People s Republic of China: Utilization of Foreign Capital to Promote Energy Conservation and Energy- Efficient Power Generation Scheduling

Transcription

1 Technical Assistance Report Project Number: Capacity Development Technical Assistance (CDTA) December 2008 People s Republic of China: Utilization of Foreign Capital to Promote Energy Conservation and Energy- Efficient Power Generation Scheduling (Cofinanced by the Climate Change Fund) Prepared by [Author(s)] [Firm] [Address] Prepared for [Executing Agency] [Implementing Agency] The views expressed herein are those of the consultant and do not necessarily represent those of ADB s members, Board of Directors, Management, or staff, and may be preliminary in nature.

2 CURRENCY EQUIVALENTS (as of 3 December 2008) Currency Unit yuan (CNY) CNY1.00 = $ $1.00 = CNY6.905 ABBREVIATIONS ADB Asian Development Bank CGU coal-fired generation unit EA executing agency EC&PR energy conservation and pollution reduction GS&DS generation scheduling and dispatch system NDRC National Development and Reform Commission NEA National Energy Administration PRC People s Republic of China SME small and medium-sized enterprise TA technical assistance TECHNICAL ASSISTANCE CLASSIFICATION Type Capacity development technical assistance (CDTA) Targeting Classification General intervention Sector Energy Subsector Energy sector development Themes Sustainable economic growth, environmental sustainability, capacity development Subthemes Promoting economic efficiency and enabling markets; cleaner production, control of industrial pollution; institutional development NOTE In this report, "$" refers to US dollars. Vice-President C. Lawrence Greenwood, Jr., Operations 2 Director General K. Gerhaeusser, East Asia Department (EARD) Director A. Terway, Energy Division, EARD Team leader Team members K. Zheng, Senior Energy Economist, EARD X. Liu, Project Officer (Energy), PRC Resident Mission, EARD H. Yang, Energy Specialist, EARD

3 I. INTRODUCTION 1. During the Country Programming Mission in December 2007, the Government of the People s Republic of China (the Government) requested the Asian Development Bank (ADB) to provide advisory technical assistance (TA) for the utilization of foreign capital to promote energy conservation and energy-efficient power generation scheduling. The TA is included in the ADB nonlending pipeline for the People s Republic of China (PRC) for A Fact-Finding Mission from ADB visited the PRC during 5 12 October 2008 to discuss with the Government the impacts, outcomes, scope of works, key activities, cost estimates, and implementation arrangement for the TA. This report is based on the understanding reached during the mission. The TA design and monitoring framework is in Appendix 1. II. ISSUES 2. Energy Sector Development and Energy Efficiency. The PRC has Asia s largest and fastest-growing energy sector. While energy fuels economic growth and poverty reduction, inefficient energy use induces accelerated resource depletion and causes severe environmental damage. There are daunting challenges to ensuring that ongoing energy growth is both environmentally sustainable and economically desirable. With a strong political commitment towards improving energy conservation and addressing the negative impact of global climate change, the Government has articulated a clear vision as reflected in its target of quadrupling per capita gross domestic product (GDP) while only doubling energy use during This requires that the energy elasticity of GDP growth is maintained at around 0.3 over the next 12 years, i.e., the energy consumption increases at less than a third of the rate of economic growth. 3. To meet this serious challenge, the Government has made energy efficiency improvement its highest priority for the energy sector. The National Development and Reform Commission (NDRC) issued the Medium- and Long-Term Energy Conservation Plan 2 in January The 11th Five-Year Development Plan ( ) requires a mandatory 20% energy intensity reduction by 2010, which has been allocated to the provincial and municipal levels. Ten key areas for energy savings have been identified, and 1,000 enterprises with intensive energy use are now under tight supervision. Meanwhile, a series of incentives, including energy efficiency funding and financial incentives, have been adopted to stimulate energy efficiency activities. Structural adjustment, technological upgrade, improved demandside management, and decommissioning of inefficient facilities (e.g., small and old thermal power plants) have been actively pursued. 3 Barriers to energy efficiency include dissemination of information related to technology and incentives, and capacity of local government entities and officials. 4. Electricity Generation in the People's Republic of China. The PRC has been rapidly expanding its electricity generation capacities to support fast economic growth and massive urbanization. By the end of 2007, the total installed generating capacity reached 718 gigawatts, of which 556 gigawatts (77.4%) was coal fired. The high use of coal for electricity generation (about 1.4 billion tons in 2007, which is the highest in the world) leads to severe pollution and vast greenhouse gas emissions, accounting for about 40% of the country s carbon dioxide 1 The TA first appeared in the business opportunities section of ADB s website on 26 September NDRC National Medium- and Long-Term Energy Conservation Plan. Beijing. PRC. 3 However, despite the reinforced efforts by the Government and enterprises, energy intensity reduction progressed relatively slowly in 2006 (by 1.79%) and 2007 (by 3.66%), resulting in heavier challenges for the remaining years ( ) of the 11th Five-Year Development Plan period.

4 2 emission, 55% of its sulfur dioxide emission, 80% of it nitrogen oxide emission, and 23% of its particulate emission. 5. The overall efficiency of power generation is relatively low because of the large number of small and old power plants in operation; the average coal consumption for each kilowatt-hour of electricity generated was 356 grams of standard coal equivalent in 2007, which is about grams higher than in developed countries. However, the newly installed coal-fired generation units (CGUs), which constitute over half the installed capacity and are of 300 megawatt capacity or more, have state-of-the-art control systems, optimized design, and efficient auxiliaries; their power generation efficiency is comparable to international practice. A higher utilization of the modern units will significantly reduce coal consumption and pollution emissions. 6. Need to Optimize the Power Generation Scheduling and Dispatch System in the People's Republic of China. The current power generation scheduling and dispatch system (GS&DS) 4 in the PRC allows about the same utilization hours of large efficient CGUs and small inefficient CGUs, resulting in energy waste and excessive emissions. Further, the average annual utilization of CGUs was only 5,344 hours (61%) in 2007, which is considerably lower than the 90% utilization of new CGUs, implying large potential for improvement. The NDRC has launched a new energy-efficient and environmentally friendly GS&DS initiative that maximizes the use of renewable energy and ranks CGUs according to their marginal fuel uses in order to significantly reduce coal consumption and greenhouse gas emissions. The guideline for pilot implementation of the new GS&DS was approved by the State Council in August Five provinces Guangdong, Guizhou, Henan, Jiangsu, and Sichuan started testing the new GS&DS at the end of Consistency with ADB s Strategies. ADB s operational strategy aims at inclusive economic growth in an efficient, equitable, and sustainable manner. In its long-term strategic framework (Strategy 2020), 5 ADB has identified energy as a core operational sector and achieving environmental sustainability as a strategic priority. ADB has also introduced new initiatives to augment its assistance to developing member countries for acquiring low-carbon technologies and implementing energy efficiency projects. ADB s country partnership strategy for the PRC 6 has also emphasized balanced and sustainable growth with more efficient uses of resources and more stringent protection of the environment. 8. The PRC s 11th Five-Year Development Plan requires that financial assistance from international financial institutions be used for resource conservation, environmental protection, and infrastructure development. There are several provinces with satisfactory project implementation track records, but the provincial governments lack the capacity to initiate innovative energy efficiency projects for external financing and significantly improve the development impacts through adjustment and optimization of project designs. Their institutional capacity needs to be further strengthened. 4 The GS&DS ensures grid discipline (i.e., matching power generation with demand on a real-time basis); accordingly all generation units in a grid generate power under the instructions of the dispatcher. The generation schedule is based on anticipated availability of generation units and the demand forecast. Dispatch instructions are issued regularly to reduce or increase generation so that frequency of supply is 50 Hertz a measure of supply demand balance. 5 ADB Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank Manila. 6 ADB Country Partnership Strategy ( ): People s Republic of China. Manila.

5 3 III. THE TECHNICAL ASSISTANCE A. Impact and Outcome 9. The impact of the TA will be greater energy conservation and pollution reduction by the industry and power sectors. The outcome will be enhanced institutional capacity for planning, financing, and implementing measures to improve the efficiency of energy supply and use. B. Methodology and Key Activities 10. The outputs of the TA will consist of two parts: part A for energy use, and part B for energy supply. Part A will deliver the following outputs: (i) A summary report on the challenges and opportunities faced by key energyintensive areas and the potential for energy conservation and pollution control in these areas. (ii) Policy and financing mechanism recommendations (in the form of policy briefs) to implement the Government s energy efficiency strategies submitted to the NDRC. (iii) Innovative financing and implementation mechanisms and risk evaluation and management instruments for energy efficiency projects. (iv) Suggestions on practical measures to support institutions and agencies in the energy conservation market, including domestic energy service companies; banks interested in financing energy efficiency projects; and other entities providing legal, technological, and financial services for energy conservation. (v) Training programs and other national and provincial capacity-building support (including a study tour to learn and share international experience). 11. Part B will deliver the following outputs: (i) Draft guidelines and operational manuals for the new GS&DS. (ii) Analysis of the effects of the new GS&DS on power sector reform, i.e., the eventual establishment of a competitive wholesale electricity market. (iii) Performance efficiency analysis of CGUs and recommendations to promote lowcarbon power generation. (iv) Policy recommendations for wholesale electricity tariff reform and promotion of low-carbon power generation. (v) Capacity development and information sharing among national and provincial officials. C. Cost and Financing 12. The total cost of the TA is estimated to be $2,000,000 equivalent. The Government has requested ADB to finance $1,500,000 equivalent, of which $600,000 will be financed by ADB s TA funding program and $900,000 by the Climate Change Fund, all on a grant basis. The grant to be provided by the Climate Change Fund will be front-loaded at the relevant TA contract commitment level. The Government will finance the balance of the cost, equivalent to $500,000, through The views in-kind expressed contribution herein are in those the form of the of consultant office accommodation, and do not necessarily logistic represent facilities, those interpretation of ADB s services, members, and Board remuneration of Directors, Management, of counterpart or staff, staff. and The may Fact-Finding be preliminary Mission in nature. was assured by the Government that the counterpart service, facilities, and funds will be available as required according to the implementation schedule of the TA. The detailed cost estimates and financing plan are in Appendix 2.

6 4 D. Implementation Arrangements 13. The Foreign Capital Utilization Department of the NDRC will be the Executing Agency (EA) for part A, and the National Energy Administration for part B. Both EAs have already nominated staff as project management officers, who, with the support of the consultants engaged under the TA, will be responsible for implementing the TA on a day-to-day basis. 14. The TA will be implemented over 18 months from March 2009 to August The two parts of the TA will be carried out by separate teams of consultants with expertise and professional networks in related areas in the PRC, as well as knowledge and experience in (i) institutional, economic, technical, financial, and environmental analysis; (ii) impact evaluation and monitoring; and (iii) enhancement of institutional capacities. The consultants will be engaged by ADB in accordance with its Guidelines on the Use of Consultants (2007, as amended from time to time). 15. The consulting services estimated for part A are 8 person-months for four international experts (an energy efficiency specialist, an energy economist, a financial management specialist, and an environmental specialist), and a combined total of 60 person-months for 10 national consultants (three energy efficiency specialists, two energy economists, two financial management specialists, an environmental specialist, an energy service company specialist, and an institutional capacity-building specialist). A consulting firm will be engaged to implement part A using the quality (80% weighting) and cost-based (20%) selection method. The outline terms of reference for consultants for part A are in Appendix The consulting services estimated for part B are 4 person-months for two international experts and a combined total of 42 person-months for nine national consultants. Consultants required include experts in (i) GS&DS; (ii) power system control; (iii) electrical engineering; (iv) CGU performance monitoring; (v) energy economics, particularly on electricity market reform; (vi) social and environmental safeguards; and (vii) training and public information dissemination. Similar expertise is required for both international and national consultants. Considering that the EA is already implementing the pilot GS&DS, consulting services for part B are divided into two packages with different approaches for engaging consultants. Package 1 will be for output (i) and package 2 for outputs (ii) (v) of part B. Package 1 includes a GS&DS specialist, a power system control specialist, an electrical engineer, and a CGU performance monitoring specialist, totaling 20 person-months of consulting services. The national consultants will be engaged for package 1 on an individual basis due to (i) the high weight for individual s experience and qualifications, (ii) the technical expertise required on the PRC s CGU performance monitoring, (iii) the urgency of fielding consultants to summarize pilot test results, (iv) the greater individual field contribution and less support from home office, and (v) the fact that the unique nature of the pilot GS&DS allows little opportunity for replication of any international experience. The EA will coordinate the activities of national consultants under package 1. Package 2 includes two international consultants (two energy economists, totaling 4 person-months) and five national consultants (three energy economists, a safeguard specialist, and a training specialist, totaling 22 person-months). A consulting firm will be engaged for package 2 using the quality (80% weighting) and cost-based (20%) selection method. The outline terms of reference for consultants for part B are in Appendix Training, seminars, and workshops under parts A and B will be organized and conducted through consulting services. Consultants are expected to provide training materials and important topics will be highlighted during workshops and seminars. Consultants are required to

7 5 summarize seminars/workshops and training results and report to the EAs and ADB. After the training session, specific recommendations will be provided to trainees to enhance their capacity in their respective workplace. The procurement of relevant equipment under the TA ($37,000 for part A and $50,000 for part B) will be carried out in accordance with ADB s Procurement Guidelines (2007, as amended from time to time). The ownership of the equipment procured under the TA will be transferred to the relevant EA after completion of the TA. TA funds will be disbursed in line with ADB s Technical Assistance Disbursement Handbook (2008, as amended from time to time) The TA deliverables and progress reports should address relevant aspects of the terms of reference for consultants and will be prepared in English and translated into Chinese. The consultants will maintain close working relations with ADB and the EAs. Tripartite meetings among ADB staff, the EAs, and the consultants will be held periodically to provide guidance to the consultants and to review their reports. IV. THE PRESIDENT'S DECISION 19. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $1,500,000 on a grant basis to the Government of the People's Republic of China for the Utilization of Foreign Capital to Promote Energy Conservation and Energy-Efficient Power Generation Scheduling, and hereby reports this action to the Board. The views expressed herein are those of the consultant and do not necessarily represent those of ADB s members, Board of Directors, Management, or staff, and may be preliminary in nature. 7 ADB Technical Assistance Disbursement Handbook. Manila.

8 6 Appendix 1 DESIGN AND MONITORING FRAMEWORK Design Summary Impact Greater energy conservation and pollution reduction by industry and power sectors Performance Targets and/or Indicators Energy intensity is reduced by 20% by 2010 from the 2005 level Emissions from electricity generation, i.e., CO 2, SO 2, NO x, and particulates, are reduced Data Sources and/or Reporting Mechanisms China statistics yearbooks published by the PRC National Bureau of Statistics China energy statistics yearbooks Periodic reports of the China Electricity Council Assumptions and Risks Assumption The Government upholds its commitment to energy efficiency improvement, resource conservation, and environmental protection Outcome Enhanced institutional capacity for planning, financing, and implementing measures to improve efficiency of energy supply and use More energy efficiency projects are designed in three energy-intensive industries and three pilot provinces in 2010 than in 2009 Reports of the NDRC Assumption Innovative mechanisms to finance energy efficiency projects can be implemented Compared to 2008, average coal consumption per kwh of electricity generated in pilot provinces is reduced in 2009 Reports of the PRC National Energy Administration Outputs Assumptions Part A: (i) A summary report on the challenges and opportunities faced by key energy-intensive areas, and the potential for energy conservation and pollution control in these areas. (ii) Policy and financing mechanism recommendations (in the form of policy briefs) to support the Government s energy efficiency strategies submitted to NDRC. (iii) Innovative financing and implementation mechanisms and risk evaluation and management instruments for energy efficiency projects. Three preliminary energy efficiency project concept papers are developed by May 2010 Recommendations are formulated and submitted to the Government in 2009 A financing model and an implementation arrangement are structured to support new energy efficiency projects in 2009 Records of the provincial and national development and reform commissions A policy recommendation paper accepted by the Government Reports and financial models Partnerships can be enhanced with industrial associations and market participants for energy conservation. Stakeholders can actively participate in capacitybuilding activities.

9 Appendix 1 7 Design Summary (iv) Suggestions on practical measures to support institutions and agencies in the energy conservation market, including domestic ESCOs, banks interested in financing energy efficiency projects, and other entities providing legal, technological, and financial services for energy conservation. Performance Targets and/or Indicators Action plans are proposed in 2009 to assist domestic ESCOs, banks, and other entities that provide legal, technological, and financial services for energy conservation Data Sources and/or Reporting Mechanisms Records of consultations Assumptions and Risks (v) Training programs and other national and provincial capacitybuilding support (including a study tour to learn and share international experience). Three workshops are organized with 150 participants from national and provincial government agencies, and a study tour is conducted by May 2010 Records of the workshops and surveys of participants Part B: (i) Draft guidelines and operational manuals for the new GS&DS Draft guidelines and working procedures are endorsed by the Government and the pilot provinces in 2009 Reports of the National Energy Administration Reports of pilot dispatch centers (ii) Analysis of the effects of the new GS&DS on the power sector reform An analysis report and policy recommendations are submitted to the Government in 2009 An endorsement note from the National Energy Administration (iii) Performance efficiency analysis of CGUs and recommendations to promote low-carbon power generation Technical notes and policy recommendations are submitted to the Government in 2009 An endorsement note from the National Energy Administration (iv) Policy recommendations for wholesale electricity tariff reform Research reports and policy recommendations are submitted to the Government in 2009 An endorsement note from the National Energy Administration (v) Capacity development and information sharing among national and provincial officials, including training programs, workshops, and seminars Training activities are conducted and three workshops/seminars are held to disseminate the TA findings to 100 officials by May 2010 Reports on training sessions, conferences and seminars The views expressed herein are those of the consultant and do not necessarily represent those of ADB s members, Board of Directors, Management, or staff, and may be preliminary in nature.

10 8 Appendix 1 Activities with Milestones Part A: 1.1 Analyze current energy efficiency levels in three energy-intensive areas (by week 10). 1.2 Assess energy conservation potential in the three selected energy-intensive areas (by week 20). 1.3 Propose engineering solutions and conduct technical feasibilities for three pilot energy efficiency projects (by week 27). 1.4 Conduct financial analyses and risk assessment for three pilot energy efficiency projects (by week 35). 1.5 Complete three preliminary energy efficiency project concepts (by week 40). 1.6 Examine the demonstration effects of the three pilot projects (by week 50). Inputs ADB: $1,500,000 TASF: $600,000 Climate Change Fund: $900,000 Government: $500, Review the Government s strategies, policies, incentive programs, and other measures for promoting and implementing energy conservation (by week 10). 2.2 Examine policy reform options and their potential impacts (by week 20). 2.3 Summarize practical policy recommendations to facilitate implementation of national strategies on energy conservation (by week 30). 3.1 Compare different models for financing energy efficiency projects (by week 10). 3.2 Identify the main barriers and opportunities in financing energy efficiency projects (by week 20). 3.3 Establish a financial model that can simulate cash flows, evaluate investment returns, and quantify risks under different financing models for energy efficiency projects (by week 30). 4.1 Review the functionalities of the current market system for supporting energy conservation, such as the role of domestic ESCOs and the models of financial institutions in financing energy efficiency projects (by week 10). 4.2 Explore ways to facilitate development of domestic ESCOs (by week 20). 4.3 Analyze effective ways to encourage domestic banks to more actively participate in financing energy efficiency projects (by week 30). 4.4 Study pragmatic approaches to promote legal, technological, and financial services for energy conservation (by week 40). 5.1 Analyze the need to upgrade institutional capacities to develop suitable energy efficiency projects nationally and in three pilot provinces (by week 10). 5.2 Make recommendations to facilitate the project approval processes, monitor progress of projects, and ensure project outcomes and impacts (by week 20). 5.3 Explore ways to strengthen international exchange and regional cooperation on energy conservation (by week 30). 5.4 Provide training for domestic energy managers and conduct a study tour (by week 45). Part B: 6.1 Submit the draft outlines of operational manuals for the new GS&DS for the EA to review (by the end of the fourth month after TA approval). 6.2 Review related working procedures, emergency plans, regulatory standards, and international best practices; identify options to establish a new GS&DS (by the end of the seventh month after TA approval). 6.3 Conduct the first workshop (by the end of the seventh month after TA approval). 6.4 Submit the draft report to prioritize various options and a draft operational manual for the new GS&DS for the EA to review (by the end of the eighth month after TA approval). 6.5 Conduct the second workshop and collect comments from pilot provinces on the draft operational manual (by the end of the 10th month after TA approval). 6.6 Update the draft operational manual by incorporating comments from attendees of the workshop and submit the draft final report for the EA to review (by the end of the 11th month after TA approval). 6.7 Finalize the operational manual within 1 month of receiving the EA s comments (by the end of the 12th month after TA approval).

11 Appendix 1 9 Activities with Milestones 7.1 Submit the draft report summarizing the major barriers of current electricity reform and outlining possible effects of the new GS&DS (by the end of the fifth month after TA approval). 7.2 Submit the draft policy recommendations based on the analysis of the PRC s electricity sector and future development path for the EA to review (by the end of the eighth month after TA approval). 7.3 Submit the draft final report for the EA to review (by the end of the ninth month after TA approval). 7.4 Finalize the report within 1 month of receiving the EA s comments on the draft final report (by the end of the 10th month after TA approval). Inputs 8.1 Submit the draft report summarizing the efficiency status quo of the PRC s electricity generation, particularly on coal-fired power generation, and also potential barriers to next stage improvement (by the end of the fifth month after TA approval). 8.2 Conduct field investigations and data collection on the coal-fired power generation sector (by the end of the eighth month after TA approval). 8.3 Submit investigation reports and draft policy recommendations for the future improvement for the EA to review (by the end of the 10th month after TA approval). 8.4 Finalize the report within 1 month of receiving the EA s comments on the draft final report (by the end of the 10th month after TA approval). 9.1 Submit the draft recommendation report based on analysis of the PRC s electricity market and current electricity tariff mechanism (by the end of the eighth month after TA approval). 9.2 Finalize the report within 1 month of receiving the EA s comments on the draft final report (by the end of the 10th month after TA approval) Conduct a seminar on the draft policy recommendations for outputs 2, 3, and 4 (by the end of the eighth month of TA approval) Conduct the second seminar on the final policy recommendations for outputs 2, 3, and 4 (by the end of the 11th month of TA approval) Prepare training materials on the draft operational manuals (by the end of the 12th month after TA approval). ADB = Asian Development Bank, CGU = coal-fired generating unit, CO 2 = carbon dioxide, EA = executing agency, ESCO = energy service company, GS&DS = generation scheduling and dispatch system, kwh = kilowatt-hour, NDRC = National Development and Reform Commission, NO x = oxides of nitrogen, PRC = People s Republic of China, SO 2 = sulfur dioxide, TA = technical assistance, TASF = technical assistance special fund. The views expressed herein are those of the consultant and do not necessarily represent those of ADB s members, Board of Directors, Management, or staff, and may be preliminary in nature.

12 10 Appendix 2 COST ESTIMATES AND FINANCING PLAN ($ 000) Item Total Cost A. Asian Development Bank Financing for Part A a 1. Consultants a. Remuneration and Per Diem i. International Consultants ii. National Consultants b. International and Local Travel 32.0 c. Translation, Reports, and Communications Training, Seminars, and Workshops Equipment c Survey and Investigation Miscellaneous Administration and Support Costs Contingencies 40.0 Subtotal (A) B. Asian Development Bank Financing b for Part B 1. Consultants a. Remuneration and Per Diem i. International Consultants 80.0 ii. National Consultants b. International and Local Travel 30.0 c. Translation, Reports, and Communications Training, Seminars, and Workshops a. External Consultation and Study Tour 30.0 b. Training Programs 50.0 c. Seminars and Workshops Equipment c Survey and Investigation Miscellaneous Administration and Support Costs Representative for Contract Negotiations Contingencies 55.0 Subtotal (B) C. Government Financing 1. Provision of the Executing Agency for Part A a. Office Accommodation and Transport 70.0 b. Remuneration and Per Diem of Counterpart Staff c. Training, Seminars, and Conferences 80.0 d. Contingencies Provision of the Executing Agency of Part B a. Office Accommodation and Transport 60.0 b. Remuneration and Per Diem of Counterpart Staff 60.0 c. Interpretation and Secretarial Services and Office Supplies 60.0 d. Contingencies 20.0 Subtotal (C) Total 2,000.0 a Financed from the Climate Change Fund, which will be front-loaded at the relevant TA contract commitment level. b Financed by the Asian Development Bank s technical assistance funding program. c Equipment will include computers, photocopier, fax machine, and related software. Equipment will be purchased using shopping method in accordance with ADB s Procurement Guidelines (2007, as amended from time to time). All equipment will be transferred to the relevant Executing Agency after completion of the technical assistance. Source: Asian Development Bank estimates.

13 Appendix 3 11 OUTLINE TERMS OF REFERENCE FOR CONSULTANTS 1. The technical assistance (TA) will be implemented in close consultation with relevant stakeholders in the PRC, including the Department of Foreign Capital Utilization, the National Development and Reform Commission (NDRC), the National Energy Administration (NEA), the Ministry of Finance, and some provincial development and reform commissions. A. Terms of Reference for Part A: Utilization of Foreign Capital to Promote Energy Conservation 2. The estimated allocation of consulting services will be (i) a combined total of 8 person-months for four international consultants (energy efficiency specialist, energy economist, financial management specialist, and environmental specialist); and (ii) a combined total of 60 person-months for 10 national consultants (three energy efficiency specialists, two energy economists, two financial management specialists, an environmental specialist, an energy service company specialist, and an institutional capacity-building specialist). 3. The main tasks of the consultants include the following: (i) Comprehensive research on energy conservation and pollution reduction (EC&PR) in key energy-intensive areas: (a) comparing current energy efficiency levels and assessing the potential for energy conservation in key energy-intensive areas identified by, and listed in, the National Medium- and Long- Term Energy Conservation Plan; 1 (b) analyzing special characteristics for EC&PR in different areas, regions, and industries, for different types of enterprises, and through different technological approaches; (c) examining possibilities and priorities for utilizing the instruments and initiatives for EC&PR of the Asian Development Bank (ADB); (d) selecting two or three key areas with high potential to utilize ADB loans to promote EC≺ and (e) determining provinces and/or enterprises for pilot testing. (ii) Targeted research on the selected key energy-intensive areas: (a) Current status and special characteristics of EC&PR. Investigations will be conducted to understand the current status of energy conservation in the selected key areas, the relevant industrial policies, the distribution and concentration of industrial production capacities and energy consumption patterns, the scale and governance structure of the enterprises, as well as the targets, potential, and capacities for energy conservation. (b) Analysis of the technologies for EC&PR. Summarizing policies on EC&PR technologies, collecting information on the demonstration effects and scale-up possibilities of successful EC&PR projects, learning from international best practices, and recommending EC&PR technologies that can be widely deployed. The views expressed (c) herein Analysis are those of challenges of the consultant to small and and do not medium-sized necessarily represent enterprises those (SMEs) of ADB s on members, Board of Directors, EC&PR. Management, Understanding or staff, the and existing may be preliminary problems and in nature. formulating proposals on how to use foreign capital from international financial institutions with 1 NDRC National Medium- and Long-Term Energy Conservation Plan. Beijing. PRC.

14 12 Appendix 3 (d) (e) (f) (g) relatively favorable terms to assist SMEs to achieve their goals for EC&PR. Analysis of the main barriers to utilizing foreign capital for EC&PR under market mechanism conditions. Examining issues related to onlending, loan securitization (e.g., asset collateralization, credit guarantees, and third-party assurance), and risk mitigation; studying related fiscal and financial policies (e.g., taxation, subsidies, and public credit support); identifying barriers to utilizing ADB s financial products and services; reexamining the financial intermediation models to reduce transaction costs and to pool risks for small-scale energy efficiency projects, as well as to revolve the use of long-term foreign capital funds; proposing criteria and procedures to evaluate the qualifications of candidate financial intermediation agencies; establishing a financial model that can simulate cash flows, evaluate investment returns, and quantify risks under different financing models for energy efficiency projects. Assessment of possible Clean Development Mechanism support for typical energy efficiency and emission reduction projects, and analysis of possibilities and channels for transferring cleaner technologies in the selected energy-intensive industries. Facilitation for utilizing ADB loans to promote EC&PR. Focusing on high energy-intensive enterprises and most suitable EC&PR technologies, analyze how to design and implement energy efficiency projects that can benefit from ADB financial assistance. Analyzing how to motivate domestic financial institutions for active participation and how to build smooth channels for international and domestic funding that can be effectively and efficiently used for EC&PR purposes. Analysis of planning, proposing, approving, and implementing energy efficiency projects. Focusing on provinces and/or enterprises that have demonstrated realistic potential to utilize ADB loans, analyzing (1) who can be qualified as project executing and implementing agencies; (2) the procedures for project application, preparation, evaluation, approval, management, and implementation; (3) necessary onlending and securitization mechanisms; and (4) the need and ways to streamline and improve the appraisal process with simplified procedures but enhanced efficiency. (iii) Promoting development of energy conservation services and technological support systems: (a) developing suitable approaches to promote development of energy service companies, which can target (1) energy efficiency improvement in SMEs, (2) industrial parks where many industrial enterprises with large potential for energy efficiency improvement and emission reduction are located, (3) manufacturers of energy conservation and emission reduction equipment who can generate large energy savings and pollution reduction, and (4) large industrial enterprises which have specialized energy conservation units serving both internal and external clients on energy efficiency projects; and (b) analyzing how to promote legal, technological, and financial services for energy conservation; reviewing functionalities of the current market system for supporting energy conservation, and providing targeted support to institutions and agencies in the energy conservation market; examining methodologies, policies, regulations, and other major issues,

15 Appendix 3 13 such as technical standards and performance validation for energy conservation, that can impact cost benefit evaluation of investment in energy conservation; and making recommendations on improvement of standards, audit procedures, and performance validation for energy conservation. (iv) Enhancing institutional capacities and international cooperation: (a) analyzing the need to upgrade institutional capacities, and organizing knowledge-sharing and dissemination seminars, training programs, and other capacity-building activities at the national level and in the pilot provinces in order to audit energy consumption, develop suitable energy efficiency project proposals, facilitate project approval processes, and ensure project outcomes and impacts; and (b) summarizing international experiences on EC&PR, and promoting regional exchange and cooperation on energy efficiency improvement through joint international conferences and a study tour. B. Terms of Reference for Part B: Power Generation Scheduling 4. Consulting services for part B will be divided into two packages: package 1 will be for output (i), and package 2 for outputs (ii) (v). The Executing Agency (EA) will coordinate the activities of national consultants (20 person-months) under package 1 and the international consultants (4 person-months) will coordinate their work with the national consultants (22 person-months) under package 2. Consultants required include experts in (i) generation scheduling and dispatch systems (GS&DSs); (ii) power system control; (iii) electrical engineering; (iv) power plant performance monitoring; (v) energy economics, particularly on electricity market reform; (vi) social and environmental safeguards; and (vii) training and public information dissemination. Similar expertise is required for both international and national consultants. 1. Team Leader Generation Scheduling and Dispatch System Specialist (national consultant, 5 person-months) 5. The GS&DS specialist as the team leader will contribute to output (i) and carry out the following activities: (i) act as team leader to lead the preparation and delivery of outputs under output (i), as directed by ADB and the EA; (ii) understand the reform objectives of the NEA and the NDRC, including reform direction and road map; (iii) understand the traditional approach of power generation scheduling in the People s Republic of China (PRC), including working procedures, emergency plans, and regulatory standards; (iv) understand the roles and responsibilities of stakeholders related to power generation scheduling; (v) review international best practices on power generation scheduling, considering national and industrial differences in scheduling codes and standards, supply security requirements, emergency plans, regulatory mechanisms, geological The views expressed distribution herein of are power those plants, of the consultant etc.; and do not necessarily represent those of ADB s members, (vi) Board identify of Directors, technical Management, and institutional or staff, and barriers may be to preliminary energy-efficient in nature. and environmentally friendly power generation scheduling;

16 14 Appendix 3 (vii) (viii) (ix) (x) (xi) investigate the demand and supply situations in the pilot province based on historical records and future projections on coal-fired generation units (CGUs), renewable energy, and imported power; assess effectiveness of the pilot GS&DS approach based on analysis of pilot test results, and clarify its merits and problems; draft guidelines and operational manuals for the new GS&DS; make suggestions on how to achieve energy-efficient and environmentally friendly power generation scheduling in the PRC, including estimation of investment requirements and implementation road map; and identify training requirements, help the training specialist develop related training material, and provide necessary training for stakeholders. 2. Power System Control Specialist (national consultant, 5 person-months) 6. The power system control specialist will contribute to output (i) and carry out the following activities: (i) understand the reform objectives of the NEA and the NDRC, including reform direction and road map; (ii) understand the traditional approach to power generation scheduling in the PRC, including working procedures, emergency plans, and regulatory standards, etc.; (iii) review international best practices on power system control, considering national and industrial differences in technical standards, supply security requirements, emergency plans, regulatory mechanisms, geological distribution of power plants, etc.; (iv) identify technical and institutional barriers to power system control towards an energy-efficient and environmentally friendly GS&DS; (v) assess effectiveness of electronic work flow management and web-based data communications in the pilot provinces; (vi) help assess effectiveness of the pilot GS&DS based on analysis of test results and clarify its merits and problems; (vii) help draft guidelines and operational manuals for the new GS&DS; (viii) make suggestions on how to balance the level of in-program measurement and monitoring data, tracking against resource availability, in order to achieve an energy-efficient and environmentally friendly GS&DS, including estimation of investment requirements and implementation road map; and (ix) identify training requirements, help the training specialist develop related training material, and provide necessary training for stakeholders. 3. Electrical Engineer (national consultant, 5 person-months) 7. The electrical engineer will contribute to output (i) and carry out the following activities: (i) understand the reform objectives of the NEA and the NDRC, including reform direction and road map; (ii) understand the traditional approach to power generation scheduling in the PRC, including working procedures, emergency plans, and regulatory standards, etc.; (iii) assess the effectiveness of technologies and methods used to monitor and analyze the real-time heat rate performance of CGUs, and describe their merits and problems; (iv) calculate between, and compare, the actually controllable parameters and expected parameters; analyze the reasons for deviation, if any; (v) help the performance monitoring specialist evaluate the effectiveness of technologies and methods used for real-time process data collection and real-

17 Appendix 3 15 (vi) (vii) time process monitoring; evaluation should at least cover the following items: specific coal consumption, specific oil consumption, make-up water consumption, auxiliary power consumption, boiler flue gas temperature, condenser vacuum, and regenerative heater operation; help the team leader draft guidelines and operational manuals for the new GS&DS based on the analysis of pilot results; and identify training requirements, help the training specialist develop related training material, and provide necessary training for stakeholders. 4. Coal-Fired Generation Unit Performance Monitoring Specialist (national consultant, 5 person-months) 8. The CGU performance monitoring specialist will contribute to output (i) and carry out the following: (i) understand the reform objectives of the NEA and the NDRC, including reform direction and road map; (ii) understand the traditional approach to power generation scheduling in the PRC, including working procedures, emergency plans, and regulatory standards, etc.; (iii) assess the status quo of control technology in pilot power plants and provinces; compare the assessment result with international best practices considering differences in national and industrial technical standards and safety codes, fuel mix, geological distribution of power plants, etc.; and make recommendations for future technology enhancement; (iv) evaluate the effectiveness of technologies and methods used for real-time process data collection and real-time process monitoring; evaluation should at least cover the following items: specific coal consumption, specific oil consumption, make-up water consumption, auxiliary power consumption, boiler flue gas temperature, condenser vacuum, and regenerative heater operation; (v) develop a method to effectively incorporate CGU emission monitoring into the new GS&DS; (vi) help the team leader draft guidelines and operational manuals for the new GS&DS based on the analysis of pilot results; and (vii) identify training requirements, help the training specialist develop related training material, and provide necessary training for stakeholders. 5. Energy Economist (national consultant, 18 person-months; international consultant, 4 person-months) 9. The energy economist will contribute to package 2 and carry out different activities for each output. 10. For output (ii), the energy economist will (i) understand the reform objectives of the NEA and the NDRC, including reform direction and road map; (ii) review existing institutional and regulatory mechanisms for power generation scheduling in the PRC; (iii) understand the general trend and best practice of international electricity reform; The views (iv) expressed summarize herein major are those barriers of the to consultant current electricity and do not reform necessarily in the represent PRC; and those of ADB s members, (v) Board assess of Directors, possible Management, effects of or the staff, new and GS&DS may be on preliminary the ongoing nature. electricity reform, and make policy recommendations for future reform.

18 16 Appendix For output (iii), the energy economist will (i) be familiar with the PRC electricity industry and understand the reform objectives of the NEA and the NDRC, particularly on the coal-fired power generation sector; (ii) summarize the status quo of electricity generation efficiency in the PRC, particularly on coal-fired power generation; (iii) analyze potential barriers to generation efficiency improvement at next stage in the PRC; (iv) conduct field investigation and data collection on the coal-fired power generation sector in pilot provinces; (v) conduct an international comparison analysis on the performance of CGUs using modern econometric tools (such as total-factor efficiency analysis) based on data collected in the PRC and sample countries; and (vi) submit investigation reports and make policy recommendations for future efficiency improvement. 12. For output (iv), the energy economist will (i) be familiar with the PRC electricity market and understand the reform direction and road map of the NEA and the NDRC on electricity tariff, (ii) understand existing institutional and regulatory mechanisms for electricity tariffs in the PRC, (iii) understand the general trend and best practice of international electricity tariff reform, and (iv) analyze major barriers to the current mechanism moving towards an effective competitive electricity market in the PRC. 6. Safeguard Specialist (national consultant, 1 person-month) 13. The safeguard specialist will contribute to package 2 and the activities will include, but not be limited to, the following: (i) understand the needs of the EA and be familiar with national policy and standards for social and environmental safeguard; (ii) review related environmental standards for power generation, particularly for CGUs, and investigate the implementation of these environmental standards; (iii) conduct an environmental impact assessment for the new GS&DS in pilot provinces; (iv) prepare relevant sections of TA on safeguard issues; (v) help the team leader keep TA outputs (including deliverables of package 1) consistent with national policy and standards; and (vi) help the training specialist identify training requirements and develop training materials on safeguard-related topics. 7. Training Specialist (national consultant, 3 person-months) 14. The training specialist will contribute to output (v) and carry out the following activities: (i) be familiar with the PRC electricity industry and understand the reform objectives of the NEA and the NDRC; (ii) work with output (i) consultants to schedule training programs, seminars, and workshops; (iii) work with output (i) consultants to develop related training materials, workshop and seminar proceedings, and presentation handouts;