ADB

Power of Self Sufficiency

Rural Biomass Development in Gansu

An Innovative Pilot Project in

Rural Western China

Knowledge Product

Asian Development Bank

The Power of Self Sufficiency: The Story of Qidian
A micro-renewable project in a remote village in north-western China marks a significant step towards
achieving the country's aim of “building a new socialist countryside” by leveraging local resources and
empowering the local community. The first such project to be set up after the renewable energy law was
enacted, it serves as a unique model for implementation in developing countries.

Knowledge Product
May 2007

Qidian

Zhangye
Abbreviations and Acronyms
ADB Asian Development Bank
DSCLES DSCL Energy Services Co Ltd
CDM Clean Development Mechanism
EIRR Economic Internal Rate of Return
ERU Emission Reduction Units
FIRR Financial Internal Rate of Return
HH Household
kW kilo Watt
kWh kilo Watt Hour
LPG Liquefied Petroleum Gas
MDG Millennium Development Goals
M&E Monitoring and Evaluation
MW Mega Watt
O&M Operation and Maintenance
RE Renewable Energy
TA Technical Assistance
TCE Tons of Coal Equivalent
TVE Township and Village Enterprise
VAT Value Added Tax
WACC Weighted Average Cost of Capital

Exchange Rate as on 1st May 2007

I US $ CNY 7.76
Contents
Tables and Figures
Fuel For Thought 1
– The Qidian Village Pilot Project Table 1 Renewable Energy Potential in
Zhangye City 3
Need for Improving Rural Energy Services 2
Table 2 Renewable Energy technologies in
Setting the Pilot Project Objectives 3 Zhangye City 3
Taking Stalk of Gasification Technology 6 Table 3 Comparison of Cost of Generation
- Biomass Technology 7
Qidian Pilot Project Implementation 8
– BOTtom of the Pyramid Table 4 What Qidian Gained – A Rich
Harvest from Agro-waste 9
A Return on Energy 10
Table 5 Project Cost 10
Critical Success Factors in Project 12
Implementation Table 6 Project Financing 10
Next Steps for Implementation 15 Table 7 Operating Costs 10

Table 8 Provisions under China's RE Law 10

Table 9 WACC 11

Figure 1 The TA Goal 2

Figure 2 Electricity Tariff in Zhangye City 5

Figure 3 Participatory Approach for

Project Management 12

Figure 4 Institutional Model for Rural

Energy Service 13
This ADB Knowledge Product was prepared by EAEN, led by Anil Terway and including A Bhargava, with
assistance from DSCL Energy Services Company Ltd., New Delhi and may not reflect the views of ADB's
Board of Directors.

This knowledge product is based on the output of the TA 4309-PRC : Renewable Energy for Poverty
Reduction (financed by Government of Denmark) . DSCL Energy Services Co. Ltd, Delhi were the
consultants for theTA.The Gansu Provincial Government was the Executing Agency and Zhangye City
Government was the Implementing Agency for the TA. The pilot project was implemented with full
support and cooperation from Qidian village government and Shandan county government.

Edited By: Genesis Burson-Marsteller, India

Design and Layout by: Genesis Burson-Marsteller, India
Cover Photo: DSCL Energy Services Co Ltd., New Delhi
Other Photos: DSCL Energy Services Co Ltd., New Delhi
 Fuel for Thought: The Qidian Village Pilot Project

Over the past decade, rapid economic development in China and the increasing use of natural resources
such as coal for energy generation have resulted in growing environmental degradation. To address this
problem, the Government of China took several initiatives under the 11th five year plan, such as enacting
a law to encourage the use of environmentally-friendly renewable energy technologies to revitalize the
rural economy.

Since 2002, the Asian Development Bank (ADB) maximized local ownership of the energy assets,
and the Gansu provincial government have been thereby playing a key role in poverty alleviation
implementing clean energy initiatives to provide and social development.
affordable and cost-effective energy – a pre-
requisite for economic growth in the region. In This Qidian initiative, which took place under an
keeping with the objectives of the national ADB technical assistance (TA) program, involved
western region development plan, these using biomass gasification technology. The
initiatives aim to protect this ecologically fragile $220,000 project was designed to use the rich
region, which has grown at a slower pace than reserves of agricultural waste in the area to
eastern China. generate 200 kWh of power and produce
enough gas to meet the cooking energy needs of
Qidian, a tiny village in the province, was over 300 households. The project was
identified for one such clean energy initiative. conceptualized and implemented by a team led
This initiative sought to create an institutional by New Delhi based DSCL Energy Services
model to provide affordable and reliable energy Company Ltd. (DSCLES).
services to poorly-served rural areas. Partly
financed by ADB, the project also sought to This report presents a detailed account of the
demonstrate the readiness of an indigenously approach, the technical features, the learnings,
developed renewable energy (RE) technology for critical success factors for sustainability and the
commercialization and wider replication. next steps for wider replication of such projects.
As importantly, this institutional model

1
 Need for Improving Rural Energy Services

The need to improve rural energy services arises Poor quality and unreliable electricity supply not
from two critical factors that are uniformly only inhibits economic growth but also
applicable in Gansu: encourages switching to more polluting fuels.

• Inadequate capacity to meet the Improving rural energy services using clean
increasing energy needs of the economy, energy sources to provide direct benefits to the
resulting in erratic supply in rural areas rural poor is consistent with ADB's energy policy.
(especially for last-mile users) It also addresses ADB's strategic focus in China of
accelerating rural development by strengthening
• A high percentage of coal-based power rural infrastructure and services.
generating units in the overall power mix
and the associated long-term impact of The TA, which was co-financed by the
air pollution Government of Denmark, required a detailed
assessment of the renewable energy technology
Zhangye City, the prefecture in which Qidian is options in China, the available resources in the
situated, lies 600 km north west of Lanzhou (the project area (Zhangye City) and the lessons from
2
provincial capital of Gansu). It covers 41,900 km past projects. It also entailed mapping the results
and has a population of 1.28 million. Zhangye against the TA's development goal of improving
City is one of the province's poorer areas with the economic and social welfare of the poor and
deficient electricity supply and poor air quality. fostering rural progress by improving energy and
Approximately 80% of the population lives in electricity delivery in a sustainable manner.
rural areas, receives erratic electric supply and is
the first to experience outages during peaking
shortages.

Indigenous
Resource
Technology
Availability
Options

TA GOAL
Improve economic
and social welfare of
poor and rural areas
by improving energy
and electric service
delivery

Capacity to
Un-served organize,
rural energy implement
needs & operate

2 Figure 1: The TA Goal

 Setting the Pilot Project Objectives

RENEWABLE ENERGY POTENTIAL RENEWABLE ENERGY TECHNOLOGY AND

PROJECTS
Zhangye City is well endowed with hydropower
resources, surplus agricultural waste (stalk), Current renewable energy projects in Zhangye
animal and poultry waste and solar energy. City include the following:
Providing energy services is viewed as a
government responsibility and the rural energy Application RE Projects
office under the department of agriculture has a
mandate to develop renewable energy Power generation 250 MW hydropower
1 operational and 350 MW
technologies . Nearly 800 MW of hydropower
under development
potential is being developed in Zhangye City, 5.3 kW solar home systems in
primarily by Gansu Heihe Hydropower Ltd, a 890 households;
joint stock company. Cooking Improved cook stoves;
5,700 HH Biogas plants and
4, 310 solar cookers
Renewable Energy Potential 1 stalk gasification plant
Space heating 68000 m2 of water heating
Hydropower 800 MW system
Agro-waste 640,000 TCE
Animal/Poultry Waste 2,900,000 TCE Table 2 Renewable Energy Technologies in
Solar Energy 3800 sunshine hours @ Zhangye City (All indigenously sourced)
insolation of 148 kCal/ cm2
(average)
Wind Energy Annual average wind speeds
of 2.2 m/s and wind energy
In addition to these, a wider choice of
density of 200 W/m2 indigenous technologies can be drawn on to
provide rural energy services.
Table 1 Renewable Energy Potential in Zhangye City

ENERGY NEEDS IN RURAL AREAS

A two-stage survey, including a field survey of

300 households covering all 6 counties in
Zhangye City, sought to identify the energy
needs of the stakeholders and the impact on
livelihood by increasing energy availability. Key
information made available from the survey
includes: (See next page)

3
1 Other than hydro power
 There is, therefore, a need to consider other
• Energy costs to total expenditure — 13 to 54%
depending on the electricity tariff
business models of inclusive development.
• Large difference between summer and winter energy
needs, creating a significant impact on household
expenditure SETTING THE PILOT PROJECT OBJECTIVE
• Confirmed availability of surplus stalk
• Stalk utilization in the overall energy mix of Zhangye
is very low - 35% compared with 70% in other parts
To this end, a participatory process of
of China consultation amongst stakeholders and
• Severe and long winters limit opportunities for the consultants (see Figure 3) was adopted to set the
agriculture-dependent rural economy\and the objective of the pilot project. This was essentially
shortfalls in energy supply constrains the to develop a model for commercialization that
development of other TVEs
can support a larger business plan, and a
renewable energy program that can contribute
to overall development on a sustainable basis.
LEARNINGS and INSTITUTIONAL CAPACITY This would, in turn, help meet the broader
project goal of poverty reduction in harmony
Barring hydropower projects, the Gaotai county with environmental sustainability.
gasification project is the largest single project
implemented by the rural energy office . A
2 The objectives formed the basis for determining
performance assessment of the projects the following screening criteria, which in turn
highlighted key issues that need to be addressed resulted in location selection.
if the Qidian pilot was to be a sustainable pilot.
PILOT PROJECT SELECTION CRITERIA
• Technical issues:
o Focus on quantity At the village level
o No M&E process • Increase in Income
o Absence of a feedback mechanism, • Need for energy
• Participation
which, in turn, limits technology
• Contribute to investment
improvements • Financial return
• Affordability
• Financial issues:
o Mostly grant funded – no focus on At the macro level
• Poverty reduction
migration to commercial operations
• Replication
o Withdrawal of users has led to cash- • Sustainability
flow problems • Experience with the technology
o No financing options – either in terms
of retail finance or project finance
o Need to develop capacity among
program-implementing agencies to
identify and address issues that can
promote commercialization

4
2 This project, which was has been in operation since 2000, comprises a stalk gasification plant to supply gas to meet cooking energy
needs of 300 households At the time of the performance assessment only 100 households were using the gas.
TECHNOLOGY SELECTION

% of Exp
Qidian 23% 9% 68%

Based on the assessment and screening criteria

above, it was concluded that stalk-based Zhangye 37% 24% 39%

technologies are the best option to improve rural

Qidian 0.475 0.31 0.8
energy services in Zhangye City. Even after being

Tariff
used as cattle-feed and as cooking fuel, half the Zhangye 0.46 0.31 0.55
stalk produced in Zhangye City is wasted. This in
itself is a hazard. Disposable agro-waste is either 0 0.5 1 1.5 2
burnt or left to decompose. When burnt, a
Domestic Agriculture TVE
precious source of renewable energy is destroyed,
even as it causes air pollution and related health Figure 2: Electricity Tariff in Zhangye City
hazards. Decomposition also creates its share of
problems. However, as a source of biomass
energy, such agro-residues have many virtues Secondly, its demographic profile was divided
uniquely suited to the rural milieu. Further, between poor and relatively better-off people
domestic manufacturing capacity is very well providing an ideal base to achieve the seemingly
developed, and specifically tailored to local fuel contradictory requirements of poverty alleviation
characteristics and operating conditions. and a commercial model for improved rural
energy services.

LOCATION SELECTION Finally, the region had enough surplus stalk with
no competing alternative use.
The field survey indicated that the village of
Qidian, located in a water-stressed region of
Zhangye City and drawing its livelihood from
agriculture and coal-mining related services,
offered an ideal fit for a project of this nature.

First, since applicable tariff for TVE in Qidian (the

largest component of expenditure on energy) are
amongst the highest in Zhangye, its citizens
demonstrated a willingness to develop a
community-based model to augment energy
supply at a lower cost.

5
 Taking Stalk of Biomass Gasification Technology

TECHNOLOGY OPTIONS FOR STALK UTILIZATION In the absence of a wholesale market from which
a yardstick tariff for cooking gas can be
3
Indigenous manufacturing capabilities are in determined, the initial price set — 0.12 RMB/m
place for the following technologies: — is still regarded as the value of stalk gas.
Gasification for heating applications alone is not
• stalk gasification for heating financially viable as the delivered cost of gas is
• stalk gasification for power well over this rate (see table 3).
• stalk-based power generation
Price of stalk based cooking gas is 0.12 RMB per unit
as against 0.74 RMB per unit for LPG
STALK GASIFICATION FOR HEATING

Nearly 300 stalk gasification plants to produce STALK GASIFICATION FOR POWER
gas for use with retrofitted conventional gas
stoves were installed in China with government In the initial stages of development, stalk
support, including one plant at Gaotai county in gasification was considered unsuitable for power
Zhangye City. However, only a third of the plants generation owing to the poor quality of the gas
are now functional due to operational problems generated. With advancements in clean-up
caused by poor gas quality. These operational technology, however, many rural industries (like
problems led to declining user interest and rice milling) in eastern and central China, which
consequent cash flow constraints as a result of have small captive power requirements, have
which several of these first-generation projects adopted stalk gasification for power generation.
have closed. Such plants initially operated on dual fuel mode.
More recently, technology advancement allows
Most of the technical problems have since been for pure-gas mode operations. The investment in
overcome by domestic manufacturers and such projects is around 6500 RMB/ kW and will
research institutes. In particular, research led by fall further as the market for such systems grow.
domestic universities has yielded improvements
in the gas clean-up systems – reducing the tar
3
content in gas from 25g/m to less than 20
3
mg/m .

6
STALK FOR DIRECT USE FOR POWER Option Investment Delivered Net Cost of
GENERATION Million RMB Cost of Gas Power
3
RMB/m RMB/kWh

Both in China and in the rest of the world, stalk- SG Cooking 0.695 0.25 -
based power generation using conventional Only (120 HH)
boilers is comparatively the most advanced SG Integrated 1.60 0.12 0.43
technology. However, given the scale of such gas and power
projects, this option has a relatively lower impact (120 HH+200kW)
vis-à-vis the TA goal of poverty reduction in SG Power Only 1.30 - 0.38
harmony with environmental sustainability. (200 KW)

Stalk – 300 - 0.45-0.52

Direct Power
STALK GASIFICATION – INTEGRATED MODEL (24 MW)

Though stalk gasification for power generation Table 3 : Comparison of Cost of Generation from various
sources
has the advantages of lower investment and cost
(see table 3), there are fewer direct benefits to
households as compared to the heating mode.

Therefore, an integrated gas and power model

was selected for the pilot project that would not
only increase the scope for income generation,
but also provide access to cleaner cooking fuel,
sharply reducing indoor air pollution and,
thereby, healthcare costs.

7
Qidian Pilot Project Implementation - BOTtom of the Pyramid

The Qidian village pilot project comprises a stalk To tackle these problems, an energetic outreach
gasification-based power generation and gas program was launched as part of the TA,
distribution system to provide 200 kW of energy deputing local people to institutions working on
for export and cooking gas for 320 households. biomass projects to educate them on gasification,
The plant is an integrated model, which includes gas clean-up and power generation technology.
a 900 m3/h gasifier with a 200 m3 gas tank and a Several community-level workshops were also
200 kW generator. A 10 km pipeline network organized to sensitize the local people about the
has been laid to connect individual households do-ability and economic and environmental
to the gas supply. benefits of the project.

The project was installed by Jinan Bai Chuan Thus, once work began, local cooperation was
Tong Chuan Ltd., Shandong, with gasification total. The gasification plant was located on
and gas clean-up technology developed by nearby wasteland owned by the village
Shandong University and the gas engine by committee and was transferred to the project in
Chongqing Dajiang Power Equipment Co., Ltd). . next to no time. The time required to develop
Designed on the Build-Operate-Transfer (BOT) the project, including the approval process and
model, the project was commissioned in March implementation, was just 8 months. The
2006 and marked a successful example of gas construction time, including the gasification
produced from leafy biomass being used to run plant, gas distribution pipelines and power
a gas engine, without the support of evacuation system connecting to the 10 kV grid,
conventional liquid fuel. took a record 5 months.

Given early setbacks in gasification technology, it The electricity generated by the project is
was not surprising that the stakeholders supplied to the utility. This makes it the first
expressed concern about the technology and the project to become eligible for the preferential
commercial viability of the project. Moreover, tariff for power generated from biomass projects
although the local authorities understood that under the new policy announced by the
gas could be used for cooking and power government of China in January 2006.
generation, they were apprehensive about the
operation of a grid-connected power plant of
such a small size and based on a technology
under development.

Burning Bright: How the integrated gas and power model works

STALK STALK CUTTER STALK CONVEYOR GASIFIER

8
INCOME SOCIAL ENVIRONMENTAL

From the Grassroots Achieving the MDGs of eradicating Traditional stoves and heaters using
(Direct annual income – in RMB - extreme poverty and hunger through firewood and coal release products of
earned by households) sustainable development incomplete combustion leading to
poor leading to poor indoor air quality.
Income from selling stalk 77,760 The plant has created local jobs: The gas from the project offers a more
Savings on LPG 19,200 • Directly for operation and efficient method of using stalk residues,
Direct employment - 8 people 43,200 maintenance of the plant reducing unburnt elements released
Total direct income to Qidian 140,160 • Directly for managing fuel logistics into the air and improving indoor air
Direct income/ household 438 • Indirectly by encouraging village quality.
enterprises due to improved availability
of power Agro-waste power generation is a
Power Profits carbon- neutral process and can
(Share of profits – in RMB - from the Gender empowerment – with access mitigate the negative impacts of
gas and power station) to cleaner cooking fuel, women have emissions from coal-based power
been freed of the daily burden of supply in Zhangye City.
Power Sold 380,640 collecting and drying stalk, cleaning
Gas Sold 69,120 up afterwards, saving at least 3 hours 768,000 kWh of clean electricity
Total Revenue 449,760 per day which could be used for other generated annually from the Qidian
Expenses 176,160 productive work with an earning project has the potential to earn 660
Net Profit 273,600 potential of 15 -30 RMB per 12 hour Emission Reduction Units (ERU’s) from
Profit share/ household 855 work day. the rapidly growing carbon trading
market.
Additional direct income to households
- 10%
Table 4 What Qidian Gained - A Rich Harvest from Agro-waste

GAS TANK

CLEAN UP SYSTEM BLOWER POWER GENERATOR

HOUSEHOLD
GAS STOVES

9
 A Return on Energy

The cost of the Qidian project was 1.74 million The funding for the pilot project comprised only
RMB and included the following: equity, which will not be typical for expected
commercial operations. A more realistic debt-
Project Cost Component Cost in Million equity ratio of 60: 40 has been assumed and the
RMB financial indicators below are based on this
assumption.
Land, site development & civil 0.20
Plant and machinery 1.54
Project operating Fuel cost @ 50 RMB/T
- Gasifier package 0.42
expenses Maintenance costs
- Generator package 0.37
Consumables for the generator
- HH systems & gas distribution 0.55
(as per manufacturer’s
- Grid interconnection 0.20
specifications)
Total Project Cost 1.74
Salaries and wages
Table 5 : Project Cost
Working capital Receivable – Power sold – 1
Month; Gas Supplied – 1 Month
Inventory – 1 Month stock of fuel
The project was financed by equity from the Payable – Operating Expense –
2 Months
villagers and a grant from ADB:
Table 7: Operating Costs
Source Foreign Local Total Percent

A. Equity Capital
1. Villagers 0.50 0.50 28% Under China's recently enacted renewable energy
2. Township Govt 0.15 0.15 9%
law the following benefits will be applicable to
3. County Govt 0.10 0.10 6%
4. ADB Grant 0.99 0.99 57% the pilot project.
Total 0.99 0.75 1.74 100%
Preferential tariff Guidelines for tariff issued
Table 6: Project Financing Cost of grid interconnection by
utility
Fiscal incentives IT holiday for first 5 years
Applicable VAT is 8.5% (against 17%
normal VAT rate)

Table 8: Provisions under China's RE Law

10
In January 2006, the National Development and Financial component Domestic Owners'
Reform Commission (NDRC) issued guidelines for Loan Equity
determining tariff for renewable energy-based
power generation projects. Under these Amount in million RMB 1 0.74
Weighting 57.25% 42.75%
guidelines, the government fixed price which will
Nominal cost 6.12% 10.00%
be applicable for purchase of power from the Income tax rate 33% 33%
stalk gasification pilot project is 0.492 RMB/kWh. Tax-adjusted nominal cost 4.10% 6.70%
The gas stream will earn a revenue at 0.12 Inflation rate 3% 3%
RMB/m3. Real cost 1.07% 3.59%
Weighted component 0.61% 1.54%
WACC 2.15%
Yardstick feed-in Subsidy price
tariff of 0.25 Table 9: WACC
desulphurized CNY/kWh
Yardstick Tariff = coal-based
+ (applicable for
power 15 years from Based on the above, the FIRR for such a project,
generation in the date of when implemented under commercial financing,
2005 in the power
production)
is 3.1% against the WACC of 2.15%. EIRR was
province
23.5% against the hurdle rate of 12%.

Projects of this type are excellent candidates for

Based on these guidelines, the Gansu Provincial
CDM – assuming CERs are available at $10/ T, the
Price Bureau has approved a tariff of 0.61
FIRR of the Qidian project would be 6.1%.
RMB/kWh (inclusive of VAT) for the project with
effect from February 2006. The gas stream will
3
earn revenue at 0.12 RMB/m .

The post-tax real WACC is calculated as 2.15%.

11
 Critical Success Factors in Project Implementation

Indigenous Technology

Indigenously developed technology especially

suited to the local resources and conditions is
key to the successful technical demonstration of
the Qidian project.

Since these systems are simple and easy to

manufacture, it is possible to target fast- track
implementation of such projects.

Participatory Process

In the case of the Qidian project, the

participatory eco-system within which it is Project
Implementation
designed represents a truly a social
transformation business model. An iterative
process of concept, consultation and, outreach Project
Configuration
Community Project
Implementation Cell
was adopted to ensure that all stakeholders were
fully engaged at the design and implementation
Technology Cost Benefit
stage. Evaluation Analysis

Energy Need Capacity Affordability and

Assessment Assessment WTP

Figure 3: Participatory Approach for Project

Management

Institutional Arrangement

In the past, village communities in China ran Since the pilot involved a radical shift in terms of
most gasification plants on a cost-share and not- technology, it was felt that a new institutional
for profit basis. Staff members were engaged on model should be part of a long-term migration
a part-time basis – since the output was limited strategy in which a single company can built
to cooking energy only. operate and maintain such plants. (See figure 4)

12
 Existing Business Model
State Owned Private Investor
Enterprise /Enterprise

UNIFIED GAS
SERVICE
COMPANY

Established as part of Govt. Welfare Program; Financed

by Government with contribution by villagers; not run
for profit; Duty & obligation of village community to Village Energy Joint
operate & maintain public infrastructure
Cooperative Venture

35% of the stations not working

due to financial/ technical
problems
Figure 4: Institutional Model for Rural Energy Service

In fact, a similar approach was adopted for the put in place a business transaction process for
development of hydropower in the province. The financial management of the project.
institutional capacity-building process adopted Subsequently training — on-the-job and offline
has resulted in the creation of strong in-house — was extended to the operators.
human resource, project development and
project management capabilities. This model can Further, since power supply to the grid ensures
be replicated for the development of such the availability of cash for operations and
projects that have a more direct impact on rural sustains stakeholder interest, the tariff was
poverty reduction. negotiated for approval before commissioning
the project.

Financial Sustainability
Availability of Financing
Learning from first-generation projects
underscores the importance of cash-flow At present, there is limited opportunity for such
management for the long-term sustainability of projects to utilize loan financing because of the
such projects. In the past, due to the nature of low awareness of potential opportunities and the
the programs, this aspect was not an area of banks' ability to evaluate such projects. When
focus. Under the TA, support was provided to considering projects of this type, it would be
13
 reasonable to expect them to be financed on Policy Support
commercial terms – with a debt component of
60 to 70% (6.12% for repayment over 8 years). Clear directives on power purchase from
Further, a 30 to 40% equity contribution might renewable energy-based power projects are vital
initially prove a strain given that initial projects to provide the framework for future development
would have to bear a higher investment cost of such projects.
until full commercialization is reached. In this
case, a phased approach may be more, The NDRC guidelines for tariff for renewable
appropriate. One solution, for example could be energy projects provided the necessary policy
for the provincial government to raise a part of directive for the Qidian pilot project to receive
the equity contribution. This contribution could tariff approval - with support from the ADB
be reduced over time with the simultaneous project the application which was filed for tariff
increased availability of debt through commercial approval was expeditiously processed. The main
banks until a better appreciation of the potential challenge faced was in implementation of the
viability of these projects is recognized. Future approval which required extensive advocacy of
projects of this type should also earn higher the project benefits to stakeholders.
revenue for the gas stream and additional
revenue from carbon-markets and CDM.

14
 Next Steps for Implementation

The Qidian project is a successful demonstration competitive price and knowledge of rural energy
of a technical option for rural energy services technologies. The power bureau is capable of
with a substantial market in the region. It is managing the technical and commercial
estimated that more than 250 such plants can operation and maintenance, project
be built in Zhangye City alone, generating over implementation and commercial aspects
50,000 kW of power, providing indirect necessary for market transformation. The likely
employment to over 2,000 people and disadvantage of high transaction costs for the
increasing the average household income by initial projects can be circumvented with this
10% every year. arrangement.

Since a radical shift to a 100% commercial entity Once the institutional structure is clear, a
has its disadvantages, a migration strategy business plan can be implemented to create a
involving an intermediate public-private self-sustaining organization that can
partnership was put in place ahead of the systematically address the following needs:
transition to commercial operations.
• ensuring availability of financing for
Enabling policy drivers are in place and a new project development in a phased manner
renewable energy fund is also being created to • ensuring availability of financing for
support renewable energy projects. manufacturers
• putting in place systems for securing
Investment per kW for an optimally sized plant is power purchase from the projects
in the range of $ 1000/kW. With economies of according to the renewable energy law
scale, a 20% reduction in cost is envisaged. The • design and implementation of a robust
total investment potential in Zhangye City alone monitoring and evaluation system for
is $ 40 Million. such projects to manage the process of
technology evaluation and upgradation
The immediate step is to put in place an • developing into a centre for excellence
institution with a mandate to develop these capable of technology development
projects to ensure the Qidian project is replicable • developing all-round skills needed for
and sustainable. successful development
• improving access to financing for both
An institutional set-up such as a joint stock manufacturing and project
company to combine the skills of the agriculture implementation, offering training to
bureau and the power bureau would be ideal. enable parameterized lending for such
The agriculture bureau can bring in the required projects – to meet both investment and
skills of organizing the villagers to participate in working capital needs
the project, ensuring the availability of stalk at a
Encouraged by the initial results from the pilot
project, ADB is supporting a larger technical
assistance to promote biomass power
development in Gansu in a programmatic
manner

15