mangesh Hoskote, as well as representatives from the MWR. This ICN was prepared by Noureddine Berrah and Dean Girdis. vii   Executive Summary 1. Decentralized power companies (DPCs) play an integral role in the delivery of power to rural areas in China. In large part the success of rural electrification and subsequent economic development relied heavily upon their initiatives. Today they continue to play an ever important role as the demand for power continues to grow while at the same time they face increased challenges in securing funding. This shortage of funding and the transfornation of power markets toward a socialist market economy, away from state support, creates further challenges that need to be addressed. 2. Ultimately the success of DPCs lies in their ability to adapt to the changing market conditions. Transforming themselves into market driven entities-with a corporate oriented structure and commercially driven business principles-is essential. As the samne time, they must recognize and invest in technical measures to reduce efficiency losses, a major area for energy and financial savings. The Need for Reform in the Rural Power Sector 3. About 800 DPCs in rural China generate more than 70 percent of their power needs through self-generation. These DPCs do not fall within the jurisdiction of the regional systems. Rather, they are administered by township, county, or prefecture. They own and operate distribution systems and some generation plants, usually hydroelectric, and have loose power pooling relationships. 4. DPCs have played an important part in the rural electrification of China, often by building their own infrastructure with assistance and funding from the central government. By 1990, despite rural electrification rates of over 80 percent, continued expansion of electrification coverage and increased consumption per consumer was questionable principally because of the elimination of central government funding support and subsidies. 5. The principal impetus for reform within the power sector includes the following: * Reduced government funding. * Lack of comrnercial management practices in DPCs in which revenues cover the cost of supply, and tariffs make provisions for financing expansion. * Limited priority for administrative and technical efficiency in the planning and operation of DPC enterprises. 6. Where in the early 1980s government funded more than 90 percent of rural power investment in China, the percentage has steadily fallen and is now less than 30 percent. This, combined with a non-commercial tariff structure, has led to heavy reliance by some consumers on subsidies and a sector in need of pricing reform. Also, while considerable efforts went to developing the rural power sector, little attention was paid to 1  2 Improving the Technical Efficiency of Decentralized Power Companies operational efficiency, which led to inefficient utilization of power sources, inappropriate site development, and above-average technical losses in the distribution systems. Technical Responses to Improved Efficiency 7. This ICN reviews a study on improving DPC power efficiency, specifically programs developed to reduce technical losses in two county distribution systems, with measurable results in improved system efficiency. 8. The efficiency studies jreviewed many potential measures for loss reduction. In principal, these included capital investment strategies and prograrm management changes. Capital investment strategies have proved to be the most successful and include the following: * Installation of new 35 kV substations. * Rehabilitation of transmission and low-voltage distribution lines and transformers. a Replacement of equipment including conductors, distribution transformers. 9. Program management changes include the following: * Better recording of seasonal load flows through feeders and transformers. * Transformer load management to maximum utilization. * Development and installation of management information systems (MISs) to track indicators of system performance. * Reform of electricity tariff structure. 10. Total energy savings as a result of these two initiatives ranged between 6 and 8 percent in each county, with a payback period of between one and five years. Dissemination of Efficiency Measures 11. The benefits of improving energy efficiency of the DPCs, as assessed in pilot studies and as demonstrated in projects subsequently implemented, offer opportunities for substantial energy cost savings. Considering the nature of the individual companies, the differences in system sizes and operating conditions, it is difficult to quantify the potential benefits of similar activities in other DPCs. Nevertheless, it is obvious that loss reduction and other efficiency improvements can help to alleviate some of the difficulties facing the DPCs and assist them in approaching the requirements for operation as viable commercial enterprises. 12. Efficiency measures were disseminated in several ways, of which the two most important were preparation and use of a distribution planning handbook, and the establishment of a group within the MWR to train others in the techniques and methodologies applied in the two pilot counties. Both of these activities were actively supported and implemented by the MWR with considerable success.  1 Project Implementation Assessment Project Background 1.1 China is the second largest producer of electricity in the world, and by the end of 1996 had a total installed capacity of more than 250 GW, about 77 percent thermal, 22 percent hydro, with nuclear power accounting for the remaining 1 percent. Over the past 15 years, the demand for electricity has grown at an average annual rate of 8 percent, but construction of new power stations has not kept pace with the demand, leading to widespread power shortages and inhibiting the rate of economic development. An estimated 10 percent of peak demand is suppressed in large systems as a result of inadequate generating and peaking capacity. 1.2 This situation-of decentralized power markets-characterizes the national power system, including the regional systems, the seven interconnected provincial grids, and the eight non-interconnected provincial grids. However, more than 1,600 rural counties that are not interconnected or are loosely interconnected with the regional or provincial systems are experiencing similar demand growth without access to the capital and experience of the larger systems. Decentralized Power Companies 1.3 In the rural areas and smaller townships that do fall outside the jurisdiction of the regional systems, electricity supplies are most often the responsibility of DPCs, which are administered by the prefecture or county. These DPCs own and operate sub- transmission (110 kV), medium and low-voltage (LV) distribution systems (35kV, 10 kV, and LV), and in most instances, small generating units as well. Most, however, are interconnected with an adjacent grid, and about 800 of them receive most of their supply from these grids. The remaining 800 generate at least 70 percent of their energy needs themselves, chiefly with small hydroelectric generating units, and rely on the grid to augment their supply in the dry season or to purchase their surplus energy in the wet season. 1.4 By the early 1990s, total installed capacity of the 800 DPCs was about 16,500 MW (of which 90 percent are small hydropower units), with more than 60,000 operating power plants. Total electricity generation was over 45 TWh, of which 40.5 3  4 Inproving the Technical Efficiency of Decentralized Power Companies TWh came from small hydro and the majority of the remainder of 4.5 TWh from small coal units. 1.5 Larger DPCs or prefecture power companies typically operate a loose pooling of township, county, and municipal systems, adding their own generating capacity and undertaking distribution in municipalities or other areas that do not have their own power enterprise. ' DPCs in townships, counties, and municipalities are expected to be self-sufficient in generating capacity, although the prefecture company coordinates interchange between interconnected systems, including the national grid. 1.6 With central government assistance, the DPCs have played a major role in the rural electrification of China. Beginning in the 1950s, rural areas were encouraged to develop their own infrastructure, including electricity, to enhance economic development and improve the quality of life. Much of the equipment needed was supplied by the conmmunities themselves. The result was a dramatic increase in the percentage of China's population with access to electricity. In 1970 less than 40 percent of the rural population had access to electricity, whereas this figure had increased to more than 80 percent by 1990 and to 85 percent by 1995. Project Objectives 1.7 Beginning in 1989, China's MWR requested ESMAP's assistance to improve the technical, institutional, and financial performance of the DPCs. A team comprising representatives of ESMAP anc[ the MWR carried out a study and prepared an action plan to address these issues. 1.8 Initially, five areas were identified for further study: * Design improvements for small hydropower plants. * Power efficiency pilot study. * Power planning pilot study. * Restructuring of decentralized rural power systems. * Financial and budgetary control. 1.9 Although several major steps were made in each of these areas, only three studies were completed in their entirety, including design improvement for small hydroplants, and the restructuring of the DPCs and power efficiency pilot study on which this ICN focuses. 1.10 As a result of the preparatory work, the following objectives for improved technical efficiency were established: * Inmplementation of Pilot Studies on Energy Efficiency, which included a thorough technical analysis of reducing power losses and improving the overall efficiency and reliability of power system operations. A prefecrure is a regional administrative entity below the provincial level that encomipasses several counties. The counties are fiuther divided into townships and the townships in turn into villages. Decentralized power companies operate essentially at the county and prefectural levels.  Project Implementation Assessment 5 * Training MWR staff in the identification and implementation of measures to reduce power losses between the points of generation and sale * Development of a handbook for efficient distribution system planning. Achievement of Project Objectives 1.11 The major objective completed was the Pilot Studies on Energy Efficiency, which included a thorough technical analysis with hands-on approach directed at reducing power losses and improving the overall efficiency and reliability of power system operations. The study was well received by the MWR and served as a basis for further discussions and work in energy efficiency. Based on the work completed in the pilot studies, a separate unit in the MWR was then established to pursue dissemination of energy efficiency measures, and a detailed handbook was developed in coordination with the MWR that was widely distributed to DPCs. The handbook was a particularly useful tool and was used in many training workshops and as a field guide, serving as an impetus for additional investment in technical energy efficiency measures by DPCs throughout China. Implementation Record and Factors Affecting the Project The Changing Structure of Rural Power Markets 1.12 The rural power sector has been undergoing structural reform for the past several years, including the elimination of central governinent support and subsidies, the growing role of performance-based technologies, and increased managerial responsibility to improve operating efficiencies. 1.13 Despite the early success, many of the DPCs are experiencing difficulties both in continuing to expand service to new consumers and in improving the quality of service to established consumers. These difficulties stem from a number of reasons, including the following: * Reduced government funding. * Lack of commercial management practices in DPCs, including cost recovery and sufficient financing for expansion. * Limited priority for administrative and technical efficiency in the planning and operation of DPC enterprises. 1.14 In the early history of DPCs, the central government provided much of the required investment capital. As recently as 1980, the central govenment was the source of 91 percent of power sector investment in China. However, as a result of reforms introduced in the early 1980s, this percentage was reduced to less than 30 percent in 1994 and continues to fall. Prior to 1980, central government contributions to DPC investments were grants, and so had little or no effect on the charges to consumers. Second, tariffs were not structured on commercial bases, and DPCs effectively subsidized, and continue to subsidize, many areas of economic activity that are regarded as important to the common good, such as fertilizer plants and the processing of agricultural products.  6 Improving the Technical Efficiency of Decentralized Power Companies 1.15 When public electricity supplies first began to be developed in rural areas, little attention was paid to operational efficiency. In instances where equipment was manufactured locally, the workshops were unable to meet the standards of manufacturing tolerances that would be normal in specialized factories. The energy efficiency of such equipment was therefore well below internationally accepted standards. As well, hydroelectric resources appeared to be abundant, and planning for site development often did not maximize exploitation of the energy potential of the given location. Furthermore, since expansion of the infrastructure was relatively easy, operational efficiencies, such as maintaining losses in the distribution systems at economically low levels, were not given priority. These approaches became accepted and ingrained and are reflected in power system planning even today. Approach of Pilot Efficiency Studies 1.16 Prior to the first ESMAP pilot efficiency study mission, the MWR selected two county-run DPCs in which this study was to be undertaken. They were in the counties of Xin Chang in Zhejiang Province and Dong An in Hunan Province. ESMAP acquired instrumentation, computers, a digitizer and plotter for electronic mapping, and software for distribution system performance analysis, as well as for other applications for the computer and digitizer. 1.17 The strategy adopted by ESMAP for loss analysis and development of loss reduction programs relied heavily on modern technology. Because the distribution systems in rural networks are seldom adequately instrumented, portable instruments were purchased that could measure, and in many instances electronically record, the important system performance parameters (such as current, voltage, power factor, and active and reactive energy). The data electronically recorded could be downloaded to computers and processed in spreadsheet or graphic formats. Overview of Power Efficiency Process 1.18 Inproving the operational efficiency of Chinese DPCs by reducing power and energy losses on the distribution systems of those companies is an important complement to management reform initiatives and together, they serve as a basis for overall sector improvement. The counties selected provided practical demonstrations of the techniques and methodologies applied in identifying and quantifying the sources of losses. The procedures employed were generally applicable to all DPCs in China. The loss reduction measures selected included investments in system hardware, as well as purely operational procedures. An important goal of the activity was to train MWR counterpart staff in the techniques and methodologies that had been developed by ESMAP through international experience in power system loss reduction. 1.19 Several principal conclusions can be drawn from the two studies undertaken in counties served by DPCs. They provide an indication of areas for future intervention and include the following: High-loss transformers account for the largest portion of technical losses, as high as 50 percent in sorme cases.  Project hnplementation Assessment 7 a Investment in replacement transformers, rehabilitation of existing transformers, and load management programs have the greatest opportunities for efficient and provide the highest returns. a Rehabilitation of existing transformers provides the highest return for the lowest investment in the shortest payback period, as low as two years. a Rehabilitation of LV distribution networks has the longest payback period, as high as ten years. * Xin Chang County transformers were the focus of investment though non- technical and land management measures played a major role in reducing losses. * Dong An County low system losses were related to low load factors while transformer losses were relatively high because of similar low utilization factors. 1.20 Operational procedures were revised to achieve greater overall effectiveness, and a cadre of MWR staff was trained in the methodologies employed for theses studies. This group was subsequently able to undertake the study in the second county (Dong An in Hunan Province) substantially on its own, with some assistance from ESMAP, and now continues to complete similar studies in other counties as well. Key Intervention Strategies 1.21 The efficiency studies reviewed many potential measures for loss reduction. In principal, they included both capital investment strategies and program management changes. The former proved to be more successful in efficiency gains. Capital investment strategies included the following: * Installation of new 35 kV substations. * Rehabilitation of transmission and LV distribution lines. * Replacement of equipment including conductors, distribution transformers. 1.22 Program management changes included the following: * Better recording of seasonal load flows through feeders and transformers. * Transformer load management to maximum utilization. * Development and installation of MISs to track indicators of system performance. * Reform of electricity tariff structure. Distribution Planning Handbook 1.23 A handbook was reviewed by ESMAP and the MWR, after preparation by consultants, and then translated into Chinese. This handbook was presented to a  8 Inproving the Technical Efficiency of Decentralized Power Companies dissemination workshop that took place in Hangzhou (Zhejiang Province) in April 1995, and is now being used in several counties. 1.24 The distribution planning handbook, while important, is not adequate for dissemination of the lessons presented in the two pilot counties. Practical demonstrations of the technologies to be applied (such as instrumentation and software), as well as the methods of application are also required. Consequently, in 1994 the MWR established a group to do, inter alia, the following: * Organize workshops at which the lessons learned in the pilot studies would be disseminated to staff of the DPCs. The workshops would include formal training in the technologies and methodologies used by ESMAP to identify and quantify the sources of technical and non-technical power system losses and to evaluate options for reducing these losses to economic levels. * Undertake loss reduction studies similar to those completed in Xin Chang and Dong An counties in a number of other counties. The staff of these counties would receive on-the-job training during the execution of these studies. * Recommend revisions to relevant regulations and technical standards that would improve the operational efficiencies of the DPCs. * A number of professionals from the Hangzhou Regional Center for Small Hydropower (HRC) were included in the group, but it will be referred to only as the MWR group in subsequent paragraphs. 1.25 In mid-1994 the MWR group began loss reduction studies with the power companies in Huai Hua (Sichuan Province) and Yichun (Jiangxi Province) counties. Applying the lessons learned during execution of the ESMAP study, a competent team was selected to work along with the MWR group in each county. Local counterpart teams have shown strong interest in the work and are receptive to the training being provided. Similar studies will be undertaken in other counties when those currently being carried out are completed. Training 1.26 In April 1995 the MWR organized the dissemination workshop in Hangzhou at which the distribution handbook was presented. The participants, mainly managers of their companies' operations, were drawn from 15 DPCs in southern China and from the Xinjiang Autonomous Region. The workshop gave participants not only theoretical instructions but also practical training in the use of the hardware, instrumentation, and relevant software. The MWR plans to organize two such workshops annually. 1.27 Some problems arose which impede the smooth implementation of the MWVR's plans for dissemination. Perhaps the most important of these is that, because of limited staff resources, the MWR has been unable to provide the activity with the number of full-time staff required to maintain the schedule originally planned. Financial  Project Implementation Assessment 9 constraints also made it difficult (a) to purchase the instrumentation, hardware, and software required to execute the studies, or (b) to make the investments necessary to implement the recommendations. Xin Chang (Zheijang Province) Pilot Study 1.28 In Xin Chang County the pilot study identified a number of economically attractive loss-reduction measures which would reduce losses by 7-8 percent of the county's net generation in 1991. The payback period for most of these recommended investments ranged between 1 and 5 years, calculated on the basis of a 12 percent discount rate and with the average tariffs that prevailed in 1991. (See Annex A.) 1.29 In summary, the loss-reduction recommendations were as follows: * Installation of two new 35 kV substations and replacement of conductors on the Saxi 1022 and Jinlin 1046 lines. For an investment of $670,000, a payback period of three to five years was calculated. * Rehabilitation, including conductor replacement, of seven 10 kV lines. The investment required was estimated to be $230,000, and the payback period two to five years. - Replacement of all high-loss distribution transformers (approximately 60 MVA) with energy-efficient S-7 transformers. The calculations indicated that for an investment of $1.2 million, a payback period of five to six years would be achieved. * Rehabilitation of the LV distribution network to acceptable operational standards. The estimate of the investment required was $220,000, for which a payback period of ten years was calculated. 1.30 The study also identified a number of non-technical and load-management measures that would further contribute toward reduction of system losses. The economic attractiveness of such investments was not evaluated in the study because, although the implementation costs were known to be very low, there was uncertainty as to how those costs could be quantified. The loss-reduction recommendations for Xin Chang County, which did not require significant capital investment, were ways those costs could be quantified. The loss-reduction recommendations for Xin Chang County, which did not require significant capital investment, were the following: * Better recording of seasonal load flows through feeders and transformers in the county's electricity network. Such a database would not only help to delineate the characteristics of electricity supply, but would also be of value to the macroeconomic analyses required for forecasting regional rates of load growth. Estimates of load growth rates are also required for appropriate selection of energy efficient transformers and feeders. * Adopt transformer load management to ensure that existing transformers are most effectively utilized and that new transformers are appropriately sized. This will improve the utilization factor of transformers, which  10 Improving the Technical Efficiency of Decentralized Power Companies currently ranges as high as 5, and result in transforrner losses that are now as high as 10 percent of input energy. * Develop and install an MIS to track indicators of system performance, and provide indications as to the areas in which management action is most urgently needed to improve the efficiency of company performance and maintain it at high levels. * Reform the structure and level of electricity tariffs to provide a system that would be simpler to implement while better reflecting the cost of supplying electricity to the different consumer groups. 1.31 The Xin Chang County power company, Xin Dian, moved quickly to implement many of the recommendations of the study. Box 1 provides a sumnmary of the actions taken by Xin Dian by the end of 1996. It was obvious that there was a new awareness of the benefits of reducing power system losses and a determination to continue the downward trend until economic loss levels were attained and then to keep them there. Box 1. Remarkable Progress by Xin Chang Electricity Supply Company Xin Chang County continued to experience rapid load growth after conclusion of ESMAP field work for the pilot study in 1993. In 1994 energy sales were 11.5 percent higher than in the previous year, and 1995 sales were expected to be 17.4 percent above the 1994 figures. In response to the surging demand, Xin Dian developed an expansion programn for the period to 2010. The program projects a total investment of the equivalent of $13 rmillion over this period, and includes many of the recommendations made by the MWR-ESMAP pilot study. The reconimendations that were included, and on which work has already begun (end 1995) or is about to begin, are as follows: * Replacement of high-loss transformers, with an aggregate rating of 46 MVA, by the more efficient S-7 models at an investmnent cost of 7.3 million Juan (about $1.3 million). Plans are proceeding for replacement of a further 60 MVA of older transformers. * Replacement of two inefficient I 10/10 kV, 10 MVA transformers with more efficient, modem transformers. The total investment was approximately Y 3 million (S450,000). * Installation of a 3,150 kVA prinary transformer on the Shaxi 1022 line. This transformer was conimissioned in 1994. The investnent of Y I million ($150,000) wil reduce losses by more than I percent of the energy that passed through it in 1992.