The World Bank FOR OFFICIAL USE ONLY...RE capacity. China is the world leader in small hydro...
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Document of The World Bank FOR OFFICIAL USE ONLY Report No: PAD498 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$27.28 MILLION TO THE PEOPLE’S REPUBLIC OF CHINA FOR THE SECOND PHASE OF THE RENEWABLE ENERGY SCALE-UP PROGRAM September 18, 2013 China and Mongolia Sustainable Development Unit Sustainable Development Department East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript of The World Bank FOR OFFICIAL USE ONLY...RE capacity. China is the world leader in small hydro...
Document of
The World Bank FOR OFFICIAL USE ONLY
Report No: PAD498
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED GRANT FROM THE
GLOBAL ENVIRONMENT FACILITY TRUST FUND
IN THE AMOUNT OF US$27.28 MILLION
TO THE
PEOPLE’S REPUBLIC OF CHINA
FOR
THE SECOND PHASE OF THE RENEWABLE ENERGY SCALE-UP PROGRAM
September 18, 2013
China and Mongolia Sustainable Development Unit Sustainable Development Department East Asia and Pacific Region
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS
(Exchange Rate Effective September 6, 2013)
Currency Unit = RMB (Chinese Yuan Renminbi) US$1 = RMB 6.10
FISCAL YEAR
January 1 – December 31
ABBREVIATIONS AND ACRONYMS
CPS Country Partnership Strategy NCB National Competitive Bidding CRESP China Renewable Energy Scale-Up
Program NDRC National Development and Reform
Commission CSP Concentrated Solar Power NEA National Energy Administration DA Designated Account ORAF Operational Risk Assessment
Framework DG Distributed Generation O&M Operation and Maintenance EE Energy Efficiency PAD Project Appraisal Document EIRR Economic Internal Rate of Return PBP Pay Back Period EMP Environmental Management Plan PDO Project Development Objective FYP Five-Year Plan PIP Project Implementation Plan GDP Gross Domestic Product PMO Project Management Office GEF Global Environment Facility PV Photovoltaic GHG Greenhouse Gas QBS Quality-Based Selection GOC The Government of China QCBS Quality- and Cost-Based Selection GPN General Procurement Notice RMB Renminbi (Chinese Yuan) GW Gigawatt RE Renewable Energy ICB International Competitive Bidding TA Technical Assistance MOF Ministry of Finance TWh Terawatt-hour Mtce Million tons of coal equivalent WB World Bank
NA Not Applicable Wp Watt (peak)
Regional Vice President: Axel van Trotsenburg, EAPVP Country Director: Klaus Rohland, EACCF
Sector Director: John A. Roome, EASSD Sector Manager: Mark R. Lundell, EASCS
Task Team Leader: Xiaodong Wang, EASCS
CHINA The Second Phase of The Renewable Energy Scale-Up Program
TABLE OF CONTENTS
Page
I. STRATEGIC CONTEXT .................................................................................................1
A. Country Context ............................................................................................................ 1
B. Sectoral and Institutional Context ................................................................................. 1
C. Higher Level Objectives to which the Project Contributes .......................................... 4
II. PROJECT DEVELOPMENT OBJECTIVES ................................................................4
A. PDO............................................................................................................................... 4
B. Project Beneficiaries ..................................................................................................... 5
C. PDO Level Results Indicators ....................................................................................... 5
III. PROJECT DESCRIPTION ..............................................................................................6
A. Project Components ...................................................................................................... 6
B. Project Financing .......................................................................................................... 7
Lending Instrument ............................................................................................................. 7
Project Cost and Financing ................................................................................................. 8
C. Lessons Learned and Reflected in the Project Design .................................................. 8
IV. IMPLEMENTATION .....................................................................................................10
A. Institutional and Implementation Arrangements ........................................................ 10
B. Results Monitoring and Evaluation ............................................................................ 11
C. Sustainability............................................................................................................... 11
V. KEY RISKS AND MITIGATION MEASURES ..........................................................11
A. Risk Ratings Summary Table ..................................................................................... 11
B. Overall Risk Rating Explanation ................................................................................ 12
VI. APPRAISAL SUMMARY ..............................................................................................12
A. Economic Analyses ..................................................................................................... 12
B. Technical ..................................................................................................................... 14
C. Financial Management ................................................................................................ 14
D. Procurement ................................................................................................................ 14
E. Social (including Safeguards) ..................................................................................... 14
G. Other Safeguards Policies Triggered (if required) ...................................................... 15
Annex 1: Results Framework and Monitoring .........................................................................16
Annex 2: Detailed Project Description .......................................................................................21
Annex 3: Implementation Arrangements ..................................................................................27
Annex 4: Operational Risk Assessment Framework (ORAF) .................................................35
Annex 5: Implementation Support Plan ....................................................................................39
Annex 6: Incremental Cost Analysis ..........................................................................................41
.
PAD DATA SHEET
China
The Second Phase of The Renewable Energy Scale-Up Program (P127033)
PROJECT APPRAISAL DOCUMENT.
EAST ASIA AND PACIFIC
EASCS
Report No.: PAD498.
Basic Information
Project ID Lending Instrument EA Category Team Leader
P127033 Investment Project Financing
C - Not Required Xiaodong Wang
Project Implementation Start Date Project Implementation End Date
29-Oct-2013 30-Jun-2019
Expected Effectiveness Date Expected Closing Date
30-Apr-2014 30-Jun-2019
Joint IFC GEF Focal Area
No Climate change
Sector Manager Sector Director Country Director Regional Vice President
Mark R. Lundell John A. Roome Klaus Rohland Axel van Trotsenburg .
Borrower: PEOPLE'S REPUBLIC OF CHINA
Responsible Agency: National Energy Administration (NEA)
Contact: Mr. Liang Zhipeng Title: Deputy Director General
Telephone No.:
8610 68555898 Email: [email protected]
.
Project Financing Data(in USD Million)
[ ] Loan [ X ] Grant [ ] Other
[ ] Credit [ ] Guarantee
Total Project Cost: 27.28 Total Bank Financing: 27.28
Total Cofinancing: Financing Gap: 0.00 .
Financing Source Amount
BORROWER/RECIPIENT 0.00
Global Environment Facility (GEF) 27.28
Total 100.
Expected Disbursements (in USD Million)
Fiscal Year
2014 2015 2016 2017 2018 2019
Annual 1.50 4.00 5.50 5.50 5.50 5.28
Cumulative
1.50 5.50 11.00 16.50 22.00 27.28
.
Proposed Global Environmental Objective / Project Development Objective
The objective of the CRESP program (three phases) is to enable commercial renewable electricity suppliers to provide energy to the electricity market efficiently, cost-effectively and on a large scale. The objective of CRESP Phase II is to support the ambitious renewable energy scale-up program in China with a focus on efficiency improvement and reduction of incremental costs. .
Components
Component Name Cost (USD Millions)
Component 1. Policy Support 5.00
Component 2. Grid Integration/Access and Technical Design 5.00
Component 3. Technology Improvement 7.28
Component 4. Pilot Demonstration 5.00
Component 5. Capacity Building and Investment Support and Project Management
5.00
.
Institutional Data
Sector Board
Energy and Mining .
Sectors / Climate Change
Sector (Maximum 5 and total % must equal 100)
Major Sector Sector % Adaptation Co-benefits %
Mitigation Co-benefits %
Energy and mining Other Renewable Energy 100 100
Total 100
I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. .
Themes
Theme (Maximum 5 and total % must equal 100)
Major theme Theme %
Environment and natural resources Climate change 100
management
Total 100 .
Compliance
Policy
Does the project depart from the CAS in content or in other significant respects?
Yes [ ] No [ X ]
.
Does the project require any waivers of Bank policies? Yes [ ] No [ X ]
Have these been approved by Bank management? Yes [ ] No [ X ]
Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ]
Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ] .
Safeguard Policies Triggered by the Project Yes No
Environmental Assessment OP/BP 4.01 X
Natural Habitats OP/BP 4.04 X
Forests OP/BP 4.36 X
Pest Management OP 4.09 X
Physical Cultural Resources OP/BP 4.11 X
Indigenous Peoples OP/BP 4.10 X
Involuntary Resettlement OP/BP 4.12 X
Safety of Dams OP/BP 4.37 X
Projects on International Waterways OP/BP 7.50 X
Projects in Disputed Areas OP/BP 7.60 X .
Legal Covenants
Name Recurrent Due Date Frequency
Institutional Arrangement Yes Not applicable Ongoing
Description of Covenant
The Recipient shall maintain throughout Project implementation the Project Management Office responsible for the management, implementation, and monitoring and evaluation of the Project
Name Recurrent Due Date Frequency
Institutional Arrangement No Two month after effectiveness
One-time
Description of Covenant
The Recipient shall establish, through the National Energy Administration, not later than two (2) month after the Effective Date, the Project Steering Committee. .
Conditions
Name Type
Description of Condition
Team Composition
Bank Staff
Name Title Specialization Unit
Xiaodong Wang Senior Energy Specialist Team Lead EASCS
Ximing Peng Senior Energy Specialist Senior Energy Specialist EASCS
Richard H. Hosier Senior Energy Specialist Senior Climate Change Specialist
AFTG2
Xiaowei Guo Senior Procurement Specialist
Senior Procurement Specialist
EASR2
Fang Zhang Financial Management Specialist
Financial Management Specialist
EASFM
Sameena Dost Senior Counsel Senior Counsel LEGES
Kun Cao Team Assistant Team Assistant EACCF
Dan Xie Team Assistant Team Assistant EACCF
Cristina Hernandez Program Assistant Program Assistant EASWE
Non Bank Staff
Name Title Office Phone City
Noureddine Berrah Energy Consultant, Advisor to the team
1-2024731132 Washington
Bernard Baratz Environmental Safeguards
2024732333
Peishen Wang Environment Consultant Winnipeg
Youxuan Zhu Social Safeguards Consultant
.
Locations
Country First Administrative Division
Location Planned Actual Comments
China Nationwide
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I. STRATEGIC CONTEXT
A. Country Context
1. China’s Gross Domestic Product (GDP) tripled from 2000 to 2011. During the same period, China’s total primary energy consumption more than doubled from 1,455 million tons of coal equivalent (Mtce) in 2000 to 3,478 Mtce in 2011. Electricity consumption grew at about 12 percent per annum on average, from 1,347 Terawatt-hours (TWh) in 2000 to 4,700 TWh in 2011. Coal continues to dominate the energy mix in China with consumption of 2,390 Mtce, accounting for 68.8 percent of the primary energy consumption in 2011. China is the world’s largest coal producer and consumer, but became a net coal importer in 2009, a clear sign that coal will not meet all the growth in its energy needs. This made the country more vulnerable to energy imports, as China already relies on imports to meet half of its oil consumption.
B. Sectoral and Institutional Context
2. Government’s commitment to renewable energy development: Concerned with the adverse health and environmental consequences associated with coal combustion, energy security risks, and resource scarcity challenges, the Government of China (GoC) is making continued efforts to increase renewable energy (RE) contribution to meet primary energy and electricity needs. The GoC set an ambitious target to increase the share of non-fossil fuel (RE and nuclear) to 15 percent of the country’s 2020 primary energy supply. In addition, the GoC set an ambitious target to reduce carbon intensity by 40-45 percent during 2005-2020, to which RE is expected to contribute significantly. 3. RE achievements during the 11th Five-Year Plan: The 2005 Renewable Energy Law, one of the first in the developing world, set a solid foundation for developing RE to meet increasing demand for electricity. The GoC adopted feed-in tariffs for wind and biomass power, and more recently solar PV, and set up several schemes to compensate RE generators for the incremental costs between RE and fossil fuels. As a result, RE has experienced an unprecedented growth during the 11th Five Year Plan (FYP, 2006-2010). China has currently the world’s largest RE capacity. China is the world leader in small hydro installed capacity. Its wind capacity has doubled every year since 2005, reaching 31 GW in 2010, second only to the U.S. The installed biomass power capacity also increased substantially to reach 5 GW in 2010, even though it failed to meet the planned targets. Solar photovoltaic (PV) made big strides but remains marginal in the total installed RE-based power capacity due to its high costs. Finally, China now has more than half of the global solar water heaters, and the world’s leading solar and wind manufacturers. The evolution of RE development during the last two FYPs is summarized in Table 1. 4. RE priorities for the 12th Five-Year Plan: For the 12th FYP (2011-2015), the GoC has set ambitious RE targets – increasing the share of RE to 9.5 percent of primary energy supply and 20 percent of power generation by 2015 (see Table 1). At the end of 2012, grid-connected wind capacity reached 61 GW, the largest in the world, and solar PV capacity soared to 3.3 GW as a result of the solar PV feed-in tariff. The RE 12th FYP aims to continue scale-up of RE and increase the competitiveness of the RE industry with a combination of regulatory policies and market-based mechanisms. In particular, the National Energy Administration (NEA) is preparing a RE Quota Decree to allocate mandatory non-hydro RE quota to each province, grid companies,
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and large-scale RE developers. The 12th FYP laid out eight priority RE programs, with a focus on the planned large-scale Wind Power Bases (with an installed capacity of 5-10 GW each) in the North, Northeast, and Northwest regions; off-shore wind development; and large-scale grid-connected Solar PV Bases in desert areas. Complementary to the large-scale grid-connected RE development, the 12th FYP made RE distributed generation a priority, particularly in the planned 100 pilot New Energy Cities and 200 pilot Green Counties.
Table 1. China has experienced unprecedented growth in renewable energy during the 11th FYP and is committed to ambitious targets for the future
2000 2005 2010 2015
Targets 2020
Targets
% of RE in total primary energy - 7.0% 8.8% 9.5% 15%*
Hydropower 79 117 216 290 420
Wind power (on-grid) 0.34 1.26 31 100 200
Biomass energy 1.1 2.0 5.5 13 30
Solar PV 0.02 0.07 0.8 21 50 Note: The 15% target by 2020 is for non-fossil fuels, of which the lion share will come from renewable energy. Source: Renewable Energy Development 12th FYP, National Energy Administration 2012. 5. Barriers to renewable energy: The continued and sustainable scale-up of RE development in China faces new challenges and barriers. In particular, a large share of wind power cannot get connected to the grids and the cost of the RE program could become prohibitive without reduction of the incremental costs between renewable and fossil fuels and improvement of efficiency of RE operations. 6. Grid integration and access bottleneck: Progress towards greening China’s energy sector is now blocked by the stalled sector reforms. In particular, the irrational power pricing structure is a fundamental barrier to RE development. First, without incorporation of environmental external costs, fossil fuel pricing provides an un-level playing field for RE resources. Second, the existing one-part fixed wholesale tariff is not conducive to economic dispatch and is the only reason for resistance of coal-fired power plants to reduce their generation to accommodate more wind into the grids, during windy periods—a key impediment of a large share of wind power without access to the grids. Third, the existing tariff structure with only wholesale and retail energy tariffs does not include transparent transmission and distribution pricing, and provides disincentives for the grid companies to accommodate more intermittent renewable. 7. The grid companies are reluctant to accommodate an increasing share of intermittent RE and distributed generation in the grids, due to policy, institutional, operational, and technological barriers. Mandatory grid access policy and its enforcement are essential for both grid-connected RE and RE distributed generation.
8. Coordination failures between government agencies also contributed to the wind grid integration bottleneck. First, the development of power generation capacity and the electrical grids is not well coordinated. For example, China had proposed to construct 7 x 10 GW Wind Power Bases, but did not lay down plans for how that electricity would be transmitted and
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distributed. Second, the coal-dominated power mix provides an inflexible dispatch for wind, and the fact that the development of wind power is not well integrated with the development of other generation sources further diminish the flexibility in the generation mix. Third, provincial and regional interconnections for trade are critical to balance the supply and demand for RE, given the uneven distribution of RE resources and load centers in China, and share the use of flexible resources with neighbors to manage the variability of RE resources. With the right incentives and market-based policies, inter-provincial power trade can be increased. Finally, coordination failures between different government agencies (e.g. Energy, Ocean, Maritime, Fishery, and Environment agencies) have stalled off-shore wind development.
9. Looking ahead, China is envisaging further reform of the power sector to increase its market orientation. The design of such reforms should take into account the specific characteristics of RE technologies, and RE policies need to be adapted to the new competitive operational environment to ensure unfettered access of RE to the systems.
10. High cost of the RE program: With the rising share of RE in the power mix, a continued increase in the power tariff surcharge for RE ran into political resistance and may increase the financial burden on consumers, particularly the poor. A World Bank study1 estimated that the current RE surcharge could triple to reach the 15 percent target by 2020. Inter-provincial RE trading can drive down the cost to achieve the government’s targets. The coordination failure mentioned above and less-than-optimal wind farm design and layout, particularly for the large-scale wind bases, reduced considerably the efficiency and performance of the wind farms, thereby electricity generation and GHG emission reduction. If not addressed adequately, the high level of inefficiencies could increase the cost to the nation.
11. Therefore, if the non-fossil market in China is going to grow in a sustainable and affordable way to achieve the government’s target, it is essential to close the incremental cost gap therefore cutting the subsidy levels by shifting to more market-oriented policies such as RE trading, improving cost competiveness of RE industry through research and development, increasing efficiency through improved design and better layout of projects, and optimizing RE mix through prioritizing least-cost RE technologies.
12. The partnership between GEF/World Bank and Chinese RE institutions remains vital to support GoC’s efforts to address these new challenges and barriers facing RE development and to achieve its ambitious RE and carbon intensity reduction targets. 13. Achievements of CRESP Phase I: The First Phase of the China Renewable Energy Scale-Up Program (CRESP), a fully blended project with GEF grant (US$40.22 million) and IBRD loan (US$159 million) completed in December 2011, made significant contributions to the scale-up of RE in China and triggered government investment in supporting RE development on a large scale during the 11th Five-Year Plan. The recommendations made in many policy studies supported by CRESP Phase I have been adopted by policy makers and strongly influenced RE policy development, RE Law and supporting regulations in China. In addition, CRESP I played an essential role in the rapid growth and quality improvement of the domestic wind, and to a 1 China's Envisaged Renewable Energy Target - The Green Leap Forward
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lesser extent biomass, manufacturing industry through supporting domestic manufacturers on technology improvement and certification of wind turbines with cost-shared sub-grants. Finally, CRESP I contributed to large-scale RE investments through financing large-scale wind farms, biomass power plant, and small-hydro power plants, and supporting investors on project preparation of an investment pipeline. As a result, the global environmental objective of CRESP Phase I was achieved, and project targets were well exceeded.
C. Higher Level Objectives to which the Project Contributes
14. The proposed project is fully consistent with the Country Partnership Strategy (CPS) FY2013–2016 for China priority of “supporting greener growth, in particular, shifting to a sustainable energy path”. The Project also contributes to China’s efforts to expand use of renewable energy and address climate change during the 12th FYP. It is consistent with the latest National Communication by the Government of China. In addition, the proposed project would support the World Bank Group’s corporate commitment to increasing renewable energy lending, and addressing climate change.
II. PROJECT DEVELOPMENT OBJECTIVES
A. PDO
15. The China Renewable Energy Scale up Program (CRESP) has been designed as a strategic partnership between the GoC and the World Bank/GEF. The program includes three GEF supported phases over a period of 15 years. The GEF program is justified by the long-term and complex nature of the policy issues hampering the scale up of renewable energy and the need for a flexible approach to adapt to the fast changing environment and the priorities as they emerge during implementation. 16. The objective of the CRESP program (three phases) is to enable commercial renewable electricity suppliers to provide energy to the electricity market efficiently, cost-effectively and on a large scale. The objective of CRESP Phase II is to support the ambitious renewable energy scale-up program in China with a focus on efficiency improvement and reduction of incremental costs. 17. The phased approach aims to move RE development in China from quantitative scale-up under Phase I to sustained growth under Phase II, with an increased focus on efficiency, incorporating achievements and lessons learned from Phase I. CRESP Phase III envisions to fully integrate RE in competitive and open power markets (Figure 1).
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Figure 1. Vision of the CRESP Program
15%
•Cost reduction
• Efficiency improvement
•Smooth grid integration
Open market Needs to considerRE specific characteristics
8%
2010 2015 20202005
RE small percentageIncentives manageable
RE large sharecost matters
Sector reform
Sustainable Scale‐Up
Scale‐Up: More GW in a short time
•Develop and implement policies
• Build up domestic RE industry
B. Project Beneficiaries
18. Project beneficiaries include (a) government agencies, particularly National Energy Administration (NEA); (b) Chinese RE developers, investors, and grid companies; (c) Chinese RE industry, particularly equipment manufacturers and related service suppliers; (d) piloted provinces, cities, and counties; (e) research institutions and think tanks; (f) all economic agents engaged in the RE supply and delivery chain; (g) the Chinese population who ultimately benefits from less polluting generation of electricity; and (h) the global community who benefits from avoided greenhouse gas emissions, which contributes to global climate change mitigation.
C. PDO Level Results Indicators
19. As this project intends to contribute to the government’s ambitious RE targets, achievement of the project development objective will be assessed with the following higher-level outcome indicators: (a) additional RE-based power generation from improved design of the large wind bases (GWh); (b) additional RE consumption from increased RE penetration in New Energy Cities (Mtce); (c) annual avoided emissions of CO2 from the above two indicators (million ton); and (d) reduced incremental costs of wind power and solar PV over coal-fired power plants (cent/kWh). 20. The project-level intermediate output indicators are: (a) RE quota policy issued; (b) new Energy City policy submitted; (c) increased penetration of wind power in Inner Mongolia (percentage of wind power generation in provincial power consumption); (d) number of Chinese off-shore wind turbine standard accepted by Standardization Administration of China; and (e) number of RE investment projects supported.
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III. PROJECT DESCRIPTION
21. The proposed project would be comprised of the following five components: (a) policy support; (b) grid integration/access and technical design; (c) technology improvement; (d) pilot demonstration; and (e) capacity building and investment support, and project management. 22. The selection of the project focus is intended to achieve efficiency improvement, reduction of incremental costs, and smooth grid integration to remove the key barriers to sustainable scale-up of RE in China and support the RE targets in the 12th FYP. Specifically, the project targets at two complementary tracks – improving grid integration and efficiency of large-scale grid-connected wind bases and increasing grid access and connection of distributed generation of solar PV primarily in New Energy Cities, as these are two priorities in the 12th FYP. The project focuses on efficiency improvement and reduction of incremental costs of wind and solar technologies, which contribute to the bulk of the RE targets in the 12th FYP (except large-scale hydropower).
23. It should be noted that the tasks outlined below are those urgent to be implemented during the initial-year work program, agreed between the NEA and the Bank. Other tasks will be detailed and confirmed during the annual review of the work program to be carried out during the supervision of the project to leave flexibility during project implementation.
A. Project Components
24. Component 1. Policy Support (indicative cost estimate: US$5 million GEF grant): CRESP II will support developing and implementing RE legislation and policies to achieve cost reduction, efficiency improvement, and smooth grid integration. Based on lessons learned from Phase I, it is envisaged that policy studies under Phase II would cover few essential policy topics, jointly determined by NEA, Project Management Office (PMO), and the World Bank, with greater involvement of government selected policy institutions and world class consultants. 25. The policy support will focus on four sub-components: (a) improving the design and implementation of the RE Quota Decree, and designing an RE Certificates trading scheme, in coordination with the existing feed-in tariffs and envisaged carbon cap and trade to avoid conflicting policy requirements; (b) developing grid access and financial incentive policies for RE distributed generation in pilot New Energy Cities; (c) supporting preparation for the RE 13th FYP and medium and long-term RE plan to 2030; and (d) if collaborating with the right Chinese counterparts, engaging dialogues, building consensus, and developing potential policy recommendations for power pricing reforms and incorporation of RE in power sector reform, including but not limited to two-part generation tariff, transparent cost-recovery transmission tariff, internalization of environmental external costs, and feed-in tariffs for off-shore wind and concentrated solar power. 26. Component 2. Grid Integration/Access and Technical Design (indicative cost estimate: US$5 million GEF grant): This component will consist of targeted studies to ensure improved grid integration for large-scale grid-connected RE and grid access for distributed RE; and strategic and optimal deployment of key RE technologies to enhance efficiency and reduce costs. The studies would include, but not limited to: (a) optimization of site layout design to
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decrease wake effects for GW-scale Wind Power Bases to maximize outputs; (b) wind penetration development study in selected provinces to provide analytical basis for improved grid integration; (c) grid access and connection study for distributed generation in selected pilot New Energy Cities to establish sound technical standards/specifications for grid connection of distributed generation; and (d) grid codes study to evaluate Chinese grid codes and recommend cost-effective solutions to meet grid requirements for wind farms to facilitate dialogues between wind developers and grid company. 27. Component 3. Technology Improvement (indicative cost is: US$7.28 million GEF grant): The technology improvements would include, but not limited to: (a) increasing efficiency of existing wind farms; (b) improving quality and reliability and reducing costs of off-shore wind turbine technologies; (c) increasing efficiency of existing large-scale grid-connected solar PV farms; and (d) possibly improving concentrated solar power (CSP) domestic manufacturing capacity. 28. Component 4. Pilot Demonstration (indicative cost estimate: US$5 million GEF grant): This component will support (a) NEA/Inner Mongolia partnership to pilot and explore new ideas relating to the scale-up of RE and optimization of wind in power system, primarily through technical and operational studies to remove grid integration bottlenecks, grid planning, and possibly policy pilots; and (b) pilot RE distributed generation in two selected New Energy Cities and possibly Green Counties, primarily through planning, implementation plans, policies, with adequate enforcement and monitoring. This component will primarily provide technical assistance on twinning with selected international successful cities, the concept framework of New Energy Cities, planning, business and financing models, technical design, and policies for distributed generation applications in pilot New Energy Cities. 29. Component 5. Capacity Building and Investment Support and Project Management (indicative cost estimate: US$5 million GEF grant): This component will (a) build capacity of government officials and staff at national level and at pilot provincial/municipal levels (e.g. NEA, National Development and Reform Commission Pricing Bureau (for energy pricing reform), Ministry of Finance (for fiscal measures), Ministry of Water Resources (for small hydro), Ministry of Agriculture (for biomass), Ocean Bureau (for off-shore wind), grid companies, RE power generators, pilot provincial and municipal governments, and the relevant agencies in the pilot demonstration areas); (b) help operationalize the China RE Training Center to be established by developing RE curriculums and training the trainers; and (c) support investors by building innovative RE investment pipelines, including sharing the cost of the Owner’s Engineer for China’s first CSP investment under the IBRD Inner Mongolia CSP Project. This component also covers program management costs, donor coordination activities, and administration including fiduciary duties.
B. Project Financing
Lending Instrument 30. The proposed project will use an IPF instrument.
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Project Cost and Financing 31. The proposed project is a stand-alone GEF project. The Project is part of the government's broader investment program aimed at meeting its 12th and 13th Five-Year Plan renewable energy targets. The Project cost is US$27.28 million, to be financed out of the GEF grant. Also, US$444.1 million from the government, renewable energy developers, manufacturers, investors, and grid companies will be provided towards financing part of the broader program, for activities complementary to the Project during the project’s lifetime. The GEF project design was approved by the Bank management, Chinese government, and the GEF Council in May 2011.
Table 2. Project Costs
Project Components Project cost GEF Financing % Financing 1. Policy support 2. Grid integration/access and technical design 3. Technology improvements 4. Pilot demonstration 5. Capacity building and investment support, and project management Total Baseline Costs Physical contingencies Price contingencies
5.00 5.00 7.28 5.00 5.00
27.28
0.00 0.00
5.00 5.00 7.28 5.00 5.00
27.28
0.00 0.00
100% 100% 100% 100% 100%
100%
0% 0%
Total Project Costs Total Financing Required
27.28 27.28
27.28 27.28
100% 100%
C. Lessons Learned and Reflected in the Project Design
32. The project design of CRESP Phase II has incorporated lessons learned from international and Chinese experience, particularly CRESP Phase I. The key success factors of CRESP I are the following:
Long-term engagement with key policy makers on RE policies through the partnership program has paid off. The long-term engagement has built trust between the Bank team and the government, which often turns to the Bank team and the CRESP program for support and inputs to key policy decisions;
Flexible approach to adapt to government’s priorities and changing environment is required: This is because RE policies required frequent adjustments as RE technologies evolve, and the policy environment changed quite fast in China. Therefore, flexibility and adaptation were essential to meet the government’s requests by providing timely assistance to the decision-making process and achieve the project’s objective;
Cost-shared sub-grant approach to support domestic manufacturers and investors worked well and proved to be cost effective with a high leverage of the GEF grant: The cost-shared sub-grant approach for technology improvement was tested and proven under the Renewable Energy Development Project (REDP). CRESP Phase I again validated the success of the cost-sharing sub-grant approach. Cost-sharing sub-grants led in all cases to
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a higher leverage of the grant, and increased ownership and commitment by implementing counterparts. Such a cost-sharing approach also works well for prefeasibility and feasibility studies for potential RE developers.
Improving manufacturing quality is essential for the transition to a world-class manufacturing industry: The key to the success of the wind technology improvement component was to simultaneously address wind turbine standards, testing, and certification, and to support wind manufacturers in developing megawatt-scale wind turbines. As a result, CRESP support has contributed significantly to a rapid growth and quality improvement of the domestic wind manufacturing industry, which not only benefitted Chinese consumers, but also extended benefits globally.
33. The important lessons learned from CRESP Phase I are the following:
The piecemeal approach and fragmentation of policy study contracts resulted in lengthy delays and weakened policy impacts: A large number of small fragmented contracts for policy studies is detrimental to quality and leads to higher transaction costs and lower impacts on government policy making. This is an important lesson learned for CRESP Phase II, as alternative approaches to deliver policy technical assistance will be adopted to limit the number of contracts and focus on major issues.
The originally designed activities to support pilot provinces have become irrelevant. With the issuance of the RE Law and its implementing regulations nationwide, the originally envisaged development and implementation of RE policies in pilot provinces has become irrelevant. Higher utilization of provincial institutes than warranted resulted in lengthy procurement delays and reduced the relevance of just-in time assistance.
A core project management team, with contributions from world-class international and Chinese experts is most cost effective: Relying on recruitment of a large number short-term staff is not conducive to high-quality management. There is evidence from CRESP Phase I that hiring a core team to carry out management and due diligence tasks with contributions of international and Chinese world class experts is more cost effective and conducive to higher-quality management.
34. In addition, important lessons from international experience indicated that managing the variability of a relatively large share of intermittent RE resources in the power system requires (a) dispatchable power plants that provide flexibility in the power generation mix, e.g. hydropower and gas generation; (b) interconnection for trade with neighboring provinces; (c) energy storage facilities; and (d) demand side management and response. 35. Finally, international experience demonstrated that if long term affordability of RE subsidies is not ensured, the political reality is that they will not be sustainable. This in turn will undermine investors’ confidence and thus increase the regulatory risk faced by RE financiers. Managing this risk is therefore critical. The recent backlashes of the solar PV feed-in tariffs in Germany and Spain are such examples. Therefore, sustainable scale-up of RE development in China must address the cost and affordability issue of RE technologies.
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Alternatives Considered and Reason for Rejection
36. A fully blended IBRD and GEF program, like CRESP Phase I, was considered but rejected. Unlike the situation when CRESP Phase I started, China now leads the world in RE investments. Consequently, the priority of RE investments under CRESP Phase II program shifted to a more selected approach supporting pilot innovative RE projects with a great potential of replication. This would ensure sustainability and affordability. During the 12th FYP period, the RE developers, with the support of the Government of China, will more than cover the US$400 million of RE investments originally envisioned under this project at the project inception (GEF PIF) stage. 37. Therefore, CRESP Phase II is being presented as a stand-alone GEF project to the World Bank Board, and the RE investments made by Chinese developers will be considered as complementary financing. GEF support will also be linked with a number of innovative RE investment operations in the current and future IBRD lending pipeline over the next four years during the implementation period of the GEF grant, such as the Concentrated Solar Power Plant in Inner Mongolia, Beijing Rooftop Solar PV Scale-up Project. CRESP Phase II support to these investment projects would mainly focus on the refining of policy and regulation, and the piloting and dissemination of replicable solutions that would contribute to the scale up of RE. For example, CRESP II support to the IBRD Inner Mongolia CSP project through sharing the cost of Owner’s Engineer to find technical solutions for this first CSP plant in China would contribute to replication and scale-up of CSP technology in China. This new programmatic approach can help trigger adoption of cutting-edge RE technologies (e.g. CSP and off-shore wind), and replication and scale-up of successful demonstrations that require major policy reforms (e.g. grid access for roof-top PV). In this way, the GEF contribution will have a bigger impact on the sustainable scale-up of RE in China.
IV. IMPLEMENTATION
A. Institutional and Implementation Arrangements
38. This project will be implemented under the leadership of NEA, who will coordinate with other key stakeholders such as the National Development and Reform Commission (NDRC) Pricing Bureau, Ministry of Finance, Ministry of Water Resources, Ministry of Agriculture, Ministry of Forestry, Ocean Bureau, grid companies, RE power generators, pilot municipal governments, and the relevant agencies in the pilot demonstration areas. 39. A Project Steering Committee will be set up to provide overall strategic and policy guidance and coordinate between various government agencies to the implementation of the project activities. The Steering Committee will be chaired by NEA. A Project Management Office (PMO) has been established under the NEA, and will function as the executive office of the Steering Committee. On behalf of NEA, the PMO will be responsible for overall implementation, coordination, monitoring and reporting during project implementation.
40. The PMO has prepared a GEF Project Implementation Plan, with a detailed work plan for each activity and task, outputs, budget, schedule, PMO structure, and plans for supervision and quality control, satisfactory to the Bank; as well as the first year procurement plan.
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B. Results Monitoring and Evaluation
41. Monitoring of the implementation of the proposed project will involve: (a) the monitoring of performance indicators as included in the results framework in Annex 1; (b) annual progress reports; and (c) a midterm review of implementation progress. The PMO will be responsible for overall monitoring and systematic evaluation of implementation progress including collection of project performance information and reporting on the impact and results of the project.
C. Sustainability 42. The likelihood of sustainability of the project is high. The government’s unwavering commitment to Renewable energy scale-up is clearly indicated by the implementation of the RE Law with unprecedented speed and transparency as well as the ambitious RE targets. This commitment propelled the country to the forefront of global RE development. In addition, the GoC places a high priority with strong ownership of the CRESP program. The program design integrated policy support, technical studies, technology improvements, pilot demonstration, capacity building, with investment support to ensure sustainability and replication of the proposed interventions to achieve an efficient and sustainable growth of RE development in China.
V. KEY RISKS AND MITIGATION MEASURES
A. Risk Ratings Summary Table
Rating
Stakeholder Risk Low
Implementing Agency Risk
- Capacity Moderate
- Governance Moderate
Project Risk
- Design Substantial
- Social and Environmental Low
- Program and Donor Moderate
- Delivery Monitoring and Sustainability Low
- Other (Optional)
- Other (Optional)
Overall Implementation Risk Substantial
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B. Overall Risk Rating Explanation
43. The risk to the project during implementation is rated as substantial, because the stalled power pricing and power sector reforms are now blocking priority dispatch of large-scale grid-connected RE and grid access of RE distributed generation, and such reforms are fundamental to an efficient, sustainable, and secure energy sector. The reform has been stalled for the past decade. With the new administration at the highest level of the national government, there is a window of opportunity to revive the reform agenda. However, power pricing and power sector reforms are complex with strong vested interests. Building consensus for the reform may take longer time than the project implementation period. In addition, lacking coordination between government agencies is also a major risk. Finally, the project is innovative with strong policy orientation, and involves a large number of stakeholders. 44. Much has been learned during the preparation and implementation of CRESP Phase I. While the linkages to the wider power sector reform present a substantial risk to the project, the success of the project is not dependent on the reform agenda, as it is beyond the control of the project counterparts. Therefore, while the project’s primary focus is on RE, it will, if opportunities materialize, support project counterparts to engage other concerned government agencies and institutions to advance the reform agenda and ensure that RE constraints are taken into accounts in any decisions on the subject. The project will support comprehensive measures of policy recommendations, technical strategic studies on grid integration and grid access, technology improvements, pilot demonstrations, and capacity building to mitigate these risks and ensure achievements of the project objective.
VI. APPRAISAL SUMMARY
A. Economic Analyses
45. The economic rationale for the CRESP program was justified when the Phase I was prepared in 2005. The economically optimum RE targets were analyzed based on the comparison of RE technologies and coal-fired power when incorporating environmental externalities, with a simulation model. The analysis concluded that (a) in the case of business as usual and no renewable energy scale-up program, the likely renewable energy–based electricity generation would be 36 TWh in 2010 or 1.2 percent of total generation, without incorporation of environmental external costs; and (b) a program focusing on increasing power generation from renewable energy sources, the costs of which are below the avoided cost of coal generation plus environmental external costs, would result in a renewable energy contribution of 79 TWh per year by 2010 with only local environmental external costs, and 89 TWh when global environmental external costs are also included. 46. To reflect the substantial changes since 2005, primarily resulting from an increase in coal price, a decline in investment cost of wind power and solar PV, and higher environmental externalities applied in China, the economic analysis was re-conducted to examine the economic
13
rationale for the more ambitious RE target announced by the Government of China2, which the CRESP Phase II would contribute to. The same approach and model were used to analyze the economically optimum RE targets, justified by their economic competitiveness in comparison with coal-fired power generation. Different local and global environmental externalities were applied to identify the economically optimum RE targets in different scenarios, based on the updated RE database. 47. Figure 2 illustrates the results of optimized RE quantities in China in 2020, calculated based on different environmental externalities when different social discount rates were applied. In the Base Case, where the local environmental externalities were derived from a joint study by both State Environmental Protection Agency and the World Bank in 2005 and the carbon pricing was assumed at US$30/ton CO2e based on a recent World Bank study, the optimal RE target was estimated at 1,092 TWh, higher than the government’s RE target by 2020 (a total of 892 TWh), which implies that the government’s RE target can be economically justified, with a social discount rate of 12 percent. 48. It should be noted that the RE mix in the Base Case is quite different from the government’s RE mix in its 2020 target - more small hydropower justified by its low cost, similar wind power capacity as the government target, but less biomass and solar power due to their high costs. The development of both biomass and solar power could be economically justified if higher environmental externality costs would be considered, together with lower social discount rates.
Note: Generation from large and medium-sized hydropower is excluded in the figure.
2 Excluding large and medium-sized hydropower, the announced 2020 RE targets by the Government of China include 75 GW of small hydropower, 200 GW of wind power, 30 GW of biomass power and 50 GW of solar power (include both solar PV and CSP). The estimate annual RE generation (excluding large and medium-sized hydropower) amounts to 892 TWh by 2020, or 10.5% of the total electricity generation in China in 2020.
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B. Technical
49. The project will primarily support technical studies and technology improvements. The PMO will hire world class international and Chinese technical experts to review and approve those activities that involve cutting-edge RE technologies and models, and provide quality control of the results. Capacity building will be provided to the PMO during implementation.
C. Financial Management
50. Bank loan proceeds and the Designated Account will be managed by Ministry of Finance (MOF). A financial management (FM) capacity assessment of the implementing agency, i.e. the PMO established under National Energy Administration identified the financial staff has extensive experience with Bank operations. However, disbursement under sub-grant will be used for large amount of sub-projects executed by different beneficiaries, which may bring additional risk for project implementation. To address the sub-grant related risk, following risk management measures have been agreed: (a) preparation and issuance of a Financial Management Manual, acceptable to the Bank, to standardize project FM procedures; and (b) extensive FM training for new staff from the Bank. With these proposed actions, the FM arrangements will satisfy the World Bank’s minimum requirements under OP/BP 10.00. See Annex 3 for additional information.
D. Procurement
51. A procurement capacity and risk assessment of the project implementing agency, the PMO under the NEA, has been conducted. The PMO is familiar with Bank procurement policies and procedures having implemented Bank-financed projects such as CRESP I. While the PMO’s performance under the predecessor project was satisfactory, possible staff changes may lead to delays in processing procurement while the new staff progress on the learning curve of conducting procurement in accordance with the Bank’s Procurement/Consultant Guidelines. Procurement risks and areas for further capacity strengthening were identified and the agreed mitigation measures are described in Annex 3. The PMO currently has three qualified staff, and will implement procurement of retroactive financing activities and will have oversight responsibilities for all procurement during project implementation. An initial 18 month procurement plan was prepared and discussed during appraisal, and will be updated annually.
E. Social (including Safeguards)
52. The project is of technical assistance nature, with limited small-scale renewable energy demonstration investment, e.g. roof-top solar PV etc. in existing buildings. There is no land acquisition, resettlement, physical cultural resources or indigenous people involved in the project, therefore, there is no social safeguards policy triggered. 53. The project will benefit women and men equally. During consultation and assessment with beneficiaries, surveys and interviews will be designed with gender sensitivity to ensure that women are given equal opportunities.
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F. Environmental Safeguards 54. The proposed project primarily consists of policy studies, technical assistance, and capacity building related to RE development. The project may finance a limited number of small-scale RE investments (e.g. roof-top solar PV etc.) under the pilot demonstration Subprojects under Component 4. These activities are environmentally friendly measures and have little or no adverse environmental impacts. Therefore, the project is classified as Category C according to OP4.01. 55. A generic Environmental Management Plan (EMP) has been prepared to address potential impacts, if any, with regards to equipment installation, e.g. worker and community safety, noise nuisance, solid waste management, etc. The EMP applies only to pilot demonstration Subprojects under Component 4. The EMP will be incorporated into the bidding documents for the sub-project implementation entities which will ensure the implementation of the EMP is incorporated into construction/ installation contracts, with adequate budget allocation. The EMP was disclosed locally on May 23, 2013, and in the InfoShop on May 24, 2013. 56. Finally, the government is required to ensure that the terms of reference for all studies carried out under the Project include consideration of the relevant environmental issues and preparation of any related recommendations.
G. Other Safeguards Policies Triggered (if required)
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Annex 1: Results Framework and Monitoring
China: The Second Phase of The Renewable Energy Scale-Up Program
PDO Level Results Indicators
Cor
e
Unit of Measurem
ent
Baseline Original Project Start (1/13)
Cumulative Target Values
Frequency
Data Source/
Methodology
Responsibility for Data
Collection
Comments/ Assumptions
FY 2014
FY 2015
FY 2016
FY 2017
FY 2018
FY 2019
1. Additional RE-based power generation from improved design of the large wind bases
GWh 0
125
370 Annual report
NEA PMO
It is estimated that improved design of large-scale wind bases could improve their efficiency, thereby RE power generation, by 1.3% due to the reduced wake effect.
The current average utilization hours of large-scale wind bases are about 1900 hours/year;
This will be applied only to one large-scale wind base of 5 GW by 2015, and all the planned and approved new wind bases from 2015-2019, with projected installed capacity of 15 GW by 2019.
2. Additional RE consumption from increased RE penetration in New Energy Cities
Mtce 0
0.52
1.31 Annual report
NEA PMO
The project will directly support 2 pilot New Energy Cities by FY2015, and it is assumed that the pilot would lead to 3 additional New Energy Cities by FY2019. The govt. is envisioned to pilot 100 New Energy
17
Cities during the 12th FYP period, so this is a conservative estimate on direct impact of the project;
With the support from CRESP II, the RE penetration in total energy consumption in selected New Energy Cities would increase from a baseline of 3% in 2010 to 6% by 2015.
The average energy consumption in each New Energy City is estimated at 8.722 Mtce by 2015, based on the data from the 14 approved New Energy Cities.
3. Annual avoided carbon dioxide emission reduction
Mtons
1.5
3.9 Annual report
calculation PMO
This indicator is calculated from avoided carbon emissions from the two indicators above;
Emission factor is calculated at 0.858 kton CO2/GWh, based on coal consumption rate of typical coal-fired power plants at 311 gce/kWh by 2019, and at 2.76 ton CO2/tce.
4. Reduced incremental costs of wind power over coal-fired power plants
cent/kWh 1.6
1.5 Annual report
calculation
PMO
The levelized cost of wind power is taken from actual cost of a wind base in Gansu province, which is expected to build
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additional wind farms on the same site;
The levelized cost of coal-fired power plants is the actual cost of a typical coal-fired power plant in Gansu province.
It is assumed that cost of wind power would decline by 1.3% due to the improved efficiency, and the coal price will follow the World Bank commodity price projection by 2019. See Box A1 for detailed methodology and assumptions.
5. Reduced incremental costs of solar PV over coal-fired power plants
cent/kWh 11.3
7.0 Annual report
calculation
PMO
The levelized cost of solar PV has dramatically fallen since 2010, largely due to lower demand and overcapacity in the supply chain. So this project uses 2010 as the base year for solar PV cost.
The levelized cost of solar PV is taken from the actual cost of grid-connected solar PV farms under the first round of concession in 2010.
It is assumed that the cost of solar PV would decline by 25% by 2019, due to technology improvement and
19
improved efficiency. Assumptions of
levelized cost of coal-fired power plants are the same as above. See Box A1 for detailed methodology and assumptions.
Intermediate Results Indicators
Cor
e
Unit of Measurement
Baseline Original Project Start (1/13)
Target Values
Frequency
Data Source/
Methodology
Responsibility for Data
Collection
Comments FY 2014
FY 2015
FY 2016
FY 2017
FY 2018
FY 2019
RE quota policy issued
NA Submitted
Issued
Annual report
NEA
PMO
The draft RE quota policy was prepared, and is now under consultations with stakeholders. RE quota policy is listed in the 12th FYP and State Council document.
New Energy City policy submitted
NA Submitted
Annual report
NEA PMO Piloting 100 New Energy Cities is listed in the 12th FYP.
Increased penetration of wind power generation in Inner Mongolia (percentage of wind power generation in total provincial power consumption)
% NA 15%
Annual report
Inner Mongolia Provincial Power Company
PMO
Number of Chinese off-shore wind turbine standards accepted by Standardization Administration of China
NA
1 Annual report
Standardization Administration of China PMO
Off-shore wind power is still an emerging technology, and in an infant stage in China. It is difficult to reach consensus for off-shore wind turbine standards at this stage of technology development. IEC has
20
Intermediate Results Indicators
Cor
e
Unit of Measurement
Baseline Original Project Start (1/13)
Target Values
Frequency
Data Source/
Methodology
Responsibility for Data
Collection
Comments FY 2014
FY 2015
FY 2016
FY 2017
FY 2018
FY 2019
issued only one off-shore wind turbine design standard after 20-year efforts.
number of RE investment projects supported
NA 1
2 3 4
Annual report
PMO PMO
Box A.1 Methodology and assumptions to estimate the incremental costs of wind power and solar PV. To estimate the reduced incremental costs for both wind power and solar PV, the levelized costs of electricity were estimated, with a discount rate of 8%, for the three types of power plants (wind, solar PV, and coal) to estimate the incremental costs between wind power and coal-fired power plants, and between solar PV and coal-fired power plants. A supercritical coal-fired thermal power plant in Gansu province was identified as a representative coal-fired thermal power plant. Please note that the difference of the firm capacity values to the system for the three types of power plants were not considered (e.g. wind and solar power are intermittent, with much lower capacity factors than coal-fired power plants which function as baseload), and the environmental externality costs are not included. The calculation is illustrated below: Reduced incremental costs of wind power over coal-fired thermal: A wind power project in Gansu province was selected as a reference wind
power project to estimate the cost in base year of 2012; and it is assumed that the investment cost of wind and coal remains unchanged (this trend has been observed during the last years), and the declined cost of wind power is projected resulting from the increased power generation due to improved design at the end of the project implementation by 2018.
Reduced incremental costs of solar PV over coal-fired thermal: The levelized cost of solar PV in base year of 2010 was estimated based on the information from the first batch of concession solar PV projects in Qinghai, Gansu and Xinjiang province; and it is assumed a 25% cost reduction by the end of project implementation.
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Annex 2: Detailed Project Description
China: The Second Phase of The Renewable Energy Scale-Up Program
1. The proposed project would be comprised of the following five components: (a) policy support; (b) grid integration/access and technical design; (c) technology improvement; (d) pilot demonstration; and (e) capacity building and investment support, and project management. 2. The selection of the project focus is intended to achieve efficiency improvement, reduction of incremental costs, and smooth grid integration to remove the key barriers to sustainable scale-up of RE in China and support the RE targets in the 12th FYP. Specifically, the project targets at two complementary tracks – improving grid integration and efficiency of large-scale grid-connected wind bases and increasing grid access and connection of distributed generation of solar PV primarily in New Energy Cities, as these are two priorities in the 12th FYP. The project focuses on efficiency improvement and reduction of incremental costs of wind and solar technologies, which contribute to the bulk of the RE targets in the 12th FYP (except large-scale hydropower).
3. The PMO has prepared a GEF Project Implementation Plan, with a detailed work plan for each activity and task, outputs, budget, schedule, PMO structure, and plans for supervision and quality control, satisfactory to the Bank; as well as the first year procurement plan.
4. It should be noted that the tasks outlined below are those urgent to be implemented during project preparation and the initial-year work program, agreed between the NEA and the Bank. Other tasks will be detailed and confirmed during the annual review of the work program to be carried during the supervision of the project to leave flexibility during project implementation. 5. Component 1. Policy Support (indicative cost estimate: US$5 million GEF grant): CRESP II will support developing and implementing RE legislations and policies to achieve cost reduction, efficiency improvement, and smooth grid integration. Based on lessons learned from Phase I, it is envisaged that policy studies under Phase II would cover few essential policy topics, jointly determined by NEA, PMO, and the World Bank, with greater involvement of government selected policy institutions and world class consultants. 6. The policy support will focus on four sub-components. The first sub-component will improve the design and implementation of the RE Quota Decree, and design a RE Certificates trading scheme, in coordination with the existing feed-in tariffs and envisaged carbon cap and trade to avoid conflicting policy requirements. This sub-component would include, but not limited to the following topics: (a) improving RE quota allocation and facilitating stakeholder consultations; (b) assisting RE quota monitoring and enforcement by contracts; (c) recommending funding sources to meet the proposed RE quota; (d) identifying potential RE trading obliged parties. The existing feed-in tariffs provide price certainty to RE project developers. The envisaged RE Certificates trading may involve provincial power companies, who are expected to be allocated with mandatory non-hydro RE quota as share of total electricity consumption in each province; (e) determining penalty and how to regulate pricing of RE Certificates; (f) designating regulatory authority; (g) assisting in verification of compliance by
22
contracts; and (h) coordinating with the envisaged carbon trading, existing feed-in tariffs, and other ongoing policies to avoid policy contradiction. 7. The second sub-component will develop grid access and financial incentive policies for RE distributed generation in New Energy Cities, which is a top priority in the RE 12th FYP. The government plans to change the incentives to roof-top solar PV from capacity-based subsidies (e.g. Yuan/Wp) to output-based subsidies (e.g. Yuan/kWh). This sub-component would include, but not limited to, the following topics: (a) monitoring and evaluating the proposed policy on roof-top solar PV and recommending improvements of mandatory grid access and pricing policies for RE distributed generation; (b) designing national government’s financial incentive policies to the New Energy Cities; (c) improving the definition and indicators for New Energy Cities; and (d) developing a Handbook on implementation of New Energy Cities.
8. The third sub-component will support the preparation for the RE 13th FYP and medium and long-term RE plan by 2030. The project implementation period will span the second half of the 12th FYP and the first half of the 13th FYP. In addition, the current government’s non-fossil fuel targets and plans are up to 2020, and the government plans to develop medium and long-term RE targets and plans by 2030. This sub-component will (a) summarize the success and lessons learned from the 12th FYP; (b) assist in developing the RE 13th FYP; and (c) provide critical inputs to the medium and long-term RE targets and plans by 2030.
9. The final sub-component will be conditional of collaborating with the right Chinese counterparts, to engage dialogues, build consensus, and develop potential policy recommendations for power pricing reforms and incorporation of RE in power sector reforms. The current irrational power pricing structure is a fundamental barrier to RE development. Worldwide experience demonstrates that it is essential to consider renewable energy early in the design of power sector reforms to avoid hindering the scale up and access of renewable energy to the grid/market. This sub-component would include, but not limited to, the following topics:
Recommending two-part generation tariff: Power purchase prices of coal-fired power
plants are given based on certain guaranteed operating hours in China. Coal power producers have already asked for compensation of the financial losses when the grids require them to reduce operating hours below the guaranteed amount to take on more wind. Worldwide experience demonstrates that a two-part tariff structure with capacity charge and energy charge will allow coal-fired power producers to recover their capital investments and not to operate at a financial loss when dispatch centers ask them to reduce their generation to accommodate more wind/renewable generation.
Recommending transparent cost recovery transmission pricing: The transmission pricing should recover all costs incurred by grid companies to transfer power to consumers safely and reliably, including the additional costs to accommodate all intermittent RE electricity. This is essential to remunerate grid companies to integrate RE to the grids.
Studying internalization of external cost: Energy pricing should incorporate environmental external costs. Energy tax, such as coal tax and fuel tax, and/or carbon tax provide strong market signals to discourage waste and inefficient consumption, and a level playing field with renewable energy to encourage renewable supply and reduce the need for mounting subsidies to renewable. This study will compare different options to
23
provide a level playing field between RE and fossil fuels, including RE subsidies, fossil fuel tax, carbon tax, fossil fuel electricity tax, etc., and analyze their impacts on consumers.
Developing feed-in tariffs for off-shore wind and CSP: China has implemented feed-in tariffs for on-shore wind, biomass, and solar PV. Following the similar approach to set up feed-in tariffs for these mature RE technologies, the government has held several rounds of concession for the emerging RE technologies of off-shore wind and CSP. Based on the concession results, this task will develop feed-in tariffs for off-shore wind and CSP.
Incorporating RE in the envisaged power sector reforms: This sub-component will study and prepare renewable energy policies to avoid hindrance of RE scale up as regulatory framework evolves and reform progresses. The power sector structure and the regulatory framework will continue to evolve as the country is implementing the market structure, regulations and policies envisioned in the 2002 State Council Decree No 5; evidently at a slower pace than envisaged initially. Market structure, policies and regulations can create transmission pricing penalties and other hindrances for intermittent renewable energy sources. In addition, when large (or even small) consumers will be allowed to choose their electricity provider, they will not have the correct signal prices as long as the pricing system is not reformed to reflect the real cost of electricity supply to the community. It is essential that these issues are studied long before the structural and regulatory changes are initiated to ensure that the RE objectives are taken into account in the reform process.
10. Component 2. Grid Integration/Access and Technical Design (indicative cost estimate: US$5 million GEF grant): This component will consist of targeted studies to ensure improved grid integration for large-scale grid-connected RE and grid access for distributed RE; and strategic and optimal deployment of key RE technologies to enhance efficiency and reduce costs.
11. The studies would include, but not be limited to:
Optimization of site layout design to decrease wake effects for GW-scale Wind Power
Bases to maximize outputs of wind. There is a great potential for Chinese wind farms to improve efficiency for further cost reduction. The scale of the planned Wind Power Base with 5-10 GW each is unprecedented in the world. Optimization is likely to demonstrate that such very large quantities of wind power generation will be better installed in a dispersed manner to produce more reliable, cheaper electricity and have a smaller impact on the electrical system. Layout design of wind farms of the envisaged scale requires effort and financial resource to ensure optimal use of resources, which will increase wind generation and reduce cost. This sub-component will (a) undertake post-evaluation of the 3.8 GW Wind Power Base in Gansu province to collect data; (b) compare and evaluate globally available methodology, and select one appropriate for China to determine the optimal configuration of the Wind Power Base; and (c) adapt and perhaps further develop the methodology/model, and apply it to optimize dispersion to avoid the wake losses inherent to large sites while ensuring best economies of scale in construction and operation when designing future large-scale Wind Power Bases;
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Wind penetration development study in selected provinces with high penetration of wind power to provide analytical basis for improved grid integration. This stocktaking exercise will (a) map all the approved projects in 2012 and planned investments in 2015 in selected provinces in the Northeast, Northwest, and Northern regions; (b) compare them with local load pattern to determine whether local absorption of wind is feasible; (c) compare them with existing transmission capacity and recommend imports/exports to balance demand and supply; and (d) study on the technical ceiling of wind and maximum flexibility of coal-fired power plants, and recommend the optimum generation mix;
Grid access and connection study for distributed generation. This study will review the State Grid’s technical standards for grid connection of RE distributed generation, measure existing installations and trial test new installations when applying technical standards for grid connection for RE distributed generation in selected pilot New Energy Cities, and develop national technical standards/specifications for grid connection of distributed generation.
Grid codes study: This study will compare China’s existing grid codes with international grid codes for grid connection of large-scale wind farms, select a few sites to evaluate grid requirements for wind farms and recommend cost effective solutions, and summarize international experience on how to cost effectively meet grid requirements for wind farms.
12. Component 3. Technology Improvement (indicative cost estimate: US$7.28 million GEF grant): The technology improvements would include, but not limited to: Improving efficiency of existing wind farms. The utilization hours of existing wind farms in
China are lower than international levels, due to factors such as poor design and layout of wind farms, low efficiency and utilization of wind turbines, insufficient reactive power, and poor operation and maintenance. This sub-component will post review a few selected existing wind farms and conduct diagnostic studies to identify areas for improvement and recommend solutions. This study will be conditional of data availability. A potential follow-up activity would be cost-sharing sub-grants to wind developers/manufactures who are willing to participate and share data to improve the efficiency of their existing wind farms, following the recommendations made from the diagnostic study;
Improving the quality, reliability and safety of off-shore wind turbine technologies, through support of off-shore wind turbine standards, testing, and certification;
Supporting technology improvement for off-shore wind technology to reduce costs and tailor to the specific environmental conditions in China. The is sub-component will first undertake a diagnostic study to identify potential areas for technology improvement of off-shore wind turbines, and recommend areas where the project can make a difference with value added. Then, the PMO will issue call for proposals to competitively select the best proposals, and provide cost-sharing sub-grants for technology improvement of off-shore wind technology;
Improving efficiency of existing large-scale grid-connected solar PV farms. There are large discrepancies of utilization hours among existing grid-connected solar PV farms, largely due to the poor design, layout, and operation and maintenance of solar PV farms. This sub-component will review a few selected existing solar PV farms and conduct diagnostic studies to identify areas for improvement and recommend solutions. This study will be conditional on data availability. A potential follow-up activity would be cost-sharing sub-grants to solar
25
PV developers/manufactures who are willing to participate and share data to improve the efficiency of their existing solar PV farms, following the recommendations made from the diagnostic study; and
Conduct a localization strategy study of manufacturing CSP in China, and possibly improving CSP domestic manufacturing capacity, depending on the study results.
13. Component 4. Pilot Demonstration (indicative cost estimate: US$5 million GEF grant): Pilot demonstration has two sub-components. The first sub-component will support NEA/Inner Mongolia partnership to pilot and explore new ideas relating to the scale-up of RE and optimization of wind in power system. Inner Mongolia has the largest wind resources and installed capacity in China, accounting for one third of the wind power installed capacity nationwide. Inner Mongolia grid reached 14 percent of wind penetration rate in 2012, the highest in China, and faces severe wind curtailment bottlenecks. Inner Mongolia Power Company is an independent grid company and one of the three grid companies in China, and it is willing and interested in working with the Bank under the CRESP II to improve wind grid integration. This sub-component will support (a) Inner Mongolia Power Company with technical and operational studies--impacts assessment of RE on system security through acquiring and adapting international software tools, automated systems to manage high penetration of wind in the power system through automated voltage control and automated generation control systems, and possibly evaluation of heat storage options from curtailed wind; (b) wind grid integrated planning of a wind penetration development study to improve grid integration; and (c) possibly pilot of new RE policies.
14. The second sub-component is to pilot RE distributed generation in 2 selected New Energy Cities and possibly Green Counties, primarily through support of (a) twinning with selected international successful cities; (b) development of the conceptual framework of New Energy Cities; (c) planning, implementation plans, policies, business and financing models to remove barriers to piloting New Energy Cities; and (d) enforcement and monitoring. This sub-component will provide primarily technical assistance on planning, business and financing models, technical design, and policies for distributed generation applications to build model New Energy Cities for replication. This sub-component will first competitively select pilot New Energy Cities, in consultation with NEA, PMO, and the Bank, following such criteria as local government commitment, data availability, geographic representation (advance vs. less developed cities, East coast vs. Western cities, Northern cities with heating requirements vs. Southern cities without heating), and different RE technologies. Then, it will provide technical assistance to selected pilot New Energy Cities.
15. Component 5. Capacity Building and Investment Support, and Project Management (indicative cost estimate: US$5 million GEF grant): This component will (a) build capacity of government officials and staff at national level and at pilot provincial/municipal levels (e.g. NEA, NDRC Pricing Bureau (for energy pricing reform), Ministry of Finance (for fiscal measures), Ministry of Water Resources (for small hydro), Ministry of Agriculture (for biomass), Ministry of Forestry (for biomass), Ocean Bureau (for off-shore wind), grid companies, RE power generators, pilot provincial and municipal governments, and the relevant agencies in the pilot demonstration areas); (b) help operationalize the China RE Training Center to be established in Shanghai by developing RE curriculums and training the trainers to ensure
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sustainability of RE capacity building; and (c) support investors by building innovative RE investment pipelines. For example, this sub-component plans to support Datang RE Company for the first CSP investment project in China through hiring international experts to find technical solutions to the interface problem of the supply and installation contracts between solar field and power generation; prepare technical specifications of the bidding document, and provide technical review of the solutions for operation of the CSP plant in severe cold weather condition. Dissemination of these technical solutions contributes to replication and scale-up of CSP technology in China. Finally, this component also covers program management costs, donor coordination activities, and administration including fiduciary duties.
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Annex 3: Implementation Arrangements
China: The Second Phase of The Renewable Energy Scale-Up Program
Project Institutional and Implementation Arrangements 1. This project will be implemented under the leadership of NEA, who will coordinate with other key stakeholders such as the NDRC Pricing Bureau, Ministry of Finance, Ministry of Water Resources, Ministry of Agriculture, Ministry of Forestry, Ocean Bureau, grid companies, RE power generators, pilot municipal governments, and the relevant agencies in the pilot demonstration areas. 2. A Project Steering Committee will be set up to provide overall strategic and policy guidance and coordinate between various government agencies to the implementation of the project activities. The Steering Committee will be chaired by NEA. A Project Management Office (PMO) has been established under the NEA, and will function as the executive office of the Steering Committee. On behalf of NEA, the PMO will be responsible for overall implementation, coordination, monitoring and reporting during project implementation.
3. Implementation agency risks: The implementation arrangement is similar to that for CRESP Phase I. The demonstrated track record of such an implementation arrangement during CRESP Phase I will enable similar level of support given knowledge of Bank’s procurement and financial management guidelines. Therefore, the implementing agency arrangement risk is low. Cost-shared Sub-grants 4. The successful experience from REDP and CRESP I project demonstrated that the cost-shared sub-grant approach is the backbone of the technology improvement effort and has been remarkably effective as a means of leveraging private sector funds. CRSEP II will follow the similar approach with two categories of cost-shared sub-grants described as below: 5. Cost Shared Sub-grant Facility (CSF): This category of sub-grants will support strategic policy and technical studies agreed by the government and the Bank towards achieving PDO under Project Component 1 Policy Support and Component 2 Grid Integration/Access and Technical Design. The sub-grant beneficiaries will be government designated public research institutions. The NEA, the government counterpart of CRESP II, heavily relies on a few competent and reputable research institutions and think tanks for strategic policy and technical studies. In addition, given the data confidentiality, only these designated research institutions have access to the key data required to undertake strategic policy and technical studies under the project. Contracting other institutions would not achieve the desired impacts that policy studies would be considered by NEA during decision making process, weakening the project’s impact on China’s RE policy development. These sub-grant beneficiaries have to follow the procurement methods specified in the Bank's Procurement / Consultant Guidelines when procuring goods and services.
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6. Competitive Grant Facility (CGF): This category of sub-grants will support competitively selected commercial entities, such as RE manufacturers for RE Technology Improvement under Component 3, RE investors, companies, and other commercial entities for pilot demonstration, pre-feasibility and/or feasibility studies under Component 4 Pilot Demonstration and Component 5 Capacity Building and Investment Support. The sub-grant beneficiaries are competitively selected commercial entities, and will procure goods and services using procedures ensuring economy and efficiency generally and agreed with the Bank. 7. Under both categories of sub-grants, a sub-grant agreement will be signed between the PMO and the sub-grant beneficiaries for each sub-grant and approved by the Bank. Such a sub-grant agreement will specify the maximum amount of GEF grant, the activities and outputs the sub-grant beneficiaries will undertake, disbursement schedule, milestones, and requirements. For all cost-sharing sub-grants, GEF funds will support no more than 50 percent of the total expenses of each sub-grant. Disbursement of GEF grant will be made against actual eligible expenditures up to 50 percent of the total expenses and well defined milestones specified in each sub-grant agreement. A sub-grant guideline has been developed to specify eligible beneficiaries, expenditures, and activities, selection and approval process, procurement, disbursement, and reporting requirements of sub-grants.
Financial Management, Disbursements and Procurement Financial Management 8. The FM capacity assessment concluded that the Project FM arrangements satisfy Bank requirements and identified the following principal risk: disbursement under sub-grant will be used for large amount of sub-projects executed by different beneficiaries, which may bring additional risk for project implementation. Mitigation measures to address the above risk have been agreed: (a) preparation and issuance of a Financial Management Manual, acceptable to the Bank, to standardize project FM procedures; (b) extensive FM training for new staff from the Bank. Overall, the residual financial management risk before and after mitigation measure for the project is assessed as Moderate. 9. Budgeting. The annual project implementation plan will be prepared by the PMO. Budget variance analysis will be conducted on semi-annual basis by the PMO and necessary actions will be taken to make sure project could be implemented as planned.
10. Funds flow. The GEF grant proceeds will flow from the Bank into project designated accounts (DA) to be set up at and managed by MOF. MOF will be directly responsible for the management, maintenance and reconciliation of the DA activities. Supporting documents required for Bank disbursements will be prepared and submitted by the PMO to MOF for review and disbursement processing.
11. Accounting and financial reporting. The administration, accounting and reporting of the project will be set up in accordance with Circular #13: “Accounting Regulations for World Bank Financed Projects” issued in January 2000 by the MOF. The standard set of project financial statements has been agreed between the World Bank and MOF.
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12. The PMO will be responsible for the project implementation, management, monitoring and coordination. Original accounting documents for project activities will be retained by PMO. PMO will work together with MOF. The unaudited semi-annual project interim financial reports (IFRs) (format in accordance with the aforementioned Circular #13 agreed with MOF) will be prepared and furnished to the Bank by the PMOs no later than 45 days following each semester (the due dates will be August 15th and February 15th), in form and substance satisfactory to the Bank.
13. Internal control. The related accounting policy, procedures and regulations were issued by MOF and a FMM has been prepared and issued to standardize and regularize the financial management and disbursement requirements.
14. Audit. The Audit Service Center of China National Audit Office (CNAO) for Foreign Loan and Assistance Projects has been identified as auditors for the grant. Annual audit reports will be issued by the above audit center. The Bank currently accepts audit reports issued by CNAO or provincial/regional audit bureaus/offices for which CNAO is ultimately responsible. The annual audit report of project financial statements will be due to the Bank within six months after the end of each calendar year.
Disbursements
15. Four disbursement methods are available for the project: advance, reimbursement, direct payment and special commitment. Supporting documents required for Bank disbursement under different disbursement methods will be documented in the Disbursement Letter issued by the Bank. 16. One DA in US dollars will be opened at a commercial bank acceptable to the Bank and will be managed by the MOF. The ceiling of the DA is documented in the Disbursement Letter. 17. The GEF grant would be disbursed to finance one hundred percent (100%) of eligible expenditures (inclusive of taxes and duties) consisting of goods, non-consulting services, consultants’ services, Subproject Grants, Training, and Operating Costs. 18. Disbursement Mechanism for Sub-grant The GEF grant will be disbursed in the form of sub-grants to the beneficiaries selected in accordance with the procedures defined in the Sub-grants Guideline, prepared by the PMO and agreed by the Bank. The PMO will enter into a sub-grant agreement with the beneficiaries, which lays out the eligible activities, expenditure, milestones and disbursement arrangement. The grant will finance actual expenditures up to the sub-grant amount and against defined milestone achievements, and based on evidence of actual expenditure.
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Procurement 19. Procurement Capacity Assessment. The principal risk identified in the procurement capacity and risk assessment was the inadequate experience of potential future new PMO staff with procurement under Bank financed projects, even though the current PMO staff have prior experience with Bank procurement. Mitigation measures include the following actions: (a) training to be further provided to procurement staff of PMO during project implementation; (b) the Project Implementation Plan prepared by the PMO and agreed with the Bank by project effectiveness; and (c) a qualified expert with procurement experience in World Bank procurement procedures to be recruited by PMO to assist with the planning and implementation of procurement activities. The overall procurement risk is considered ‘Moderate’. 20. Applicable Guidelines. Procurement will be carried out in accordance with the “Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers” dated January 2011; the “Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers” dated January 2011; and the provisions stipulated in the Grant Agreement. National Competitive Bidding (NCB) shall be carried out in accordance with the Law on Tendering and Bidding of the People’s Republic of China promulgated by Order of the President of the People’s Republic of China on August 30, 1999 subject to the modifications stipulated in the Grant Agreement in order to ensure consistency with World Bank Procurement Guidelines. 21. Procurement of Goods and Non-consulting Services: Computers; network facilities and office equipment (to be identified at pre-appraisal and appraisal), and non-consulting services would be procured under the project. 22. Selection of Consultants: The GEF grant will finance contracts for various consulting services assignments, including RE development policy studies, technical studies, planning and operational studies in pilot province, and capacity building, etc. Single-Source Selection (SSS) procedures would be used for very specialized studies under the circumstances described in paragraph 3.9 of the Consultant Guidelines. 23. Standard Bidding/Proposal Documents. The Bank’s Standard Bidding Documents for all ICB and the Chinese model bidding documents agreed with the Bank issued by MOF shall be used for all NCB procurement. The Bank’s Standard Request for Proposals shall be used for the competitive selection of consulting firms. 24. Procurement/Consultant Selection under Sub-grants: (i) Designated government-owned Universities and Research Institutes, and think tanks who will be beneficiaries under the Cost Sharing Sub-grant Facility (CSF) will be required to carry out procurement and selection of consultants in accordance with the relevant Bank Guidelines when they procure goods and services. The application procedures for the sub-grants, the eligibility criteria, and the procurement/selection methods to be used by beneficiaries, record keeping, verification and audit requirements will be elaborated in the Sub-grant Guideline which will be finalized by negotiations, and detailed in each sub-grant agreement; (ii) Manufacturers for RE Technology
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Improvement under Component 3, RE Investors, companies and other commercial entities for pilot demonstration, prefeasibility and/or feasibility studies under Component 4 Pilot Demonstration and Component 5 Capacity Building and Investment Support will be selected competitively for sub-grants under the Competitive Sub-grant Facility (CGF). The procurement of goods, consulting and non-consulting services financed by the sub-grants under the CGF may be carried out by the respective beneficiaries in accordance with well-established private sector procurement methods or commercial practices acceptable to the Bank. The beneficiaries of the Sub-Grants under the CGF shall not award contracts to their parent or affiliate companies unless there is an established arms-length arrangement. The Sub-grant Guideline shall describe the principles and acceptable procedures applicable to the sub-grants under both the CSF and the CGF. The Sub-grant Guideline will be finalized by negotiations and shall define the main responsibilities of the PMO such as reviewing the proposals, assessing reasonableness of cost, approving acceptable plans for the procurement of goods, consulting and non-consulting services, verification requirements, maintaining all relevant records for the Bank’s post review and audits when requested. 25. Training and Workshops. For the training and workshops planned under the project, detailed programs will be developed by the PMO during project implementation and included in the project annual work plans for the Bank’s review. Actual expenditures incurred in accordance with the approved detailed programs will be used as the basis for reimbursement.
26. Procurement Plan and GPN A draft Procurement Plan (PP) for the first 18 months of project implementation, acceptable to the Bank, has been prepared and agreed with the Bank no later than negotiations. The agreed PP which covers procurement to be carried out by the PMO will be available in the project files and on the World Bank’s external website. The PP will be updated annually or as required to reflect implementation needs and improvements in institutional capacity. The General Procurement Notice (GPN) would be published before project effectiveness and in any case before any bidding documents or RFP under the project is issued.Record Keeping. The PMO will be responsible for maintaining all procurement records (including contract management records and records of payments) for Bank post review and audits. All procurement records shall be maintained from the period from project preparation to at least two years after the project closing date. 27. Procurement Methods and Prior Review Thresholds. The procurement methods and prior review thresholds for GEF grant implementation are summarized in table A3.1. The procurement plan will set forth those contracts subject to prior review. All other contracts will be subject to post review. All procurement and selection of consultants under the CGF will be subject to procurement post review by the Bank and/or by auditors acceptable to the Bank.
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Table A3.1: Thresholds for Procurement Methods and Prior Review
Expenditure Category Procurement Method Contract Value Threshold (US$)
Prior Review Threshold (US$) 1/
1. Goods and Non-Consulting Services
ICB NCB Shopping Direct contracting
≥3,000,000 <3,000,000 <100,000 None
All First 2 Contracts First Contract All
2. Consultants Services QCBS/QBS CQS Individual consultant Single source selection (firm) Single source selection (individual)
None <300,000
≥300,000 First Contract, or identified in Procurement Plan First Contract and only in exceptional cases identified in Procurement Plan All First Contract and ≥ 20,000
3. Competitive Sub-Grant Facility (CGF)
Commercial Practices All None
28. Frequency of Procurement Supervision. In addition to annual supervision missions, the Bank team will conduct procurement post review once a year to ensure that the Bank procurement rules and procedures are followed. The sampling percentage for the post review will be at least 10 percent for procurement in the first year. The sampling percentage ratio will be adjusted each year based on the findings of the previous year’s post review. 29. Advance Contracting and Retroactive financing. Payment up to an aggregate amount not to exceed $ 5,000,000 equivalent made prior to the date of the signing of the legal agreement but on or after February 1, 2013 in respect of eligible expenditures may be financed from the GEF Grant, provided that the procurement requirements and procedures have been met. All contracts to be financed through retroactive financing from the GEF grant will be subject to prior review. Table A3.2 provides the list of contracts expected to be contracted in advance of the signing of the GEF loan.
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Table A3.2: Contracts to be procured/Expenditures under retroactive financing
Reference Number Description Procurement Method
Estimated cost
Review by Bank (Prior / Post)
2 Developing financial incentive policies for New Energy Cities
CQS US$200,000 Prior
3 Impact of distributed generation on grid security
CQS US$250,000 Prior
4 Stocktaking of approved projects in 2012 and planned for 2015 in context of grid integration in Inner Mongolia
CQS US$100,000 Prior
5 PMO staff IC US$80,000 Prior 6 Translators IC US$10,000 Prior 7 Workshops Various US$60,000 Prior 8 Incremental
operating costs Various US$86,000 --
9 Office supplies and equipment for PMO
Shopping
US$10,000
Prior
Total US$796,000
Environmental and Social (including safeguards) 30. Given the little environmental impacts envisaged, the project is classified as Category C project. According to OP4.01 beyond an initial screening, no further EA action is required. As part of the project design, a generic EMP has been prepared to address potential impacts, if any, with regards to equipment installation, e.g. worker and community safety, noise nuisance, solid waste management, etc. The EMP applies only to pilot demonstration Subprojects under Component 4. The EMP includes screening procedures to avoid adverse impacts, and a set of Environmental Code of Practice to address potential impacts. The EMP will be incorporated into the bidding documents for the sub-project implementation entities which will ensure the implementation of the EMP is incorporated into installation contracts, with adequate budget allocation. The EMP was disclosed locally on May 23, 2013, and at InfoShop on May 24, 2013. Finally, the government is required to ensure that the terms of reference for all studies carried out under the Project include consideration of the relevant environmental issues and preparation of any related recommendations. 31. The project will benefit women and men equally. During consultation and assessment with beneficiaries, surveys and interviews will be designed with gender sensitivity to ensure that women are given equal opportunities.
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32. As no social safeguards policy is triggered, there is no action needed for social safeguards.
Monitoring & Evaluation 33. Annex 1 provides a detailed description of the performance indicators to be tracked under the project, and specifies the source and schedule for data collection. The PMO will be responsible for the overall M&E system, including regular data collection to assess progress towards achieving results. It will furnish to the Bank semi-annual progress reports on project implementation by February 15 and August 15 of each year, starting with February 15, 2014. In addition, it will prepare a mid-term review report by June 30, 2016. Based on the recommendations of these reports and the Bank’s reviews and comments thereon, the PMO will take actions, satisfactory to the Bank, to address any emerging issues in order to meet the targets set in the results framework. Role of Partners (if applicable) 34. There are many bilateral and multilateral donors active in renewable energy development in China. Coordination between the CRESP program and other donors’ programs is important to reduce overlapping and maximize the impacts of the CRESP program. NEA and the National Renewable Energy Center (NREC) are the government counterparts for most of these donor programs, and they are also the key implementing agency/partner under this proposed project. Therefore, they are well positioned to coordinate these RE programs. In addition, the Bank team will also periodically organize donor coordination meetings during project preparation and implementation to coordinate with the key active donors in RE field in China.
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Annex 4: Operational Risk Assessment Framework (ORAF)
China: The Second Phase of The Renewable Energy Scale-Up Program
1. Project Stakeholder Risks
Rating Low
Description: RE development is a strategic objective of China’s energy and climate change strategy. These objectives are widely supported by government agencies and non-governmental organizations.
Risk Management:
Resp: Client Stage: N/A Due Date : N/A
Status: N/A
2. Implementing Agency Risks (including fiduciary) 2.1. Capacity Rating: Moderate
Description: NEA and the Project Management Office (PMO) will implement CRESP Phase II. This type of arrangement has a demonstrated track record of successful implementation of CRESP Phase I. The arrangement demonstrated adequate familiarity with Bank’s procurement and financial management guidelines. However, given the potential procurement and fiduciary risks described in the governance section below, a moderate risk rating was assigned.
Risk Management: The same approach is proposed to be followed for CRESP Phase II. PMO will assist NEA in project implementation. See the risk management measures described in the governance section below to mitigate the potential procurement and fiduciary risks.
Resp: Client Stage: N/A Due Date: N/A
Status: N/A
2.2. Governance Rating: Moderate Description: Political commitment in RE is high. During CRESP Phase I implementation, the auditing opinions issued by annual CNAO auditing were
Risk Management: To avoid encountering the same issue regarding PMO staff salary during the CRESP II implementation, the PMO plans to entrust an intermediary company (FESCO) to withhold income tax and benefits for PMO staff.
Resp: Client/Bank Stage: Prep and Impl
Due Date: Ongoing
Status: Not yet due
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"unqualified", except the auditing report in 2009, when the CNAO identified an internal control issue where funds were withheld from PMO staff salary for the purpose of paying PMO staff income tax and benefits. However, CNAO found that these funds were not disbursed at the time of auditing. After the auditing report pointed out these issues, the client has taken remedy actions, and the CNAO did not identify the same issue again in the subsequent years auditing reports. 3. Project
Risks
3.1. Design Rating: Substantial Description: (1) The stalled power pricing
and power sector reforms are blocking priority dispatch of RE and grid access for RE distributed generation. But the power sector reform agenda is outside the control of the project counterparts, and may not be realized due to a lack of interests and resistance. The proposed studies on power pricing and sector reform under the project may not lead to actual reforms.
(2) The policy studies on RE quota and trading, distributed generation in New Energy Cities, etc. might not lead to actual policies issued.
Risk Management: (1) Given that the implications of reform go far beyond the scope of the Program, the team proposes to cautiously proceed with the
proposed power pricing and sector reform studies conditional on collaboration with the right counterparts, in the hope that these critical issues will be addressed, within or outside of the Program. The strong commitment of the GoC to renewable energy and the pressure created by substantial unutilized windpower capacity may also help catalyze the opportunity for reform.
(2) The project will be implemented under the leadership of NEA. The project will provide analytical basis for market-based policies, recommend ways to balance allocations and provide incentives among provinces, and suggest methods to reduce financial burdens on consumers. The project will focus on GoC’s priorities, and recommend sound and gradual approach to reform.
(3) The policy studies will be jointly determined by NEA, the PMO, and the Bank team, with a focus on NEA’s priorities. The strategic partnership with NEA and the strong government’s commitment ensure good chance of policy issuance. The successful CRESP I experience proved that many policy studies have been adopted by policy makers and strongly influenced RE policy development.
(4) RE markets continue to develop and competition increases, and fossil fuels prices increase in real terms and environmental externality impacts worsen. The project design is intended to specifically address reducing RE incremental costs through introducing market-based mechanisms, improving efficiency and quality, smoothing grid integration, and reducing costs of RE technologies.
(5) The project will work with government designated institutions who have access to data to undertake the required technical studies.
Resp: Client Stage: Prep and Impl
Due Date: Ongoing
Status: Not yet due
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(3) Incremental costs between renewable energy and fossil fuels remain high. This risk is low after project’s interventions.
(4) Data confidentiality may constrain some of the strategic technical studies and technology improvements.
3.2. Social & Environmental
Rating: Low
Description: This project will primarily consist of capacity building, policy analysis, and research related to RE development. The project will have positive environmental impacts in terms of reduced local air pollution and greenhouse gas emissions. But potential negative environmental impacts could result from a limited number of small-scale RE demonstration projects such as roof-top solar PV under the pilot demonstration component. All the pilot demonstration activities will be located within the premises of existing buildings, and there will be no land acquisition.
Risk Management: This is a category C project. The project has prepared generic EMPs to address the potential environment impacts from various pilot demonstration investments like roof-top solar PV, solar water heaters, heat pumps etc. The EMP will also include implementation schedule including budget arrangements.
Resp: Client Stage: Prep and Impl
Due Date: GEMP has been completed
Status: Not yet due
3.3. Program & Donor Rating: Moderate Description: There are many bilateral and multilateral donors active in renewable energy development in China. If not well coordinated, these programs may be overlapping with this proposed project.
Risk Management: First, NEA and the National RE Center (NREC) are the government counterparts for most of these donor programs, and they are also the key implementing agency/partner under this proposed project. Therefore, they are well positioned to coordinate these RE programs. Second, the Bank team will also periodically organize donor coordination meetings during project preparation and implementation to coordinate with the key active donors in RE field in China.
Resp: Client/Bank Stage: Prep and Impl
Due Date: Ongoing
Status: Not yet due
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3.4. Delivery Monitoring & Sustainability
Rating: Low
Description: The government is committed to making renewable energy as one of the highest national priorities.
Risk Management :
Resp: Client Stage: N/A Due Date : N/A
Status: N/A
3.5. Other Rating: Description : Risk Management :
Resp: Stage: Due Date : Status:
4. Overall Risk Implementation Risk Rating: Substantial Description: A substantial risk rating was selected for implementation because the stalled power pricing and power sector reforms are now blocking priority dispatch of large-scale grid-connected RE and grid access of RE distributed generation, and such reforms are fundamental to an efficient, sustainable, and secure energy sector. The reform has been stalled for the past decade. With the new administration at the highest level of the national government, there is a window of opportunity to revive the reform agenda. However, power pricing and power sector reforms are complex with strong vested interests. Building consensus for the reform may take longer time than the project implementation period. In addition, lacking coordination between government agencies is also a major risk. Finally, the project is innovative with strong policy orientation, and involves a large number of stakeholders. However, much has been learned during the preparation and implementation of CRESP Phase I. While the linkages to the wider power sector reform present a substantial risk to the project, the success of the project is not dependent on the reform agenda, as it is beyond the control of the project counterparts. Therefore, while the project’s primary focus is on RE, it will, if opportunities materialize, support project counterparts to engage other concerned institutions to advance the reform agenda and ensure that RE constraints are taken in accounts in any decisions on the subject. The project will support comprehensive measures of policy recommendations, technical strategic studies on grid integration and grid access, technology improvements, pilot demonstrations, and capacity building to mitigate these risks and ensure achievements of the project objective.
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Annex 5: Implementation Support Plan
China: The Second Phase of The Renewable Energy Scale-Up Program Strategy and Approach for Implementation Support 1. This annex lays out the key activities that the Bank team will implement to appropriately mitigate the risks identified during project implementation. It will focus on the key risks defined in the ORAF and will strive to provide the client with the most effective implementation support. Under the proposed project, the key risks revolve around the implementing agencies’ lack of adequate capacity in the effective execution of the project implementation. 2. Technical Support. The Bank team has provided extensive technical expertise during project preparation, and will continue to provide extensive technical support to the PMO to effectively monitor and implement the project activities according to the Project Implementation Plan (PIP) for the GEF grant. Training and technical assistance activities will also be provided during project implementation by the World Bank.
3. Procurement. Procurement implementation support would include:
Facilitation of a multi-stage training program targeting procurement staff in the PMO to help them to fully understand Bank’s procurement guidelines;
Review of procurement documents and timely provision of feedback on results of prior and post reviews to the parties concerned;
Monitoring procurement progress against the agreed Procurement Plan for the GEF grant.
4. Financial Management. The project financial management will be reviewed and evaluated on a regular basis by the Bank’s financial management specialist. S/he will join World Bank’s supervision missions and review the implementation of the Financial Management Manual. The specialist will also provide technical support to the project implementing agencies and help with timely resolution of potential financial management issues or any issues identified by the auditors. The review and monitoring will include the evaluation of the adequacy of the financial management arrangements in place, disbursement processes, on-lending arrangements, counterpart fund allocations, and document filing systems. 5. Environmental and Social Safeguards. The Bank project’s environmental and social development experts will supervise the implementation of the project. They would provide guidance to the project implementing agencies on how to best address relevant issues that arise during project implementation. They would also help ensure that the planned community and stakeholders consultations have been undertaken during the project design phase and would continue during the project implementation stage. Implementation Support Plan
6. Most Bank team members will be based in the China Country Office, located in Beijing.
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This would ensure rapid and effective response to Borrower’s needs for implementation support. In addition, a few Washington-based staff and international consultants would also be part of the task team to bring global experience to the project. Formal supervision and field visits covering all aspects of project implementation will be carried out semi-annually during the early stage of project implementation, complemented by occasional visits by small missions on an as-needed basis. Estimated inputs from different specialists at different stages of project implementation are outlined below.
Table A5.1. Project Implementation Support Input Requirements
Time Focus Skills Needed
Resource Estimate
Partner Role
First twelve months
Team and project leadership
Project design and technical supervision
FM & Procurement
Safeguards supervision
Capacity building
Technical
FM
Procurement
Safeguards
6-7 staff, 2 trips per staff
NA
12-48 months Project implementation and supervision
FM, Procurement & Safeguards
M & E
Technical
Safeguards
FM
Procurement
6-7 staff, 2 trips per staff annually
NA
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Annex 6: Incremental Cost Analysis
China: The Second Phase of The Renewable Energy Scale-Up Program 1. The China Renewable Energy Scale up Program (CRESP) has been designed as a strategic partnership between the GoC and the World Bank/GEF. The program includes three GEF supported phases over a period of 15 years. The GEF program was justified by the long-term and complex nature of the policy issues hampering the scale-up of renewable energy and the need for a flexible approach to adapt to the fast changing environment and the priorities as they emerge during implementation. 2. The objective of the CRESP program (three phases) is to enable commercial renewable electricity suppliers to provide energy to the electricity market efficiently, cost-effectively and on a large scale. The phased approach aims to move RE development in China from quantitative scale-up under Phase I to sustained growth under Phase II, with an increased focus on efficiency, incorporating achievements and lessons learned from Phase I. CRESP Phase III envisions to fully integrate RE in competitive and open power markets. 3. Project Development Objective: The objective of CRESP Phase II is to support the ambitious renewable energy scale-up program in China, with a focus on efficiency improvement and reduction of incremental costs. 4. International assistance from GEF and the World Bank is necessary to support Chinese government’s ambitious renewable energy and carbon intensity reduction targets. If the non-fossil market in China is going to grow in a sustainable and affordable way to achieve the government’s target, it is essential to close the incremental cost gap therefore cutting the subsidy levels by shifting to more market-oriented policies such as RE trading, improving cost competiveness of RE industry through research and development, increasing efficiency through improved design and better layout of projects, and optimizing RE mix through prioritizing least-cost RE technologies. The partnership between GEF/World Bank and Chinese RE institutions remains vital to support GoC’s efforts to address these new challenges and barriers facing RE development and to achieve its ambitious RE and carbon intensity reduction targets. 5. Baseline: Even though China has the largest RE installed capacity (GW) in the world, the electricity generation from RE sources (TWh) has not produced its intended results, due to the low efficiency of wind farms (e.g. inefficient wind farm layout design) and the fact that a large share of wind power cannot be connected to the grid. In addition, RE distributed generation and the share of RE in pilot New Energy Cities would remain limited, given the difficulties in grid access and limited incentives. The 12th FYP targets at piloting 100 New Energy Cities that increase their RE penetration in total energy consumption from 3% in 2010 to 6% by 2015. However, without extensive technical assistance and a bottom-up approach to be supported by the CRESP program, these achievements are unlikely. Finally, the rising share of renewable energy in the power mix will result in continued increases in the power tariff surcharge for renewable energy, which will create financial burdens on consumers, particularly the poor. The US$400 million RE investment from RE developers during 12th FYP are considered as baseline contributions to the RE program of which CRESP II is a part.
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6. Alternative: CRESP II is intended to remove new policy, technological, and capacity barriers facing RE development today in China to support sustainable growth of China’s RE industry through driving down costs while promoting high-efficiency and high-quality. Improving the efficiency of RE development will help both to drive down the additional costs of renewable energy, and to minimize the costs to the consumer of meeting the national RE targets. 7. The new barriers and challenges facing RE development in China today include the following: 8. Grid integration and access bottleneck: Progress towards greening China’s energy sector is now blocked by stalled sector reforms. In particular, the irrational power pricing structure is a fundamental barrier to RE development. First, without incorporation of environmental external costs, fossil fuel pricing provides an un-level playing field for RE resources. Second, the existing one-part fixed wholesale tariff is not conducive to economic dispatch and is the only reason for resistance of coal-fired power plants to reduce their generation to accommodate more wind into the grids, during windy periods—a key impediment to an increased share of wind power being dispatched into the grids. Third, the existing tariff structure with only wholesale and retail energy tariffs does not include transparent transmission and distribution pricing, thereby providing no incentives for the grid companies to accommodate more intermittent renewable. 9. Policy, institutional, operational, and technological barriers discourage the companies operating the grid from accommodating an increased share of intermittent renewables and distributed generation into the grids. Mandatory grid access policy and its enforcement are essential for both grid-connected RE and RE distributed generation.
10. Coordination failures between government agencies have also contributed to the wind grid integration bottleneck. First, the development of power generation capacity and the electrical grids is not well coordinated. For example, China had proposed to construct 7 x 10 GW Wind Power Bases, but had not laid down plans for how that electricity would be transmitted and distributed. Second, the coal-dominated power generation mix proves inflexible to dispatching wind, and the fact that the development of wind power is not well integrated with the development of other generation sources further diminish flexibility in the generation mix. Third, provincial and regional interconnections for trade are critical to balance the supply and demand for RE, given the uneven distribution of RE resources and load centers in China, and share the use of flexible resources with neighbors to manage the variability of RE resources. With the right incentives and market-based policies, inter-provincial power trade can be increased. Finally, the lack of coordination between different government agencies (e.g. Energy, Ocean, Maritime, Fishery, and Environment agencies) has stalled off-shore wind development.
11. Looking ahead, China is envisaging further reform of the power sector to increase its market orientation. The design of such reforms should take into account the specific characteristics of RE technologies, and RE policies need to be adapted to the new competitive operational environment to ensure unfettered access of RE to the power systems.
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12. High cost of the RE program: With the rising share of RE in the power mix, a continued increase in the power tariff surcharge for RE has run into political resistance, because it may increase unduly the financial burden on consumers, particularly the poor. A World Bank study estimated that the current RE surcharge would have to triple to reach the 15 percent target by 2020. Inter-provincial RE trading can drive down the cost to achieve the government’s targets. The coordination failure mentioned above and less-than-optimal wind farm design and layout, particularly for the large-scale wind bases, have reduced considerably the efficiency and performance of the wind farms, resulting in lower RE electricity generation and GHG emission reduction. If not addressed adequately, the high level of inefficiencies will dramatically drive up the costs of meeting the RE targets for the nation. CRESP II’s efforts will focus on improving the efficiency and operation of China’s existing wind-farms and improving the site layout and operation of the new wind installations to be built during the project’s lifetime and beyond.
13. Under the New Energy Cities program of the 12th Five Year Plan, the goal is to increase renewable energy penetration from 3 percent in 2010 to 6 percent by 2015 in the 100 pilot New Energy Cities. CRESP has examined this program and considers that while it is a program with great potential to decrease GHG emission reductions, these reductions are unlikely to be achieved, due to the low capacity at local municipal level, and without benefitting from international experience. CRESP II intends to support two of the pilot new energy cities to provide primarily technical assistance on planning, business and financing models, technical design, and policies for distributed generation applications to build model New Energy Cities for replication to ensure the goal is achieved. Following these initial two model new energy cities, it is expected that one more city each year will follow the CRESP example during the project lifetime. By the close of the project, it is expected that five New Energy Cities will have followed this example. But it is hoped that following this beginning, most of the 100 cities will also follow these examples and achieve the program’s goals.
14. Increment: The incremental costs of the RE program of which CRESP II is a part are estimate at US$71.38 million, of which US$27.28 is from the GEF contribution, and US$44.1 million will come from the government, RE developers, manufacturers, investors, and grid companies . These funds are incremental to the baseline funding identified earlier that will be raised by industry from investors to meet the RE targets. The total costs of the program are estimated at US$471.38 million, of which US$71.38 are considered incremental. 15. The Project is part of the government's broader investment program aimed at meeting its 12th and 13th Five-Year Plan renewable energy targets. Accordingly, the government is committed to mobilizing US$444.1 million in counterpart funding from the government, renewable energy developers, manufacturers, investors and grid companies for the broader investment program, to supplement the Project during the project's lifetime. The GEF grant devoted to cost-shared sub-grants for technical studies, technology improvement, and investor support will not exceed 50 percent of the total sub-grant costs; while the improved design and layout resulting from GEF-supported technical studies would be used for the new large-scale wind bases, for which the government commits to mobilizing the counterpart funding referred to above.
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16. Domestic Benefits: In addition to the benefits of meeting the government’s RE targets, the project will assist the Government of China to increase the penetration of RE into the electricity mix and to meet its GHG intensity goals. On the economic side, the RE industry will continue to grow and improve upon their technology and their ability to design more effective and efficient wind farms and bases, beginning to reduce interference from the “wake effect” of turbines in proximity to one another in a wind-farm array. And the increased efficiency of RE operations and utilization in the grid will help reduce the cost to consumers of the cleaner energy mix. Finally, the growth rate of emission of particulates and sulfurous pollutants from coal-based generation will begin to slow and eventually reduce resulting in improved health for residents.
17. Global Environmental Benefits: As the RE penetration increases to meet the government’s targets, the growth of GHG emissions from the use of coal will begin to slow and decline. In particular, as a result of the project, there will be direct avoided CO2 emissions of 3.9 million tons per year from additional RE-based power generation due to improved design of the large wind bases and additional RE consumption from increased RE penetration in five New Energy Cities. Over the 20 year lifetime of the investments, the total lifetime avoided CO2 emissions are estimated at 78 million tons of CO2. The potential indirect CO2 reductions from replication of the five pilot New Energy Cities to the 100 New Energy Cities under the 12th FYP, if successful, could range as high as 70 million tons CO2 per annum.
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Incremental Cost Analysis
Costs Domestic Benefits Global Environmental Benefits
Baseline Scenario (GoC renewable energy program without GEF-supported project)
US$400 million RE investments program that will occur during 12th and 13th FYP by RE developers in China
A slight reduction of local air pollution
A slight reduction of GHG emissions
Alternative Scenario (GoC renewable energy program plus GEF project)
Component 1: Policy Support US$5.0m GEF US$0.5m Counterparts US$5.5 m Total Component 2:Grid Integration Access US$5.0m GEF US$3.0m Counterparts US$8.0m total Component 3: Technology Improvement US$7.28m GEF US$12.0m Counterparts US$19.28m Total Component 4: Pilot Implementation US$5.0m GEF US$22.0 m Counterparts US$27.0m Total Component 5: Capacity Building and Investment Support US$5.0m GEF
RE Policies Clarified and improved upon to enable RE market to grow Barriers removed to allow greater penetration of RE into the grid. Greater efficiency of RE generation and dispatch reducing costs to consumers Chinese RE manufacturers continue to grow, gaining experience and improving their RE technologies China will meet its RE targets under 12th Five Year Plan and 13th FYP at a lower cost and greater impact
Greater reductions in GHG emission reductions as use of RE expands and is more efficiently and effectively absorbed into the grid Dramatic reductions in GHG emissions from the cities involved in the New Energy City Program Chinese experience and technology helps global RE market expand at lower costs and with greater impact worldwide
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US$6.6m Counterpart Total: US$27.28m GEF US$44.1 m incremental counterparts contribution to the project US$400 million RE investments program that will occur during 12th and 13th FYP by RE developers in China Total: US$471.38 m
Increment US$27.28 million—GEF contribution to program US$44.1 million—Counterpart Contributions to project Total: US$71.38m
Efficient Growth and Penetration of Renewable Energy into China’s Grid Increased Efficiency of Wind Farm Operations and Integration into Electricity System will Result in Lower Cost to Consumer of Electricity through reduced incentives to RE As RE penetration expands, local emissions of SO2 and particulate pollution from coal will be reduced
3.9 million tonnes per year of CO2 emissions avoided through more efficient design of large-scale wind bases and increased RE penetration in five New Energy Cities Over the 20 year lifetime of the investments, the total avoided CO2 emission is estimated at 78 million tons CO2 direct impact Indirect impact may range as high as 70 million tons of CO2 per year from replication of the New Energy Cities models to 100 pilot cities.
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