China's "Big Five" power utilities have hundreds of gigawatts of thermal power plants in water-stressed areas and face retrofit costs of up to $20 billion to improve their resilience, new report finds
Hong Kong, 25 March 2013 – China's "Big Five" power utilities own and operate more than 500 gigawatts of thermal power plants, largely coal-fired, in the world's second-largest electrical system. Every one of the Big Five – Huaneng, Datang, Huadian, Guodian, and China Power Investment – is heavily exposed to water supply disruptions due to the concentration of their portfolios in moderately to severely water-scarce regions, in particular the dry and industrial northeast.
A report by research company Bloomberg New Energy Finance, just published, argues that significantly reducing this exposure, and the power sector's overall water withdrawals, will require major policy and industrial efforts, cost billions of dollars, and involve the removal of gigawatts of water-inefficient power generation capacity. If this happens, and it is a big "if", whether it would increase or reduce China's greenhouse gas emissions would depend on the choice of technology for the replacement capacity, between coal-fired with closed cooling, coal-fired with open cooling, gas-fired or renewable energy.
Decades of industrial concentration in the country's east and north mean that China's electricity demand is inversely correlated to the distribution of its freshwater resources. Northern China has 60% of the country's thermal power capacity but only 20% of its fresh water supply. Coal mining and coal-fired generation are huge users of water – analysis by Bloomberg New Energy Finance shows that the two sectors combined withdrew 98bn cubic metres of freshwater in 2010, which accounted for around 15% of all freshwater withdrawals across the country.
If the Big Five continue their current developments, power sector water withdrawals in China will exceed 25% of the government's 2030 target to cap national water withdrawals at 700bn cubic metres per year. With some regions already extracting water from aquifers faster than it is being replenished, increases in power sector water withdrawals could be more than challenging – they could be environmentally unsustainable.
The Big Five do have investment options to reduce their water risk, but each option also implies major trade-offs in terms of efficiency, geographic location, and cost:
Efficiency: The Big Five could use closed-cycle or air cooled systems, which withdraw considerably less water than older once-through cooling systems. However, such cooling systems also decrease plants' thermal efficiency, and as a result mean higher greenhouse gas emissions per megawatt-hour of electricity. Deploying more wind and solar power would also reduce water use, but investment would be higher because these technologies are intermittent, so more capacity would have to be built.
Geography: New thermal plants built in water-rich southern regions such as Guangxi, Fujian, and Jiangxi would be less susceptible to operational disruption than plants in the dry north. However, these provinces do not have the industrial loads of the north, meaning that utilities must either transport power over thousands of miles, or wait for loads to come to them.
Cost: If the government were to take the major measure of forcing the retrofit of existing once-through cooling plants, more than 100GW of assets would be affected – at a cost of $20bn. This is not including the cost of a 10GW reduction in capacity due to lower efficiency, which would have to be made up.
Maxime Serrano Bardisa, Bloomberg New Energy Finance water analyst and report co-author, said, "Today, 85% of China's power generation capacity is located in water-scarce regions and 15% of this still relies on water-intensive, once-through cooling technologies. But the era of water abundance in China is over, and competition for resource access between business, agriculture, and urban centres is starting to bite."
Co-author Alasdair Wilson added, "Thermal plants will have to use more efficient technologies – but doing so will drive up both capital and operating expenditure. We also expect water scarcity to continue driving the installation of wind and solar power in China."
Michael Liebreich, chief executive of Bloomberg New Energy Finance said, "the issue of infrastructure resilience is rapidly rising up the agenda, driven by the number of high-profile droughts and floods in recent years, including Hurricane Sandy. This report highlights the risk water stress poses to China's Big Five utilities, but the message holds for many other utilities and corporations around the world."
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