While biomass is often touted as the saviour of China’s pollution problems, the commercial realities are far from utopian.
Faced with stiff competition from established coal technology, biomass technology will struggle to gain any serious foothold in the Chinese energy market until a fleet of commercially proven and economically viable plant is installed.
But as this special Blue Skies China special report shows, throw the United Nation’s Clean Development Mechanism (CDM) scheme into the equation, and biomass suddenly looks a far more attractive proposition.
Biomass in China is in trouble. According to documents submitted to the CDM Executive Board, none of the five biomass projects registered would be economically viable without the revenues from carbon credit sales.
And this highlights the real problem with biomass in China. Highly-publicised research into new biomass crop varieties, for example, suddenly becomes moot against the dominance of coal technology and fuel in terms of reducing risk – and hence raising finance – for new power plant.
Unproven (and often bespoke) fuel processing equipment, low electricity tariffs and lack of any substantial skilled biomass labour base in China will conspire against alternative fuels to place king coal as the only commercially-viable choice in the majority of new industrial or power generation projects.
Carbon credit funding
Enter the CDM. This UN sponsored scheme is proving to be a terrific boon to new energy technologies, and is helping around 120MW of biomass project to get off the drawing board. Of the five Chinese biomass projects registered with the UN, none would achieve the regional benchmark rate of return for power project investment without the backing of the CDM scheme.
The latest Chinese project to be registered with the CDM Executive Board is a RMB120 million (US$15.5 million) biomass-fired combined heat and power (CHP) project in Yucheng City, Shandong Province.
The biomass fuel is derived from xylitol and furfural production in Yucheng. Both xylitol (a low-calorie sweetener) and furfural (an industrial solvent) are derived from maize core, and local industry generates around 450,000 tonnes of residue from the production process. 20,000 tonnes of residue per year is used by local mushroom farmers as a fertilising substrate; the rest is unused and poses a danger to the local environment.
Shandong Yucheng Xinyuan Heat & Power Co. plans to use 256,000 tonnes of these residues per year. After squeezing and drying, the fuel will be burned in two circulating fluidised bed boilers, supplied by Jiangxi Jianglian Energy and Environment Protection Co, to produce 90WMth heat capacity. A steam turbine generator supplied by Qingdao Jieneng Steam Turbine Co will generate 71.4GWh electricity per year; the remaining heat energy – 1,529.5TJ pr year – will be sold for local use at RMB30.09/GJn.
Without the CDM scheme, this project would be economically unfeasible, say its developers. The cost of installation is around RMB8,000/kW – far higher than the cost of installing coal-fired plant – and the electricity tariff offered to the plant is low, at RMB0.285/kWh. With no CDM, the project would achieve an internal rate of return of just 3.5%, far below the 8% benchmark rate. In addition, say the developers, “the workers familiar with these [biomass] facilities are fewer, so there is a technical barrier in this project.”
But under CDM, the emission reductions gained by burning a renewable fuel can be sold as Certified Emission Reductions (CERs) on the international carbon markets. And by selling an estimated average 189,552 tonnes of CERs per year, the Yucheng biomass project’s rate of return jumps to 12.6%, a far more attractive proposition which can outweigh the tariff, tax and technical risks associated with a new biomass plant.
Shandong Yucheng Xinyuan Heat & Power Co will sell the CERs through project partner Carbon Resource Management (CRM), a UK and Beijing-based carbon specialist with already well-established roots in the fresh China CDM soil.
Founded in 2006, CRM can boast a double-first for its CDM registration of the Huitengxile windfarm in Inner Mongiolia – that plant was the first registered CDM project in China, and the first windfarm in the world to be registered under the CDM scheme. The company’s expertise has since spread to coal mine methane, afforesation and biomass projects – it has also proven its ability to sell the CERs resulting from its project development activities, claiming the first successful trade of Chinese wind carbon credits on the Chicago Climate Exchange.
The table shows the internal rate of return figures for the five biomass CDM projects, with and without the economic benefits of CER sales under the CDM scheme. Three more Chinese biomass projects are at the development stage, yet clearly there is potential for many more. Yucheng City’s local industry can support this plant with biomass fuel to spare – and that’s just one city in more than fifty in Shandong Province alone.