robert w. gee, president gee china trip report_final.pdfcommissioner sherina maye edwards, illiniois...

2016 STATE UTILITY COMMISSIONERS CLEAN ENERGY POLICY AND TECHNOLOGY LEADERSHIP MISSION TO

CHINA

SPONSORED BY OFFICE OF CLEAN COAL & CARBON MANAGEMENT

US-CHINA CLEAN ENERGY RESEARCH CENTER US DEPARTMENT OF ENERGY

BEIJING, HAIYANG, SHANGHAI, AND ORDOS

TRIP REPORT

ROBERTW.GEE,PRESIDENT

SHERIS.GIVENS,SENIORVICEPRESIDENT

WASHINGTON|AUSTIN

WITHSPECIALAPPRECIATIONTO:

COMMISSIONERTRAVISKAVULLA,MONTANACOMMISSIONERDAVIDZIEGNER,INDIANACOMMISSIONERLIBBYJACOBS,IOWA

COMMISSIONERSANDYJONES,NEWMEXICOCOMMISSIONERSHERINAMAYEEDWARDS,ILLINIOIS

JOEGIOVE,USDEPARTMENTOFENERGY

.... Gee Strategies 11111 Group,LLc

December 1, 2016

Dr. Robert C. Marlay US Director US-China Clean Energy Research Center Office of International Affairs US Department of Energy Mr. David Mohler Deputy Assistant Secretary for Clean Coal and Carbon Management Office of Fossil Energy US Department of Energy Dear Dr. Marlay and Mr. Mohler: We are forwarding you the 2016 Trip Report for the State Utility Commissioners Clean Energy Policy and Technology Leadership Mission to China As the attached report outlines, each goal we set out to accomplish at the outset of the mission was achieved, and we believe that the lessons learned by the participating state utility commissioners will yield dividends to the US Government and Department of Energy. We extend my deep gratitude for your support for this mission. Sincerely,

Robert W. Gee President Gee Strategies Group LLC

Sheri S. Givens Sheri S. Givens Senior Vice President Gee Strategies Group LLC Attachment

a1J1 6 e e Strategies 11111 Group,LLc

TABLE OF CONTENTS Background 1

Delegation Meetings 2

Beijing 3

Haiyang 33

Shanghai 38

Ordos 44

Major Mission Accomplishments 56

Recommendations 58

Appendices A. Itinerary 60 B. Delegation Attendees 65 C. Commissioners’ Comments & Observations 67 D. About the Authors 69

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BACKGROUND

From August 31 through September 10, 2016, Gee Strategies Group LLC organized and arranged, on behalf of the Office of Clean Coal & Carbon Management and the US-China Clean Energy Research Center of the US Department of Energy (DOE), a delegation of five state utility commissioners and two DOE staff members to engage in bilateral discussions with Chinese officials and power companies in four cities across China. The mission’s central purposes were: (1) to advance the delegation’s knowledge of cutting-edge energy technology being developed in China; (2) to share how the US federal government and US states regulate the energy and utilities industry, and learn how China regulates its energy and utilities industry; and (3) to identify opportunities for potential collaboration on technology research and development, paving the way for commercial activity. The delegation visited the following cities and regions: Beijing, Haiyang, Shanghai, and Ordos, Inner Mongolia. The mission enabled the delegation to engage in discussions and participate in field visits that encompassed the following areas:

• Clean coal/carbon capture utilization and storage, and ultra-supercritical coal applications; • Advanced nuclear energy technology; • Electric vehicle battery storage and charging stations; • Carbon emission trading pilot programs; and • Issues pertaining to renewable energy integration and dispatch.

CHINA

/NOIA

• ORDOS

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Delegation Meetings

The delegation met with central and provincial government entities, US business firms active in the energy sector in China, non-profit US clean energy and environmental organizations, research and development entities, carbon exchanges, and in-country western financial analysts. During meetings in Beijing, Haiyang, Shanghai and Ordos, the delegation learned about the most recent developments in China’s power sector and the advances that China is making in relation to clean energy. The delegation participated in meetings with prominent advisors to the People’s Republic of China’s (PRC’s) central government, sharing their perspectives on the US energy regulatory landscape related to: (1) the federal-state relationship for energy policy and regulation, including an overview of the National Association of Regulatory Utility Commissioners (NARUC) and major policy trends (e.g., regional and state carbon markets, renewable energy integration, and the impact of shale gas production on the electricity resource mix); (2) US federal agency hierarchy and jurisdiction, including those pertaining to the Federal Energy Regulatory Commission (FERC), North American Electric Reliability Corporation (NERC), US Department of Energy (DOE), and US Environmental Protection Agency (EPA); and (3) ongoing challenges impacting US coal generation. Delegation Site Visits The delegation made four site visits during the mission. The first was to the Haiyang Nuclear Power Station Unit No. 2, near Qingdao in Shandong province. The plant utilizes Westinghouse’s AP1000 technology, and the first two units of the plant are currently under construction. Shandong Nuclear Power Company, a subsidiary of the State Power Investment Corporation and one of China’s five largest power generation companies, owns the plant. In Shanghai, the delegation learned firsthand of China’s advances in highly efficient coal power generation technology at the Shanghai Waigaoqiao No. 3 power plant, an ultra-supercritical coal plant. Among other things, the visit enabled the delegation to assess whether China’s experiences with cutting-edge coal power generation technology could be viable in the US in the context of the EPA’s currently pending Clean Power Plan. This plant was developed by Forest Power and Energy Holdings In Ordos, the delegation visited two sites -- the Shenhua Direct Coal Liquefaction Plant Carbon Dioxide (CO2) Capture and Storage Project and the Guodian Bulian-Chahasu Coal-Electricity Integrated Project.

.,.. Gee Strategies r.111 Group, u.c

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DELEGATION MEETINGS

Beijing Beijing was the first city visited by the delegation. It is the capital of the People’s Republic of China (PRC) and one of the most populous cities in the world with over 18 million urban residents. It is considered the cultural, political, and educational center of China. The city’s history dates back over 3,000 years. The delegation spent three days conversing with various governmental entities and organizations in the city. The delegation participated in meetings with the following: (1) US Embassy Beijing; (2) international non-governmental organizations (NGOs), including The Paulson Institute, The Regulatory Assistance Project, and the Clean Air Task Force; (3) National Energy Administration, under the National Development and Reform Commission (NDRC); (4) the NDRC Department of Resource Conservation and Environmental Protection; (5) the Energy Research Institute of the NDRC; (6) Bloomberg New Energy Finance; (7) Independent Power Producers Forum – Beijing Chapter; (8) American Chamber of Commerce/US-China Clean Energy Cooperation Program; (9) China Energy Net Consulting (China 5e); and (9) State Grid Corporation of China (SGCC). US Embassy Beijing

Background:1 By meeting with the US Embassy on the first day, it provided the delegation with an overview of China’s economy, energy sector, and central government planning processes. The US Embassy in Beijing serves as the bilateral mission between China and the US, housing more than 20 federal agencies. Diplomatic relations between China and the US date back to the 18th century, making China one of Asia’s countries with the longest diplomatic ties to the US. The Honorable Max Baucus is the current US Ambassador to the People’s Republic of China, appointed on February 21, 2014, having formerly served as the senior US Senator from Montana. The Ambassador personally welcomed the delegation and, with senior embassy staff and DOE Beijing officials, provided an overview on the status of the US-China economic relationship and China’s energy sector. Discussion:2

• Governance: In China, many policies with a climate co-benefit are being developed and implemented primarily due to air pollution, and promoting innovation in the economy, which is more important in the short term to the Chinese government. Provinces and

1 Throughout this report, “Background” is provided relating to the meetings and site visits made by the authors and delegation. Those representing the group, organization, or entity did not necessarily provide this information. Rather, the background information has been researched through currently available public sources. 2 “Discussion” in this report provides a high-level overview of the discussions and presentations provided to the delegation by the visited entity. These topics have not been researched by the authors nor do they constitute the views of the authors.

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cities all have their own political power bases, making it difficult to administer national priorities. Laws often exist in text only and are often not enforced or enforced arbitrarily. Instructions to provinces are interpreted locally, while the Chinese Communist Party (CCP) reviews provincial decisions according to party priorities, as opposed to central government priorities. A new leadership group will be installed in 2017, with much of the current politburo standing committee set to retire. How this will impact energy policy is not yet clear. For now, politics appears more important than economics.

• Manufacturing: A national plan, “Made in China 2025,” was released by the PRC’s State Council in 2015 to promote manufacturing with still much left to do in this regard.

• Energy policy: There is a significant overbuild of capacity for both thermal power and renewable energy. This has led to significant curtailment. Some coal operators boost their operating hours by operating as combined heat and power (CHP) stations. In January 2016, the NDRC set a price floor for oil at $40 per barrel, with the price difference to be invested in energy efficiency and new energy.

• Electricity sector regulation: The relationship between government regulators and the State Grid Corporation of China (SGCC) is at an imbalance. The former State Electricity Regulatory Commission merged into the National Energy Administration (NEA); however SGCC is perceived to retain more power than the NEA. The National Development and Reform Commission (NDRC) oversees energy price setting. SGCC seemingly exercises control over the country’s generation mix, especially through the dispatch process, and many believe that coal is still largely preferred over renewables. In the US, price setting appears transparent, but in China, the process remains opaque. NDRC cares about stability in setting prices. Industrial prices are the highest while residential prices remain the lowest in China. Currently, grid dispatchers rarely utilize statistical modeling which could help prioritize cleaner and more efficient generation dispatch. SGCC’s provincial branches oversee an hourly allocation of generation based on the type of generation unit, rather than the efficiency of any unit, and through their dispatch choices, they try to establish good relationships with the provinces.

• Electricity sector reform: There is a major focus on electricity sector reform, or liberalization. ”Green dispatch” was mentioned in the US-China presidential agreements on climate change in 2015, and there are ongoing pilot power sector reforms in Shenzhen. Green dispatch, or the prioritization of the dispatch of cleaner and more efficient generation resources, will take more time to become a reality in China as prices need to change to have an impact on dispatch, and a standardization of transmission and distribution profits needs to be effectuated countrywide. Local governments retain significant power, and SOE business practices tend to be opaque. After the PRC’s State Council 2015 release of Document No. 9 on power sector reform, it was believed changes were made based on state-owned entity (SOE) intervention. Price reform must be a higher priority to change the current dispatch system. More market-based measures may allow for deeper reform of the power sector.


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• Planning: There is ongoing debate around SGCC’s model for national generation integration through use of its ultra-high voltage (UHV) transmission lines versus a more localized model of generation and distribution. Former SGCC Chairman and CEO, Liu Zhenya, currently heads SGCC’s new non-governmental organization (NGO), Global Energy Interconnection Development and Cooperation Organization (GEIDCO). SGCC’s current President and CEO, Shu Yinbiao, has been with SGCC for over fifteen years in various roles.

• Overall trend: Data, an engaged citizenry, and a transparent legal system are necessary for adequate environmental protection. China has been closely scrutinizing a number of the in-country NGOs under a new law requiring open books and detailed budget activities; however, it has not yet begun its review of energy and the environmental NGOs. Concerns have been expressed amongst party leadership about undue foreign influence. The global financial crisis gave power to some political groups in China to push back against market forces, and China should know what it must do to successfully reform its electricity sector.

Clean Energy Non-Governmental Organizations Background Clean Air Task Force (CATF): CATF was launched in the US in 1996 with a single goal -- “to enact federal policy to reduce the pollutants from America’s coal-fired power plants that cause respiratory death and disease, smog, acid rain, and haze.” CATF staff consists of senior engineers, MBAs, scientists, attorneys, and communications specialists. Headquartered in Boston, it operates additional offices in Washington DC, Ohio, Illinois, Maine, and New Hampshire, as well as in Beijing, China. CATF is a tax-exempt non-profit organization financially supported exclusively by donations from philanthropies and individuals and by contracts with other tax-exempt, non-governmental organizations. CATF accepts no financial support from for-profit corporations or governmental agencies. Regulatory Assistance Project (RAP): RAP is a “global, non-profit team of experts focused on the long-term economic and environmental sustainability of the power and natural gas sectors, providing assistance to government officials on a broad range of energy and environmental issues.” In China, RAP assists China's decision-makers in developing and implementing policies that promote sustainable economic development, increased energy reliability, and improved air quality and public health, which in turn produce substantial and permanent reductions in the country's greenhouse gas emissions. Working with the Energy Foundation's China Sustainable Energy Program, it provides technical assistance and international expertise on energy efficiency, market and regulatory reform, renewable resources, and environmental policy. Its network of international partners includes Lawrence Berkeley National Laboratory's China Energy Group, the Center for Resource Solutions, and the NRDC. The Paulson Institute (TPI): TPI was founded in 2011 by Henry M. Paulson, Jr., the 74th Secretary of the Treasury and former chief executive of Goldman Sachs, to promote economic growth and environmental preservation in US and China through programs, advocacy, and


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research. It is an independent, non-partisan center headquartered in Chicago, Illinois. Its work is grounded in the principle that “today’s most pressing economic and environmental challenges can be solved only if the US and China work in complementary ways.” With offices in the US and China, its mission is “to advance global environment protection and sustainable economic growth in the US and China while fostering broader understanding between the two countries.” Discussion:

• CATF: CATF has facilitated a memorandum of understanding (MOU) between Duke Energy, American Electric Power (AEP), SGCC, and the Huaneng Group for US-China cooperation on clean coal technology, smart grid, and nuclear safety.

• RAP: RAP is working with relevant experts on examining the issues related to China’s over-capacity of coal plants as well as issues related to renewable integration and the regulation of grid companies.

• TPI: Founder Hank Paulson has a good relationship with SGCC’s former president and chairman, Liu Zhenya, which assists the NGO’s work in China. The institute facilitates US-China expertise exchanges. Renewable energy integration is a major focus. They have chosen to focus on the Jing-Jin-Ji region (e.g., Beijing, Tianjin, and Hebei). If integration in that region is unsuccessful, China will likely not reach its climate agreement targets. TPI advocates for green dispatch.

NGOs on Today’s Issues in China:

• Policy priorities: While climate change is now a policy priority, importance is still given to reducing the levels of sulphur oxide (SOx) and nitrogen oxide (NOx) pollution. Given this fact, the government is looking for opportunities at complementarity and achieving multiple policy goals in one step. China’s plan is that every city should be smart and green in its approach to energy. The current situation is that there is a long way to go to achieve that, but governments are starting to understand what is required.

• Power sector reform: A major effort at power sector reform was launched in March 2015, aiming at broad transformation, especially in relation to regulation and enforcement. China’s power sector has many success stories, such as its 99% rate of electrification and a fleet of modern, efficient power plants. Challenges remain, however, including: how to integrate renewables, reflected in the high level of curtailment and resulting high overpayment of generation; how to regulate effectively; and how to deal with externalities. The power sector reform process started in Shenzhen with pilot programs and is gradually being spread around China province-by-province. The reform is driven by inefficiencies within the current system. For example, with the reforms in Shenzhen, power companies were assessed for their existing assets, and approximately 25% of their assets were deemed unnecessary and disallowed; however, this may have included non-utility assets such as hotels.


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• Power sector regulation: Overall, China’s central government exercises a light touch with regard to the power sector. Enforcement of regulation does not follow a clear structure and appears confusing to outsiders. While the NEA issues many policy statements, these may not be enforced due to local situations. The NEA is a sub-cabinet level institution. The NDRC is more powerful than the NEA, and it sets prices and oversees power sector planning. Without these powers, the NEA lacks the influence necessary to direct the SOEs. There was an attempt to boost the NEA’s power by placing the State Electricity Regulatory Commission (SERC) under its authority; however, provincial administrations answer to the NDRC and not to the NEA. Also, the SGCC President is a minister level position which is higher than the NEA regulators. The authority of the NEA still needs to be boosted.

• Planning: Power sector planning processes need to be reformed as there is no institutional framework to assess resource needs across the network. There is currently about 150 gigawatts (GW) of coal generation overcapacity. The current situation of overcapacity in many sectors is largely due to the domination of SOEs, as reflected not just in the coal and power sectors but also the steel sector. The timeline for power plant construction is much faster in China than the US. In China, approvals are easier to achieve, and credit is easier to obtain, but plants may face an uncertain economic future. This has contributed to the overcapacity issue. There is also a clear incentive for SOEs to facilitate the building of overcapacity, because SOEs receive the difference between the retail and wholesale price. A “red alert” system was introduced by the NEA in 2016, identifying provinces where extreme overcapacity existed in both coal and renewable energy resources. Integrated resource planning (IRP) would not require such an alert system. Most provinces are now under a “red alert.” New coal power capacity is sometimes still approved for the provision of heat, representing yet another channel for getting approvals.

• Provincial incentives: Provincial officials also have an incentive to approve capacity, as it remains profitable while coal prices are low, it supports local coal companies, and it allows local governments to secure local generation. Local governments do not want to purchase electricity from other provinces, and power transfers between provinces remain flat despite growing generation. This is largely because provinces want to protect local generation and therefore local employment. This makes them reluctant to accept cross-border transfers. China’s central government and NEA are encouraging inter-provincial power transfers.

• Renewables overcapacity: As a result of NEA policy released in 2014, overcapacity in solar generation and wind power is still increasing. It is partly due to the fact that predicting demand is difficult. Also, the NEA and NDRC do not necessarily work together, although they are ostensibly related institutions. Clean Development Mechanism (CDM) credits also contributed to an overbuild of wind power capacity, and as much as half of these projects were not connected to the grid. The feed in tariffs (FITs) set for renewable resources have often been set artificially high taking into account the high level of curtailment and compensating generators with higher prices. Zhangjiakou and Beijing are cooperating on the transfer of wind power to Beijing. This is different


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from other areas around the country where unused wind power motivates local governments to promote local electricity consumption, sometimes by heavy industry.

• Finance: The high growth rate in the past led to a “well-oiled machine” for facilitating investment in power generation capacity. This process has not adjusted to lower growth. Coal companies cannot currently go out of business due to bad loans as they are backed up by government. The current reform push should address these issues as SOEs can operate at a loss, unlike generators in the US, removing the incentive for rational planning.

• Grid reform: SOEs currently prepare expenses for three years and allow NDRC to review their asset base. Extra incentives exist for meeting targets on distribution grid performance and demand-side management. Grid reform should move away from the grid company having a monopoly on supply contracts. SGCC has led many discussions on smart grid, but it has not yet implemented it; rather, it has focused on manufacturing the elements for export. China does not currently have the regulatory infrastructure for smart grid. There has been a debate around whether to unbundle transmission and distribution networks. For now, it has been decided not to separate the two. The process discussed involved opening distribution networks to non-SGCC interests, allowing other parties to buy equity in the distribution assets.

• Pricing: Pricing is not transparent in China. SOEs and power companies engage in annual negotiations. There is a reference price available, but individual plant prices are not available. There is now tiered pricing for consumers, with large energy users paying a higher rate with levels varying by province. Actual rates may be lower than those set. Chemical plants pay about three times the residential rate regardless of usage. The average rate across all users is comparable to those in the US; however, residential rates are cross-subsidized. Residential customers pay about US 4 to 5 cents per kilowatt hour (kWh) on average, while industrial customers pay US 12 to 13 cents per kWh on average. The government should exercise caution in regards to reform because the current price structure incentivizes residential consumption rather than industrial consumption, which is in line with government priorities. There is a hope within the industry that lower prices may occur as a result of power sector liberalization; however, this risks accentuating the already large amount of investment in sectors with overcapacity. Resources should be directed towards more productive sectors in order to avoid the risk of stranded assets. There is a danger in the reform process that good aspects of the current system may be lost. Many experts are trying to head off that risk. Currently, a formula for the rate-setting process allows for a reasonable rate of return for SOEs; however, it is unclear how much profit the SOE should reasonably make. The reforms are beginning to reduce the current artificially high levels.

• Summary: Overall, power sector reform is a major and ongoing challenge. While efforts are being made to liberalize the sector to better reflect market trends, there may not be substantive changes in the next three years in power sector regulation.

National Energy Administration


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Background: In the PRC, the National Energy Administration (NEA) is responsible for formulating and implementing energy development plans and industrial policies; promoting institutional reform in the energy sector; administering energy sectors including coal, oil, natural gas, power (including nuclear power), new and renewable energy; taking charge of energy conservation and comprehensive utilization of resources in the energy sector; guiding scientific and technological advancement; organizing and carrying out the research and development (R&D) of important equipment and guiding the assimilation and innovation of imported complete sets of major equipment; organizing and coordinating key energy-related demonstration projects and promoting the deployment of new products, new technologies and new equipment; approving, reviewing, or examining fixed asset investment projects of the energy sector within national plans and the scale of annual plans in accordance with the authority stipulated by the State Council; conducting energy forecasting and precaution and participating in energy operation coordination and emergency preparedness; formulating and implementing national oil reserve plans and polices; taking the lead in launching international energy cooperation; participating in the formulation of policies related to energy such as resources, finance and taxation, environment protection, and addressing climate change; making recommendations on energy price adjustment and imports and exports aggregate; and undertaking the daily work of the National Energy Commission, an agency established in 2010 to coordinate the overall energy policies for the PRC. Discussion:

• Cooperation: China has much to learn from the US. While both countries face some similar challenges, both have been going about addressing them in different ways. The US state utility commissioners shared relevant information in relation to the history of US power sector reform. China is attempting to utilize such ideas, including working towards integrated resource planning (IRP) policy to meet the needs of both consumers and grid planners though it is difficult to identify how to effectively combine the market together with IRP. China is attempting to find the right balance. In order to better solve the problem, the NEA recently issued a high-level policy document regarding how to ensure better planning throughout the power sector.

• Thirteenth Five Year Plan: The 13th Five Year Plan (FYP) will run from 2015 to 2020. During this period, one problem that has emerged is in relation to the over-installation of generation capacity which will need to be addressed by the NEA. In the first three years of the 13th FYP, the NEA decided it would halt the increase of new electricity generation capacity buildout. In the west, middle, and eastern regions of China, there will be different policies for power sector development. At the same time, the NEA will encourage the “energy internet” in order to promote the efficient use of energy.

• Renewable energy: China plans to achieve its goal of 15% non-fossil energy by 2020 though encouraging solar, wind, and hydropower. The country plans to develop its power generation according to the needs of the market, and it will attempt to avoid long-distance transportation problems leading to the non-use of wind power.


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• Planning: Power sector planning takes place within the context of the national five-year economic planning process which establishes targets for the energy sector. A more detailed plan for the power sector is being developed according to the FYP targets, and the NEA provides an annual report on progress of the plan. The national-level plan and annual reports by the NEA are published publicly; however, individual company performance related to the plan are not. Since 2015, the NEA has been contemplating how to successfully convert the energy system away from overcapacity; therefore, the NEA decided to try a new approach relating to planning approval of energy projects. This new approach consisted of two main points: (1) all provinces must receive approval from NEA for their provincial power sector plan; and (2) all development of energy projects must be developed in line with this NEA-approved plan.

• Plan adaptability: In 2016, the NEA has set up a dynamic evaluation and correction mechanism, and the plan is expected to adapt according to the situation. Enterprises apply to the NEA if they want to build a new power plant. If it is an inter-province project, it should be sent to the NEA. If it is an intra-province project, it should be sent to the provincial energy administration. If a project is cancelled, the enterprise should inform the NEA so it may adjust the plan.

• Creating cross-regional markets: From the NEA’s perspective, it makes sense to follow the planning and markets approach the US has taken. This approach allows planning to address long-term resource adequacy, while the market can optimize short-run demand across regions. The NEA has been trying to promote this approach in China. It encourages the provinces to cooperate according to the market supply and demand. In the northwest (e.g., Inner Mongolia and Gansu) and some areas of the east, there are existing agreements between provinces for managing transfers according to the market. After this takes place, provinces inform the NEA.

• Information transparency: The US and China have both encountered problems where generation companies have been reluctant to share information which would be important for IRP. China’s previous rules and regulations often were ineffective at addressing this situation. The new rules require enterprises to meet government mandates and require provincial plans be consistent with the national plan.

• Involvement of industry: Previously, the planning process was very opaque; however, during the 13th FYP period, the NEA wants the planning process to become transparent and scientific. It should be transparent to industry to allow them to participate in the process, accept the process, and effectively achieve goals. Since 2015, the process has involved all the relevant participants from industry, power sector institutions, academia, and government. From these stakeholder groups a team was created to guide the planning process. During the process, some problems have been encountered as the participants have different interests and requirements and it is not possible to reach full agreement. Finally, a final draft of the plan was concluded by the stakeholder group and submitted to the State Council for final decision.


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• Data analysis: During the planning process, the NEA refers to the advice of government advisory bodies as well as industry associations and others. The advice includes the development and use of computer models by the Chinese Academy of Sciences (CAS), a Chinese national institution conducting basic and applied research, and the State Information Center (SIC), a Chinese government policy making think tank affiliated with the NDRC. The NEA also relies on its own professional expertise. Of course, different agencies may take different approaches, and the NEA needs to find a way to integrate all of this advice.

• Approvals: Projects must meet a range of requirements before gaining approval. First, the projects included in the plan are considered by the companies themselves. If the companies cannot benefit from the proposed project, given the pricing of electricity available to them, they will not invest. Currently, the NEA, in its desire to promote a diverse resource portfolio, is encouraging enterprises to optimize the balancing of projects between fossil and non-fossil projects, and enterprises are actively responding to this. Generally, the NEA approves projects according to three aspects: (1) whether the idea and principles of the development are in line with national priorities; (2) whether the company’s overall performance and project-specific performance meets the requirements of national targets; and (3) whether it is a “key project,” encouraged by the central government. Hundreds of applications were filed by the end of August 2016. The National Information Center (NIC) provides modeling and helps the NEA achieve its final goals.

• Questions from NEA: Representatives from NEA asked the US delegation how the US meets its long-distance transmission targets as China utilizes ultra-high voltage (UHV) transmission; how does the US decide pricing and customer payment for distributed energy resources; and how are US consumers reacting to the energy internet and smart energy, as these are new trends in China.

National Development and Reform Commission, Department of Resource Conversation and Environmental Protection Background: The NDRC’s Department of Resource Conservation and Environmental Protection is responsible for comprehensively analyzing important and strategic issues related with the coordinated development of economy, society, environment and resources; organizing formulation and implementation of plans, policies and measures concerning the conservation and comprehensive utilization of energy and resources, and the development of a circular economy; participating in the formulation of environmental protection plans; coordinating work related to the environmental protection industry and clean production; organizing and coordinating key pilot programs of energy conservation and emission reduction, and promotion and application of new products, technologies and equipment; and undertaking concrete work assigned by the National Leading Group Dealing with Climate Change, Energy Conservation, and Emission Reduction. Discussion:


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• Achievements to date: Energy savings and energy efficiency are topics of major international concern, and China and the US have had much successful cooperation in this area. The Chinese government has paid close attention to this issue, especially since the 11th Five Year Plan (FYP) period. During the 11th and 12th FYP, the government set specific targets which have proven to be a success. In the 11th FYP, the energy efficiency of the economy was reduced by almost 20%. In the 12th FYP, the energy efficiency of the economy reached a level of 33.2%, lower than 2005, over-achieving the government’s targets. In the past 10 years, the energy saving projects reduced emissions by 1.4 billion tons of standard coal equivalent (SCE), or 3 billion tons of carbon dioxide (CO2) emissions. During the 12th FYP, the reductions were 807 million tons and 1.9 billion tons respectively. During the 11th FYP, energy consumption increased by 5.2%, while gross domestic product (GDP) increased by 9.6%. Given that China has experienced rapid economic growth through urbanization during this period, it was not easy to achieve these reductions. According to data published by the World Bank, China accounted for 58% of all energy saving achievements made between 1990 and 2010.

• Future plans: Given the progress to date, the Chinese government is confident that it can continue to achieve its goals, and it is making every effort to increase the energy efficiency of the economy within each industry. In the international arena, China is committed to its climate targets. Continued positive results will be achieved through two important avenues: (1) the improvement of legislation; and (2) the enforcement of work plans at all levels of government with specific targets which leaders are contracted to achieve. Also, in key industries such as infrastructure, construction, and communication, the NDRC selected 10,000 key companies to implement energy efficiency projects. Much effort has been made to introduce new standards and new technologies. The public is encouraged to actively participate in energy savings. During the 13th FYP, improving energy efficiency will continue to be an important topic, with a target to further reduce energy consumption per unit GDP by 15%. The plan will also introduce a “double control method,” where not only is energy per unit GDP reduced, but also the total energy use will be capped at 5 billion tons of SCE, which is an ambitious target.

• US-China cooperation: Great importance is attached to international cooperation. The “10-year Framework for Cooperation on Energy and the Environment,” established in 2008, provides the platform for US-China cooperation on energy. Three major mechanisms provide opportunity for direct engagement: (1) The China-US Energy Action Plan, signed in 2009, has successfully held six sessions, and the seventh will be held in October 2016 in Beijing. The forum will be organized by the NDRC on China’s side and the DOE on the US side, and its attendees will include a range of companies and research institutions. The forum will focus on the progress of the various joint action plans, and several new contracts and agreements will be signed. The key role of these sessions is to serve as a bridge to further cooperation between the two countries; (2) The Clean Energy Ministerial (CEM), hosted its seventh meeting in June 2016 in Los Angeles. The US launched three “high-impact” campaigns on energy management; and (3) Cooperation on boiler construction has proven to be a practical exercise, involving three pilot cities in China, where US delegations of experts and companies travel to China


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every year for field visits. Other forums include the International Partnership for Energy Efficiency Cooperation (IPEEC) and the G20.

• Market-based approaches: The Chinese government is committed to finding market mechanisms to induce companies to improve the energy efficiency of utility companies. China has legislation requiring companies to reduce energy usage; however, the biggest incentive for companies is to reduce their costs to increase profits. Basically, there are two approaches the government has taken. The first is the introduction of tiered pricing, whereby larger energy consumers pay a higher tariff for their electricity. It has achieved very good results, and there are plans to expand the concept across China. The other method is aimed at the management of utility companies, given that most are unwilling to invest the necessary capital in energy efficiency due to the large up-front cost and long payback time. The NDRC provides subsidies and other allowances for the companies to overcome this barrier. China has many good practices in energy efficiency on the demand side, including peak rates for electricity. During periods of high demand, users will need to pay more; during low demand, they can pay less.

• The Top 10,000 Program: The “Top Ten Thousand Companies Program” involves the largest energy-consuming companies. The program is based on research concluding that if energy efficiency is handled well within these companies, then the issue will be managed well overall. There are several criteria that the companies within this program must meet, including in addition to total consumption and energy efficiency. An assessment is conducted every year, and if the company fails to pass, punishment measures will be utilized (e.g., negative public announcements). Companies place a high priority on their reputation, making such sanctions a serious risk. Also, applications for future subsidies and allowances may not be granted to those companies failing to pass.

• Transmission and distribution: During the transformation of the power sector, NDRC considered how energy efficiency may be included within reform of the transmission and distribution networks; however, there is currently no plan to directly link these two issues. In the future, China may try to learn from the US in terms of its management of the transmission and distribution networks to introduce incentives for improving efficiency (e.g., line loss reductions), but this is not a priority for NDRC at the moment.

• Pilot programs: Energy-saving pilot programs are assessed for success based on the amount of energy saved through the new technologies adopted. Through annual review, if programs reach targets, then they are considered successful. If a company is found to have failed assessment, adjustments may be made, because it is possible that the original target was too high.

• NDRC Questions: The NDRC representatives asked the US delegation if they could suggest additional, effective ways to encourage utility efficiency, and they asked about decoupling.

Bloomberg New Energy Finance Background:


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Bloomberg New Energy Finance (BNEF) provides unique analysis, tools and data for decision makers driving change in the energy system. It helps clients stay on top of developments across the energy spectrum from its comprehensive web-based platform. BNEF has 200 staff based in London, New York, Beijing, Cape Town, Hong Kong, Munich, New Delhi, San Francisco, São Paulo, Singapore, Sydney, Tokyo, Washington D.C., and Zurich. BNEF’s sectoral products provide financial, economic and policy analysis, as well as news and the world’s most comprehensive database of assets, investments, companies and equipment in the clean energy space. BNEF’s regional products provide a comprehensive view on the transformation of the energy system by region. Bloomberg New Energy Finance leverages Bloomberg’s 15,000 employees in 192 locations, generating 5,000 daily news stories across TV, BusinessWeek, Mobile, Digital and Radio. Discussion: BNEF’s 13th Five Year Plan Scenarios

• The 13th Five Year Plan: China’s energy sector is entering a new phase going into the 13th FYP period. The overall economic plan has been issued with targets for GDP, inflation, and urbanization. Initial high-level energy targets for 2020 have been issued, giving insights into the Chinese government’s plans for renewable, nuclear, gas, and coal resources. However, in the first two years of the plan, the larger framework will be refined, as sector-specific plans are drafted. There are rumors circulating that, due to the pressures of the economic slowdown and the fact that energy markets are changing so quickly, the FYP targets are in fact already being revised downward. The economic slowdown is happening much quicker than anticipated, and the level of overcapacity accumulated since 2012 is so large that the government is attempting to gauge the dynamics of overcapacity before finalizing its 2020 targets. Some flexibility is allowed for in the targets, using language such as “up to” a certain level, but no clear baseline has been provided. For example, unit GDP targets provide flexibility in total output as GDP is uncertain. The result is that targets are rarely missed.

• Review of FYPs: In 2013, a working committee was convened by Li Keqiang, Premier of the PRC’s State Council, to review all the targets from the previous FYP to find which areas had been successful and which had not. The target for coal resource reduction was exceeded (constituting a lower 65% share of primary energy), as well for non-fossil energy (accounting for 12% instead of the target of 11.5%). There was no specific target for oil consumption, but the target for gas was significantly missed (achieving 6% instead of the target of 8%).

• Gas consumption and production: While the FYP does not target a specific amount of gas consumption, it does provide a target for domestic production up to a certain level, implying the level of imports necessary given the proposed share of primary energy. There is a target for gas to reach a 10% share of primary energy consumption by 2020. This may be achievable if the current reforms in the gas sector are realized, including changes to the regulation of pipelines, upstream production, refinery, and deregulation of


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prices. However due to resistance from SOEs, in particular China National Petroleum Corporation (CNPC), this may be difficult. Achieving 8% is considered a more realistic level.

• Electricity demand: Slowdown is having a major impact on the power sector. In recent years, China has seen an average 5 to 6% rise in demand for electricity; however, in 2015, the demand increase dropped to only 0.5%, mostly driven by lower industrial demand. Demand from light industry (i.e., manufacturing) is still growing, while demand from heavy industry is declining. The tertiary sector and household electricity are the fastest growing areas for demand. During a period at the beginning of August 2016, Beijing, Shanghai, and Guangdong reached record highs in terms of peak load, indicating that future demand growth will come from coastal urban centers. Current peak loads are equivalent to US cities, like Los Angeles, with further growth expected.

• Government forecasts: Government agencies which provide forecasts of electricity consumption mostly conduct analysis from the ground on up. There are three agencies which provide national power demand forecasts. SOEs use two approaches: (1) bottom-up aggregation, using monthly data; and (2) long-term forecasts, using an econometric approach. SOE forecasts tend to be more aggressive in terms of demand. The NEA makes use of China’s National Bureau of Statistics’ (NBS) monthly data from every factory, allowing for detailed bottom-up forecasts. The China Electricity Council utilizes forecasts similar to those of SOEs due to their close relationship.

• BNEF energy forecasts: BNEF takes a similar approach to SOEs, using econometrics for anything beyond 2020, and for the next five years, it does bottom-up aggregation. BNEF looks at trends and takes an informed view of demand for the next five years. BNEF’s forecasts break down the industrial sector, which still accounts for close to 70% of demand, by the largest sub-sectors. Productivity and energy efficiency levels are likewise broken down for the next five years for the ten largest sub-sectors. Also, BNEF takes into account government targets for industrial capacity (e.g., coal production), closure of coal capacity, iron, and steel capacity. BNEF presents a view on the electricity efficiency of each industry.

• Over-forecasting: One of the contributing factors for the current level of overcapacity is the over-forecasting of demand by government agencies. For example, SOEs last year expected growth of 3 to 5%, while actual growth was only 0.5%. This year, SOEs forecast a 3% growth. This year’s hot summer has led to a growth in demand. Month-on-month demand growth was 2.6% for July 2016. However, peak load usually occurs in summer, making the forecasted 3% annual growth unlikely. The G20 will have an impact on industrial activity in the Hangzhou region dampening demand. A mild fall may also have an impact. BNEF forecasts close to 1% growth which may be conservative.

• Seasonal forecasting: One key factor for demand forecasts is that previously it was only necessary to look at annual industrial activity; however, BNEF now sees the need to look closely at seasonal temperatures which affect residential and commercial demand. Therefore, the current 30% of non-industrial electricity demand is growing in clout and


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volatility. Through power sector reforms, the NEA, together with SOEs, must tailor its forecasting to regional and time-specific levels. Efforts had been made to do this in the past, but data was not very sophisticated and/or available. BNEF is working to develop this capacity in-house with a model being developed in London taking into account global weather forecasts.

• Incorporating new data sources: In the second half of 2016, BNEF’s forecasting of the household, commercial, and construction sectors will be changed, because there are better proxies now available than the traditional indicators such as GDP and productivity trends. E-commerce companies, such as Baidu and JD.com, have a lot of publicly available data on small and medium-sized enterprises. They are better statistical providers than government in relation to consumer activity due to government bias to heavy industry and SOEs. The real drivers of growth now in terms of electricity demand, and other areas, are now in the private sector.

• Potential for demand growth: BNEF forecasts continued growth in demand over the next few years, and the main sources of growth are the construction, household, retail, and housing sectors. There is an over-investment into the housing sector in many cities, but there still demand given that much of the housing capacity that is constructed is priced too high for the market. BNEF also forecasts growth in demand given that it is always slower at the end of a five-year plan period as stimulus spending from earlier in the period loses its impact. At the same time, electricity demand growth will never recover to the historic highs of 5 to 6%. An upper limit of about 3% is more likely. Post-2020 forecasts use an econometric approach. Natural demand peaks in 2039, but once electric vehicles (EVs) are factored in, electricity does not peak within the BNEF forecasts. The impact of EVs, however, does not begin to significantly affect demand until after 2030. The wholesale, retail, and housing sectors are predicted to recover from the slowdown and see substantial growth, back to their historic highs, by 2018. However, this may have been an underestimate since recovery may already have happened in 2016 driven by the hot summer.

• Power market reforms: The slowdown is happening faster than expected, and demand growth is much more volatile than expected; however, China still has a very top-down state planning model in the supply side of the power sector. The government needs to adjust its planning so that it meets the profile of changing demand. Three different types of reforms are currently being pursued: (1) direct power purchasing; (2) transmission and distribution tariff standardization; and (3) retail liberalization.

• Direct Power Purchasing (DPP): DPP constitutes generation hours that power companies can sell directly to clients in addition to their sales to the grid. While grid sales are set at a higher rate, direct sales to clients are at a lower rate, but remain attractive to generators because of the overcapacity and low level of allocated hours that they are receiving. It involves the signing of purchase power agreements (PPAs) between generators and power consumers. This had previously been piloted in two provinces but has now been expanded to most of the country.


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• Grid defection: The risk of grid defection has not yet occurred. Given that there is so much overcapacity, generators still rely on allocated hours from SOEs for their bottom line. This may change in the future.

• Lower prices for industry: DPP also provides an indirect stimulus to heavy power users given the high price that they pay for electricity sourced from grid. Previously, industrial users had dealt with high prices by developing captive coal power generation, especially in the aluminum industry. This contributed to overcapacity in the grid and was disfavored by the government. As a trade-off, direct purchasing from producers was allowed. There is still a pre-negotiated distribution fee payable to SOEs within this arrangement.

• Renewable DPP: In most areas, direct purchasing agreements are from coal and hydropower generators; however, in some areas such as Gansu, where there is a high level of wind overcapacity, agreements with renewable resources are also allowed. Prices that renewable resources are negotiating are so low that they are often below the state-set wholesale price for coal power. Typically, renewable resources receive a feed in tariff (FIT) on top of the coal price; however, when renewable producers negotiate direct contracts, the amount that they make may only come from the FIT, or even less. This may seem like a bad deal; however, BNEF analysis shows that it could be acceptable because curtailment is so severe in those areas. National curtailment of renewable resources is only about 5%, but it is about 25% for solar in Gansu, and it is also high for wind. The government allows these companies to compete in order to generate some revenue, even if at low prices. Foreign companies display the most obvious interest in corporate procurement programs due to “green” interests. Chinese companies do not procure renewable resources because they are clean; rather, they procure them as they are less expensive. Some aluminum companies source almost 100% of their energy needs from hydropower.

• Power auctioning: China is working towards a liberalized wholesale electricity market using auctions. Solar is already moving to auctions this year, and wind has started a move to auction in the northeast with plans for expansion. Provinces are setting up power trading platforms. There may eventually be a national exchange that will likely be regionalized.

• China-US cooperation: China wants to learn from the US in the process of these reforms; however, the capacity of the NEA is limited, with only one department staffed with six people responsible for the process nationally. There is a risk, therefore, that if the process moves too fast, it could fail because regulatory capacity so limited. Actual results to date show that reforms at the local level are not working as designed at the national level. This may be good in that it reflects local situations, but moving towards national goals in relation to carbon emissions will need to be more coordinated.

• Transmission and distribution tariff standardization: While liberalizing the wholesale sector, the government is also conducting “transmission and distribution tariff standardization.” Previously, there was a wholesale and retail price, both set by the government, and SOEs took the margin in between. Consequently, there was little


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transparency about what costs that margin was covering. Now, the government is moving towards a model where SOEs receive a rate that covers costs plus a reasonable return, described as a “small margin” which is not to be disclosed. SOEs cannot be totally cut off from large returns as they need to continue to make significant investments in power infrastructure. Changing the formula for SOEs’ tariffs may allow both the wholesale and retail markets to be deregulated or restructured.

• Distribution grid: SOE SGCC’s focus is no longer on long-distance transmission, as it was during the previous five years, but rather on upgrading the distribution grid (e.g., 30 to 110 kilovolt substation distribution). Around 3 trillion RMB of investment is estimated to be required in the distribution grid in the next five years nationally.

• Overcoming vested interests: The end game of these reforms is a more efficient power sector; however, there are vested interests which provide resistance. This is one reason that reforms, the previous round of which began in 2005, are taking so long. The government is using its leverage to push reforms forward.

• Reform trade-offs: Industry has been avoiding the retail price set by government, about 0.8 RMB per kWh (US $ 0.13 per kWh); however, if they owned their own coal power plant they would only pay 0.3 RMB (i.e., the cost of production). Now, under the new DPP program, they can contract for 0.05 RMB per kWh. In the next year or two, the situation is favorable for promoting this reform because fuel prices are low, and they can take on the fuel price dividend. Although utilization hours are low, most generators are still making money because the coal price has dropped by half.

• Transparency: Every province, in its planning document, releases the formula regarding how prices are negotiated. However, the details are not released (i.e., input costs).

• Retail-side reform: The government is now allowing new companies to enter the retail market, including companies with no experience in the electric retail industry. In conjunction with the direct contracting for industry, this means the government is allowing all customer bases to renegotiate their pricing arrangements and creating a more liberalized market. There will be losses on investment during this process which will likely need to be addressed by the government.

• Retail power utilities: A new structure, post-2020, will likely arise with the emergence of retail power utilities (RPUs). An industrial park may have all of its utilities controlled by one company.

• Future capacity: China has about 300 GW of additional coal power capacity that has been approved or permitted. BNEF believes that about 150 GW of this may be built; however, modelling shows that China only needs about 60 GW. Therefore, over half of the capacity currently in the investment pipeline is excess capacity. It represents about US $240 billion in stranded asset risk over the next five years. This is only the coal sector and does not include the significant overcapacity in renewable and other resources.


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• Renewables do not harm coal: BNEF modelling shows that both high and low renewable-build scenarios lead to minimal impacts on coal-power load factors. What competes mostly with coal, is coal itself, as well as nuclear and hydropower.

• Peak coal: Long-term forecasts show power generation in the coal sector will never reach 2014 levels again. It will come back to almost the same level as in 2026 and then decline. It will decline at this point due to: (1) increasing amounts of coal power capacity reaching its retirement age; and (2) expectations that new large-scale wind and solar capacity is projected to reach grid parity with coal capacity. All new plants currently being built are either super-critical or ultra-super-critical. BNEF also assumes an extremely aggressive plant retirement plan. A plan announced in February 2016 by the NEA involves shutting down twenty-year old plants; however, it is unclear whether this will actually occur as the NDRC has not yet expressed support. Even with NDRC support it may not happen given the vested interests involved.

Electric vehicles (EVs) • Market scale: The government has a target of five million EVs by 2020. There was a

total fleet of 500,000 EVs by the end of 2015, with another 120,000 in sales coming in the first half of 2016. There are eight companies producing EVs in the Chinese market, both battery electric vehicles (BEV) and plug-in hybrid electric vehicles (PHEV). EV manufacturer BYD accounts for 30% of the BEV market and 70% of the PHEV market, and SAIC Motor Corporation Limited (informally SAIC and formerly Shanghai Automotive Industry Corporation) accounts for about 20% of the PHEV market.

• Booming market: Growth in the market for internal combustion engine (ICE) vehicle is slowing, but passenger EVs are booming. This is for two reasons: (1) increasing market acceptance; and (2) government encouragement.

• Regulators: There are two regulators responsible for the EV market: (1) the Ministry of Industry and Information Technology (MIIT); and (2) the NDRC. Other Chinese ministries also have relevant responsibilities, including the Ministry of Finance (MoF) and the Ministry of Science and Technology (MoST).

• Market trends: Market division between BEV and PHEV is about two-to-one (i.e. 70% BEV sales and 30% PHEV sales). BYD is the leading company in EV sales in China. This year, most EV makers will develop EV sport utility vehicles (SUVs), because while the SUV market is heavily regulated due to pollution, there is also a strong customer preference towards SUVs in China. This provides a good opportunity for EV manufacturers. Infrastructure development for EVs is still slower than the growth in EV sales, but the government is working to develop this quickly.

• Policies: The government has a policy encouraging new and emerging industries, one of which is EVs. This led to the five million EVs by 2020 target. The government is introducing policies both at the national and provincial level to facilitate EVs, including requirements for new entrants to the EV manufacturing market, regulation of the low-


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speed EV market, regulation of passenger vehicle average fuel consumption, as well as Corporate Average Fuel Economy (CAFÉ) standards.

• Subsidies: There are also subsidies available, which are paid to manufacturers, and are based on range, or miles the EV can travel without needing a charge, and change over time. In 2014, passenger vehicles made up 68% of the subsidies, going to auto manufacturers Geely, BYD, BAIC, JAC and others, while commercial vehicles, such as buses, took 32% of the subsidies. In 2015, far more subsidies were provided than there should have been due to scams. Given that the subsidy is provided to the manufacturers, many examples of fraud involved manufacturers setting up car rental companies whose purchase receipts could be used for claiming subsidies. In April 2016, reforms were made to the subsidy process. There are now two requirements: 1) the manufacturer has to be on the approved MIIT list of manufacturers; and 2) the battery has to be on a separate MIIT battery list. Both lists must match. Foreign companies involved in joint ventures are being considered for addition to the list, but none are currently included.

• Mini EVs: Apart from the regular EV passenger vehicles, China has a huge market for low-speed mini EVs (LSEVs) or mini EVs, which involve previously unregulated small, slow-speed electric vehicles which are popular in Chinese cities for short distance journeys. BNEF estimates that there about 600,000 to 800,000 LSEVs currently in China. This is a conservative estimate, and it compares with 172,600 documented commercial EVs and 128,000 documented passenger EVs. There are no official statistics. BNEF bases its estimate on how many EV batteries are sold. LSEVs to date have been manufactured in regions with a strong heavy industrial base, including Hebei, Shandong and Henan, where raw materials are inexpensive and readily available. There is also demand in those areas which has now expanded to much of China.

• New regulation of LSEVs: The government has decided to start regulating the Mini EV market due to safety concerns. In early 2016, MIIT conducted research to find out how many LSEVs were on the road, and regulations are anticipated to be introduced in late 2016. The existing vehicle fleet will then be regulated as battery EVs. Currently, no regulations exist requiring drivers of these vehicles to have licenses. The current definition of LSEV only provides they have four wheels and a closed roof, and it excludes EV bikes. They are typically two-seater or three-seater vehicles and can reach approximately 40 kilometers per house. LSEV are not allowed to travel on highways. Some vehicles cost as little as RMB 10,000. New regulations will create opportunities for EV manufacturers targeting this market as the regulations will create a large demand for batteries and will also be eligible for the EV subsidies. These companies will also start to produce their own LSEVs.

• Potential market disruptor: Mini EVs are mostly produced in China. Mini EVs are a very efficient option for short distance journeys in urban areas, where they are used by the elderly and poorer young people who work in low-skilled jobs or for short trips close to home or for dropping children at school. Given this, the government should be encouraging them; however, they are problematic for traditional car manufacturers as a large part of the market has defected to a different model of transport. Chinese


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manufacturers of mini EVs are now considering export markets, such as India and elsewhere, which could result in a huge loss of demand for traditional manufacturers. Mini EVs also introduce consumers to EVs and make it more likely for people to be comfortable purchasing a larger EV vehicle.

• Cost incentive: LSEVs sell for about RMB 42,000, and no subsidy is available to consumers. This compares with competing vehicles including BEVs, which sell for about RMB 100,000 (after a RMB 100,000 subsidy), and conventional vehicles which average RMB 68,800. In fact, every large EV is currently sold at a loss, and the profit for the manufacturer comes from the subsidy.

• Price forecasts: BNEF models battery prices at the factory level and breaks it down to the component parts. In countries like China and Korea, looking at gains in efficiency due to scaling, BNEF forecasts that costs could drop by 2020 by almost 50%. Even assuming they are unsubsidized and the low oil costs continue, the best-case scenario is that EVs could reach cost competitiveness with internal combustion engine (ICE) vehicles by the early 2020s, and in the worst-case scenario, by the late 2020s. Currently, the cost of the cars is mostly in the computerization. The actual body of the car is very inexpensive.

• Impact on oil: According to BNEF’s base case forecast, the amount of oil displaced by growth in China’s EVs is equivalent to the current oversupply in the market and is more than Saudi Arabia’s production in 2014. This is similar to forecasts by IHS, although IHS is more aggressive on gas vehicles, while BNEF is more optimistic about EVs.

• Carbon question: In China, switching to EVs is currently not actually beneficial in terms of carbon emissions, given the reliance of China’ electricity grid on coal; however, this could change in the future.

Independent Power Producers Forum

Background: The Independent Power Producers Forum (IPPF) is an international non- profit, non-government organization (NGO) composed of senior level executives and decision-makers heading up firms with energy and power business commitments across Asia, Europe, Africa, and the Americas. According to IPPF, they are an active catalyst for positive change with a unique fraternal organizational atmosphere covering key areas and sectors relating to power generation including gas, coal, bio-mass, hydro, wind, solar, nuclear, geo-thermal, legal, finance, insurance, security, equipment, infrastructure, alternatives, renewable and sustainable technologies. IPPF also claims to lead the new energy parade for energy efficiency, pollution prevention, greenhouse gas trading, energy security, waste-to-energy, standby power, smart grid, distribution/transmission, and restructuring. Discussion:


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The delegation attended a lunch hosted by the IPPF, Beijing Chapter. The lunch allowed the commissioners to meet and discuss with Beijing-based independent power sector companies on a range of topical issues including: • Issues pertaining to regional wholesale power markets; • Resource adequacy, fuel diversity and affordability; • The future of coal, nuclear and natural gas as base load power sources; • Increased integration of renewable energy (e.g., wind, solar, bio-mass); • Potential impact of the Obama Administration’s Clean Power Plan on individual states; • The effect of US compliance with the Paris accords; • Jurisdictional issues between states and the Federal Energy Regulatory Commission (FERC)

on oversight of generation and demand factors and perceived takeaways for China; and • Overseas investments energy firms. American Chamber of Commerce US-China Energy Cooperation Program

Background: The American Chamber of Commerce (AmCham) is a non-profit organization representing US companies and individuals doing business in China, and its membership is comprised of more than 3,500 individuals from companies with over forty industry- and issue-specific forums and committees. It is headquartered in Beijing with chapters in Central China, Northeast China, and Tianjin. Established in 2009 by twenty-four member companies, the US-China Energy Cooperation Program (ECP) leverages private sector business resources in China and the US to identify, develop, and realize sustainable clean energy and energy efficiency business in both the US and China. Its membership now includes more than forty companies, and the ECP works closely with each government to create a unique bilateral public-private platform. ECP is organized into ten working groups: clean coal; clean transportation; decentralized energy and combined cooling heat and power; energy efficient building and design; energy financing and investment; industrial energy efficiency; renewables/solar power; shale gas development; smart grid; and wind power. Discussion:

• China’s energy system: China’s energy system is quite uneven, with parts far more advanced than the US, but with the majority of the system still antiquated. For example, China is doing much to push forward on micro-grids and the energy internet, but there has still not been much accomplished in terms of integration at the national level. There is also very little storage and peaking power management. Dispatch is done mostly on a round-robin basis rather than priority-based. This has been a problem for investors, who question why they should invest in highly efficient plants which are not dispatched proportionally more than older, inefficient ones. A new NEA initiative on dispatch discusses changing this. On the one hand, China features the world’s most efficient ultra-super critical power plants, nuclear plants, and the largest high-speed rail, but the state of regulation is thirty years behind creating dislocations in the energy system. Supply and


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demand are disconnected at times. Efforts are often made to develop supply but without facilitating a market. Most distributed power projects are currently aimed at captive energy customers, such as industrial zones, or large consumers, such as data centers.

• Regulation: In the US, regulation tends to be prescriptive. In China, it is more performance-based though this may change in the future. The concept of partnership regulation by regulators and utilities does not exist in China, as it does in the US, and arbitration and prioritization of issues is more difficult for the private sector. It also leads to less rational decisions on capacity development with government priorities overriding market demand. The process of policy implementation is also vague, with the central government issuing high-level policy, but local governments often interpreting it differently, subverting it to local priorities and making it difficult to reach national targets. Local government can also point to varying priorities of different central government departments to justify their actions which may contradict a high-level policy. A good example of this is in coal-heavy regions where coal power plants are being built at historically quick rates, despite NEA policies discouraging their build out. Recently, there has been discussion of moving towards a regulatory model similar to the FERC, but the restructuring would require significant political effort, involving submitting cabinet-level officials to more independent regulation.

• Integrated planning: Currently, governance of the power sector lacks the concept of the benefit of the whole as it relates to the benefit of the individual. When the reality that industries are no longer competitive sets in, the government often facilitates those industries, obviating the need for rules. This has the consequence of creating further problems throughout the sector, such as the significant overcapacity in coal, wind, and solar generation. China needs better overall regulation of the planning process in order to address this issue.

• Enforcement: Government regulation of local pollutants has become increasingly tight; however, power stations frequently look for ways to avoid compliance. Stricter enforcement, including night-time inspections, has improved the situation. However, when companies are shown to be clearly in breach of their obligations, it is difficult for local governors to force plant closures given the local economic imperatives. Efforts at decentralization have exacerbated these issues.

• Best practices: China needs a way to identify best practices and implement them, which does not currently exist. Biogas is an example where incentives have existed for a long time to develop biogas policy; however, incentives have been insufficient to have it integrated to the market.

• Dispatch: SGCC and Southern Grid operate in different ways, but the majority of dispatch is conducted on a round-robin basis, spreading the load between each of the available plants. Not only is this inefficient, as it may involve several coal plants ramping up and down, but it is also not done in accordance with social concerns. The dispatcher at SGCC is determining which plants get allocated for which hours. For renewable


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resources, a round-robin approach is damaging, because if their output is forecast incorrectly, the resources do not get the run hours which are re-allocated to coal.

• Transmission capacity: One solution that SGCC has been pursuing is the development of ultra-high voltage (UHV) transmission lines to relieve the over-capacity of renewables in the northwest and transport it to eastern load centers. Recent figures show that in some areas, renewable plants run at only 15 to 20% of their capacity. This situation has developed from the very beginning when capacity was being built without any transmission capacity. The infrastructure has been trying to catch up ever since.

• Grid transparency: For power projects connected to SGCC, they are charged a very high capacity charge to get connected to the grid, approximately 30 RMB per kWh per month. This represents up to half of the power fee as a reserve charge for transmission. This type of market barrier is similar to that which existed in the United States prior to the early 1990s where vertically integrated electric utilities were unwilling to allow significant numbers of independent power producers to be interconnected. This changed when US federal law allowed the creation of “Exempt Wholesale Generators” under the Energy Policy Act of 1992 to sell power into wholesale power markets.

• Business in the power sector: For market leaders, it is easy to do business in China,

because China is interested in moving up the value chain in terms of the power sector. Companies must learn to effectively navigate the sometimes confusing regulatory system outlined above. Companies like Envision, Goldwind and GE are hit by the overcapacity in the renewables sector, and in 2016, the renewable sector will become increasingly competitive. There may be more opportunities in gas, due to strict environmental policies in eastern urban areas. Currently, the share of gas in the generation mix is 5.8%, conservatively projected to reach 10% by 2020. At the same time, coal will drop from 68% to 64%. While this may be a relatively small change for coal, it represents a relatively large opportunity for gas and renewables. There is also room for expansion in decentralized combined heat and power generation (DCHP). The nuclear market may be slowing, partly due to the slowdown and partly due to public concern. Even with the slowdown, China is expected to invest up to about US $6 billion in the power sector by 2020, based on existing targets. This suggests that there should be significant opportunities for the private sector.

• Lack of sufficient incentives: Companies engaging in retrofit technology (i.e., de-NOx equipment) can only profit up to the point that companies need to comply with government regulation of such pollutants or to the level that is enforced. There are no additional incentives beyond that.

• Electricity prices: In April 2016, the State Council issued its Document No. 9 on power sector reform encouraging direct contracts between generators and large consumers; however, a realistic understanding of price-setting and costs for the transmission network is still absent. Currently the parties involved are gaming each other to a mutual advantage, but the result is sub-optimal pricing. There is a pilot program in Shenzhen to liberalize, or restructure, energy pricing and more fully understand the costs; however, it will take


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further significant effort to achieve a more transparent process nationwide. Most stakeholders in the power sector expect the reform process to take up to a decade. SGCC charges three different tiered rates, but this is not reflected in the prices paid to generators. Plants are designed for peak loads, but they are unable to charge peak prices to the grid. This discourages rational investment in power plants.

• Management of SOEs: SOE grid managers and power companies are typically high-level officials within the party and government structure, making them as powerful as regulators. Recently, the government has been moving managers around. For example, managers from the five big generation companies have been moved to SGCC in hopes diversifying interests and perspectives involved in planning for the power sector. This will be pushed further in March 2017, during the major meeting of the China’s Communist Party. Overall, things are moving in the right direction.

• Microgrids: Changes, including introducing reserve capacity charges which are much lower than the standard demand charge, are being experimented with in order to facilitate microgrid development. While the main grid acts as a backup, microgrids, likewise, could be used as backup for the grid if a dispatching center needs it. Microgrids should help facilitate the localized utilization of renewable energy with energy “generated locally and absorbed locally.” This is an alternative approach to massive investment in long-distance transmission capacity, and renewable energy penetration could reach 100% if designed well. Integrated storage technology could provide continuous backup as well. China Southern Grid is currently working with Eaton on a microgrid project as China is hoping to draw on international experience to leapfrog to a new generation of technology. An additional benefit for microgrids is increased resilience for energy security reasons or for areas prone to natural disasters. It seems that Chinese banks are quite interested in investing in these projects.

• Energy storage: Significant resources are being put into research for energy storage. Until recently, very little had been done in this regard, but this is now changing. Pumped hydro storage is now being developed very quickly in the southwest. SGCC has a research institute which is very actively pursuing the study of energy storage and leveraging its cooperation with US experts and companies. The NEA renewable energy department is also doing much work on studying how to facilitate high levels of renewable generation penetration together with storage capacity.

• Auctions: The Shenzhen power sector reforms involve a bidding system. Some companies are complaining; however, because the bid prices are too low and causing financial losses. This raises a question about whether the system will be able to support additional capacity where it is required to if the system is expanded.

• Carbon markets: The big generation companies are working to manage their assets to allow for carbon credits earned for lower emissions sources, such as gas, which might allow them to continue to operate coal plants otherwise deemed unviable. This could limit the impact on emissions overall. Also, the lack of a fully open market, along with a reliable verification system, makes it difficult to promote carbon trading. SOEs are


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pushing for a Chinese verification system standard, rather than an international one which may complicate things given the lack of availability of a current reliable model. In fact, China’s carbon trading markets may be seen by the world as more in showing that China is working toward emissions reductions. In fact, given the lower demand for coal alone, China may meet its peaking target much earlier than expected, perhaps by 2021 instead of 2030. In this case, the carbon markets will merely be a signal to the world of China’s efforts.

• Environmental tax: The Ministry of Environmental Protection (MEP) will soon release a new law on environmental tax which could prove to be a game changer in terms of reducing industrial emissions and providing a real price signal. This law will help address China’s coal consumption, 40% of which comes from industrial boilers. As the MEP has no jurisdiction over the power sector, it will not be covered by the new law.

• Engagement: In relation to energy, there is much more political space for discussion with people outside of the government system, including foreigners. The Chinese government needs to learn from as many stakeholders as possible due to the scale of the challenges facing energy.

• Nuclear: China had previously been extremely ambitious in its plans for nuclear power capacity with massive new build envisioned to power large parts of the Chinese economy. However, the Chinese have found that the existing infrastructure is inadequate to support these plans, and the eventual level of nuclear buildout will be much lower than planned.

China Energy Net Consulting Co., Ltd (China 5e) Background: China Energy Net Consulting Co., Ltd. (China5e) is an independent information and consulting company specializing in energy and related industries. In 1999, China5e’s parent company, Falcon Group (Falcon), was founded in Beijing by a group of Chinese professionals educated in the US and Europe. The company was actively involved with Chinese and international partners, developing projects in the chemical, oil and power industries, as well as in clean energy and the financial markets. Falcon’s key partners and associates brought together extensive and diversified experience in engineering, industrial management, marketing, financial management, consulting services, trading, and government affairs. The company built strong relations with key central and local government authorities and with major businesses in China and abroad. These relations enabled Falcon to provide exclusive contacts and effective consulting services to its international clients and partners. In 2000, Falcon established an energy information company, China5e, which has since become the major energy information website and an independent content provider in China. China5e is wholly-owned by Falcon Group Investment Company and retains some of the original senior management. The company operates as an independent entity, reporting to its Falcon shareholders on an annual basis.


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China5e includes, within its circle of advisors, former senior-level members of the central government, and is considered by many Chinese and US observers to be a key advisor to the State Council, the chief administrative authority of the People’s Republic of China. China5e has been a prominent advisor on energy policy oriented toward market reform. Discussion:

• US-China cooperation: Energy cooperation is a highlight of the China-US relationship. The two countries are at different stages of development, but in energy, there are obvious common interests. Both governments are willing to establish cooperation and partnership in this area and are building on dialogue which has existed for many years. Cooperation has included people-to-people exchange between the relevant agencies. This has facilitated the coordinated development of the energy policies of both countries, as well as of the rest of the world. The US has much valuable experience and practice in modern energy technology and governance from which China can learn. Recently, there has been in-depth communication with US DOE and the US Ambassador to China. Last year saw the Clean Coal Industries Forum (CCIF) in Montana. In recent years, the US and China have released three joint presidential statements on climate change. At the upcoming G20 meeting, they will promote cooperation in new energy, energy efficiency, emissions reduction, and the effectiveness of contacts between the two countries. China has the most rapidly growing energy market and is promoting energy sector reform. The US is a major contributor to new energy technology and has many advantages providing the foundation for further in-depth cooperation.

• Power sector reform: China launched a major effort aimed at power sector reform in March 2015, with the State Council issuing its “Document No. 9” on the subject. The main objective of this push is to make electricity a competitive market. Working from the current situation in relation to the transmission and distribution system, China wants to reform supervision mechanisms and liberalize pricing at the two end points, as well as provide more stringent control of the mid-point (the grid) in the power system. In the eight months since the reforms were launched, six supplementary documents have been released in order to elaborate the policy. The NEA and NDRC have also released implementation rules. These documents have enunciated the government’s plans for reforms to pricing of electricity distribution and market entry for new providers.

• Pilot areas: Currently, several regions already have been approved as comprehensive pilot regions for reforms. In August 2016, a notice was issued specifying that by January 2017, all provinces (except for Tibet), must have completed a review of progress. Each province will submit three to five pilot areas for liberalization of electricity sales. Currently, there are over 100 pilot sites. This is providing good momentum to leverage private investment.

• Increased competition: By July 2016, there were 880 power selling companies registered, concentrated in Guangdong, Shandong, and Hebei. In less than two months, an additional 300 companies were registered. In Guangdong alone, over 50 companies


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were newly established. In the Southern Grid region, between March and August 2016, six rounds of competitive bidding were conducted, with 12 billion kWh traded. Successful transactions represented 70% of total demand. The transaction prices have seen a decreasing trend.

• Challenges to power sector reform: Reform will quickly move from the macro to the micro level, and reforms will address distributed energy. In terms of the pilots, the government aims to identify the most outstanding achievements and challenges to date to improve the reform process going forward. At the same time, capacity needs to be built as many areas are not prepared to forecast fluctuations in electricity prices and the impacts that such fluctuations might have. With liberalization, the government needs to consider how it can ensure the process moves along as smoothly as possible without being held up by local protectionism. Some areas of China reject cleaner energy and imported energy which tends to hamper the national reform efforts. While the challenge of renewable integration is difficult, there needs to be an open mind in order to find flexible ways to integrate it into the grid. During this process, the government will also be conscious of the end-user experience. Generators need to become more user-friendly. Distributors and associated stakeholders should also participate in this process to ensure renewable energy is integrated.

• Oil and gas: The upstream oil and gas sectors is not liberalized, with pipelines belonging to PetroChina and liquefied natural gas (LNG) terminals belonging to the three major gas producers. Downstream there is more competition, but there are still quotas for natural gas. Natural gas and oil reform have been promoted by NDRC. Restrictions will be loosened; however, reform will not happen quickly as originally expected. In 2016, the Chinese government’s energy sector work plans stated it would release and promote opinions on deepening reform of the oil and gas sector, including upstream exploration, imports, and processing. Mid-stream separation of the oil and gas network, including pipelines, is a priority. Ensuring downstream liberalization of the pricing system remains important.

• Challenges to oil and gas reform: In 2016, the government released guidelines for regulation and monitoring of distribution. The aim is to open the upstream and mid-stream oil and gas sectors to more participants. However, there are debates around mining rights and control of the pipeline network. Mining is currently controlled by the major SOEs. The government is considering how it can further promote the retreat of the major SOEs and transfer market share to other participants. For the pipeline network, key questions are being contemplated, including the following: should it be independent; should new companies be established; should they be separated from the oil companies; and how pricing should be reformed.

• Natural gas: Similar questions are being asked about natural gas prices and how market-oriented reform can be done. The government has established a national trading hub in Shanghai, but it is still small. Key questions include how to expand this market and whether the natural gas price should be based on thermal value.


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• Climate change: The Chinese government is currently coming to terms with the potential impact the COP21 Paris Agreement will have on China’s energy sector in both the short term and the long term. The outcome of the agreement was within China’s expectation. In recent years, China has promoted a binding agreement for all countries. Paris is therefore considered by China to be a great success and beyond expectation. In recent years, China has made significant efforts in reducing its impact on climate change, including efforts it made at the Copenhagen Climate Change Conference (COP15) in 2009. Chinese experts have different opinions on appropriate targets. Some say that the 2-degree target is very difficult to achieve. However, with significant achievements in recent years in shale gas development, energy savings technology and clean energy expansion, much progress has been made. China currently has an overcapacity of clean energy.

• Successful diplomacy: With the success of the Paris Agreement, the government’s efforts to focus on climate change in recent years are seen to have paid off. China has accepted the 2-degree target, and through continued, step-by-step policy implementation, the government believes that it can play its part in meeting that global goal. China believes that the Paris Agreement sets a good example for international treaties, allowing every country to make a voluntary target according to its domestic needs in the context of a global goal. Compulsory targets are avoided, leading to a more encouraging diplomatic atmosphere. The Chinese government was very active in the negotiation of the agreement, and it is now working towards implementation.

• Clean energy: Without large scale development of clean energy, the Chinese government would not be able to make such a commitment as it did at COP21. The Paris Agreement influenced the Chinese energy sector. The expert community has taken note that energy transformation is an inevitable process. Completely shifting from fossil fuels to renewables must happen in the next 50 to 100 years, even for those areas currently heavily reliant on coal, as many experts now acknowledge that coal is an exhaustible resource and must be phased out.

• Societal support: In the past, the government pushed ahead and made policies on energy efficiency and renewable energy. Experts and the public were skeptical about whether China’s national conditions, with regard to development and energy requirements, would allow it to make such a transition. Now, however, there is a united front between the government, experts, industry and the public, who are equally aware of the importance of this process.

• Co-benefits: In the Paris Agreement, important mechanisms exist that encourage renewable energy. This fits well with the new approach to China’s development, as it helps to solve both air pollution and CO2 emissions at the same time. This has been set as a priority national strategy for the government. Even the Chinese Communist Party (CCP) has taken this as a major principle for judging government leaders’ responsibility. If leaders do not take actions to protect the environment, they will lose their positions.


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• Energy transition: The climate change efforts are also seen in air and water pollution prevention and energy sector transformation. Before the Paris Agreement, PRC President Xi Jinping had already announced that China would promote an energy transition strategy. While the government is implementing this transition, it will pay close attention to the requirements of the Paris Agreement (i.e. in relation to GHG reduction, energy saving). In this context, the agreement has helped China to focus its energy policies on a low-carbon pathway, and at the same time, it has helped speed up the energy transition. At the same time, China’s SOEs will benefit from the innovation and technology that will be needed for this process to succeed. The high level of commitment that the central government has given to these reforms means that other bodies will not contravene the measures.

• Increased role for the market: In the past, policy was made through a top-down approach, with the central government instructing development priorities to the provinces. Now, there are two parallel approaches, both government-led and bottom-up, with subject matter experts (SMEs) and market-based approaches being encouraged, and with government increasingly taking a hands-off approach. Supply and demand of energy have undergone fundamental changes.

• The Clean Energy Technology Assessment and Dissemination (TAD) Platform: The TAD platform is an initiative by the Beijing Energy Club (BEC), with the assistance of the Asian Development Bank (ADB), which has developed a methodology for clean energy technology assessment. For a given technology, the assessment system evaluates the technology along with the following four dimensions: (1) technology attractiveness; (2) market potential; (3) regulatory and policy environment; and (4) health, safety and environment. The assessment system also evaluates the future prospect of the technology and the risks and uncertainties related to its applications. Its mission is to deploy the industrial expertise of the BEC's membership and reputation, to effectively connect technologies between the Chinese and global markets, to add value to technology owners, users and potential investors, and to accelerate Chinese and global energy transition and innovation. The TAD helps with financing, including loans for clean energy development. Many energy companies may not be aware of the latest technology, and owners or inventors of technology do not have the time to mobilize financial resources. This platform can help steer the technology in the direction of energy companies. It also helps to address market barriers. For example, if a technology company from the European Union (EU) wants to enter the Chinese market, it might face significant obstacles which might be the same for Chinese technology companies wishing to go global. The TAD makes use of channels to venture capital and has a strategy with the ADB to help technology owners obtain larger loans from the ADB, investors, and banks. The key is to deal with the risks of new technology. The TAD assembles high level experts to conduct risk assessment. In December 2016, the BEC will organize several workshops on energy storage and power-pricing related topics.

• Regulatory lessons: In the US, there are several independent system operators and numerous state regulators. This could be pertinent to China which could learn from the US regulatory model. The US also provides several models for how renewable portfolio


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standards (RPS) and emissions trading schemes (ETS) can work in parallel. For RPS, the state commission is typically responsible for the implementation of the standard, and if the utility does not meet the target, the commission will penalize or fine them. In China, there is no statute or law to address utilities refusing to connect renewables to the grid. With a threshold system similar to the US, China might be better able to guarantee the balance of renewables and other energies.

• Summary: Although the government structure is very different, China and the US share similarities in the challenges facing their energy sectors. In terms of technology and energy reform, much can be shared and exchanged between the two countries.

State Grid Corporation of China

Background: As the world’s largest utility, State Grid Corporation of China (SGCC), ranking second on the Fortune Global 500 in 2016, serves a population of over 1.1 billion people in 26 provinces accounting for nearly 88% of the national territory. In 2015, the annual electricity sales reached 3,450 terawatt hours (TWh). SGCC’s core business is transmission planning and construction. It has a very large AC-DC power grid and has experienced no major blackouts in the past thirty years. SGCC is moving toward a “strong and smart grid” to cut greenhouse gas emissions, address climate change, reduce dependence on fossil fuels, and build a safe, economic, clean and efficient system. By the end of 2015, the total installed generation capacity in China reached 1,507 gigawatts (GW), ranking first in the world. Thermal power accounts for 66%; hydropower accounts for 21%; wind power accounts for 8%; nuclear power accounts for 2%; and solar power accounts for 3%. On July 29, 2016, the peak load of the SGCC system reached a historical peak of 861.7GW. SGCC has assets of US $480 billion, and an annual revenue of US $320 billion, transmission lines measuring over 890,000 kilometers (km) (over 110 kV), and a transforming capacity of 3,610 gigavolt-ampere (GVA). Discussion:

• US-China cooperation: China and the US are addressing climate change together. The two countries are the world’s largest energy consumers. Fuel switching and promotion of clean energy are important to both countries.

• Integration of wind power: By the end of June 2016, the installed capacity of integrated wind power in SGCC reached 124 gigawatts (GW), ranking first in the world. The installed wind power grew by 65% annually from 2006 to 2015. In 2015, SGCC’s wind power generation reached 166 terawatt hours (TWh). From 2006 to 2015, the wind power generation grew by 66% annually.

• Integration of photo-voltaic (PV) power: By the end of June 2016, the installed capacity of integrated solar power in SGCC reached 60.51 GW, with a year-on-year


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increase of 97%. In 2015, the solar power generation in SGCC reached 37.7 TWh, with a year-on-year increase of 66.8%.

• Forecast: By 2020, SGCC expects that the total installed generation capacity in China will reach 2,075 GW, involving a generation mix of 59% thermal power, 19% hydropower, 12% wind power, 7% solar power, and 3% nuclear power.

• Wind Projects: To develop in excess of 100 GW of additional wind power by 2020, there are 9 large-scale wind power projects under construction. There are projects in Xinjiang, Gansu, west and east of Inner Mongolia, west and east Hebei, Shandong, Jiangsu, and the northeast.

• Overcoming distance: It is difficult to accommodate large wind and PV power locally within the northern regions due to the low load level. SGCC therefore considers it imperative to further construct inter-regional ultra-high voltage (UHV) transmission lines which can be the back bone for transmitting renewable power to load centers in the East. From SGCC’s perspective, UHV has four key advantages: (1) large transmission capacity’ (2) long transmission distance; (3) low line loss; and (4) limited land occupation.

• UHV Technologies: Since 2004, SGCC has achieved many breakthroughs in UHV technologies, theories, standards, equipment, construction and operation. China has constructed 4 UHV alternating current (AC) projects and 6 UHV direct current (DC) projects. The transmission capacity of ±800 kV UHV DC projects has increased from 6,400 MW to 8,000 MW. Four of the AC projects and four of the DC projects have already been put into operation, and all have maintained safe and stable operation. Three further AC projects and six UHV DC projects are under construction. The transmission capacity of UHV AC can reach 4 GW, with a transmission distance of over 500 km. The transmission capacity of UHV DC can reach 8-10 GW, with transmission distance of 1,000 to 2,700 km. China is also constructing UHV transmission lines overseas, including in Brazil.

History of China’s power sector reform • Phase I (1949 to late 1980s): During this period, the power sector was directly

controlled by the government, highly concentrated due to the planned economy, and characterized by a severe lack of power. After 1949, the power sector was managed by both the central and local governments. At the large district level, North China and Northeast China Electric Power Bureaus were established, acting as the subsidiaries of the central power administrative department. In 1958, electric bureaus were set up by province. Power administrative bureaus of different provinces and autonomous regions were established. At the city level, urban and suburban branch bureaus were established.

• Phase II (early 1990s to 2002): During this period, multiple entities were investing in

the power sector, and enterprises were separated from the government. To solve the problems of inadequate funding and power shortage, the State Council began the process of power reform and development in 1987, which separated enterprises from


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administration, gave substance to the provincial companies, interconnected grids, unified dispatching, and collectively invested in the power sector. The reform incentivized the central and local governments, as well as enterprises, individuals, and foreign companies investing in the power sector, creating a situation of multiple-investment sources. In 1988, the Ministry of Electric Power was eliminated, and the State Power Corporation was established, beginning a new mode of independent and corporate operation.

• Phase III (2002 to 2014): This more recent period saw the separation of generation from the grid system, bidding for access to the grid, and moving toward a more adequate balance of power demand and supply. The State Council’s Document No. 5 set the framework for the separation of generation from the grid system, released the constraints on power investment, and established a power market. The former State Power Corporation was restructured and separated into generation and grid companies, including two grid companies (e.g., SGCC and China Southern Power Corporation); and five generation companies (e.g., Huaneng Group, Datang Corporation, China Power Investment Corporation, Guodian Corporation, and Huadian Corporation).

• Current phase (2015-ongoing): On March 15, 2015, the CPC Central Committee issued Document No.9 marking the beginning of a new round of power industry restructuring. Reform priorities include: establishing a market mechanism with an open, coordinated, orderly and competitive power market system; and giving full acknowledgement of the key role the market plays in resource allocation. Specifically, this will involve: lifting price controls in competitive sectors, excluding transmission and distribution, in an orderly way; opening power distribution and sales to social capital; lifting controls on generation and consumption plans, except those for public welfare and adjustment purposes; ensuring independent and standard operation of power trading centers; enhanced planning; enhancing government regulation; improving power supply reliability; and ensuring safe and stable power grid operation.

• Reform progress: The NDRC has approved pilot projects for comprehensive power sector reforms in four provinces, and it is planning for additional future pilots in twelve provinces. At the end of 2014, the NDRC approved the pilot project plan for the Shenzhen transmission and distribution tariff reform and the 2015 to 2017 tariffs. In 2015, provincial-level tariff reform pilot projects were launched in six provinces. The NDRC officially included twelve provinces and North China Grid in the 2016 transmission and distribution pricing reform pilot projects. The NDRC issued plans for power sale-side reform pilots in four provinces, and it reviewed plans for reforms in the Fujian and Heilongjiang province. On March 1, 2016, Power Exchange Centers were established in Beijing and Guangzhou, which set up twenty-four provincial power exchange centers with successful market transactions.

• Current pricing: Tariffs are currently set independently of SGCC according to a formula which accounts for costs and a reasonable level of profit. SGCC conducts a three-year forecast (currently for 2015 to 2017), which includes the investment that should be expected, and a profit margin is added to the prices charged. Tariffs are calculated by province.


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• Government imperative: The US delegation asked the SGCC whether they are in favor

of the current reforms, given that the company holds 90% of the market share. SGCC’s response was that this is a government policy, and as an SOE, they are bound to implement it. In addition, transparency will enhance the performance of the whole market which will benefit all players, SGCC included.

Qingdao/Haiyang

The delegation visited Qingdao and Haiyang in Shandong province. Shandong is on the east coast of China, north of Shanghai. In Qingdao, the delegation heard from Westinghouse Electric Company about the AP1000 technology currently being deployed Haiyang nuclear power plant which is under construction. The delegation also made a site visit to the Haiyang Unit 2 plant, hosted by the State Power Investment Corporation, the owners of the plant.

Westinghouse Electric Company Background: The AP1000 nuclear power plant is a two-loop pressurized water reactor (PWR) that uses a simplified, innovative and effective approach to safety. With a gross power rating of 3,415 megawatt thermal (MWt) and a nominal net electrical output of 1,110 megawatt electric (MWe), the AP1000 reactor, with a 157-fuel-assembly core, is ideal for new baseload generation. Simplification was a major design objective of the AP1000 plant. Simplifications in overall safety systems, normal operating systems, the control room, construction techniques, and instrumentation and control systems provide a plant that is easier and less expensive to build, operate and maintain. Plant simplifications yield fewer components, cables, and seismic building volume, all of which contribute to considerable savings in capital investment and lower operation and maintenance costs. At the same time, the safety margins for the AP1000 plant have been increased dramatically over currently operating plants. The AP1000 pressurized water reactor (PWR) is comprised of components that incorporate many design improvements distilled from fifty years of experience successfully operating nuclear power plants. The reactor vessel internals, steam generator, fuel, and pressurizer designs are improved versions of those found in currently operating Westinghouse-designed PWRs. The reactor coolant pumps are canned-motor pumps, the type used in many other industrial applications where reliability and long life are paramount requirements. Shandong Nuclear Power Company is currently constructing two AP1000 units at Haiyang, Shandong province, close to the major port city of Qingdao. Discussion:

• China market: The nuclear market in China is large. In addition to the large number of sites that are already slated for nuclear power projects, more will likely be added. At the same time, a post-Fukushima “hold” was placed on new nuclear development, especially inland sites. In Haiyang, Westinghouse has set up a joint venture, and in Shanghai,


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Westinghouse has a wholly-owned foreign enterprise (WOFE) set up to service nuclear instrumentation and control (I&C) system components, and they are looking to expand their services. Westinghouse also has an engineering team stationed in China, and most local hires may be moved to Shanghai to support this work. In the US, Westinghouse provides many services, including services addressing power outages. The company is looking to gain the same market share in China. For nuclear plants, it aims to sell China at least another ten units, but much of the component construction is now localized.

• Value proposition: There are three value propositions to the AP1000: (1) proven technology and innovative passive safety systems - passive safety replaces mechanical and electrical systems and harnesses natural forces like gravity, convection and condensation to achieve safe shutdown; (2) delivery certainty - standard design, experience from current projects and modular construction enable “Nth of a Kind” delivery performance; and (3) regulatory certainty - reviewed by multiple countries. The first Generation III+ reactor is expected to receive design certification from the U.S. Nuclear Regulatory Commission (NRC).

• China projects: Initial projects in China involve two units at Sanmen, Zhejiang province, and two units at Haiyang, Shandong province. There are plans for significant expansion in China with potential projects at multiple places around the country.

• Haiyang: The Haiyang Unit 2 plant, which the delegation visited, involves a partnership with the Shandong Nuclear Power Company (SDNPC), a subsidiary of the State Power Investment Corporation (SPIC), established for the Haiyang AP1000 project by the Chinese government.

• Technology transfer: Westinghouse has strong confidence and commitment to China’s nuclear energy industry through technology transfer. The company has worked to ensure its technology is adequately protected, through a licensing agreement of about twenty years, and it thinks it has successfully worked through intellectual property issues. Under the agreement, China is allowed to build as many of the AP1000 units in China as the country desires, but it is not allowed to export the technology. On the AP1000 projects, Westinghouse does not hold back on any of the technology components, and it remains confident that royalties will continue to be received. Also, by the time that China has put its AP1000 units into operation, Westinghouse plans to have Generation IV nuclear technology available.

• Current Status: The Haiyang project is currently running about 1 month behind the Sanmen project. The current delay in schedule (about 15 months), was due to the Chinese government instructing the project it needed to slow down after the Fukushima incident. Unit 1 has completed a Cold Hydro Test, and the next step is a Hot Functional Test (HFT). The plant is now in the final stages of testing and proving the satisfactory design and construction of these first AP1000 systems. The successful completion of Westinghouse’s testing program (e.g., HFT, Initial Fuel Load, Power Escalation) is a final quality verification that the plant’s safety features will perform as required to protect the safety and health of the public during the sixty-year life of the plant. A delay in the


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project timeline could create additional pressure to meet the schedule. Safety and quality, however, cannot be compromised.

• Lessons learned: The AP1000 is a process of constant improvement, with over 15,000 lessons learned in China so far. For example, relating to containment vessel bottom head fabrication, Haiyang Unit 1 took 25% less time than Sanmen Unit 1. Lessons learned will be transferred between both the US and China. AP1000 units are being constructed in the US in the States of Georgia (Vogtle plants) and South Carolina (Sumner plants). At Sanmen, the equipment installation team and the manager are very well respected by the local counterparts, helping with the facilitation of information exchange.

• Adding value: Creating a value chain will support Westinghouse. France is a good example. Nearly 40 years ago, Westinghouse built plants in France and sold the technology. Now, 80% of the French market is nuclear, and EDF is now Westinghouse’s single largest utility customer, more than any US customer.

• Spent fuel: All nuclear sites are required to have on-site treatment facilities, not including spent fuels. However, spent fuels will be stored on-site until an alternative location is identified. Dry-cast storage is also being considered.

• Safety: The design of the AP1000 ensures that in an extreme event, such as a tsunami, there are enough batteries and passive safety systems installed to get the plant through a crisis. After Fukushima, the government required redesigns, including truck-driven pumped water sources and auxiliary power sources. Site storage capacity also needed to be increased considerably.

Shandong Nuclear Power Company, subsidiary of State Power Investment Corporation (SPIC) Background: SPIC is one of China’s three nuclear power generator operators and owners. It is one of the top five state-owned generators, has 140,000 employees, and holds assets worth over US $120 billion. SPIC has thermal, hydro, nuclear, solar and wind assets, as well as related businesses including railways, coal, aluminum and heating. SPIC has generation capacity of 110 GW, and about 40% of its capacity is clean energy. SPIC has eight thermal power units of 1,000 MW capacity, and forty-five 600 MW units. The company has about 140 hydropower plants. SPIC’s installed capacity of solar is the largest in the world, at 5,100 MW. SPIC is a newly created company established through the merger of China Power Investment Corporation and State Nuclear Power Technology Corporation (SNPTC), strengthening the company’s nuclear power capacity. The company was first involved in nuclear power development in the 1970s. SDNPC is a subsidiary of SPIC, and it is the owner of the Haiyang plant, responsible for construction and operation of the project. SDNPC has six shareholders, with SNPTC as the largest with 65%. Discussion:


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• US-China cooperation: The Haiyang nuclear project is using Westinghouse technology, demonstrating positive cooperation between China and the US. China is currently building four AP1000 units. The Haiyang managers have cooperation and exchange with the plants being constructed in the US and the US nuclear associations. SNPTC is also partnering with Westinghouse to explore third-party overseas markets.

• Future development: On the east coast of China, almost every province now has nuclear power stations. SPIC has a goal to have 58 GW of nuclear power capacity in operation and 30 GW under construction by 2020. The Haiyang AP1000 project plans to involve six units, with room for an additional two.

• Safety: The most significant features of the AP1000 include its passive safety systems and accident prevention measures. After the Fukushima incident, Westinghouse conducted a stress test on the AP1000 and found that it would be safe under the same conditions.

• Learning by doing: Given that the Haiyang and Sanmen nuclear power plants are the first of their kind, some problems have been encountered in terms of engineering and equipment fabrication.

• Timeline: Based on the current schedule, Unit One will be put on line in 2017, and there will be a gap of approximately ten months between Unit One and Unit Two coming online. This is about a 30-month delay compared to the contract schedule. From a global perspective, all first-of-a-kind technologies are delayed. However, a feature of the AP1000 is its modular construction which may allow for a shortened construction timeline. They hope to reduce the construction timeframe to fifty months from fifty-six months; however, there are several preconditions required to achieve this, including procurement and pre-manufacturing of equipment. This has been assessed as achievable by Westinghouse. Most of the milestones set for the construction process have been achieved, and the production transition plan has been 86% completed. They are now preparing for construction of the next two units.

• Cost: The financing mechanism is not the same as in the US. The shell company shall have 20% of the capital, while 80% will be financed from banks and other sources of finance. For Haiyang Unit 1 and Unit 2 (Phase 1), the initial budget was RMB 40 billion, but this may change depending on macroeconomic situations (e.g. changes exchange rates and interest rates). The contract signed between the Chinese and Westinghouse provided for a period of fifty-six months from initial construction to commercial operation of Phase 1. Given the delay to date, they forecast that there will be about a 20% increase in costs. For upcoming units, these cost overruns will also be a concern for the management. It is hoped that they can be close to the original budget for Phase 1.

• Adequate demand: Despite the current overcapacity in the Chinese power sector, the two units at Haiyang are necessary for the Shandong grid. The majority of Shandong power is from thermal power. There is no hydro capacity and minimal wind and solar power capacity. Annual GDP growth in Shandong is about 7%, and growth in electricity


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demand is about 3%. Due to pollution concerns, it is unlikely that further coal capacity will be approved for Shandong. In addition, older units may not be able to meet new emissions standards which will lead to them being closed down. In addition, the Shandong grid is currently a net importer of electricity from neighboring provinces. Nuclear power is also classified as clean energy by the government, together with hydro, wind, and solar. For all of these reasons, there should be adequate demand for the power generated at Haiyang.

• Pricing: Another outstanding question relates to the price of the electricity. SDNPC hopes that the price will reflect the cost of production plus a reasonable profit, to the satisfaction of various stakeholders. SDNPC is currently in discussions with government on this issue. In China, there are several prices for electricity, including the coal power-grid connection price, which serves as the benchmark price and differs by province. It may fluctuate according to the price of coal. In recent years, the NEA has also published a base price for nuclear power, which is RMB 0.43 per kWh. Therefore, if construction costs are controlled to below that level, power can be sold at RMB 0.43 per kWh and generate profit. There are also some favorable government policies offered for first-of-a-kind units such as Haiyang and Sanmen, and the price offered may actually be higher than RMB 0.43 per kWh. In China, there is a definition of the internal rate of return (IRR) for projects, and for energy projects, this rate is usually 9%. However, this may be hard to achieve for Haiyang.

• Waste management: Based on the current design of Haiyang, the spent fuel in the pool can be stored on site for up to ten years. After this, the pool will be full, and the spent fuel will be transported to a designated site for disposal or storage. Within the electricity price breakdown, there is an amount dedicated to dealing with the handling of spent fuel. The disposal of spent fuel is a national issue, because it involves the handling of nuclear material. National authorities should address this issue in a coordinated way. China is aware that US companies are studying new ways to approach spent fuel disposal, and it is interested in that work. To date, however, SDNPC has not devoted much attention to this issues. Some efforts have been made by national authorities to look at opportunities for spent fuel re-processing.

Shanghai The delegation visited Shanghai for two days. It is one of the most populous cities in the world with over 21 million urban residents. A major administrative, shipping, and trading town, Shanghai grew in importance in the 19th century due to trade, recognition of its favorable port location, and economic potential. In Shanghai, the delegation participated in meetings with the following organizations: (1) SAIC Motor Corporation; (2) Huaneng Group; (3) representatives of China’s pilot emissions trading platforms, as part of the “2016 Green Carbon Development Summit;” and (4) the Independent Power Producers Forum, Shanghai Chapter. They also had a site visit to the Shanghai Waigaoqiao No. 3 power plant, owned by Forest Power and Energy.


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SAIC Motor Corporation Ltd. Background: SAIC Motor Corporation Limited (SAIC Motors) is the largest automobile company in China. SAIC Motor's business covers the research, production, and vehicle sales of both passenger cars and commercial vehicles. It also covers components including engines, gearboxes, powertrains, chassis, interiors and exteriors, miscellaneous electronic components, logistics, vehicle telematics, second-hand vehicle transactions, and auto finance services. SAIC has two wholly-owned subsidiaries set up to develop the electric vehicle (EV) market together with renewable-powered charging stations: (1) Shanghai AnYo Energy Efficiency Technology Company; and (2) Shanghai SAIC AnYo Charging Technology Company. Discussion:

• Business profile: AnYo’s photovoltaic (PV) construction business has experienced significant growth in recent years and has a large number of company patents and ”High Technology Certificates,” a designation whereby high-tech companies can receive favorable treatment in terms of taxation, grants, and other. AnYo has also won a number of awards for their cutting-edge technology. The two subsidiary companies, working together, have developed a complementary model for EV vehicles and EV charging facilities powered by solar PV.

• Different charging facilities: There are two main kinds of business relating to charging facilities: (1) facilities at public places such as shopping malls, government facilities and transport hubs; and (2) specific customers, such as rental vehicles. AC and DC charging facilities are for different customers. AC is for smaller vehicles, while DC is for larger vehicles such as buses.

• Standardization: In China, charging infrastructure is standardized, according to rules set by the government. In principle, the outlet and protocol are all the same. This means that different types of EVs can use the same charging station. This is different from the situation in the US.

• Integrated model: The energy comes from PV technology, and while the vehicles are charging, the PV panels are shading the vehicle, and in the winter, protecting it from hazards such as hail.

• Current status: There is a waiting list for the new SAIC EV car model, with 30,000 orders already placed prior to construction. Delivery will take until next year. In 2015, the facilities produced about 95 million GWh. Now, it plans to extend to other cities beyond Shanghai. In the future, there may be export opportunities, and SAIC is communicating with the US company ChargePoint. SAIC also cooperates with universities, as well as having its own research and development team.


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• Charging stations: In Shanghai, the plan was to have 4,000 charging stations built by 2016, but there are now 4,400 already in place. Among these, 1,000 were invested in by SAIC AnYo. This year, AnYo plans to expand the network into other cities, targeting those areas where SAIC has manufacturing facilities and where there is a strong market. The cost of a charging station, including construction, is about RMB 6,000. Solar panels are purchased from outside the company through a bidding process. Many charging stations are fitted with banks of used car batteries for storage capacity, but not all of them.

• Subsidies: There are subsidies available to customers for charging, which vary by city, of up to 30% of the cost of a recharge. Shanghai has designed a set of subsidies, but has not yet executed it. The central government is considering repealing subsidies for EVs as the subsidy is already decreasing each year. However, as facilities increase, customers will be willing to use EVs. As long as the price for EVs remains one-half up to one-third of the oil price, consumers will be willing to use EVs.

• Connection to grid: SGCC has to buy the extra solar PV electricity generation from AnYo charging facilities, but this typically accounts for only 1 to 2% of the amount generated, because most of the electricity will be consumed on site. At night, 100% of the power is purchased from the grid. During the day when there is inadequate supply, backup is also provided by SGCC.

• Other policies: By 2017, the central government has determined it will reduce EV subsidies, but they are encouraging EV production through other means, including through allocation of carbon emission quotas to manufacturers. If EV manufacturers produce more EVs than required, they may get credits. If they do not, they may need to buy credits. It will be based on a percentage of manufactured vehicles. The same applies to imports. Also, licensing is limited for conventional vehicles; however, EVs are favored. Customers may be incentivized to buy EVs in order to get licensed.

• Adequate charging facilities: There are not strong incentives for installation of charging facilities in established areas as property managers have certain requirements. However, SAIC is working to get a foothold in this market. For new residences, the government may require 100% of places to have facilities, and 10% of parking spaces to be for EVs. Residential compounds may have requirements for installed capacity with low voltage capacity.

• Customer pricing for EV charging: Each company charges differently. This year SAIC’s price is nearly zero. In 2017, SAIC will begin charging its customers, but they still aim to be the lowest-cost provider in Shanghai. The motivation for SAIC is different from pure charging companies, as they aim to promote Shanghai-brand cars and make money from manufacturing.

• Responsibility: In the US, there is a debate about whose responsibility charging infrastructure should be (i.e., the manufacturer, the grid companies, or a third party). In China, it seems that it has been settled in favor of the manufacturer; however, in the future China may need to consider whether smart grid development may make it more


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important to integrate charging with the grid in order to use EVs effectively as a battery. SGCC has its own charging facility companies and it plans to provide facilities along inter-city transport routes, while manufacturers will provide them in the city.

Huaneng Group’s Shidongkou Power Station Background: China Huaneng Group (CHNG or Huaneng) is one of China’s five large generation company (GenCo) SOEs. With registered capital of 20 billion Yuan, the company is mainly engaged in the following: development, investment, construction, operation and management of power sources; production and sale of power and heat; development, investment, construction, production, and sale of businesses and products related to finance, energy transportation, renewable energy, and environmental protection; and industrial investment, operation and management. Phase 1 of CHNG’s Shidongkou power plant is a supercritical unit, and it has been operational for nearly twenty years. By the end of 2015, it had a total power generation of about one billion kWh. Phase 2 of the project involved 2 × 660 MW ultra-supercritical coal-fired units. The project was jointly constructed by Huaneng Power and Shanghai Shenergy. Since 2010, Phase 2 has had a carbon capture and storage (CCS) demonstration project in operation which focuses on coal-fired power plant pre- and post-combustion capture. More than 100,000 tons per acre (t/a) of CO2 can be captured annually with a purity of over 99.5%, meeting food-grade CO2 product regulations for beverage usage after a refining system processes the captured CO2. Discussion:

• The facility: The Shidongkou plant has made a significant contribution to Shanghai’s economic and social development over its lifecycle. The plant is located in the northeast corner of Shanghai, at the outlet of the Yangtze River estuary. Water and land transport are both very convenient, and a fifty thousand-ton ocean-going vessel can flow into the Yangtze River and the docks of the power plant. Reducing pollution and improving the quality of the environment are national policy priorities within China's modernization process, and are a key part of Huaneng’s strategy to achieve sustainable development. As the plant is located in Shanghai, a large modern city, environmental protection is an even higher priority. There is about 7,500 tons of CO2 storage capacity on site. The company has been in touch with an Italian company in relation to transport of the CO2, but it is costly.

• Environmental performance: The plant also achieves high performance in terms of environmental parameters. Shanghai has strict regulations, and Huaneng enforces strict measures for dust, flu gas emissions, and water treatment. Shidongkou measures at less than 35 parts per million (ppm) for SO2 emissions, and less than 50 ppm for NOX emissions.


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• CO2 capture: Phase 2 of the Shidongkou project takes emissions reductions further with a CO2 capture facility with capacity up to 120,000 tons per year, or 99.997% of the gas produced. It is currently the world's largest thermal power de-carbonization unit and an early leader in China. It has been designated as a key demonstration project by the United Nations, and there has been international exchange, including with the US EPA which has visited the plant.

• Future prospects: There is not much room for further development because the emphasis from the national level is on renewable energy rather than coal. China is developing UHV transmission lines. Due to this, power generated from hydropower can now be dispatched to China’s eastern region. Generation at Shidongkou has been reduced to 30% of the plant’s capacity.

• Market opportunities: The captured CO2 is being sold for food and beverage use and welding. Scaling depends on the industry situation and societal demands. The company faces difficulty in terms of the retail sale of the product they produce. In terms of carbon storage, they rely on support from the government in order to pursue this work.

• Economics: For production of one ton of CO2, three tons of steam is required. The CO2 capture process costs roughly 400 RMB per ton, including material consumption, human resources, and energy production. The total cost of the facility was about 120 million RMB. To address environmental concerns, it requires significant investment. However, the plant cannot currently break even financially.

2016 Green Carbon Development Summit

Background: The 2016 Green Carbon Development Summit was held in the Shanghai Lingang Songjiang Science and Technology City, organized by the Shanghai Energy and Environment Exchange. The Summit was an opportunity for in-depth exchange between US and Chinese regulators, in the context of the implementation of the Paris Agreement and the establishment of China’s carbon markets. The Summit involved a range of experts, government leaders, and representatives from emissions trading centers around China. The following regional or local pilot carbon emissions trading organizations were represented: Shanghai Environment & Energy Exchange; Tianjin Climate Exchange; Guangzhou China Emissions Exchange; Sichuan United Environment Exchange; China Beijing Environment Exchange; Haixin Equity Exchange (Fujian), Ltd.; China Hubei Emission Exchange; and Chongqing Carbon Emissions Trading Center. Discussion:

• “Greening” China’s development: Green and low-carbon development is not only an international requirement for China, but it is also imperative for the success of China’s industrial transformation. The Chinese government plans to spare no effort in the


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development of a “beautiful new China” through efforts including the creation of carbon markets.

• Pilot Emission Trading Systems (ETSs): Over the past several years, China has covered the major emitting industries with emissions trading in seven key regions around China including Beijing, Shanghai, Tianjin, Shenzhen, Chongqing, Guangdong, and Hubei. Together, the pilots issued about 1.2 billion tons of CO2 credits and covered over 50% of emissions in those regions. In June and July of each year, the pilots conduct a compliance period during which companies must submit their performance report together with the audit by a third-party verification agency. In 2016, five out of the seven pilots reached almost 100% compliance. All pilots allow offset credits, called Chinese Certified Emission Reductions (CCERs), to be used for compliance in line with NDRC regulations released in December 2014. As of June 2015, the total volume of emissions allowances traded reached more than 70 million tons of CO2.

• National scheme: The Chinese government has announced that a national carbon market will start in 2017. This will be a nationwide integrated market rather than separate, local markets. Eighteen industries, which include the heaviest emitters, will be covered by the national scheme. NDRC has already released monitoring guidelines for several of the industries, and capacity building for the non-pilot regions is currently being undertaken. By the end of 2016, NDRC will issue draft allocation guidelines and allocation amounts for covered companies. There is also a process underway to establish a legal basis for the ETS.

• Allocation: NDRC has already issued preliminary allocation guidelines, and currently there is an ongoing process to arrive at an initial allocation of allowances. Individual company allocation data will be confidential; however, the overall data by city, province and other locale has already been published. There are two approaches: (1) free allocation; and (2) auctioning. The cap will be based on emissions intensity rather than an absolute amount. The baselines for free allocation will involve both grandfathering and benchmarking methodologies; but, wherever possible, the latter will be used.

• Carbon finance: On August 21, 2016, several departments of the Chinese government jointly released guidelines on the regulation of carbon financial products. This document regulates the use of carbon forwards, securities, and other derivatives within the carbon market. Research will also be conducted into the use of carbon futures.

• Baselines: Companies are required to report their historical data to NDRC in order for accurate baselines to be developed. Much attention is being paid to the reliability of the data, as NDRC is aware of the importance of accuracy for the integrity of the system.

• Monitoring, reporting, and verification (MRV): A comprehensive and systematic MRV system will be in place to enforce the outcomes. Independent third-party agencies will be responsible for auditing and verifying the performance of companies and then reporting to NDRC. Experience from the pilot schemes show that this system can be


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effective. The government will also conduct its own checks of the data to ensure its reliability.

Independent Power Producers Forum (IPPF)

Background: See description above for the Beijing IPPF lunch. Discussion: The Independent Power Producers Forum, Shanghai Chapter, hosted a dinner for the delegation. The event allowed the delegation members to interact with a range of Shanghai-based power sector professionals, including from the following companies: Miaoli Wind Company (Taiwan); Anderson & Anderson LLP; JunHe LLP; Shanghai Treasure Carbon; New Energy Environmental Protection Technology Co.; Crystal Visions Limited; Goolun Capital; ACN Worldwide Inc.; and the Political Risk Analysis and Research Centre. Shanghai Waigaoqiao No. 3 power plant

Background: The Shanghai Waigaoqiao No. 3 power plant is an ultra-supercritical coal power plant, with 2 X 1000 MW units. It was commissioned in 2005 and finished construction in 2008. The plant is owned by Forest Power and Energy Holdings. Discussion:

• The facility: Commissioned in 2005, this plant incorporated cutting edge technology and continues to be at the forefront of efficiency in terms of coal power worldwide. It had a designed efficiency of 43%, but it has increased the amount to 46.5% most recently due to improvements.

• World-leading: In China, for plants of the same scale, only the recently constructed Taizhou plant in Jiangsu has a comparable efficiency of 46%, but it uses a double-heating process, whereas Waigaoqiao uses a single-reheating process. Approximately 43% is normal for single-reheat technology, but Waigaoqiao has reached 46.5%. Other countries claim to have the world’s highest efficiency plant, including Japan and the Netherlands, however Waigaoqiao’ s sister project which is currently being constructed in Pingshan, Anhui, will be completed in three years, and will be the most efficient to date. In Europe, there are double-heat plants with design efficiency of 47%. Pingshan will reach 49.8%, due to Forest’s patented technology.

• Clean coal: Coal power technology is getting increasingly clean, but the definition of what is clean is a moving target. In 2015, this plant’s CO2 emissions was 745 grams per kWh, or 7.45 million tons per year. This is about 10 to 20% higher than a comparable sized natural gas plant. Pingshan’s CO2 emissions will be 635 grams per kWh. For typical


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plants in China, averaging approximately 600 MW of capacity), the average emissions is 823.5 grams CO2 per kWh. The Waigaoqiao plant has improved performance by about 10%. The US Environmental Protection Agency (EPA) now requires new coal power plants to have CO2 emissions of 636 grams per kWh. Anything above this level requires carbon capture storage (CCS) facilities. The Pingshan plant will be lower than this standard, without the use of CCS.

• Cost: A total of US $1.27 billion investment was made in the plant as a whole, including retrofitting. This converts to about US $634 per kW installed capacity, or US 2.25 cents per kWh. The investment will be earned back in two years of operation. There is an additional 15% cost above the cost to build an average plant, in order to achieve the Pingshan level of efficiency.

• Dispatch: In 2015, the plant ran at 4,750 hours utilization, due to overcapacity on the system. This is actually high for a coal plant in this region, as others have been operating at even lower rates, averaging approximately 4,000 hours. This plant does receive priority due to its efficiency, which implies very low levels for other competing plants.

• Retrofits: Forest Power is also working to sell its technology to other companies, through retrofitting. The Tongshan project is the first to demonstrate Forest’s work outside their group. The capital cost for a retrofit project is US $44 million (compared to US $24 million for carbon capture).

Ordos

Ordos is known for its lavish government projects, including the new Ordos City, a large city with abundant infrastructure, seldom used by residents and frequently described as a "ghost city."

The delegation attended the US-China Clean Coal Industry Forum (CCIF) for two days in Ordos, Inner Mongolia. In conjunction with the forum, the delegation made two site visits to the Shenhua Direct Coal Liquefaction Plant CO2 Capture and Storage Project and the Guodian Bulian-Chahasu Coal-Electricity Integrated Project.

US-China Clean Coal Industry Forum (CCIF)

Background: The US-China Clean Coal Industry Forum was jointly organized by the Chinese National Energy Administration (NEA) and the U.S. Department of Energy (DOE), in Ordos, Inner Mongolia. The theme of the meeting was to realize the clean development of coal resources. Discussion: Fang Junshi, Director General, Coal Department of the National Energy Administration (NEA)


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• Changing energy structure: China’s energy mix is currently changing fast and supply and demand balance is changing. Climate change is now also a high priority. China is an emerging country and wants to enjoy sustainable development, encourage low-carbon development renewable energy, and cleaner use of coal. China has been promoting the transformation of the energy sector. Non-fossil energy now accounts for over 11% of energy consumption.

• The role of coal: China last year consumed about 3.7 billion tons of coal, by far the largest single consumer worldwide. Coal is a big part of China’s energy security, and this sector has contributed to the sustained development of China in recent decades. The period from 2000 to 2012 saw very fast economic development, and each year coal consumption increased by about 200 million tons. This rapid and large increase was unique in the world.

• Energy sector reforms: With China’s economic new normal, development is slowing down and the energy mix is changing dramatically. There is large overcapacity, and the government needs to work hard to return the sector to a situation more accurately reflecting supply and demand. Current coal demand must be reformed, and the market needs to play a key role. Given the overcapacity, small mines will need to close, especially those with poor geography and low-quality output. This will improve productivity and optimize the layout of the industry. However, it may also exacerbate poor social conditions in some areas, and this work needs to be undertaken in an orderly manner.

• Further growth in coal: The price of coal has recovered a bit from the low point, and some companies can now operate while making profits. Energy consumption will grow, and coal is currently the most stable and reliable energy option. China is not yet at its peak coal consumption, and coal will remain important for a long time, both internationally and domestically. According to the International Energy Administration (IEA), global coal demand will eventually reach 9 billion tons. Therefore, development of coal should be clean and efficient to ensure sustainability.

• Government policy: The government has introduced a range of policies and action plans for governing air quality, coal quality management, and overcapacity reduction. China hopes it can reduce the impact of energy on ecology as much as possible, improving the environment for China and the world.

• 13th Five Year Plan: For the 13th FYP period, China plans to promote the efficient use of coal, and this will be coordinated nationally in cooperation with partners. The coal sector must become more concentrated, safe, efficient, and green. Companies must be guided in producing and processing coal, cutting emissions at the source, finding technology for water conservation and coal methane reduction. Changing management of coal areas has made them examples of social and economic development. China can make better use of coal residue and enjoy a recycling economy.


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• Coal Bed Methane: Improved policies and support for coal bed methane (CBM) are being developed. Mining and methane resources can be developed together in a scientific way.

• Upgrading coal performance: In important economic areas, the government is replacing low-quality coal with higher-quality coal in power stations and industrial boilers. It is also regulating the development of highly efficient coal power, improved plants, and improved standards for coal in steal smelting and other metals processing. New technology, including gasification, methanol and coal to olefins (MTO), and others, are being deployed, and research and demonstrations are being encouraged. Centers for cooperation on research and development are being established, focusing on improving the usage rate of coal and standards for commercial coal. Through all these efforts, the government hopes that economic development and environmental protection can go hand in hand.

• CCS: Carbon capture and sequestration (CCS) is an important tool to reduce GHG emissions from coal, and a good opportunity for US-China cooperation. Last year’s forum in Montana was productive. This year’s forum in Ordos provides another good opportunity to further this cooperation.

Doug Hollett, Principal Deputy Assistant Secretary, U.S. Department of Energy

• US-China alignment: There is a strong alignment of interests and values in the topics of this forum. Coal will continue to be a cornerstone of our energy systems locally and globally. Even with low cost natural gas, and rapid growth of renewable energy. We all need to make our energy systems cleaner, more efficient, and in line with the Paris Agreement as ratified by China and the US. Both countries are moving towards a low-carbon economy.

• Innovation: The evolving energy system is complex. It involves not just energy, but also the economy and jobs. It is tied strongly with clean water and clean air. Innovation is important and it requires a strong commitment to demonstration projects and pilots to accelerate their adoption in the market place. Government shares a responsibility to promote market effectiveness for the technologies, in relation to pricing as well as financing for these options. The US and China face a challenge with regard to how to make sure innovation happens fast enough and is effective.

• CCUS: The US Energy Information Administration (EIA) projections to 2040 indicate increased energy use globally by approximately 50%. Making sure that coal growth is done responsibly is important. Use of carbon capture utilization and storage (CCUS) is important to make sure this is as cleanly as possible. All countries need to ensure there is a strong focus on reducing carbon through capture, solvents, sorbents, and phase-change technology. Injection into saline and brine aquifers must be explored while managing the risks of putting CO2 into the subsurface, which may increase seismicity.


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• Industry: In addition to the power sector, these issues are facing the industrial sector. Advanced manufacturing approaches will be necessary. There are exciting opportunities to pursue CO2 storage in the manufacturing sector.

• Related issues: Retrofits are important, not just the building of new systems. Attention must be given to emissions that come from natural gas production and generation.

• Broad cooperation: Information needs to be shared across the broader community, inclusive of all interested stakeholders, collaborating on projects, sharing data, and working together in the research community and government. This process is tied to the US-China Clean Coal Exchange.

Zhao Mingguang, Deputy Mayor of Ordos, Inner Mongolia

• Ordos: The Ordos Basin has large reserves of coal, representing a significant proportion of China’s total coal supply. It also has ten trillion reserves of natural gas. The coal is of high quality, low in ash, phosphorous and sulfur, with a high calorific value. In recent years, the Ordos coal industry has increasingly developed into a clean coal industry.

• Future development: Ordos has introduced the first production line for gasification of coal in China. There are two UHV transmission lines connected to Ordos. Clean development of coal is important for sustainable development. China wants to learn from advanced countries such as the US and improve its clean use of energy.

Li Haofeng, Deputy Director General, Coal Department of the NEA

• Coal industry: Coal will remain one of the most abundant and reliable energy sources in to the future and will maintain a large proportion of the energy consumption in China. The coal industry has been a pillar industry for China’s economy since the 1980s, especially since 2000. During the 12th FYP, much progress towards safe production and reform of the industry was achieved. Progress was made in the exploration of coal, production, and the development of large mines. The aim is to move towards larger-scale mines, and with coal produced in a centralized way. Upstream and downstream processes need to be integrated, and electricity should be combined with chemical development.

• Progress: The mortality rate has been reduced to less than 0.1 per million tons of coal. Progress has been made in innovation, especially in relation to deep wells and the conversion of coal.

• Environmental impact: The development of coal is becoming more environmentally friendly with improvements in the surrounding environment and ecology near the mines. Waste is being used in a more effective way. About 65% of residue can be recycled. Methane can also be utilized. The 12th FYP led energy companies toward the implementation of coal cleaning technology and efficiency measures. More than 90% of coal plants now use coal cleaning tech before burning coal. Energy efficiency of plants is also encouraged, with an emphasis on building ultra-supercritical plants. Great importance is given to climate change. China’s current President, Xi Jinping, has prioritized sustainable development, including through specific action plans for energy


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between 2014 and 2020, encouraging more efficient utilization and lowering the share of coal in the overall generation mix.

• International cooperation: In order to facilitate the reform of the sector, the Chinese government and SOEs have been increasing international cooperation. Agreements have been signed with the US DOE, Russia, and Australia. There is now a strong institutional framework for cooperation between China and the US. Both the US and China are large producers and consumers of coal. Strengthening and upgrading government-level dialogue will help both countries in facilitating policy exchange and training staff.

• Present situation: At present, the coal sector faces serious challenges. China is trying to control the total production of coal, regulate the production of coal mines, and increase self-discipline in order to deal with overcapacity. At the end of 2015, prices of coal were less than 400 RMB per ton and have now risen to about 500 RMB.

• Coal-to-chemicals: In the coal-to-chemical sector, demonstration projects have been established. The aim is to develop a modern coal industry to improve the conversion rate of energy. Three current projects turn coal into gas, while three other projects are converting coal to oil.

• Pulverized coal utilization: Pulverized coal use accounts for 20% use of primary energy. The government has taken measures to address this industry, including the Action Plan for Improving Air Quality, aiming to make the use of pulverized coal cleaner around Beijing and similar cities by 2017.

• 13th Five Year Plan: The 13th FYP will continue to promote reform and making coal cleaner, greener, and safer. There should be regional balance of supply and demand across the country. The scale of coal development should consider local conditions. The plan must also work to absorb the overcapacity and promote clean and efficient use of coal.

He Youguo, President, China Coal Information Institute

• Coal decline: Coal consumption has been declining in recent years as the major consuming industries, power and steel, slow down. Apart from use in the chemical sector, coal use has been declining.

• Small-scale consumption: Most coal consumption is still in use by small-scale industries. Approximately 20 to 25% of coal is burned directly for end use with low efficiency of 60 to 65%, due to poor infrastructure, leading to pollution. At the same time, much coal is burned by households for heating and cooking, more than for the construction and steel industry. Households typically have no facilities to reduce NOx and SOX. If all of these coal-burning households were replaced with natural gas burners, NOx and SOx would be cut by 97%.

• Current situation: Coal output of China accounts for half of the world total, but the efficiency of coal in China is very low, lagging behind western countries. In 2015,


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installed capacity of coal power was 960 GW, 63% of total installed capacity. Local pollutant emissions from power generation have been declining since 2011. By 2015, desulfurization for coal had a total installed capacity of 820 million GW. During the 12th FYP, sulfur emissions declined, largely due to the government’s action plan for improving the efficiency of coal power plants. There have also been significant energy efficiency efforts and much of the outdated coal power was phased out.

• 13th Five Year Plan period: The efforts at increasing efficiency will continue to 2020, by which time the amount of coal required per unit of electricity generation should be reduced from 310 grams to less than 300 grams. If plants do not meet this requirement, they will be required to close. Pollutants from power sector are expected to be reduced by 60%.

• Pulverized coal: A lot of cookers burn low-quality, pulverized coal. Clean energy can be used to reduce pulverized coal use. In some places, high efficiency stoves and higher quality coal can be used. Such methods will incur high costs. For each ton of coal, the cost will be 200 RMB or higher. One option is to provide subsidies to families to use efficient stoves and/or electric stoves. This can also help to absorb the surplus production of coal power plants. Given that the excess energy cannot currently be consumed by industry, families should be encouraged to use it.

• Boilers: Efforts are being made to increase the use of highly-efficient industrial boilers in order to cut pollution. Shenhua has a clean energy strategy, and by the end of April 2016, sixty-nine units with super-low emissions and a total capacity of 30 million kilowatts were installed. While new technologies will increase costs, it is manageable. The new technologies mean that 98% of the coal can be utilized, 28% higher than for normal boilers. The systems have a thermal efficiency of 89%, more than 20% above that of normal boilers.

Liu Zhongmin, Chinese Academy of Science Methanol to Olefin Technology and its Applications

• Olefin: Approximately 90% of production of olefin comes from oil, but China is short on oil causing China’s chemical industry to be hindered. Coal provides an alternative olefin source. Demonstration projects show that methanol-to-olefin technology could play an important role as an alternative to oil in the country’s energy strategy.

James Walker, WellDog Coalbed Methane Technology • Coalbed methane: Coalbed methane (CBM), throughout the world, has not met

forecasted expectations. However, WellDog’s fit-for-purpose CBM reservoir technology can dramatically increase CBM success. The technology platform has also been adapted to other resources, including: enhanced coalbed methane; coal mine methane/pre-drainage; shale oil and gas; enhanced oil recovery; and carbon sequestration.

Pan Jin, Shenhua Shendong Coal Group


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Coal Green Development Technology Research and Practice • Coal technology: Shenhua Shendong Coal Group is a subsidiary of Shenhua and works

to develop advanced coal technology. Their technology increases the efficiency of extraction, reduces local pollution, and utilizes methane deposits. This is particularly important in China’s west, which is a “major battlefield” for the clean usage of coal, given the severe shortage of water and fragile ecology.

John Thompson, Clean Air Task Force Using Industrial CO2 to Establish CO2 Pipeline and Storage Site Networks • CATF: The Clean Air Task Force’s (CATF’s) work seeks CO2 reductions through

enhanced oil recovery (EOR) and saline storage from carbon capture and storage (CCS). The premise of CATF’s approach is that coordinated use of CCS “hubs” will enable deep CO2 reductions in the short term. However, even with this coordinated strategy, CCS faces challenges in terms of both economics and technical issues. There is often still an economic gap even with low-cost industrial CO2, especially with today’s low oil prices. Projects must overcome risks to become the first EOR projects in new basins.

Meng Shangzhi, China United Coalbed Methane Corporation (CUCBM) CO2 injection in a multi-lateral horizontal well: Results from a field trial • Horizontal wells: The Commonwealth Scientific and Industrial Research Organization

(CSIRO), Australia’s public science research and development agency, together with CUCBM, a wholly-owned subsidiary of China National Offshore Oil Corporation (CNOOC), carried out an enhanced coalbed methane (ECBM) field trial in Shanxi province under the Asia Pacific Partnership Program on Clean Energy and Climate. The trial involved CO2 injection into a horizontal well for six months. New technology makes this process easier. This is the world’s first CO2 injection in a horizontal coal seam well. Existing knowledge is rare making it challenging. China and Australia collaborated closely to produce good results. Japanese experts also collaborated. Reservoir simulation results, although preliminary, showed that CO2 permeability decreased near the wellbore over part of the well due to coal swelling. However, due to the coarse grid used, the permeability decrease may be under-estimated. The complexity of the multi-lateral well behavior during CO2 injection will need to be better modeled to match the flow and pressure results.

Jiao Zunsheng, University of Wyoming Integrated Energy Development Strategy for Energy Rich Regions – Lessons Learned from the Powder River Basin, Wyoming • Lessons Learned: Using a case study of the Powder River Basin in Wyoming, the

researchers identified a range of energy strategies that could be integrated to create a sustainable energy sector. They key lesson learned was that problems for one energy process could be monetized for other energy process. The research noted that the Ordos Basin shares the same six key components for an integrated energy strategy, namely: (1) coal mining with large reserves; (2) substantial sources of water (CBM water and displaced water from CCS); (3) coal-to-chemical plants capable of capturing CO2 (mine mouth location); (4) CO2 storage site nearby (depleted compartmentalized gas fields);


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(5) depleted oil fields suitable for enhanced oil recovery (significant stranded oil); and (6) ultimate CO2 storage in depleted gas and oil fields and saline aquifers.

Wen Shengming, PetroChina Coalbed Methane Company Coalbed Methane Development & Utilization in the east of Ordos Basin • Coalbed methane: PetroChina is a major supplier of CBM in China and is now

experiencing healthy development utilizing CBM in the East Ordos Basin. PetroChina’s operations are aiming to make effective use of CBM while maximizing coal mine safety and preventing any harm to the environment given that methane is a powerful greenhouse gas. The East Ordos basin project has bright prospects for CBM.

Peter Balash, US DOE Coal Systems, Post-Paris • Biomass: Given the worldwide growth in fossil fuels, emission reduction requires

carbon capture and storage (CCS). Biomass generation is also a key part of the solution. Various biomass technologies are currently available, and incremental GHG benefits exist as potential alternatives to fossil fuels.

Feng Zhiwu, Yangquan Coal Industry Group Progress of R-GAS Gasification Technology Industrial Demonstration Project • Gasification: Yangquan Coal Industry Group, the Gas Technology Institute (GTI), and

East China Engineering Science and Technology Co., Ltd. are cooperating to develop an advanced entrained flow gasification technology in order to solve the gasification challenge of pulverized coal with high ash fusion temperature. The demonstration plant will be built at the Taiyuan New Chemical Material Company. The three partners will begin to develop a 3,000 ton/day (TPD) gasifier after the 800 TPD gasifier is successfully put in to operation.

Liu Kunlei, University of Kentucky Application of Chemical Looping to Solid Fuel Combustion for Electricity Generation • Chemical looping: Research at the University of Kentucky focuses on the application of

chemical looping to solid fuel combustion for electricity generation. Outcomes and deliverables of the project include: a database of information regarding the deactivation and chemical/mechanical stability of proposed oxygen carriers (OCs); fuel flexibility of selected OCs toward coals from China and US; understanding of the fate of coal impurities with appropriate pollutant control strategies; and a validated computational fluid dynamics (CFD) model based on the fundamentals and small-scale.

Shang Jianxuan, Shaanxi Chemical Industry Institute Coal, green, and high efficiency mining & coal clean conversion by quality classification • Mining and clean coal conversion: Established in 2004 to develop coal and coal

chemicals, the Shaanxi Chemical Industry Institute works on innovation projects in relation to efficient mining practices and clean coal conversion. The institute considers mining should be as green and efficient as possible. Different regions feature different conditions, and the industry should design and use the coal in a sensitive way, make use of modern technology, and consider the life cycle process and impacts. As an industry


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research institute, the lab combines research and production, and sets up demonstration projects for clean coal technologies, some of which can be put into large-scale commercial use.

Shaughn Burnison, University of North Dakota The Plains CO2 Reduction Partnership: Carbon Management through the Development of Technologies for CCS Deployment • PCOR: The Energy and Environmental Research Center (EERC) is a leading developer

of cleaner, more efficient energy technologies to guarantee clean, more reliable energy supplies. One of the center’s biggest efforts has been the Plains CO2 Reduction Partnership Program (PCOR). PCOR is one of seven regional partnerships sponsored by the DOE’s National Energy Technology Laboratory’s Regional Carbon Sequestration Partnership Program. PCOR is comprised of nine states and four Canadian Provinces in the central interior of North America, which is rich in natural resources, including coal, oil, and gas and represents an opportunity to deploy CCUS technologies. Since 2003, when PCOR began, many CCUS pilots and demonstration projects have been deployed in the region. Two current efforts are the Denbury-operated Bell Creek CO2 EOR project and the SaskPower and Petroleum Technology Research Center-operated Aquistore project. Through the EERC’s efforts in PCOR, many lessons have been learned which have helped to inform DOE’s best practices manuals.

Ren Xiangkun, Beijing Sanju Environmental Protection and New Material Co. Latest Development of Clean Coal Technology in China • Clean coal technology: The Chinese government’s current and future plans for the

development of clean coal include: highly-efficient power generation; clean coal conversion; pollution control; and CCUS. There is a similar energy structure between the US and China, with coal as a major generation source and a high external dependence on oil. Both countries are responsible for driving the world’s development of energy resource, economy, and environmental protection. The clean coal field is an area where the US and China have broad prospects for cooperation. The two countries should learn from the mutual experience and lessons coming from clean coal development. Beijing Sanju Environmental Protection Company provides catalysts, purification agents, process technology, engineering services, capital, operation and management of integrated services for coal chemicals, and petrochemical enterprises.

Yu Zewei – International CCS Knowledge Centre Canada’s Experiences of full chain CCUS: SaskPower Boundary Dam Project • Boundary Dam: SaskPower has a CO2 capture plant in Canada. There was a US $20

million investment in setting up the CCS center. Boundary Dam had to install new lines to transmit the electricity. This facility captures both CO2 and SO2. The plant has seen up to a 90% reduction in greenhouse gases. Captured CO2 is used for EOR, and dust is sold to oil companies. After CO2 is captured, it is pressurized, further purified, and can be used as a major ingredient in food. It can also be injected underground. This is perhaps the most expensive carbon capture project in the world. Through international partnership, costs can be reduced, and SaskPower believes costs can be reduced by up to 30% for the next plant, which may be even less expensive if built in China.


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Zhong Tan, Albemarle Gaseous Mercury Sequestration for Coal-fired Power Plants and Cement Plants • Mercury: Albemarle works on the management of mercury in coal power and cement

plants. Typically, techniques used for mercury control in thermal processes are designed to drive it to an oxidized form. Bromine is a common oxidizer used for this purpose. Albemarle’s products have been widely used to reduce the mercury emissions for both coal fired power plants and cement plants. Albemarle would like to provide technical service and cooperate with Chinese partners to control mercury emission in China. The combination of bromide addition and an activated carbon injection (ACI) system could reduce the cost of mercury control for coal-fired power plants, as well as reduce the potential pollution due to the transference of mercury from the gas phase to the less leachable solid phase. Due to the difference of mercury behavior in cement used in power plants, different strategies should be considered.

Yan Fuxin, Datong Coal Mine Group Inevitable Choice: Developing Circular Economy to Realize Clean Coal Development • Clean coal development: Datong is the largest coal and generation company in Shanxi.

Despite the recent slowdown, the company has been doing well. Datong is working to promote a sustainable development mentality within the industry in Shanxi, as well as insightful and effective planning and management. They also aim to make the most of new technologies, based on the conditions of different regions.

Yang Xiaoliang, World Resources Institute CO2 building blocks – Assessing CO2 Utilization Options • WRI report: WRI is a global research organization that works at the nexus of

environment, economic opportunity, and human well-being. WRI produced a recent report, requested by DOE Secretary Energy Moniz aiming to: (1) assess opportunities to advance commercial markets for CO2 from coal-based power generation; and (2) focus on profit-generating opportunities for CO2 utilization, both for EOR and for non-EOR applications. Key findings included: (1) the primary economic opportunity for the US associated with commercial-scale CCUS deployment remains geologic storage associated with energy production; and (2) the economic incentive potential of all other pathways (to include all non-geologic options) is largely unquantifiable based on publicly-available data. Moreover, such options face a host of known technical, economic, and policy hurdles.

Jiang Jiansheng – Yitai Group Integrated Clean CTL technology of Yitai Group • Coal liquification: Yitai Group focuses on coal production and rail transport with coal

liquefaction and power generation as a supplementary business. In 2000, Yitai entered the coal liquefaction industry. In 2009, it built a 160,000 t/a indirect coal liquefaction plant, the first of its kind in China, as an industrial demonstration project. The plant has been running safely and stably for seven years, during which for four years the capacity exceeded the designed capacity. Overall, the project sets a model for the coal liquefaction industry and offers an approach for sustainable and clean use of coal in China.


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Wei Kincheiu, LP Amina BenePlus Technology Overview • BenePlus: At a conventional power plant, coal is directly oxidized to produce steam and

electricity. LP Amina’s BenePlus technology enables existing power plants to co-produce electricity, valuable chemicals, and CO2, which improves efficiency, improves economic return, and reduces carbon emissions. The technology has several international partnerships to date but none yet in China.

Don Stevenson, Gas Technology Institute (GTI) R-GAS High Ash, High AFT Test Results and Commercialization Status • Coal ash: GTI is an independent, not-for-profit organization established by the natural

gas industry. It tackles tough energy challenges turning raw technology into practical solutions, involving wellhead to the burner tip energy conversion technologies. Their technology has successfully gasified high ash (>25%) at a high ash fusion temperature (>1500°C) for anthracitic Chinese coal with >99% carbon conversion. No flux and no coal blending is needed. It is the highest-efficiency, lowest-cost entrained, flow gasifier technology, with a 15% to 30% lower cost of syngas relative to the lowest cost Chinese and Western gasifier technologies. The long-duration pilot plant testing of Chinese coal is underway in preparation for demonstration plant design activity.

Gao Ruimin, Yanchang Petroleum Yanchang Petroleum CCUS Integrated Project • Coal-to-oil: Located in the Ordos basin, Yanchang Petroleum has over 100 years of

experience in petroleum development. It is now working on coal-to-oil technology and geological sequestration. Problems identified include the fact that its coal and oil co-processing project is effective at carbon emission reduction but is not currently economically viable, and the profit for applying a CO2-EOR project in a low permeability reservoir is not significant. For this industry to thrive, more political, technical, and financial support is required from government.

Harry Haury, NuCloud Use Clean Coal Technologies and CBM in Ultra High Efficiency Power Generation and Chemical Synthesis • Biomass and syn-gas: The issue of CO2 emissions should be viewed holistically, beyond

thinking as CBM, natural gas, renewable, power, oil, or coal people. In particular, strategic biomass integration should be promoted given that: biomass derived energy is carbon neutral; char used for sequestration can range between 10% to 30% of the incoming mass and is primarily carbon, making this type of sequestration carbon negative; the mid-point intersection is syn-gas to allow current and future technologies to be easily added into the system; syn-gas can be enriched directly by the bio-gas stream, as applicable; and syn-gas can also be used for olefin and methanol production..


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Liu Jiangong, National Energy Backfilling Mining Technology Key Laboratory Ecological protective coal mining – Theory and Practice of Mineral Separation and Filling Coal Mining Integration Technology • Mining: This laboratory focuses on the development of backfilling mining technology.

Automatic filling of gangue is more effective than manual, and the cost is low, about 10 RMB per ton. If treating, it will cost 20 RMB. Filling is less expensive than treating, and it helps reduce severe land degradation due to the collapse after mining.

Susan Horovka, University of Texas Reservoir characterization in CCUS • CCUS and reservoirs: The speaker discussed the role of reservoir characterization in

CCUS. Given that most of the audience were not geologists the presentations focused on the basics, describing what reservoir characterization is, explaining the role of reservoir characterization in enhancing oil recovery, and its role in assuring efficient storage. The presentation reinforced that reservoir characterization is a key part of designing both a successful CO2 EOR project and a successful storage project

Chen Maoshan, Shenhua CCS Project Profile of Shenhua Group • Liquification: In 2007, the pre-feasibility study on Shenhua Direct Coal Liquefaction

Plant CO2 Capture and Storage Project was initiated in China and the US simultaneously. In China, the study was led by the NEA and carried out by Shenhua Group with participation from China Geological Survey. In the US, the study was led by DOE and carried out by West Virginia University (WVU), Lawrence Livermore National Laboratory, and other institutions. The key feature of Shenhua’s coal-to-liquids plant in Ordos is the direct liquefaction technology, which avoids the gasification involved in most coal-to-liquids processes. One drawback is that the product can only be used as diesel and not as petroleum or other oil products.

• CCS: CCS related technical research work is mainly supported by public funds. The whole process from project approval, land use, construction, and acceptance inspection needs the support and supervision from local authorities. Since CCS projects require involvement of multiple industries, and currently no special department is appointed to carry out management functions, all issues related to CCS projects have to be processed in stages and by disciplines as required by relevant laws and regulations which, in effect, increase the difficulty of CCS development. How to manage and support the development of CCS by local government is worth further study.

Yin Xiao, Guodian Reflection and Practice on High Efficiency Clean Coal Generation

• Clean coal technology: Due to Guodian’s efforts at reducing coal consumption, coal consumption declined in 2015, and coal use per kWh reduced to 310. Efficiency has been improved, which can be attributed to the company’s efforts on clean coal technology.


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• Coal-electricity integrated project: The delegation visited the Guodian Bulian-Chahasu Coal-Electricity Integrated Project in Ordos, commissioned in 2013, with an installed capacity of 1.35 gigawatts, and involving an investment of 786 billion RMB. It features two 660 MW Super Critical units, and utilizes 10 million tons of coal annually. So far, performance is equal to or better than design. The plant’s integrated coal mine and power plant design has led to the following key benefits: improved efficiency of auxiliary equipment; reduced investment and inputs required for the power station; simplified operation procedures; increased level of safety during production; promoted the improvement of power equipment manufacturing; and, increased reliability of equipment operation.

CCIF Summary: In summary, the NEA and DOE conveners identified the three top ideas to emerge from the forum:

• The US and China continue to be committed to work together to meet environmental and energy challenges.

• Steady progress has been made over recent years in collaboration on both technology and policies.

• China brings unique qualities to the collaboration. There is a sense of pride in China about doing work well and this challenges all to step up and do well. The scale of development in China is huge, as evidenced by the pace and scale at which infrastructure is built. This provides a unique opportunity to identify how to best scale up technology. China also has an ability to innovate very quickly, by trying new ideas and technologies, and moving on if necessary.

Challenges: The challenge is to continue to seek additional ways to work together in order to accelerate development. Participants should work to identify specific tangible projects that make the commitments of the two countries’ Presidents become a reality. This means addressing the R&D and commercialization challenges along the entire industrial chain. Therefore, both countries should work not just on theory, but also on deploying state-of-the-art technology in practice. Looking to the future, collaboration will be crucial. The US has much advanced technology, but China has a strong interest in developing quickly in the field. MAJOR MISSION ACCOMPLISHMENTS In our 2015 China Trip Report, the authors expressed four major accomplishments based on conversations and meetings with the commissioners in that delegation. They were: (1) the commissioners’ appreciation of the magnitude of China’s economy and associated challenges, (2) their awareness of and education in advances in clean coal carbon capture and utilization, (3) their exposure to the current system of power regulation and efforts to introduce market and environmentally-oriented reforms, and (4) their opportunity to explain the system of state and federal regulation of power and the benefits of markets in the United States.


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For the most part, the 2016 delegation realized the same or similar mission accomplishments. However, one major difference was that the commissioners heard unique insights into some of the dysfunctional aspects of the current system. Specifically, they learned and commented upon the inadequate planning that has resulted in an overhang of surplus energy capacity greatly exceeding demand, aggravated by the failure to develop a comprehensive approach to determining how to reconcile the dual but sometimes competing objectives of increased efficiency in energy production and use and the preservation of the delicate social fabric with the promise of continued economic growth and employment. Because of the different types of organizations this delegation met with, they were better equipped to understand and contribute to a discussion of market reforms, and offer perspectives on US-style utility regulation. As indicated in this report, while (as before) the state commissioners participated in meetings with members of the Chinese central government to discuss reforms being considered to permit market competition in the energy sector, they also met with representatives from most of the carbon emission trading pilot programs who will play an instrumental role in creating China’s national carbon emissions trading system, and with an organization (China 5e) that plays an important pro-market role in advising policy reform to the central government. In these meetings, the commissioners were able to convey the following lessons:

a. The importance of creating and adhering to a robust resource planning system to allow resource capacity to meet future demand under varying conditions. This was in response to China’s situation where current capacity of fossil-fired and renewable resources significantly exceed demand, leading to power plant dispatch decisions that are neither economic nor environmentally based.

b. The need for rule promulgation and enforcement at all levels to secure compliance with

environmental and economic targets to address the lack of adherence to central government decrees by provincial officials.

c. The need to permit renewable energy resources to be interconnected without undue delay where a need is demonstrated, as is the situation in the United States where fines are levied on the utility where a decision is not forthcoming.

d. The value of exploring different options for regional transmission and carbon emission

trading systems to integrate the best in class in a final design, a process that the United States is currently undergoing.

In essence, the commissioners shared their common experiences regarding how generation capacity is planned, constructed, and regulated under a market-oriented model designed to achieve the highest degree of efficiency, environmental benefits, and least cost to all customers. The Chinese could then utilize these experiences as they proceed to design a national system of carbon trading, accompanied by market-oriented reforms of their power sector. 3 3 See 2016 commissioners’ comments and observations are attached. Three of the five members of the delegation provided comments on their experience and takeaways from the 2016 China mission.

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RECOMMENDATIONS The 2015 Trip Report outlined five recommendations. By and large, this mission was faithful to those recommendations.4 Because this mission represents the third of its kind undertaken each of the last three years, the authors offer the following recommendations from this experience. First, if the US Department of Energy (DOE or Department) wishes to continue this mission annually or on a recurring basis, it should seek to identify a larger number of commissioners who could add value over a longer duration, potentially over multiple years. The current process is grounded on a year-to-year approach of soliciting interested and available commissioners who fit into various geographic and subject matter categories to add mission value. A multiple year approach would give the Department an opportunity to cultivate a foundation of seriously engaged commissioners much earlier, and allow the commissioners an opportunity to enhance their understanding of the topics of attention at a much earlier stage, thereby yielding greater benefits both to them and DOE. This would not be a difficult task. As this program has become better known and respected throughout the state regulatory community based on the last three years’ successful missions, a large and increasing number of state commissioners have approached the authors and asked that they be considered for a future mission. Additionally, thought should be given to inviting commissioners from the Federal Energy Regulatory Commission since many of the areas discussed fall within that agency’s expertise. Second, if a multiple year approach is adopted, it would allow the organizers (both the authors and DOE) to pre-select commissioner candidates in current and future years based not only on energy resource or technology-specific familiarity (i.e., clean coal technology from coal producing or dependent states) but also on experience and thought leadership in particular states such as those in regional organized power markets which are a major area of focus for the Chinese in moving to a market-oriented system. The same would hold true for commissioners from states currently at the vanguard or involved in restructuring or redesigning the distribution system to allow for increased penetration of distributed energy resources and microgrids.

4They 2015 recommendations were: (a) constitute another mission comprised of a five to seven member utility commissioner delegation from states that constitute coal producers, coal dependent for power, exhibit leadership in the regulatory community on energy policy, technology policy, environmental stewardship, or a combination thereof; (b) create a separate itinerary for the DOE-NEA delegation concurrent with the commissioner delegation, but have both missions slightly overlap for interactive value; (c) choose itinerary cities, and arrange meetings or field visits, that optimize opportunities for learning from the Chinese or sharing experiences with them, and balance travel demands in country with the value of exposure; (d) provide more and earlier preparatory materials for the delegation, and instruct them as to mission purpose as part of their preparation; and (e) plan for meetings with Chinese officials to be more interactive, and less dependent on presentations (from both sides).

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Third, while DOE’s Offices of Clean Coal and Carbon Management and International Affairs have supported all three missions, consideration should be given to expanding support from additional program offices of the Department. For example, two of the three missions included field visits to two of the AP1000 Westinghouse nuclear power plants being constructed in China, allowing state commissioners to witness the deployment of the same US technology that will be deployed in the States of Georgia and South Carolina. 5 For that reason, a recurring nuclear energy mission component may merit support from relevant programs or offices at DOE. Finally, while the authors firmly believe that this mission should continue based on its demonstrated merits, they remain open to reviewing the mission length. Over the last three years, the mission has lengthened in either or both the number of cities visited or in the length of days spent in country (i.e. from an original two city-ten day mission to more recent four or six city-two week mission). The length of future missions should be dictated by the value to the organizers and to the participants, and not vice versa. The organizers are open to discussion to perhaps shortening the mission length in certain years, while still incorporating bilateral meetings and field visits that have unique and demonstrated potential to advancing US interests in engaging with Chinese counterparts.

5In fact, members of the South Carolina Public Service Commission have expressed interest in a future China mission for that very reason.

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APPENDIX A

ITINERARY

SUNDAY, AUGUST 28, OR MONDAY, AUGUST 29 COMMISSIONERS DEPART UNITED STATES FOR BEIJING TUESDAY, AUGUST 30 - BEIJING ARRIVE BEIJING FROM UNITED STATES AT VARIOUS TIMES 5:00 PM US Commissioner Delegation Meeting – Mission Overview/Briefing for Final

Itinerary Location: Horizon Club at China World Hotel, 3rd Floor, Business Center Meeting Room WEDNESDAY, AUGUST 31 – BEIJING 8:30 AM US Government Limited Country Team Briefing on China Location: US Embassy Beijing, 55 An Jia Lou Rd, Chaoyang (South Gate), Bush Auditorium The Honorable Max Baucus, Ambassador of the United States to the People’s

Republic of China, will lead a political and economic overview with specific discussions of power sector and energy issues with representatives of the US Embassy political and economic sections, including US Department of Energy Beijing, and the US Foreign and Commercial Service. Additional Participants: Helena Fu, Director, US Department of Energy China Office Nicholas Carlson, Deputy Director, US Department of Energy China Office Adam Wong, Economist, US Department of Energy China Office Erwin Hoo, Embassy Staff, US Department of Energy China Office

10:00 AM Meeting with Non-Government Clean Energy Organizations Location: US Embassy Beijing, Bush Auditorium NGO Participants: Anders William Hove, Associate Director – Research, The Paulson Institute Ming Sung, Clear Air Task Force Max Dupuy, Senior Associate, The Regulatory Assistance Project Mona Yew, China Program Deputy Director, Natural Resources Defense Council

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2:00 PM Meeting with National Energy Administration Location: 38 S.Yuetan Street, Beijing China 100824 Topics:

• General overview of political, economic, and energy matters in the US and China;

• Discussion on pricing, regulation, and energy efficiency in the US and China. Participants: Department of Policies & Regulations Department of Law & Legislation Reform

3:30 PM Meeting with National Development and Reform Commission (NDRC)

Participants: Department of Resource Conservation and Environmental Protection 5:30 PM Meet with Energy Research Institute (ERI) of National Development and Reform Commission (NDRC) 6:00 PM Dinner with Energy Research Institute (ERI) THURSDAY, SEPTEMBER 1 – BEIJING 9:00 AM Meeting with Bloomberg New Energy Finance

Location: 7 Finance Street, Xicheng District, Beijing (Bloomberg offices are on the 11th floor, South side) Briefings on coal, clean coal pricing, environmental policies impact on the changing power and energy sector, carbon markets in China, and power sector reforms. 12:00 PM “Power Lunch” arranged by Independent Power Producers Forum (IPPF) Location: Beijing American Club, 28F/29F, China Resources Building, No.8, North Avenue, Jianguomen, Dongcheng Participants: Various power development and clean tech companies, consultants, accounting firms, and law firms. 3:30 PM American Chamber of Commerce US-China Energy Cooperation Program Horizon Club at China World Hotel, 3rd Floor, Business Center Meeting Room

FRIDAY, SEPTEMBER 2 – BEIJING 9:00 AM Meeting with China Energy Net Consulting Co., Ltd (China 5e)

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Location: World People's Palace Hotel, No.1 R. Zhenwumiao, Xicheng District, Beijing Participants:

Feng Liwen, CEO of China 5e Libin Zhang, General Counsel, China 5e National Energy Administration Officials (to be identified) Beijing Energy Club Members (to be identified) 12:00 PM Luncheon hosted by China 5e Location: World People's Palace Hotel 2:30 PM Meeting with State Grid Corporation of China (SGCC) & Tour of Control

Center Location: No.86, Xichang'an Avenue, Xicheng District, Beijing

Participants: Mr. Qiping Zhang, Chief Engineer

SATURDAY, SEPTEMBER 3 – TBD No Scheduled Meetings SUNDAY, SEPTEMBER 4 – BEIJING/QINGDAO Transit by Air – Beijing (PEK) – Qingdao (TAO) MONDAY, SEPTEMBER 5 – HAIYANG/QINGDAO 8:00 AM Briefing at Hotel by Westinghouse Electric Company

Participants: Jeff Lamb, Westinghouse Haiyang Site Director 10:00 AM Meeting with State Power Investment Corp. Project Presentations Site visit of Haiyang Unit 2 Nuclear Power Station TUESDAY, SEPTEMBER 6 – QINGDAO/SHANGHAI Transit by Air – Qingdao (TAO) to Shanghai (SHA) Late morning Meeting with SAIC Motor Corporation Ltd. (formerly Shanghai Automotive Investment Corp.) WEDNESDAY, SEPTEMBER 7 – SHANGHAI Meeting with Huaneng Group on Shidongkou power station carbon capture facility

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2016 Green Carbon Development Summit Sponsor: Shanghai Environment and Energy Exchange (CNEEEX) Location: Twin Towers, Songjiang Hi-tech Park 1:00 PM Climate Change and Chinese Carbon Market Development Panel: Opportunities and Challenges of Chinese Carbon Market Facilitator: LIN Hui, Chairman, Shanghai Environment and Energy Exchange (CNEEEX) Speakers: Representatives from 7 Carbon Market Pilots Programs in China 2:00 PM Bilateral meeting with representatives of Chinese Carbon Exchange Market Pilot Programs 6:00 PM “Power Dinner” on Energy Storage arranged by Independent Power Producers Forum (IPPF) Location: The House of Roosevelt, No. 27 Zhongshan Dong Yi Road (27 Bund) THURSDAY, SEPTEMBER 8 – SHANGHAI/ORDOS 10:00 AM Site Visit to Shanghai Waigaoqiao No. 3 power plant (Ultra-supercritical Coal Plant)

Participants: Dr. Peter Chen 10:00 AM Welcome and Overview 10:30 AM Tour of Plant 11:45 AM Lunch 12:30 PM Presentation of Clean Coal Technologies Transit by Air – Shanghai (PVG) – Ordos City, Inner Mongolia (DSN) FRIDAY, SEPTEMBER 9 – ORDOS Conference: US-China Clean Coal Industry Forum (CCIF) (All activities at Crowne Plaza Ordos) 9:00 AM CCIF Opening Ceremony 10:00 AM Keynote Speeches: “Meet the challenge jointly, promote clean coal utilization”

1:00 PM Commissioners’ Meeting with Leadership of US Department of Energy DOE: Douglas Hollett, Principal Deputy Assistant Secretary for Fossil Energy;

David Mohler, Deputy Assistant Secretary for Clean Coal

2:00 PM Session 1: Green and Sustainable Development of Coal Industry

Remarks by U.S. State Regulatory Utility Commissioners

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Travis Kavulla President, National Association of Regulatory Utility Commissioners and Vice Chairman, Montana Public Service Commission David Ziegner Commissioner, Indiana Utility Regulatory Commission Sherina Maye Edwards Commissioner, Illinois Commerce Commission

4:15 PM Session 2: High Efficiency Conversion and Clean Coal Utilization SATURDAY, SEPTEMBER 10 Conference: US-China Clean Coal Industry Forum (CCIF) 8:00 AM Session 3: Coal Comprehensive Utilization and Pollution Control 10:15 AM Session 4: Low Carbon Development of Coal Industry & CO2 Mitigation 12:15 PM Closing Plenary 2:40 PM Site visits of Shenhua CCS Demonstration Project and Bulian-Chahasu Coal- Electricity Integrated Project. 4:40 PM Mongolian Cultural Reception and Dinner Transit by Air – Ordos City, Inner Mongolia (DSN) -- Beijing (PEK) MONDAY, SEPTEMBER 12 DEPART CHINA FOR UNITED STATES AT VARIOUS TIMES

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APPENDIX B

DELEGATION MEMBERS

GOVERNMENT US Federal Government Douglas Hollett – Head of US/Federal Delegation (Ordos, Inner Mongolia) Principal Deputy Assistant Secretary for Fossil Energy Office of Fossil Energy U.S. Department of Energy David Mohler – Head of US/Federal Delegation (Qingdao, Haiyang) Deputy Assistant Secretary for Clean Coal and Carbon Management Office of Fossil Energy U.S. Department of Energy Jordan Kislear Director, Government Affairs and Analysis Office of Clean Coal and Carbon Management/Fossil Energy U.S. Department of Energy Joseph Giove III Director of Coal Business Operations Office of Clean Coal and Carbon Management/Fossil Energy U.S. Department of Energy US State Utility Commissioners Travis Kavulla – Head of State Delegation President, National Association of Regulatory Utility Commissioners (NARUC) Vice Chairman, Montana Public Service Commission David Ziegner Treasurer, NARUC Commissioner, Indiana Utility Regulatory Commission Elizabeth (Libby) Jacobs Co-Vice Chair, Committee on Electricity, NARUC Commissioner, Iowa Utilities Board Sherina Maye Edwards Vice Chair, Subcommittee on Education and Research, NARUC Commissioner, Illinois Commerce Commission

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Sandy Jones Commissioner, New Mexico Public Regulation Commission PRIVATE SECTOR Robert W. Gee – Managing Director, 2016 DOE China Mission President Gee Strategies Group, LLC Sheri Givens – Head, Operations & Logistics, 2016 DOE China Mission Senior Vice President Gee Strategies Group, LLC Huw Slater – Mission Rapporteur, 2016 DOE China Mission Associate Gee Strategies Group. LLC Ronnie Tian – Transportation Coordinator Asian Climate and Energy United, Ltd. River Yun Lu, DOE Consultant (Qingdao, Haiyang, and Ordos) Managing Director, River Partners

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APPENDIX C

COMMISSIONERS’ COMMENTS & OBSERVATIONS

David Ziegner Travelling to China and participating in dialogue with Chinese officials regarding China’s electric power sector and regulatory framework was an incredible educational opportunity. The shared experiences between Chinese and U.S. regulators were mutually beneficial and provided a great opportunity to gain a better understanding of energy regulation in other countries. I especially appreciated U.S. Ambassador Baucus and his staff for their excellent briefing on what to expect in discussions with the Chinese officials regarding power sector and energy issues.

Among the many things I’ve learned was that in contrast to the U.S. energy regulatory framework, national energy regulation in China can be described as in its infancy and faces resistance from the provinces who, at times, build generation from a variety of sources regardless of whether the country as a whole needs the additional resources. There is little to no economic dispatch of resources and no effective provincial or national regulation of the grid or energy markets. Officials from the national regulatory bodies in China, the National Energy Administration (NEA) and the National Development and Reform Commission (NDRC), were eager to learn about the regulatory paradigm in the United States and to describe their vision of the future of national regulation in China. The discussion was very informative and provided an opportunity for U.S. regulators to share their regulatory experiences. It was mutually beneficial when the Chinese officials shared their experiences deploying advanced technologies in generation (for example, nuclear and clean coal), coal mining, carbon capture, and carbon trading. Several site visits, including tours of a nuclear power station under construction, carbon capture facilities, an ultra-supercritical coal plant, and coal mine operations furthered our education. Prior to the trip, I envisioned China as a vast country that deployed new technology at a rapid pace. The reality was even more striking than I thought – nothing could have prepared me for China’s extraordinary size, both geographical and demographical. Also, the speed at which the Chinese are deploying new technology is astounding and much greater than I imagined. Overall, this was a very beneficial mission, and I sincerely hope the dialogue will continue, as both sides have much to offer. This opportunity was an experience that will stay with me for the rest of my professional life. Libby Jacobs It was a privilege to be part of a US team of energy officials which was afforded a hands-on experience in learning about China’s focus on clean energy. Seeing the high-tech power

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generation facilities, being informed about China’s policies on energy and the environment, and meeting many of the professionals engaged in the industry, was truly a unique opportunity. In addition, sharing success stories about the US approach to clean energy and climate issues, as well as touting the incredible use of wind energy in Iowa, was a terrific way to learn that we have many common interests. Site visits, open discussions with industry leaders, including US Ambassador Baucus and his energy team, and participation in numerous workshops, enhanced our knowledge of what is working in China today. Getting a grasp on the sheer volume of energy needed to serve such a large population took time to truly sink in. Being able to visit several cities to see first-hand how the energy demands are being met, was well worth the travel. Hearing from US business officials with a company presence in China offered another viewpoint of the economic impact of the energy industry in both China and the US. And, spending time with fellow US regulators and energy officials provided numerous opportunities to gain insights, share experiences and of course get to know each other better. Sixteen days of international travel, and we still get along says volumes about the work the trip organizers did to make this a remarkable experience! Sherina Maye Edwards The experience I had in China was like none other. Not only did we have the opportunity to learn first-hand about China's energy and regulatory climate, but we sat with China's energy leaders that ranged from the US Department of Energy's China office to the heads of power plants and clean coal facilities alike. The exposure we received on this trip has been unparalleled to any other I've received as a commissioner. We were truly immersed in the Chinese culture for two weeks and in addition to gaining a better understanding about it, we conversed, dined and learned alongside some of the most dynamic people in the industry. When I look back on this trip and think about what I took away from it, it is most definitely the education we received on China's energy market and the opportunity I had to share how we handle certain things in my state in hopes that we could both learn from each other -- and it goes without saying that we most certainly did.


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APPENDIX D

Robert W. Gee Robert W. Gee is a 35-year veteran of the energy industry. From his experience as an attorney, senior state and federal public official, and technology executive, he is an expert at the intersection of law, public policy/public affairs, technology, and finance required to comprehend the unique challenges of global and US domestic energy markets. He currently serves as President of Gee Strategies Group LLC, a Washington, D.C.-based consulting firm providing policy analysis, advocacy, and litigation support for US and foreign investors, foreign governments, trade associations, utilities, independent power companies, and public institutions, among others. A recipient of various honors and awards, he has testified before the United States Congress, and been interviewed by or provided commentary for Reuters, The Wall Street Journal, the Los Angeles Times, National Journal, BBC television, and CNBC television. His editorials have appeared in the Los Angeles Times, the Dallas Morning News, and the Houston Chronicle. He served as Vice President for Development and Partner Relations for the Electricity Innovation Institute (E2I), an affiliate of the Electric Power Research Institute (EPRI), where he advocated development of the “smart grid” to digitize the electric utility power delivery system. From 1997 to 2000 he served as Assistant Secretary for Policy and International Affairs and as Assistant Secretary for Fossil Energy of the U.S. Department of Energy in Washington, D.C. He chaired the Energy Department’s Central Asia/Caspian energy strategy, and was responsible for the timely completion of the Department's 1998 Comprehensive National Energy Strategy. He also oversaw the operation of the Strategic Petroleum Reserve, and the national research program to develop and demonstrate advanced clean coal, natural gas, and petroleum technologies. From 1991 until 1997 he served on the Public Utility Commission of Texas and as its Chairman from 1991 through 1995. During his service, he chaired the Committee on Electricity for the National Association of Regulatory Utility Commissioners. He has served as an Attorney Advisor at the Interstate Commerce Commission and as a Supervisory Trial Attorney at the Federal Energy Regulatory Commission. He held the position of General Attorney at Tenneco Oil Company, and was Of Counsel to the law firm of Akin, Gump, Strauss, Hauer & Feld. He currently serves as President of Asian Americans in Energy, the Environment, and Commerce (AE2C), and as member of the Board of the Northeast-Midwest Institute. He is also a member of the National Petroleum Council, a federal advisory committee to the US Secretary of Energy; and serves as Vice Chairman for the Washington, D.C. Region of the Committee of 100. His past affiliations included serving as a Trustee for St. Edward's University in Austin, Texas, and as a member of the Dallas Regional Panel of the President's Commission on White House Fellowships. Mr. Gee received a Bachelor of Arts Degree in government with honors from the University of Texas and a Doctor of Jurisprudence degree from the University of Texas School of Law.


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Sheri S. Givens Sheri Givens is a Senior Vice President with Gee Strategies Group, LLC based in Austin, Texas. Her professional experience includes over 15 years in legal, regulatory, legislative and external affairs, including ten years focused on the Texas electric market. Ms. Givens’ expertise centers on energy policy research and analysis relating to wholesale and retail electric markets, deregulated and regulated energy markets, customer engagement, and general consumer utility issues. She is a frequent speaker at utility industry conferences nationwide. From 2009 to 2013, Ms. Givens was twice appointed by the Texas Governor, and confirmed by the Texas Senate, to lead the Texas Office of Public Utility Counsel, the state’s utility consumer advocacy agency for residential and small business utility customers representing the state's 20 million-plus utility consumers. In that role, she managed 14 personnel on an annual budget of $1.5 million. Working with the state legislature, she effectively ensured continuation of the agency when threatened with elimination in 2011, and further, expansion of the office to an additional 7 personnel and approximately $650,000 in funding annually in 2013. She oversaw the office’s intervention and participation in both contested and non-contested matters relating to electric and communications utilities before the Texas Public Utility Commission, other regulatory agencies and courts. She also testified regularly before the Texas Legislature on consumer, energy, and agency issues. Ms. Givens was known for leading her state agency in active consumer education initiatives statewide through in-person outreach, publications, and social media during her tenure. In 2014, she received the Citation for Exceptional Service in Support of National Defense from the Association of the United States Army for her military outreach program. She was also named the 2010 Emerging Public Administration Professional of the Year by the American Society for Public Administration - CenTex Chapter. For four years, Ms. Givens served on the Electric Reliability Council of Texas (ERCOT) and Texas Reliability Entity’s Board of Directors as an ex-officio member representing residential consumers. At ERCOT, she was a member of both the Human Resources and Governance as well as the Nominating Committees. For three consecutive years, she was elected, by fellow nationwide advocates, to the Executive Committee of the National Association of State Utility Consumer Advocates (NASUCA). And, she was a member of New Mexico State University’s Center for Public Utilities’ Advisory Council and the Electric Policy and Research Institute’s Energy Efficiency/Grid Advisory Group. She currently serves as a Board Member to the Association of Women in Energy. During her fifteen years of public service, her positions have included senior advising attorney at the Public Utility Commission of Texas, assistant general counsel at the Texas Workforce Commission, and various roles in the Texas Legislature. Ms. Givens received a Bachelor of Arts Degree in government from the University of Texas and a Doctor of Jurisprudence from the University of Houston Law Center.


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