People’s Republic of China: Hebei Zhanghewan Pumped Storage Project

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Lessons

Projects with strong technical viability and economic relevance are likely to succeed despite changes in implementation arrangements.

The separation of generation and transmission and distribution functions resulted in changes in the implementation arrangements for this project. Despite these changes, the project did not encounter significant delays, and all four generation units of the Zhanghewan pumped storage hydropower plant (ZPSHPP) were commissioned in February 2009, as envisaged at appraisal. The experience provides evidence that technically viable and economically relevant projects are likely to succeed notwithstanding institutional changes. The techno-economic rationale for the ZPSHPP, the only large HPP in the Hebei Southern Power Grid (HSPG), remained valid until project completion, significantly contributing to maintaining peaking power demand−supply balance in the HSPG.

Project Cycle Stage:

Preparation

Sector financial strength and capacity are crucial to the successful implementation of large infrastructure projects.

The $144 million loan provided by the Asian Development Bank (ADB) for this project covered 21% of the cost of the ZPSHPP and 15% of the total project cost. The remaining financing was mobilized from domestic banks, shareholder equity, and the local government. Specifically, the State Grid Corporation of China (SGCC), which took over the ownership and operation of the ZPSHPP through the Xinyuan Company, contributed $83.5 million in equity and $108.6 million from a commercial loan. The Hebei Electric Power Corporation provided $191.2 million for the rural electrification component and the local government contributed $57.3 million. While demonstrating how sector financial strength and capacity contributes to the successful implementation especially of large infrastructure projects, the experience also highlights the need for ADB to consider domestic resource mobilization in the financing plan of future huge energy sector projects. Tapping domestic financing sources will not only benefit the country’s financial sector but will also strengthen local ownership and the sustainability of projects.

Project Cycle Stage:

Preparation

Implementation

Establishing a dedicated entity is crucial to the smooth implementation and operation of a project.

Having a dedicated entity for the design, construction, and operation of the ZPSHPP contributed to the smooth implementation and subsequent operation of the project. The core staff of the Zhanghewan Pumped Storage Company (ZPSC), the implementing agency, had been involved in the project from its inception and so developed among them as well as for the ZPSC a strong sense of ownership and institutional memory that proved most helpful in addressing the issues encountered during and after project implementation

Project Cycle Stage:

Preparation

Implementation

Having competent implementation supervision consultants helps ensure high-quality technical design and satisfactory contractor performance.

Competent implementation supervision consultants are important to ensure the quality of the technical designs and the performance of contractors for complex infrastructure projects. The ZPSC highly appreciated the contributions from the implementation consultants, supported by ADB loan proceeds, in ensuring that the procurement of goods and civil works was carried out in a timely manner, and no major issues or delays in contract awards and the execution of contracts were encountered by the project.

Project Cycle Stage:

Preparation

Agreement by the affected households to the proposed resettlement sites should be obtained as early as possible.

Construction of the ZPSHPP affected 2,878 persons in 8 villages mainly because of the expansion of the lower reservoir surface area. In 5 of the 8 villages, the affected people were resettled within the same village, while those for the remaining ones had to be moved to newly constructed villages. The relocation of 2 of the 3 remaining villages was significantly delayed due to disagreement between the affected people and the county government on the location of the resettlement site. The delay in selecting the site for the last village to be resettled almost doubled the project resettlement cost, which was borne by the ZPSC. While indicating the extent to which weaknesses in resettlement planning and implementation may increase the costs to government counterparts of related activities, the experience also highlights the importance of securing the agreement of the affected people to the proposed resettlement sites as early as possible. Such an agreement may be facilitated by selecting relocation sites near economic centers that provide better access to employment opportunities and public services such as schools and hospitals and by ensuring better housing and basic facilities such as piped water, electricity, and telecommunications in the sites. Affected households should also be made fully aware of their entitlements, including livelihood options, and be consulted in all key decisions that could impact their lives in the resettlement sites.

Project Cycle Stage:

Implementation

Background

During project appraisal, the Hebei South Power Grid (HSPG) serving the southern part of the Hebei province in the People’s Republic of China (PRC), had insufficient peaking capacity due to an unbalanced generation mix and inadequate transmission interconnections with neighboring provinces. These system constraints resulted in poor-quality electricity supply and prolonged load shedding/power shutdown in the rural areas where majority of the population lived. To help address the constraints, the Asian Development Bank (ADB) approved a $144 million loan for the Hebei Zhanghewan Pumped Storage Project in October 2002.

Overall, the project aimed to promote pro-poor, sustainable economic growth in Hebei province and the project area, as goal/impact. It had four expected outcomes: (i) improved efficiency and reliability of power supply in the project area; (ii) pro-poor rural development; (iii) improved efficiency of coal consumption; and (iv) institutional reforms and introduction of competitive power market. The outcomes were to be achieved through: (i) the construction of a 1,000 megawatt (MW) pumped storage power plant at Zhanghewan; (ii) the construction of a 500 kilovolt transmission line connecting the plant to the HSPG; (iii) rehabilitation of the rural electricity distribution network; (iv) closure of old and inefficient coal-fired power generation units; (v) support for provincial power sector reforms; (vi) irrigation improvement; and (vii) afforestation.

The Zhanghewan pumped storage hydropower plant was constructed as designed and commissioned in 2009 without any significant delays. Since its commissioning, it has operated without any major technical issue. By enhancing the peak capacity and flexibility of electricity generation, it enabled the project to achieve its main outcome of improving the reliability and stability of the HSPG.

Overall thermal efficiency was improved by eliminating the use of inefficient, old, coal-fired power plants as peaking plants, in the process reducing greenhouse gas emissions from the province’s power sector. Including the 505 MW of old thermal power plants identified for closure at appraisal, the project supported the decommissioning of over 3,700 MW of old, inefficient, and polluting small coal-fired power plants in the HSPG. However, it did not fully realize its intended flood control and irrigation benefits because of the delay in finalizing the relocation of one of the eight project-affected villages.

Government-financed consulting services improved the poverty targeting and socioeconomic monitoring of the rural electrification network expansion and rehabilitation. Implementation of the rural electrification component was completed in 2005, allowing the province to achieve 100% electrification. Although the power sector reforms were not implemented as planned, power generation was successfully separated from transmission and distribution, and tariff reforms had been undertaken to eliminate the urban–rural tariff disparity and ensure the financial viability of the power sector. As a result, rural tariff had been reduced in real terms.

Improved coverage and quality of rural electricity supply resulted in increased rural industrial activity and the employment of more residents in non-farm sectors. Overall, it contributed to rapid economic growth, increased industrialization, rural poverty reduction, better quality of life, and environmental improvements in the province.

The project had the Hebei Electric Power Corporation (HEPC) as executing agency. The Zhanghewan Pumped Storage Company, a subsidiary of the HEPC established in August 2002 with direct responsibility for the design, construction, and operation of the project power plant, served as the implementing agency.

Project Information

Project Name:

Hebei Zhanghewan Pumped Storage Project

Report Date:

August, 2014

Main Sector:

Energy

Country:

China

Project Number:

28212

Report Type: