Alternative energy supply options to substitute for carbon intensive fuels

CHINA 1 1 ALTERNATIVE ENERGY SUPPLY OPTIONS TO SUBSTITUTE FOR CARBON INTENSIVE FUELS I~~~~ S a IS S S Report of a Joint Team of Chinese and International Experts December 1994 ALTERNATIVE ~ ~_ ENRG UPLYOTIN   CHINA Issues and Options in Greenhouse Gas Emissions Control ALTERNATIVE ENERGY SUPPLY OPTIONS TO SUBSTITUTE FOR CARBON INTENSIVE FUELS SUBREPORT NUMBER 5 Report of a Joint Team of Chinese and International Experts Editors, Wu Changlun, Todd M. Johnson, Zhang Zhengmin, Robert M. Wirtshafter, Li Junfeng, and Li Jingjing December 1994 Supported by the Global Environment Facility  The views expressed herein are those of the authors and do not necessarily represent those of the World Bank. Copyright 1994 Additional copies of this report may be obtained from The World Bank Industry and Energy Division China and Mongolia Department East Asian and Pacific Regional Office 1818 H Street, NW Washington, DC 20433 OTHER SUBREPORTS IN THIS SERIES: Estimation of Greenhouse Gas Emissions and Sinks in China, 1990, August 1994. Report 1 Energy Demand in China: Overview Report, February 1995, forthcoming. Report 2. Energy Efficiency in China: Technical and Sectoral Analysis, August 1994, Report 3. Energy Efficiency in China: Case Studies and Economic Analysis, December 1994. Report 4. Greenhouse Gas Emissions Control in the Forestry Sector, November 1994. Report 6. Greenhouse Gas Control in the Agricultural Sector, September 1994. Report 7. Valuing the Health Effects of Air Pollution: Application to Industrial Energy Efficiency Projects in China, October 1994. Report 8. Potential Impacts of Climate Change on China, September 1994. Report 9. Residential and Commercial Energy Efficiency Opportunities: Taiyuan Case Study, September 1994, Report 10. Pre-Feasibility Study on High Efficiency Industrial Boilers, August 1994. Report 11.   Currency Equivalents 1 US$ = 4.7 Chinese Yuan (1990) Weights and Measures 1 ton of coal = 0.7143 tce (average) = 20.934 GJ 1 ton of crude oil = 1.43 tce = 41.816 GJ 1,000 m3 of natural gas = 1.33 tce = 38.931 GJ 1 ton fuelwood (air dry) = 0.54 tce Kilo(Watt) = 103 (Watts), Mega = 106, Giga = 1097 Tera = 1012 All CO2 weights expressed as molecular weight of carbon (C) Abbreviations and Acronyms bcm - billion cubic meters C - carbon CO2 - carbon dioxide EIRR - economic internal rate of return FIRR - financial internal rate of return GDP - gross domestic product GEF - Global Environment Facility GHG - greenhouse gas GJ - gigajoule GW - gigawatt kgce - kilogram of coal equivalent kW - kilowatt kWh - kilowatt-hour LNG - liquified natural gas LPG - liquified petroleum gas mcfd - million cubic feet per day MMbtu - million British thermal units mtce - million tons of coal equivalent MW - megawatt NOx - oxides of nitrogen NPV - net present value PV - photo-voltaic SO2 - sulfur dioxide SPC - State Planning Commission of China t - metric ton tce - ton of coal equivalent TSP - total suspended particulate TW - terawatt TWh - terawatt-hour  ii FOREWORD This report is one of eleven subreports prepared as part of the United Nations Development Program (UNDP) technical assistance project, China: Issues and Options in Greenhouse Gas Emissions Control, funded by the Global Environment Facility, and executed by the Industry and Energy Division, China and Mongolia Department, of the World Bank. On the Chinese side, overall coordination for the project was handled by the National Environmental Protection Agency (NEPA), while the State Planning Commission (SPC) was responsible for work on energy efficiency and, alternative energy, the subject of this subreport. This subreport is the product of a joint Chinese-international study team,** comprised of representatives from the SPC and the World Bank. The first international mission visited China in May of 1992 during which time the scope of the study and the methodology for calculating the cost of greenhouse gas (GHG) reduction were agreed upon. A number of background reports were commissioned at that time to be used as inputs to the study. Researchers on the international and Chinese sides prepared background reports on wind, solar, and nu lear technologies, and on natural gas development. A major effort was also undertaken by the SPC and the Energy Research Institute (ERI) to develop future scenarios of alternative energy supply in the years 2000, 2010, and 2050. This work was later modified and integrated with the macroeconomic and energy demand modeling effort undertaken as part of the overall China Greenhouse Gas Study. Given the different modeling frameworks, not all of the scenarios presented in this subreport are included in the final Summary Report for the overall China Greenhouse Gas Study. This final subreport makes extensive use of the background reports and alternative energy modeling work done by the Chinese side. This report was drafted and edited by Todd M. Johnson, Robert M. Wirtshafter, Wu Changlun, Zhang Zhengmin, Li Jingjing, and Li Junfeng. **Joint Chinese-International Study Team Chinese Experts Shen Longhai, Senior Advisor, Director, Department of Spatial Planning and Regional Economy, State Planning Commission (SPC) Zhu Liangdong, Advisor and Senior Engineer, SPC Zhou Fengqi, Director, Energy Research Institute (ERI) Wu Changlun, Team Leader, Chief, Division of Renewable Energy, Department Resource Comprehensive Utilization and Energy Conservation, SPC Zhang Zhengmin, Team Leader, Chief, Rural Energy and Regional Planning Division, ERI Liu Di, Deputy Chief, Renewable Energy Division, Department of Resource Comprehensive Utilization and Energy Conservation, SPC Li Jingjing, Associate Professor, ERI Huang Zhijie, Professor, ERI Qu Shiyuan, Deputy Director, ERI Gu Shuhua, Professor, Tsinghua University Su Zhengming, Assistant Professor, ERI Wang Yietao (wind), Professor Tsinghua University Shi Pengfei (wind), Associate Professor, Wind Energy Center of China  iii Lin Anzhong (solar PV), Professor, Institute of Nonferrous Metal Li Anding (solar PV), Associate Professor, Academia Sinica Kong Zhiping (natural gas), Senior Engineer, Natural Gas Development Company Bao Yunqiao (nuclear), Professor, Science and Technology Information Institute, Ministry of Nuclear Industry Lu Weide, Professor, Solar Energy Institute Zhang Jiguo, Associate Professor, Geothernal Center International Experts Ramesh Bhatia, The World Bank Nikhil Desai, (nuclear), World Bank Consultant Mac Cosgrove-Davies (solar thermal), The World Bank Todd M. Johnson, Energy and Enviromnental Economist, The World Bank Li Junfeng, World Bank Consultant Kay McKeough, Oiquified natural gas), World Bank Consultant Robert P. Taylor (task manager), Senior Energy Economist, The World Bank Robert M Wirtshafter, World Bank Consultant Zhang Zhihong (wind), World Bank Consultant  iv Table of Contents 1. INTRODUCTION ...........................................................l1 A. ENERGY USE IN CHINA .2 (1) Low-carbon substitutes for coalfor electric power generation .3 (2) Low-carbon substitutes for the direct use of coal .4 (3) Environmental impacts of coal use .5 B. METHODOLOGY .6 2. ALTERNATIVE ENERGY OPTIONS FOR CHINA: TECHNICAL AND ECONOMIC ASSESSMENT . A. INTRODUCTION .8 B. ALTERNATIVES TO COAL FOR ELECTRICITY GENERATION .8 (1) Coal-based Power Generation .9 (2) Hydroelectric Power .10 (3) Natural Gas-based Power Generation .13 (4) Nlruclear Power .16 (5) Wind Turbine Power .19 (6) Biomass .21 (7) Solar photovoltaic (P) .22 (8) Solar Thermal Power .24 (9) Geothermal .25 C. ALTERNATIVES AS A DIRECT SUBSTITUTE FOR COAL .26 (1) Biomass .26 (2) Natural gas .27 (3) Other: solar, wind, and geothermal .28 3. FUTURE ROLE OF ALTERNATIVES IN CHINA .29 A. How MUCH ALTERNATiVE ENERGY CAN BE SUPPLIED? .30 (1) Electric Power Alternatives .31 (2) Non-powerAlternatives .34 (3) GHG Reduction Potential .35 B. THE COST OF EXPANDING ALTERNATIVE ENERGY SUPPLIES .36 (1) Electric power .37 (2) Comparison of Levelized Costs .38 4. CONCLUSIONS AND RECOMMENDATIONS .39 A. SUMMARY OFFINDINGS .39 B. POLICY RECOMMENDATIONS ................................................................................................................. 39 5. REFERENCES .42 List of Tables TABLE 1.1 ENERGY CONSUMPTION AND ELECTRICITY GENERATION BY FUEL, 1990 .2 TABLE 1.2 ELECTRICITY GENERATION AND INSTALLED POWER CAPACITY: CURRENT LEVELS AND FUTURE SCENARIOS A ..3 TABLE 1.3 POTENTIAL AND CURRENT DEVELOPMENT OF LOW-CARBON POWER GENERATION TECHNOLOGIES IN CHINA .4 TABLE 1.4 THE DIRECT USE OF COAL IN CHINA .5 TABLE 2. 1: COST ESTIMATES FOR CJAL-BASED POWER GENERATION .10  v TABLE 2.2: HYDROELECTRIC GENERATION .......................................................................... 11 TABLE 2.3: MIN-HYDROELECTRIC GENERATION .......................................................................... 12 TABLE 2.4: LNG RECEIVING TERMINAL COSTS (MILLION US$ (1992)) ...................................................... 14 TABLE 2.5: IMPORTED LIQUID NATURAL GAS .......................................................................... 15 TABLE 2.6: NUCLEARPOWERDEVELOPMENT ........................................................................................... 18 TABLE 2.7: GRID-CONNECTED WIND TURBINE GENERATORS .................................................................... 20 TABLE 2.8: BATTERY-CHARGER WIND TURBINES .......................................................................... 21 TABLE 2.9 COSTS FOR BIOGAS POWER STATIONS .......................................................................... 22 TABLE 2.10 COSTS FOR PHOTOVOLTAICS POWER STATIONS ...................................................................... 23 TABLE 2.11 CosTs FOR SOLAR THERMAL POWER STATIONS ..................................................................... 25 TABLE 2.12 COSTS FOR GEOTHERMAL POWER STATIONS .......................................................................... 26 TABLE 3.1 BASELINE COMMERCIAL ENERGY USE SCENARIO, 1990-2020 ...................................................... 29 TABL E 3.2 ALTERNATIVE ELECTRIC POWER SCENARIOS, 2010 ................................................................... 31 TABLE 3.3 ALTERNATIVE ELECTRIC POWER SCENARIOS, 2020 .................................................................. 32 TABLE 3.4: NUCLEAR POWER SCENARIOS FOR CHiNA (GW) ...................................................................... 33 TABLE 3.5 CHINESE ESTIMATES OF BIOMASS USAGE (MTCE) ..................................................................... 34 TABLE 3.6 GREENHOUSE GAS REDUCTION POTENTIAL FOR LOW-CARBON ENERGY TECHNOLOGIES, 2020..36 TABLE 3.7 CHINA: ESTIMATES OF CAPITAL AND LEVELIZED COSTS OF ELECTRIC POWER UNDER CURRENT TRENDS, 2020 .......................................................................... 37 TABLE 3.8 THE COSTS OF CO2 REDUCTION, 2010 .......................................................................... 38 TABLE 3.9 THE COST OF CO2 REDUCTION, 2020 .38  I 1. INTRODUCTION 1.1 This report is part of a larger study to assess the range of options in China for reducing greenhouse gas (GHG) emissions. Other study reports address the following mitigation issues: (i) reducing CO2 emissions through improvements in energy efficiency, (ii) sequestering carbon in plants and soil through afforestation and forestry management practices, and (iii) reducing GHG emissions, primarily methane, in the agricultural sector, through changes in rice cultivation and animal husbandry practices. In the next 10-15 years, the most significant reductions in GHG emissions in China can be achieved by increasing the efficiency of energy use, particularly in the industrial, commercial, and residential sectors. In addition, because many of the energy efficiency projects that can be undertaken in China have fairly large financial and economic benefits,I they can provide GHG reduction at low cost. While there is significant potential for reducing GHG emissions through the adoption of low-carbon energy technologies, most are not yet commercially viable, and thus pose significant net costs in terms of GHG reduction. Nonetheless, over the long-term, the only option for stabilizing or reducing GHG emissions in China is by switching to non carbon-intensive energy sources. 1.2 The purpose of this report is to assess how much energy could be supplied by low carbon energy technologies in China over the coming decades, and how much an expanded alternative energy program would cost. Alternative energy supply scenarios have been prepared for China according to the following general principles: (i) from a technical standpoint, how much energy could be supplied by various technologies by a given date, and (ii) how much would it cost to supply various quantities of low carbon energy compared to the least-cost energy expansion plan. Because many alternative energy technologies are developing rapidly, there is a great deal of uncertainty in the estimates made in this report, which should be kept in mind when evaluating specific technologies and their costs. Nonetheless, it is clear that coal will continue to provide the majority of China's energy needs well into the 21st century. Therefore, this report focuses on the low carbon energy technologies that could be substituted for coal. Two broad types of technologies have been analyzed: (1) technologies that can substitute for coal for the generation of electric power and, (2) technologies that can substitute for coal for direct energy applications, such as industrial process heat, residential cooking, and space heating.2 Both the CO2 reduction potential and the costs of CO2 reduction from alternative energy development have been analyzed. Financial and economic analyses of energy efficiency projects have been undertaken as part of the China greenhouse gas study (see Subreport Number 4, Energy Efficiency in China: Case Studies and Economic Analysis, December 1994.) The majority of the projects reviewed in the case studies had positive net benefits when the financial and economic costs and benefits during the life of the project were considered, In addition, most all energy efficiency projects were found to have positive local environmental benefits in terms of reduced human health impacts from particulate and sulfur dioxide emissions. 2 The direct use of energy in the transportation sector has not been addressed in this study due to the limited amount of coel that is used in the sector (for rail and ship) and the current lack of alternatives to petroleum products for internal combustion engines. In 195 , the transport sector accounted for about 5 percent of commercial energy use in China.  2 A. Energy Use In China 1.3 China is presently the largest coal producing country in the world with production in 1990 at over I billion tons of raw coal. Coal currently accounts for more than three- quarters of total primary commnercial energy consumption. Unlike developed countries, where coal is used mainly in power generation, in China the power sector accounts for only about a quarter of total coal consumption. Most coal in China is consumed by industry for steam generation and by the residential sector for cooking and heating. In 1990, non-power sector industrial boilers consumed more than 350 million tons of coal, accounting for about 35 percent of China's total coal use, while the residential sector consumed about 167 million tons of coal in 1990, or about 16 percent of total coal use. Table 1.1 Primary Energy Consumption and Electricity Generation by Fuel, 1990 Total Primary Electricity Commercial Energy % Generation by Fuel % Consumption Source (mtce) (TWh) Coal 752 76% 432 70% Oil and Gas 184 19% 62 10% Hydro 51 5% 127 20% Nuclear 0 0% 0 0% Other 0 0% Q 0% Total 987 100% 621 100% Source: China Statistical Yearbook (1990). 1.4 If present economic trends continue, energy use and GHG emissions in China could double or triple between 1990 and the year 2020.3 This estimate is based on a 'baseline scenario" that assumes continued economic growth (an average of 8 percent per year), continued improvements in energy efficiency, and, aside from imports of oil for the transport sector, a continued reliance on domestic energy resources, principally coal. Under the baseline scenario, commercial energy consumption in China rises from around 1,000 mtce in 1990 to 3,300 mtce in 2020, with nearly 70 percent of energy in 2020 supplied by coal. In addition to potentially serious local environmental impacts, consumption of this much coal would result in roughly a tripling of China's GHG emissions compared to 1990. Without lowering economic growth, China's GHG 3 Scenarios of economic growth and energy consumption have been generated in other parts of the overall China GHG Study. See the macroeconom..; analysis in Chapter 2, China: Issues and Options in Greenhouse Gas Emissions Control, Summary Report, December 1994.  3 emissions could be limited to a doubling between 1990 and 2020 if additional measures were taken to limit GHG emissions, including the rapid adoption of alternative energy technologies.4 Details of the potential for alternative energy technologies and their costs are the subject of Chapters 2 and 3 of this report. (1) Low-carbon substitutes for coal for electric power generation 1.5 The amount of electricity needed for the economy under the baseline scenario is estimated to be 1,300 TWh in the year 2000, and 3,850 TWh by the year 2020 (Table 1.2). In the year 2020, approximately one third of total commercial energy use, and around 40 percent of total coal use would be required to generate electricity under the baseline scenario. To meet the electricity demand of the baseline scenario would require the addition of around 700 GW of generating capacity between 1990 and 2020, or over 23 GW each year, requiring the annual completion of about 39 new 600 MW units. Table 1.2 Electricity Generation and Installed Power Capacity: Current Levels and Future Scenarios a Year 1990 1993 2000 2010 2020 actual actual Electricity generation (TWh) 621 836 1300 2430 3850 InstalledcKa aci GW 138 183 290-295 525-540 825-870 a Electricity generation scenarios for 2000, 2010, and 2020 were estimated by the China GHG Model. See Ch. 2, Issues and Options in Greenhouse Gas Emissions Control, Summary Report, December 1994. 1.6 There are a number of low-carbon technologies that can be further developed in China to substitute for coal in the production of electric power. Chinese energy experts generally regard hydroelectric and nuclear power as the most promising low-carbon technologies for large-scale development in China in the near to medium-term. * Hydroelectric power. China ranks number one in the world in hydroelectric resources, only a small portion of which has already been developed. In total, China's hydroelectric potential has been estimated at 380 GW, of which 70 percent is currently economic. In addition, there are 70 GW of mini-hydro sites available. * Nuclear power. China has an active nuclear power program. The first nuclear plant in China, which was domestically designed and constructed, began operation in 1991. The first large-scale commercial nuclear facility began operation in 1994 in Guangdong Province. Including nuclear facilities under construction and planned, will 4 The reduction potential and costs of options for reducing GHG emissions in China are given in the Summary Report, December 1994.  4 amount to about 4,500 MW by 2000 and 9,100 MW by 2005. * Renewables. Other non-carbon technologies that can substitute for coal in electric power generation include wind, solar photovoltaic (PV), solar thermal, geothermal, and biomass (when grown on a sustainable basis). Table 1.3 shows current capacity and power production from alternative energy technologies in China. Table 1.3 Potential and Current Development of Low-carbon Power Generation Technologies in China Resources Installed Power (GW) Capacity Generation (MW) (TWh) Hydroelectric Large (>25MW) 380 44,600 (1993)a 169 (1994) Small (< 25MW) 70 11,790 (1989)b 31.6 (1989)b Nuclear -- 2,100 (1994)a 13.5 (1994)a Wind 200 17 (1993)a -- Battery chargers Grid-connected 13.4 (1993)a -- Solar-PV -- 2.6 (1991)c; 3.3 (1993)a -- Geothermal 1,000MW b 30 a -- Tidal power -- 11 a -- Biogas power -- 6 (1990)d Biomass gasification -- 100 sets d -- Sources: a Ministry of Electric Power, "Electric Power," 1994; b"The Development of New and Renewable Energy Resources in China," China Science and Technology Press; ' Lin and Lee, "Report on Photovoltaic Generation," April 1993; d Energy Research Institute. (2) Low-carbon substitutes for the direct use of coal 1.7 The direct use of energy currently accounts for about 80 percent of the energy consumed in China. Direct coal consumption can be divided into three types as shown in Table 1.4. Of the total energy currently consumed directly, 55 percent is coal, 16 percent is oil, and 27 percent is biomass. While the amount of energy used for power generation is expected to grow rapidly during the coming decades, non-power uses are likely to still account for the largest use of energy in China for the foreseeable future. According to the baseline scenario, the direct use of energy, mainly for industrial process heat, residential cooking and heating, and transport, will still account for two-thirds of primary commercial energy consumption in 2020. By 2020, the direct use of coal is estimated to be 1,800 million tons of raw coal. In the near term, the most promising energy sources in China for large-scale substitution of coal for direct use are natural gas (including gas from coal mines) and biomass.5 5 While the net release of CO2 from' iomass burning will be zero if the biomass has been produced on a sustainable basis, there will generally be a release of other GHGs, such as CH4, N20, NOx, and CO.  S Table 1.4 The Direct Use of Coal in China Type of Direct Use Purposes Served Potential Fuel Substitutes ......................................................................................................................................................................................................................... High temperature heat High temperature steam for Natural gas, oil, biomass industrial processes, and for kilns to produce cement and bricks Low temperature heat Space and other heating for Solar water heating, passive industry, commerce and solar, geothermal, biomass households Cooking fuel Cooking Biomass, solar cooker, natural gas, and biogas * Natural gas. There is significant potential in China for finding and developing low- cost sources of natural gas. In addition to oil and gas fields, natural gas from coal mines is also an economic energy resource in China; current reserves of coal-bed methane are large, however, only a small amount of the gas is currently being captured and used. * Biomass. The direct consumption of biomass is a major fuel source in China, providing the majority of energy for rural households. Non-commercial biomass fuels, including fuelwood, crop residues and some animal dung, amounted to approximately 300 million tons of coal equivalent (mtce) in 1990. More efficient use of existing biomass resources, limitations on the overcutting of natural forests for fuelwood, and an expansion of fuelwood plantations under good growing conditions, could result in both a significant contribution to China's energy supply and a reduction in net CO2 emissions. * Other renewables. Other non-GHG emitting technologies that can substitute for coal in direct use include passive solar and solar thermal, wind, and geothermal energy. Though relatively small in comparison to total energy use, these renewable energy sources could be important for residential and comnercial water and space heating, light industrial process heat, and water pumping, crop drying and crop processing in agriculture. (3) Environmental impacts of coal use 1.8 The environmental effects of expanded use of coal in China will be severe unless measures are taken to switch fuels or mitigate emissions. While technologies exist to control the emissions of local pollutants, such as particulates (TSP), sulfur dioxide (SO2), and nitrous oxides (NOx), there currently is no practical means of reducing CO2 from coal  6 consumption. CO2 emissions, which may be contributing to global climate change through the "greenhouse effect," are the largest source of GHG emissions worldwide. According to the baseline scenario, China's CO2 emnissions would roughly triple between 1990 and 2020, making China the largest source of anthropogenic CO2 worldwide. Mining, transporting, and burning additional quantities of coal will also have enormous consequences for air, water, and land quality. For instance, according to the baseline scenario, if there were no changes in pollution control technologies from 1990, TSP emissions would increase from 14 million tons in 1990 to 48 mt in 2020 and SO2 emissions from 16 mt in 1990 to 55 mt in 2020. The reduction in TSP and S02 emissions by switching from coal to alternative energy sources will result in significant benefits by reducing impacts on human health, croplands, forests, and buildings and structures. While it is often difficult to quantify such benefits, they can and should be considered when assessing alternative energy projects.6 B. Methodology 1.9 In order to compare alternative energy projects with other GHG reduction options, a common method for calculating the net cost of reducing GHG emissions has been developed and used in the China greenhouse gas study.' In the case of alternative energy technologies, investment and per unit energy supply costs are compared to similar costs for coal. For instance, the investment cost (Y,$/MW) for a megawatt (MW) of wind- generated electric power capacity is compared to the investment cost for one MW of coal- fired capacity. Likewise, the levelized costs of wind-generated power (Y,$/KWh) are compared to the levelized costs of coal-generated power. It is also important to compare cost in terms of equal reliability and the time of delivery. For instance, the value of electricity varies during different times of the day and seasons of the year. To account for differences in reliability and time of service, additional capacity charges are added to alternative energy technologies, such as solar, wind and small-scale hydro, which exhibit intermittent availability. Assumptions regarding the operating efficiency, operating costs, investment costs, and CO2 reduction potential of these technologies have been collected from both Chinese and international sources. 1.10 Background reports have been prepared on the current development of several low-carbon technologies that have particular potential for China, including wind, solar photovoltaic (PV), natural gas, and nuclear power. Since the development experience for these technologies has been considerably different in China and abroad, reports were prepared by both Chinese and international experts. International expert reports focused on recent commercial developments and the current and projected future costs 6The human health benefits of reducing particulate and S02 emissions by improving energy efficiency were quantified in the cost-benefit analysis done in another component of the China GHG study. See subreport 8, Valuing the Health Effects ofAirPollution: Application to Industial EnergyEfficiency Projects in China, and subreport 4, Energy Efficiency in China: Case Studies and Economic Analysis. 7 See Chapter 3, China: Issues and C>tions in Greenhouse Gas Emissions Control, Summary Report, December 1994.  of these technologies internationally, while the Chinese expert reports evaluated the current stage of development of these energy technologies in China. 1.11 Based on the background reports, Chinese experts prepared supply and cost scenarios for these and other alternative energy technologies in China for the years 2000, 2010, and 2050. This information was incorporated into an alternative energy model that calculates the incremental investment costs, and the CO2 reduction associated with the alternative energy scenarios. Coal is assumed to be the swing fuel in the model. The amount of coal required is calculated by summing all other sources of energy supply, and then subtracting that sum from the total energy requirements as estimated in Table 1.2. In addition to a baseline, three other scenarios of alternative energy supply (AE-Min, AE- Mid, AE-Max) which reduce progressively more carbon, were also prepared for the years 2000, 2010, and 2050. To be consistent with the energy demand estimates from the overall China GHG study, alternative energy supply scenarios for the year 2020 were interpolated by using the average growth rate between 2010 and 2050. 1.12 Given the dominance of coal in China's economy, coal has been used as the reference for comparing the costs of alternative energy sources. In the analysis, the price of coal and the installed cost of coal-fired power plants have been raised to account for some of the negative environmental impacts associated with coal use. A premium has been added to the market price of Chinese coal and to the cost of coal- fired power generation equipment to allow for the removal, to international standards, of TSP and waste gases. 1.13 As noted above, most alternatives to coal that reduce C02 emissions also reduce other local air pollutants (e.g. TSP, SO2, NOx). However, despite the local and global air pollution reduction benefits from low-carbon energy technologies, there can be negative environmental impacts associated with some of these technologies, costs which have not been explicitly calculated in this analysis. Therefore, prior to adopting low-carbon energy technologies for their global benefits, the environmental costs should also be assessed, such as resettlement and ecosystem damage associated with construction of hydroelectric projects; the hazards of LNG transport/distribution; local air pollution associated with biomass combustion; and the costs and risks of securing, storing, processing, or disposing of nuclear fuel.  8 2. ALTERNATIVE ENERGY OPTIONS FOR CHINA: TECHNICAL AND ECONOMIC ASSESSMENT A. Introduction 2.1 For low-carbon alternative energy technologies to play a larger role in China's energy balance in the future, they must be able to substitute for coal both in the production of electric power and for direct use. For significant substitution to occur, not only must the technologies be proven, but their costs must be competitive with coal. China has an abundance of proven domestic coal reserves and relatively little proven oil and gas reserves; this is the primary reason coal is the least-cost option for many energy applications. Much of China's current energy-consuming capital stock, such as power plants, industrial boilers, and cooking stoves, have been designed to bum coal. While the continued growth of China's economy will result in a rapid tumover in capital stock in the future, the coal-specific infrastructure and technical expertise that China possesses will not be as easy to replace. 2.2 This section reviews China's experience in the use of low-carbon energy technologies. The discussion focuses on both technical and economic issues, with estimates made of current and projected future supply costs for low-carbon alternative energy technologies. The discussion begins with a review of coal. While China has considerable experience with the use of coal and hydroelectric power, and therefore both the technologies and the costs are well known, this is not the case for most all other low-carbon energy sources. Projecting future technology developments and future costs is an exercise fret with uncertainty. For comparison, intemational technical experience and international cost projections have been presented as well. The estimates of future supply costs in this chapter have been used in Chapter 3 to project estimates of the potential for low-carbon energy supplies in China and to estimate the overall cost of supplying a given amount of low-carbon energy. B. Alternatives to Coal for Electricity Generation 2.3 Under all scenarios of future power generation undertaken for this study, the absolute amount of thermal power capacity in China will increase over the next 25 years. The extent to which low carbon-intensive fuels can be substituted for coal for power generation is related to upfront capital investment and capacity cost, and to the average cost of generating electricity for each of the altematives.  9 (1) Coal-based Power Generation 2.4 Technical Feasibility. China has considerable experience in the production of coal-fired power plants, and until recently, relied entirely on domestic equipment for these plants. The existence of an extensive industrial infrastructure for producing coal- fired power generation equipment has implications for the cost of such facilities. Future plants are likely to be larger than the current facilities which are in the 200 to 300 MW range. China's current production of large coal-fired generating units, that is those over 600 MW, is limited. While China is able to produce much of the equipment for modern 600 MW plants domestically, high-temperature and high-pressure boilers and turbines are still largely imported. 2.5 Current operating efficiencies for domestically-built coal plants in China are low relative to rates achieved by modern international plants. Coal consumption for Chinese power plants averaged 427 gce/kWh in 1990. Because there are significant economies of scale in coal-fired power plants, coal consumption per kWh will be reduced in the future as China's stock of larger power plants increases. Chinese experts estimate future efficiencies of 350 gce/kWh in 2000, 340 gce/kWh in 2010, and 300 gce/kWh in 2050. By contrast, California assumes a heat rate of 9,800 to 10,500 Btu/kWh, which is equivalent to about 290 to 315 gce/kWh, signifying that the fuel efficiency estimates for China for future years are conservative. 2.6 Economic Assumptions. China has built and purchased numerous coal-fired generation plants, and therefore the uncertainty surrounding the costs of coal plants is low relative to other energy technologies. Because much of the equipment and engineering can be manufactured domestically, China is able to construct coal-based facilities at a considerable cost advantage compared to plants in other countries. According to Chinese estimates, investment costs for domestic coal-fired plants are around 2,600 yuan/kW (1990 yuan). In the future, an additional 15 percent will be required to meet stricter environmental regulations so that total investment is thus estimated at about 3,000 yuan/kW. Costs for coal-fired power plants in China with some foreign equipment and advanced environmental controls are in the range of 4,500 yuan/kW.8 Based on these capital investment costs, and long-run costs for coal, the levelized generation costs for a coal-fired plant in China have been estimated in the range of 0.18-0.25 yuan/kWh (1990 constant prices) in 2020. 2.7 The Yangzhou power station includes state-of-the-art environmental controls, including electrostatic precipitators for particulate control (99 + percent removal efficiency) and low-NOx burners. Although there are no special SO2 controls, the Yangzhou plant will burn low sulfur (0.3-0.4 percent) coal. Given the cost advantages 8 This estimates is based on the Yat -zhou thermal power project in Jiangsu, financed in part by the World Bank. The coal plant at Yangzhou includes both domestic and foreign-produced equipment.  10 of Chinese domestic construction costs and components, the cost of the Yangzhou plant is still considerably below the investment cost figures assumed in the California Energy Commission. Table 2.1: Cost Estimates for Coal-based Power Generation Joint Study Joint Study California Energy Team Team Commission Estimates Estimates $/kW (1990 prices) (1990 prices) Yuan/kW $/kW Power Generation 2600 $553 Transmission 700 Environmental Equipment 350 Coal Transportation 100 Coal Mine Construction 750 Total Investment Cost 4500 $957 $1237- $1636 (1989 prices) Annualized Investment 610 202.5 -269.5 $/kW Levelized Cost 0.2039 Y/kWh 0.0434 $/kWh 0.047 - 0.0742 $/kWh Assumptions Annual Operating Hours 5000 5256-6570 Construction Period 3 years 5 years Economic Life 25 years 30 years Maintenance Ratio 3.5 % 20.2 - 24.5 $/kW Fuel Cost (1990 prices) 146.5 Y/lW 0.0125 - 0.0176 $/kWh Labor Ratio 1 % .00058 - .00067 $/kWh Sources: Joint Study Team; California Energy Commission (1993). (2) Hydroelectric Power 2.8 Technical Feasibility. As is the case with coal-fired generation, China currently produces its own hydroelectric generating equipment and has a proven capability in the design and engineering of large and small hydro projects. Hydroelectricity currently accounts for about 24 percent of China's installed capacity and less than 20 percent of total kilowatt-hours produced. China is a world leader in the production of mini hydro equipment, defined here as those units less than 25 MW. China has already constructed more than 12,000 MW of mini hydro capacity. 2.9 Economic Feasibility. Hydroelectric cost estimates for China are based on considerable domestic experience. As with coal-fired units, investment costs in China for hydro are considerably below those in other countries. The joint Chinese- international expert team for this study estimates that on average the levelized cost of hydroelectric generation will rise to at least 0.30-0.35 yuan/kWh by the year 2020 for large-scale projects under the baseline alternative scenario. Since more than 70 percent of China's hydro resources are concentrated in remote regions of southwest China,  where both construction and distribution costs will be higher, it is likely that an expansion of hydro capacity beyond the baseline will result in levelized costs at or above 0.35 yuan/kWh. While a number of these new hydro schemes may still be economically attractive due to system regulation and peaking capabilities, their costs are still substantially above the estimated levelized costs for coal for baseload generation. Table 2.2 and Table 2.3 show current cost estimates for hydro and mini- hydro projects. Table 2.2: Hydroelectric Generation Joint Study Joint Study California Energy Team Estimates Team Estimates Commission (1990 prices) (1990 prices) $/kW Yuan/kW $/kW Power Generation Year 2000 4360 928 Year 2010 5230 1113 Year 2020 6300 1340 Transmission 1000 213 Total Investment Cost $1777 to $3442 (1989 Year 2000 5360 1140 prices) Year 2010 6230 1326 Year 2020 7300 1553 Annualized Investment Cost (Y/kW/yr) 271.9-526.6 $IkWlyr Year 2000 873 Year 2010 1015 Year 2020 1189 Levelized Cost (1990 prices) (Y/kWh) Year 2000 0.276 0.0586 $/kWh 0.0845 - 0.297 $/kWh Year 2010 0.320 0.0681 $/kWh Year 2020 0.375 0.0798 $/kWh Assumptions Annual Operating Hours 3800 3504 to 2190 Construction Period 6 years 5 years Economic Life 50 years 50 years Maintenance Ratio 2.0 % 53.8 - 58.4 $/kW/yr Fuel Cost 0 0 Labor Ratio 0.4 % 0 Sources: Joint Study Team; California Energy Commnission (1993).  12 Table 2.3: Mini-Hydroelectric Generation Joint Study Team Joint Study Team Estimates Estimates (1990 prices) (1990 prices) Yuan/KW $/kW Power Generation Year 2000 4500 957 Year 2010 5000 1064 Year 2020 5500 1170 Transmission 0 0 Total Investment Cost Year 2000 4500 957 Year 2010 5000 1064 Year 2020 5500 1170 Annualized Investment Cost (Y/kWJyr) Year 2000 628 Year 2010 698 Year 2020 768 Levelized Cost (Y/kWh) Year 2000 0.278 0.0591 $/kWh Year 2010 0.304 0.0648 $/kWh Year 2020 0.331 0.0704 S/kWh Assumptions Annual Operating Hours 2700 Construction Period 3 years Economic Life 30 years Maintenance Ratio 2.0 % Fuel Cost 0 Labor Ratio 0.4 % Sources: Joint Study Team; California Energy Commission (1993).  I -3 (3) Natural Gas-based Power Generation 2.10 Technical Feasibility. Electricity generation using natural gas is a proven technology that is simpler and cleaner than coal-based options. Natural gas contains about 40 percent less carbon than coal on an energy equivalent basis; even less carbon can be emitted given the higher efficiencies that can be achieved by natural gas power plants. Electricity generation by natural gas can be done using a single gas turbine or by combining a gas turbine followed by a steam turbine. This latter method, termed a combined-cycle facility, can achieve an overall efficienry above 45 percent. This higher efficiency, along with short lead times for plant construction, plant modularity, modest capital investment, plant reliability, relatively low cost sources of natural gas, and lower air pollution emissions, have madle gas-fired combined-cycle plants the preferred choice for new baseload and peaking power facilities in the U.S., Canada, and other countries with abundant gas supplies. 2.11 Unfortunately, proven natural gas reserves in China are modest, and natural gas production in China is insufficient to meet current industrial and residential demand. Therefore, if natural gas is to replace coal-based electric power generation in China, vast new domestic reserves must be found or the gas associated with coal mines must be recovered and used to a much larger extent than it is now. Sonie additional gas may become available through importation. The most likely scenarios for importation would be liquefied natural gas (LNG) by sea or the construction of long-distance overland gas pipelines from Russia or central Asia. Even if long-distance pipelines are built, in the short term, the highest-valued use of the gas will probably not be the electric power sector. The analysis here assumes that LNG would be the primary source of gas for power generation. 2.12 LNG is natural gas that has been cooled to -260