Energy, Water, and China’s Economy

Energy and water constraints have emerged as critical sustainability issues for China’s economy – particularly if the country is to continue to see significant GDP growth and provide the estimated 10 million jobs needed annually. Asia Water Project recently posed questions about the water-energy nexus to Professor Zou Ji, WRI’s China Country Director, and Lijin Zhong and Hua Wen of WRI’s China Water Team. Their responses are below:

Asia Water Project: What do you see as the essential connections between water and energy?

Lijin Zhong and Hua Wen: Energy and water are interlinked. Many power generation technologies (i) consume freshwater (e.g., nuclear and coal power stations evaporate water during the cooling process), (ii) change freshwater temperature or flows (e.g., hydropower dams adjust the timing and amount of water flows), and (iii) produce large quantities of wastewater.

Many measures for addressing freshwater scarcity such as water pumping, long-distance piping, and desalinization rely upon energy for their operation. Depending on the fuel used, this energy consumption can contribute to climate change – which in turn can exacerbate freshwater scarcity – and put additional pressure on the country’s energy security.

National energy policies often do not fully consider or reflect their implications on freshwater consumption. Likewise, policies for improving freshwater availability often do not consider their implications on energy use (and the associated greenhouse gas emissions). Failure to incorporate both the water and climate implications of energy and water policy can lead to approaches that work at cross purposes or that lead to unsustainable outcomes (e.g., energy investments that exacerbate freshwater scarcity in selected watersheds).

Zou Ji: Another context is urban water or water treatment and supply. There are strong energy implications in terms of transporting and treating water for consumption, especially in the context of rapid urbanization. Increasing population in cities means increasing demand for water supply and for wastewater treatment. This means increasing energy demand. The two are closely linked.

AWP: The government will soon announce its 12th 5-year plan. What are the water targets contained therein?

LZ&HW: The Chinese government will announce its 12th Five Year Plan in March 2011. To date the CPC Central Committee has issued a proposal on formulating the plan, which contains guidance, but no specific targets. Those will most likely not be announced until March. However, we have indications on the policy direction.

China sets water targets every five years in the same way that it sets energy intensity targets. The 11th Five Year Plan (2006-2010) set binding targets to reduce water consumption per unit of industrial added value by 30 percent and to reduce water pollutant discharge measured as “COD” (Chemical Oxygen Demand) by 10 percent. In addition, China set an indicative target to increase irrigation efficiency. For the coming 12th Five Year Plan, a new indicator, a load limit for ammonia nitrogen, will be added as a mandatory water quality target.

Under the framework of the national Five Year Plan, each ministry will develop a sectoral plan with detailed goals and supporting actions. Regarding water resources, the Ministry of Water Resources (MWR), together with the National Development and Reform Commission (NDRC) and the Ministry of Housing and Urban-Rural Development (mohurd), are currently working on the 12th Five Year Plan for Building a Water Saving Society. Major water-dependent industries, including thermoelectric, petrochemical, and iron and steel, will be required to achieve higher water efficiency levels. We do not know yet what the targets will be, but in the previous plan, the power sector was required to improve water efficiency by 10 percent.

AWP: What are the implications for energy consumption of these targets?

ZJ: There are two different implications – one to save energy, the other to use energy. With the target to control discharge of pollution we need energy to build and operate waste treatment – these are both energy consuming. So to reach water targets, we need to consume energy and this increases energy demand.

On the other hand, if we can use recycled water, this can imply saving energy. If you bring water from far sources this requires energy, but using recycled water from nearby sources clearly is a better solution in terms of energy use. For now, we do not know the net implications. Assumptions are, though, that for cleaner water we will use more energy.

LZ&HW: So to meet the water quality targets, treatment rates for both industrial wastewater and municipal sewage will increase, which could increase energy consumption in this sector.

Water use efficiency targets, on the other hand, could be achieved through improved water management and water conservation technologies. Management measures do not necessarily increase energy consumption. However, some of the low-water technologies, such as dry-cooling and hybrid cooling used in the power sector, have a relatively high “energy penalty,” increasing overall energy demand.

AWP: What do you see as the trade-offs between water usage and the need for energy?

LZ&HW: The power sector is among the most water-intensive industries. Some power-generating technologies such as hydroelectric, geothermal, and concentrating solar power (CSP) have low greenhouse gas emissions but high levels of water consumption, while conventional coal-fired technologies have modest water usage but very high greenhouse gas impacts. For example CSP consumes 3-3.5 m3/MWh of water while a subcritical coal plant with a closed-loop cooling system only consumes around 1.6m3/MWh. Some alternatives, such as solar PV and wind power, can reduce onsite GHG emissions and water consumption to zero but are less economically competitive in the near term.

However, “negawatt” measures, those that reduce the need for electricity generation in the first place (such as energy-efficient buildings and appliances) not only save money and reduce GHG emissions, but also eliminate the corresponding water use.

ZJ: There is a trade off but recent technology progress also shows how to break the link between the two. In Northern China, many power plants have started employing air cooling technology that substitutes water for cooling. The other possibility is to use more efficient power generators, grids and pumps for water transport in cities. In the short term, the linkage between water and energy will remain but in the longer term it depends on technological change. This will involve looking at what we can do to fund better technology, introduce incentives and encourage new policies.

AWP: While aware of the need to diversify its energy sources and reduce greenhouse gas emissions, it seems China is starting to realize that alternatives to coal are running up against water limits as well. What are some of the issues here?

ZJ: There are several issues here related to the water-energy nexus. Let’s start from concentrated solar energy (CSP), which also needs water to produce, to store and, transform the energy into vapor. So for some specific solar power technologies you need a lot of water. Nuclear power needs a lot of water for cooling. China has an ambitious target to expand total energy use and this needs complimentary water supply regardless of the energy source. So it doesn’t necessarily mean that when you diversify energy sources that you eliminate the water problem.

The partial answer to this is to introduce incentives – for example, correct water pricing or allocation of water quotas, which are measures we have already been using for a long time. The other is to develop water-saving technology. But this is all complicated. There are many factors to consider. If the price can reflect the real cost of energy generation that is fine but for some end users, the real cost of electricity generation and transmission is a problem. So the direction is right, these are all important to consider, but it is a matter of degree.

LZ&HW: China has the fastest growing renewable capacity of any country in the world. Wind power and solar photovoltaic (SPV) are two bright spots of the new energy economy. Water is not a bottleneck for them – on-site water use is negligible and life cycle water consumption is only 1/7 to 1/5 of the most efficient coal-based technology. Reliability and grid accessibility, rather, are obstacles for wind and SPV.

Nuclear power, on the other hand, is among the most water-intensive energy generation technologies at 2.7 m3/MWh. Various sources indicate that China will significantly expand its nuclear power capacity in the coming decade, and at least 30 GW is expected to be completed by 2015. Though all existing Chinese nuclear power plants are based in the coastal region and use sea water for cooling, proposals on building inland nuclear units have been on the rise. In fact, three Yangtze provinces, Hubei, Hunan, and Jiangxi, are reportedly competing over the first permit from the central government.

According to the Medium and Long-term Development Plan for Nuclear Power, several provinces facing water shortages (e.g., Henan and Gansu) are also on the list of potential sites. For those areas, a careful evaluation will be needed to ensure sustainable water supply for cooling, without sacrificing agricultural, human, and environmental water needs.

Likewise, some emerging and future energy generation technologies do pose a challenge for water availability. One example is concentrated solar energy. Combined with thermal storage systems, this technology could be smoothly integrated into the current grid and even enhance its capacity to accommodate a larger share of variable energy sources. But solar thermal’s cooling water need is exceptionally high – considerably higher than that of nuclear (closed-loop) and almost double that of pulverized coal (PC) per unit of energy generation. Since China’s Sun Belt also overlaps with a water scarce region, water withdrawal and consumption will be a consistent challenge.

Another example is carbon dioxide capture and storage (CCS). Based on the findings from our research, current CCS technologies could capture 90 percent of carbon dioxide from a power plant’s emissions, plant-wide water consumption increases by more than 90 percent. When designing new PC plants with CCS, water availability, as well as the presence of geologic formations needed to promote secure storage, will need to be carefully evaluated.

AWP: Estimates are that an additional 350 million people will move to cities by 2030. What will this mean for energy consumption and the country’s water resources?

ZJ: A larger urban population of course means higher consumption of energy and water; new infrastructure, cleaner water and therefore more electricity use. Today’s rural population enjoys limited infrastructure and therefore uses less energy and consumes fewer resources.

Urbanization, though, is a natural course with or without a specific policy because of the income gap between urban and rural communities.

LZ&HW: Urbanization could be interpreted as a catalyst that accelerates the demand for energy and water, as urban residents consume three times as much energy and water as the rural population.

In the coming two decades, China’s total installed power generation capacity is expected to double from the current level, and coal is projected to still be the dominant energy source. Thanks to modern technologies, future coal-fired power plants will be more efficient and environmentally friendly than they are today. For example, supercritical (SC) and ultra-supercritical (USC) units and dry-cooling could reduce water consumption per unit of power generated to different extend, at a commercially feasible price. Integrated gasification combined cycle (IGCC), though more expensive today, could drastically reduce wastewater discharges and cut GHG emissions. Clean coal technology, together with renewables, can help minimize water/carbon footprint of China’s power sector.

AWP: What part does water-pricing play in the discussion of the water-energy nexus?

LZ&HW: Regarding water pricing, China is gradually shifting from government command to a market-based mechanism, which could ultimately reflect the relative scarcity of water and help address water-energy problems in the future. Over the past ten years, a number of Chinese cities have significantly increased their water price through market-based reforms, with special rates designed to help low-income consumers. Meanwhile, block pricing has been implemented to different extents and with varying degrees of success across China. After the amendment of the Chinese Water Law in 2002, all industrial and municipal water users were required to pay a water resources fee. However, the price is generally low and has not been leveraged as an economic incentive for improving water use efficiency. Current water resources fees for cooling water vary from province to province but normally range from 0.001 to 0.008 CNY/kWh for open-loop units and hydropower units (but are even lower for closed-loop units), a price that accounts for just 1-3 percent of electricity generation costs.

ZJ: In theory, water pricing matters but we also see that in Beijing municipality, the city with the highest income levels in China and where the water price has been high, water demand continues to increase.

Again, this is a matter of degree. If the price is very high then generally the end user will want to save water but this also depends on income level and awareness. Pricing is only one measure to change water demand. Command and control is the other, so planning is also important. For some cities with water stress, municipalities should avoid introducing investments that involve high water consumption. This is a matter of spatial planning for economies and cities.

AWP: The extraction, transportation, purification, and distribution of water, as well as the treatment of wastewater, are energy-intensive processes. As water issues grow, desalination will also be more firmly on the Chinese radar. Yet these all use more energy and thus more water. What do you see as the future here?

LZ&HW: It is true that desalination consumes more energy and bears a much higher price tag. However, the unit water cost of desalination is actually cheaper than that of the South-to-North Water Diversion project. Many coastal cities, including Tianjin, Qingdao, and Dalian, have integrated desalination into their middle-to-long term blueprints as an alternative water resource.

Carbon footprint of desalinization depends on the type of energy source used to power the distillation or reverse osmosis process. Lower carbon footprint could be achieved with wind, solar PV, and nuclear power. PJZ: Cities in northern China should consider looking beyond water diversion. Long transportation of water has a lot of risk in terms of water quality, the unknown ecological impact but we would need more analysis to compare the options.

AWP: What do you see as the trend in China around any reforms in water governance and potentially institutional capacity around managing water allocations among various regions and uses?

ZJ: I am not an expert in this area, but the direction should be toward stakeholder participation, with all end users, suppliers, officials, civil society involved in any decisions.

LZ&HW: Our research to date has focused on the water/greenhouse gas implications of power generation technologies. We have not tackled issues relating to water governance. However, given China’s rapid urbanization, our future interests will be centered around water/energy issues in the urban context. In many emerging middle-sized cities, a considerable amount of electricity is used to purify and transport potable water, and to treat wastewater at wastewater treatment plants. Better energy and water management will be crucial to meet this increasing demand.

Zou Ji, China Country Director. Professor ZOU Ji is the China Country Director of World Resources Institute (WRI) and professor of Environmental Economics and Management at Renmin University of China based in Beijing.

By Zou Ji, Lijin Zhong and Hua Wen,