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 SHANDONG  PROVINCE  OVERVIEW
 
Introduction Electric Sector Fuel Supplies
Economy Power Options Environment

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   SHANDONG  MAP
   INTRODUCTION
Shandong is one of China's most highly populated and economically productive provinces. As one of several "bonded free-trade zones" along China's eastern coast, Shandong has achieved a high degree of export-based growth through a successful blend of both foreign investment and township and village enterprises (TVEs). One of China's thirteen state-approved bonded free trade zones, Shandong is also one of its most populous, rapidly developing and economically productive provinces. In addition to being a model for Chinese development, Shandong typifies the many energy and environmental challenges China faces as a whole. These include a historically overextended power system, large seasonal variations in water supplies and poor air quality, which Shandong is striving to reconcile along with its imperative for continued economic growth.
This overview is intended to serve as a qualitative orientation to Shandong's economy, energy industries and environment. It is intended to inform the attribute identification and scenario formulation phase of CETP's electric sector analysis as we deepen our relationship with Chinese stakeholders.
Shandong Geography
Shandong Province sits on China's northeastern seacoast, southeast of Beijing, between Tianjin and Shanghai. Shandong's population numbered over 86.7 million in 1995 (Chen, 1998), with a population density of 564 people per square kilometer (Sinton, 1996). Its capital city is Jinan, while its biggest city and predominant deep water port is Qingdao (Yantai SMR, 1999).
Shandong's land area covers 156,700 square kilometers,1 and is roughly 620 km from East to West, and 420 km from North to South. Its primary river is the Huang He (Yellow River) which runs southwest to north-central. The Huang He's delta is very dynamic, a result of large seasonal variations in flow and silt content, and flows into Laizhou Bay near Dongying municipality. The Yellow River Delta also contains the Shengli oilfields, China's second largest oil reserve (Business China, 1996). Shandong's other mineral resources include gold, sulfur, granite and diamonds, while its primary agricultural resources are produce, fish, wheat and cotton (Yantai SMR, 1999). To the West of the Huang He is the Shandong peninsula, marked by a hilly range also running southwest to northeast (Jiacheng and Zhiguang, 1992), the most prominent feature of which is Tai Shan, which at 1545m (5069 ft) is one of China's five most holy Taoist mountains (Atiyah, Leffman and Lewis, 1997). Along this axis, Shandong is roughly 750 km long (466 miles). Another water feature of great historical significance is the Grand Canal (Da Yunhe) which cuts across southwestern Shandong, and the cities of Liaocheng and Jining, on its way from Tianjin to Nanjing and Hangzhou.
Shandong's climate is temperate but mild, with temperatures in Jinan hovering near 1 Cº in the winter months, between 21º and 28º C (70-82º F) in the summer months, and between 7º and 16º C (45-61º F) in the spring and fall. Jinan's heating season is relatively short at 4 months (World Bank, 1997). Jinan's rainiest season is summer, which accounts for 65% of its 68.5 cm of mean annual precipitation (Jiacheng and Zhiguang, 1992).  
   SHANDONG'S  ECONOMY

Because Shandong is coastal and close to Japan and Korea, it is geographically well-situated for its export oriented economy. Primary exports include oil, textiles, chemicals, consumer products, paper, machinery, electronics and building materials (Singapore-Shandong Business Council, 1999). Shandong's gross domestic product ranked second among China's provincial GDPs in 1993. The table below shows some recent key economic statistics for the province. In addition, Shandong's per capita income ranked second in China in 1996 (Triolo, 1996).
Economic Statistics for Shandong


Note: %/year changes are in real terms over previous year
or corresponding period of previous year. (Yantai SMR, 1999)  
   SHANDONG'S  ELECTRIC  SECTOR

Electricity Supply
China as a whole more than doubled its generation capacity in the 1980's in an attempt to keep pace with demand growth. Though 12 GW were added each year from 1987 to 1993, it has been estimated that 15 GW/year was needed until 2005 to satisfy changing consumption patterns and an increasingly productive economy (Business China, 1995). The latest statistics from Shandong's largest electric utility, Shandong Electric Power Group Co. (SEPCO), shows that from 1978 to 1998 generation capacity in the province has grown from almost 2.8 GW to just shy of 18 GW, a 532% increase, making Shandong second largest province in terms of installed capacity.. Over the same period electricity sales increased from 15.4 TWh to 84.2 TWh, nearly a 450% increase in consumption.
Generation in Shandong is predominantly coal. For the 1996 generation listed in State statistical journals, only 40 GWhs were derived from hydropower.
Breakdown of Shandong Thermal Generating Capacity, 1996


(State Statistical Bureau, 1996)

Electricity Demand
By September 1994, every village in Shandong province had been electrified, and in February 1996 all households were electrified. (SEPCO). In 1997, rural electricity consumption (20 TWh) represented 24% of all electricity demand. Unmet demand in Shandong Province for 1996 was estimated to be 18 GW (Yongxin, 1996), but with a strong building program this gap appears to have been closed. (SEPCO)
Electricity Consumption in Shandong


(SEPCO)

Electricity Prices
Wholesale electricity prices have generally risen over the past decade in China, though prices can vary widely among regional grids as well as between sectors within each grid. In addition, the highest costs tend to be paid by rural users, though all users in China are currently being surcharged to help subsidize the Three Gorges dam project. Electricity rates from 1994 for Jinan ranged from 0.17 to 0.35 Yuan/kWh depending on customer class. In 1996, SEPCO revenues of 20.8 billion Yuan for 61.9 TWh of sales yields an average rate of 0.336 Yuan/kWh (SEPCO).
Shandong Electric Power Group Corporation (SEPCO)
The Shandong Electric Power Group Corporation manages dispatch and transmission across the over 36,000 km of predominantly low-voltage transmission lines (Russo, 1999) that comprise Shandong's provincial grid (Business China, 1996). The Shandong grid is China's largest stand-alone provincial network. Headquartered in Jinan, SEPCO is a diversified conglomerate with business interests in construction, mining, real estate, manufacturing, tourism and telecommunications as well as electricity. SEPCO employs 66,000 people, and actively contributes to Shandong's economic, social and cultural development.
In addition to managing transmission and distribution in Shandong, SEPCO owns and operates the majority of its generating stations. Shandong's capacity has grown rapidly this decade, and SEPCO plans to further expand the system via construction of an integrated mining and electricity generating venture in the Heze coal field (SEPCO, 1999). The coal mines of Shanxi represent potential added capacity for Shandong, though construction of a mine-mouth power station to wheel electricity to SDPG were thwarted in 1995 for lack of sufficient water resources. Development of a proposed 300-km Yellow River transfer project was also tabled that year. Northern China's lack of water resources may be a significantly limiting factor in power development (see Water Resources below) (Business China, 1995).  
   SHANDONG'S  FUEL  SUPPLY  SITUATION

One of the key topics determining what range of resource options to consider, and whether fuel supply as well as electric supply and demand options will also need detailed consideration, is the diversity, availability and robustness of current fuel supplies. The following sections provide a brief overview of the primary energy supply categories. While Shandong has more indigenous fossil resources than most other provinces, due to the size of their population and economic output, fuel supply and transportation issues remain important.
Coal
While China's mainstay of coal production is Shanxi Province, several coal mining operations are located in Shandong. Yet, Shandong imported 43% of the coal it used from other provinces in 1994 (Zoo, 1996) mainly Shanxi (Sinton, 1996). Coal mined in northern China is high in quality, with an average gross calorific value of 21 GJ/tonne, and less than 1% sulfur content.
Oil
With respect to China as a whole, Shandong has much more oil than natural gas or coal. For example, Shandong contributed 22.5%, 8.2% and less than 6% respectively to China's overall oil, natural gas and coal production figures in 1993 (Sinton, 1996).
Natural Gas
The U.S. Department of Energy's Pacific Northwest National Laboratory (PNL), the Energy Research Institute of China, and the Beijing Energy Research Center recently produced a report entitled "China's Electric Power Options: An Analysis of Economic and Environmental Costs." Though natural gas accounted for 2% of China's energy use in 1997 (Russo, 1999), according to PNL it could supply up to one-third of China's electricity needs by 2020 (China Infrastructure, 1998).
Coal Bed Methane
China currently recovers approximately 500 million cubic meters of coal bed methane (CBM) annually, though has estimated ultimately recoverable CBM reserves to be 35 trillion cubic meters. China's coal mines contain over 15 cubic meters of methane per ton of coal, most of which is tapped and flared, even though methane's climate change potential is twenty times greater than carbon dioxide's. In 1998 Texaco entered into a $500 million contract with China United Coalbed Methane Corporation to recover an additional 500 million cubic meters annually from Anhui Province, which alone is thought to contain 60 billion cubic meters of CBM (China Business Review, 1998).  
   ALTERNATIVE  GENERATION  OPTIONS

At present, the preferred fuel supply for power generation is coal. Shandong and other Chinese electric utilities are reviewing a wide variety of coal-based technologies as they rapidly expand their power generation capabilities. In addition to the more conventional pulverized coal with flue gas desulfurization (FGD), fluidized bed combustion (FBCs) and integrated gasification combined-cycle (IGCC) technologies are also under consideration. Application of FGD and other environmental control technologies are also a high priority from an environmental management perspective. Even so, coal transportation, water consumption and other environmental considerations have Chinese electric power professionals looking at alternatives sources of power generation.
Nuclear
Though the State Development Planning Commission hopes to increase nuclear generating capacity nationwide, capital requirements are prohibitive at 70% more than thermal plant development costs (China Infrastructure, 1998). China has commissioned only two nuclear plants thus far in Zhejiang and Guangdong Provinces, which accounted for 1.4% of China's generating capacity in 1995 (Business China, 1995)4. Four others are under construction and due to come on line in 2003 and 2004, in Quinshan (2 plants), Guangdong and Jiangsu Provinces. These plants have been largely financed by foreign commercial loans and export credits (China Infrastructure, 1997).
Hydroelectric Power
Shandong also has a modest hydropower potential of 1 GW (Sinton, 1996),5 though given the extent of hydroelectric exploitation upstream on the Yellow River as well as the region's water shortages further development may be limited. However, the Shandong Electric Power Group Corporation (SEPCO) has plans to initiate construction of a pumped storage facility in 1999 (SEPCO, 1999).
Other Renewables
Barriers to the development of low-emissions distributed generation in China include an institutional preference for large fossil projects as well as an institutional approach that favors centralization. In addition, renewables projects tend to lack financial wherewithal more than conventional ones (Borray, 1995).
Windpower. At an estimated resource potential of 253 GW, wind may represent China's biggest renewable resource (China Infrastructure, 1997). In 1998 China's grid-connected wind capacity was only 200 MW, though that year the state announced its Cheng Feng (Ride the Wind) program, which calls for 1000 MW of installed capacity by 2000. Current capacity is concentrated primarily across Inner Mongolia, though there are currently three 55 kW Danish Vestas 55/11 turbines on Shandong's Rongcheng island (International Energy Agency, 1996), as well as a demonstration wind-farm in Pingtan of ten 30 kW Belgian Aeroman turbines (International Energy Agency, 1996).
Windpower also represents a manufacturing opportunity in China. Tens of thousands of small-scale wind generators are produced annually for agricultural applications, and in 1998 a Danish-German-Chinese contract was signed to manufacture utility-scale wind turbines in China (China Infrastructure, 1997). By circumventing import duties, domestic manufacturing capability may ease the historically high costs of renewably-generated electricity in China, which in 1996 exceeded costs abroad by 30%. However, VATs continue to be charged on electricity sold to power networks irrespective of fuel source. Furthermore, a unified accounting scheme that enables fuel cost deductions to reduce VAT liabilities may inadvertently penalize "fuel-free" providers (International Energy Agency, 1996).
Solar and Other Renewables. China's Ninth Five Year Plan also addressed solar, calling for the construction of 10 million square meters of passive solar housing by the end of 2000 (International Energy Agency, 1996)6. It also lists other renewables such as biomass, geothermal and ocean generation. As with all renewables, knowledge of local resource availability is key to sizing renewable resource options. Also essential is an understanding of the diurnal and seasonal availability of these resources, and the coincidence with the need for energy and electricity in the province.  
   ENVIRONMENT

Chinese Household Characteristics and Pollutant Exposure.
Average Chinese family size was reported to be 3.3 people per household in 1993. The demographic implications of this number are significant. It indicates that, in contrast with most other developing nations, China will have a more even population distribution. In the future, China may face the same aging population problems currently facing OECD countries, but with significantly higher population density and pollution exposures. With average annual household expenditures on water and electricity only about 2% of annual income (38.26 Yuan), due in part to subsidization (Sinton, 1996), coordination between economic and environmental policies need to be addressed. Better knowledge about exposures, and their resulting health and economic impacts, is needed, especially as exposures may differ markedly in the home, in the workplace and via mode, location and distance of transportation.
Air Quality
China is the world's third largest contributor of anthropogenic CO2 emissions, 95% of which come from fossil fuels combustion. Though SO2 emissions declined in China during the 1980's (Sinton, 1996), acid deposition was identified in the 1990's as a problem in Shandong. As the geographical distribution of particulate emissions tends to follow that of sulfur dioxide, Shandong also has one of China's highest particulate emission densities (Sinton, 1996). Though more closely associated with vehicles, nitrogen oxides emissions have also been increasing in China in step with rising incomes. Yet, only several Chinese cities recorded regular NOx exceedences in 1995.
The National Environmental Protection Agency ranks Jinan fourth among the 37 "most environmentally stressed cities in China. Jinan not only has a high concentration of industrial and residential boilers, it experiences over 200 days of inversion each year" (World Bank, 1999). In addition, Jinan suffers from a scarcity of both surface and groundwater resources.
Average 24-Hour Ambient Air Quality in Shandong (1992)


(Sinton, 1996)

Water Supply
China's per-capita water resources are only 25% of the world's average8. Additionally, China's rivers and groundwater resources are distributed poorly with respect to its population centers. While the area north of the Yangtze contains over half of China's population, it contains only 19% of its water. Thus in Beijing, for example, annual per-capita water resources amount to just 5% of the world's average. State water price controls and a lack of conservation programs exacerbate the situation. In contrast, recent reforms set Qingdao city's water prices at $.20 per cubic meter, $.08 higher than China's average. Qingdao's water usage is now reportedly more efficient than any other city in China (China Infrastructure, 1998).
Ironically, China's big rivers have been historically characterized by both severe drought and major flooding due to heavy silt deposition, which has the effect of driving rivers from the confines of their banks or levees. As home to the lower reaches of China's second most powerful river, Shandong Province has always borne the severe drought-flood cycles of the Huang He. In recent years droughts have prevailed. In 1997 a 700 km stretch of the Yellow river was completely dry for 188 days, the longest period ever recorded (China Infrastructure, 1997). Nonetheless, the state's 1995 master plan proposed 27 dams be built on the Yellow River. Seven of them were completed by 1997 (World Bank, 1999), including one across the dry riverbed delta near Shandong's Shengli oilfield (China Infrastructure, 1998). Currently under construction and second in size only to the Three Gorges Dam, the Xiaoliangdi Dam will block sediment and generate 1800 MW of electricity in Henan province (World Bank, 1999).
The Yellow River Delta Project. In 1997 the UNDP, the China International Center for Economic and Technical Exchanges, and The Yellow River Delta Conservation and Development Research Centre published "Support for Sustainable Development of the Yellow River Delta." The report outlines Dongying Municipality's and the area's strategy for long-range integrated regional planning that encompasses sustainable economic, environmental and social development. While the project's focal point is Dongying's recurring seasonal water shortage, the report does mention plans to add 750 MW of generating capacity at the nearby Shengli Power Plant before 2000 (UNDP, 1997).
Shandong Environment Project
To combat further environmental deterioration in Shandong, three municipalities and the provincial government initiated the partially World Bank-financed $215 m Shandong Environment Project in 1995. The Project generally aims to address air pollution, acid rain, groundwater supply and wastewater treatment issues. Specific investments will go toward:

Prepared by Jennifer B. Barker.
Additional editing by Stephen R. Connors.
Final Draft - June 1999
ANALYSIS GROUP FOR REGIONAL ELECTRICITY ALTERNATIVES
M.I.T. ENERGY LABORATORY, Room E40-473
One Amherst St., Cambridge MA 02139-4307, USA
Please submit comments, corrections and suggestions
to the authors at jennb@mit.edu, connorsr@mit.edu

   REFERENCES

Asian Development Bank, Electric Utilities Databook (Manila, Philippines, 1997).
Beijing Review, "Shandong Sets Key Foreign-Funded Projects," May 11-17, 1998, pg. 26.
Borray, Edward, "Structural Change in the PRC," Independent Energy 25(6): 24-28.
Business China, Power Supplement, spring 1995, pg. 1-7.
Business China, "Environmental Regulation: Through the Labyrinth," April 1, 1996, pg. 9-10.
Business China, "The Shengli Oil and Petrochemicals Complex: Extracting Itself from its Past", August 5, 1996, pg. 8-9.
Business China, "Shandong Huaneng Power Development, Provincial Power," December 9, 1996, pg. 8-9.
Business China, "China Reorganizes its Energy Sector: Change for the Better?" January 22, 1996, pg. 6-7.
Business China, " Qingdao: Investors at Last," May 1, 1995, pg. 8-9.
Business China, "Development Zones: Ripe for Investment", May 27, 1996, pg. 8-9.
Chen, Weixing, "The Political Economy of Rural Industrialization in China," Modern China 24(1): 73-96.
Chen, Weixing, "Politics and Paths of Rural Development in China: The Village Conglomerate in Shandong Province," Pacific Affairs 71(1): 25-39.
China Infrastructure 2(6): pg. 2.
China Infrastructure 2(11): pg. 8.
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China Infrastructure 2(10): pg. 3.
China Infrastructure 2(8): pg. 5.
International Energy Agency, Energy Efficiency Improvements in China (Beijing: Chinese State Planning Commission, 1996).
Jiacheng, Zhang and Zhiguang, Lin, Climate of China (Shanghai: Scientific and Technical Publishers, 1992).
Logan, Jeffrey and Chandler, William, "Natural Gas Gains Momentum," China Business Review, August, 1998, pg. 1-7.
Modern Power Systems, "Chinese Boiler Contracts: Persistence Pays Off" 18(8): 33.
Reuters, April, 1999.
Russo, Christopher J., A Multi-Attribute Analysis of Electrical System Expansion Options for China (Cambridge, MA: Massachusetts Institute of Technology, 1999).
Shandong Electric Power Group Corporation (SEPCO) overview and website, www.sepco.com.cn.
Sinton, Jonathan, China Energy Databook (Berkeley, CA: Lawrence Berkeley Laboratory, 1996).
Atiyah, Leffmand and Lewis, China: The Rough Guide (London: Penguin Books, 1997)
Singapore-Shandong Business Council, 1999, www.ssbc.tdb.gov.sg/sd (accessed 4/8/99).
State Statistical Bureau, The Basic Situation of Industrial Enterprises of the People's Republic of China: Electric Power Volume, pp. 254-268. The Third National Survey of China's Industries, 1996.
Triolo, Paul S., "The Shandong Experiments," China Business Review 23(5): 12-13.
United Nations Development Programme, Support for Sustainable Development of the Yellow River Delta (Dongying, Shandong, China: 1997).
World Bank, China: Power Sector Regulation in a Socialist Market Economy (Washington, DC: 1997).
World Bank, China-Shandong Environment Project, CNPA40185, 1999, pg. 1.
World Bank, China- Xiaolangdi Multipurpose Project Stage II, CNPE34081, 1999, pg. 1-2.
Yantai SMR International Information and Staffing Consultancy Company, Ltd., www.smrintl.com (accessed 4/8/99).
Zou Yongxin, "Scaleup in Shandong", Independent Energy 26(6): 10-12.  

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