China, People's Republic of: Shanxi Energy Efficiency and Environment Improvement Project

Sovereign Project | 44013-013

Summary

The proposed project will improve energy efficiency and reduce emission of greenhouse gases and other pollutants in Shanxi province by introducing and expanding district heating in five urban areas and expanding the coal-mine methane (CMM) gas supply and distribution network in one of these areas. The project follows and complements two previous Asian Development Bank (ADB) projects in the province, which have been completed successfully.

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Project Name Shanxi Energy Efficiency and Environment Improvement Project
Project Number 44013-013
Country China, People's Republic of
Project Status Approved
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan 2885-PRC: Shanxi Energy Efficiency and Urban Environment Improvement Project
Ordinary capital resources US$ 100.00 million
Strategic Agendas Environmentally sustainable growth
Inclusive economic growth
Drivers of Change
Sector / Subsector

Energy - Energy utility services

Gender Equity and Mainstreaming Effective gender mainstreaming
Description The proposed project will improve energy efficiency and reduce emission of greenhouse gases and other pollutants in Shanxi province by introducing and expanding district heating in five urban areas and expanding the coal-mine methane (CMM) gas supply and distribution network in one of these areas. The project follows and complements two previous Asian Development Bank (ADB) projects in the province, which have been completed successfully.
Project Rationale and Linkage to Country/Regional Strategy

The PRC's rapid economic growth and its reliance on coal, which provided about 70% of primary energy in 2010, are causing continued rapid growth of harmful emissions. Coal combustion releases large amount of carbon dioxide (CO2), the main greenhouse gas responsible for causing climate change. Coal combustion also emits sulfur dioxide (SO2) and nitrogen oxides (NOx), which are the main causes of acid rain, and total suspended particulates, which cause serious respiratory diseases. The Government of the PRC has recognized the environmental challenges posed by the rapid increase in coal consumption and has committed to achieve a reduction in carbon intensity of 40% 45% by 2020, compared with 2005, primarily by targeting reductions in energy intensity. During the Eleventh Five-Year Plan, 2006 2010, the energy intensity was reduced by 19.1% compared with a target of 20.0%. The Twelfth Five-Year Plan, 2011 2015 has set the target of reducing energy intensity by a further 16%, carbon intensity by 17%, and emissions of SO2 by 8% and NOx by 10%. Shanxi province has set a corresponding target of reducing energy intensity by 16%, carbon intensity by 17%, and emissions of SO2 by 11.3% and NOx by 13.9%.

About half of the PRC's CO2 emissions come from the generation of electricity and heat. Demand for centralized heating (or district heating) is growing rapidly along with economic development and urbanization. In 2010, the total quantity of heat supplied in the urban areas of the PRC reached 2.9 billion gigajoules and the total area covered by district heating reached 4.4 billion square meters (m2), compared with 1.9 billion m2 in 2003. Beijing and Tianjin municipalities, and 19 provinces in the PRC have adopted district heating. Despite this, district heating in the PRC still covers only 30% of the total floor area, compared with about 60% coverage in European countries. In the absence of district heating, inefficient and polluting coal-based household stoves and small neighborhood boilers continue to be widely used. The government plans to expand the coverage of district heating, which would allow to close the small, inefficient heat-only boilers, and increase the use of energy-efficient combined heat and power (CHP) plants as a heat source. District heating also allows the introduction of consumption-based billing, which enables consumers to regulate the amount of heat they consume. It avoids significant heat losses in the system, reinforcing the energy efficiency of district heating.

Shanxi is an underdeveloped inland province in the PRC's north-central region. It covers an area of about 156,300 square kilometers. The heating season lasts for 5 months and temperatures can fall below 20 C. Shanxi's gross domestic product per capita in 2010 was $4,107 equivalent, which is about 88% of the national average ($4,686). It ranks 18th among the PRC's provinces. Shanxi is well known for its rich coal resources, estimated at about one-third of the PRC's total coal reserves. In 2011, it produced 870 million tons of coal, about one-fourth of the PRC's total coal production and an increase of 17.7% over 2010 production. It faces serious pollution and environmental problems that are closely related to the mining, use, and transport of coal.

The underground coal mines in Shanxi release large amounts of methane during operation, commonly referred to as CMM. The capture and use of CMM not only helps avoid serious mining accidents but provides large environmental and climate change mitigation benefits. ADB supported a CMM project in Jincheng, in one of the largest coal mines in the province (footnote 2). It was the first such project in the province that demonstrated the twin benefits of greater coal-mine safety by capturing methane and of utilizing the captured methane for electricity generation and as fuel for household consumption. In 2010, more than 2.8 billion cubic meters (m3) of CMM was extracted, of which the province utilized about 0.9 billion m3 (34%), mainly for residential cooking, transport, commercial and industrial use, and power generation. Its use for district heating and space cooling has been very limited. The project rectifies this by demonstrating CMM utilization for district heating and space cooling in one city. It is also the first ADB initiative to use CMM for such purposes.

Like in many other provinces, Shanxi's rapid urbanization is fuelling demand for housing and urban infrastructure. Likewise, strong economic growth, higher incomes, and the privatization of housing are driving demand for district heating. Thus, Shanxi has rapidly expanded its coverage of heat supply, from 71.1 million m2 in 2003 to 287.4 million m2 in 2010 an annual growth rate of 21%, much higher than the national average of 12%.

Although the high growth rate of Shanxi's heat supply provides significant opportunities for the private sector, private participation has been relatively slow because (i) initial investment costs are high and financial returns low; (ii) local commercial finance institutions are reluctant to provide debt financing, particularly in remote urban areas with small markets, because of perceived high risks; and (iii) only a handful of private companies have the required technical and managerial capacity to operate such utilities, and these tend to focus on large urban areas. While some of the reforms that will remove most of these barriers are underway, district heating as an industry is still not commercially mature and requires public investment to meet growing demand, and thus remains an essential public service in Shanxi.

Due to the abundance of locally produced coal, district heating in Shanxi relies primarily on coal as a fuel source. Many of the heating systems in urban areas are old and inefficient and lack proper emission control equipment. Environmental impacts from these systems are disproportionately high on the poor and on women. Urban pollution from small boilers worsens outdoor air quality and causes significant cumulative harm to public health. Inadequate coverage of district heating in low-income urban areas drives residents to use indoor coal stoves for heating, a major cause of respiratory diseases. Women and small children are particularly vulnerable to high indoor pollution, as they tend to spend more time indoors.

The project will help solve the issues described above by extending and expanding energy-efficient district heating to more than 270,000 residents in five highly polluted urban areas of Shanxi. It will replace small, inefficient, and polluting inner-city coal-fired boilers and coal-fired household stoves with a highly energy-efficient CHP plant and large heat boilers, and with CMM supply, thereby reducing the overall environmental footprints of district heating. Lessons from previous ADB interventions of a similar type were taken into account in the project design. The project has a strong rationale as part of the ongoing energy intensity improvement in the PRC, its Energy Conservation Law, and its Energy Conservation Ordinance for Civil Construction. The project is also in line with ADB's country partnership strategy, 2011 2015 for the PRC, and its Energy Policy, which prioritizes energy efficiency projects, including district heating, and promotes access to energy for all.

Impact Greater energy efficiency and cleaner environment in Shanxi province
Project Outcome
Description of Outcome Better air quality and reduced greenhouse gases emission in five urban areas in Shanxi province
Progress Toward Outcome The implementation the project is progressing significantly. Almost all contracts (7 out of 9) have been awarded. A number of small boilers have been dismantled.
Implementation Progress
Description of Project Outputs

Expanded CMM distribution network in Liulin

Energy-efficient district heating in five urban areas

Institutional strengthening and capacity building

Status of Implementation Progress (Outputs, Activities, and Issues)

Licheng District Heating Supply Subproject.

The subproject consists of replacing small coal-fired boilers with 2 x 58 MW high efficient boiler and expanding the heat supply work. The 2x58 MW boiler has been commissioned, 2x8.7 km out of 10 km of heat supply pipelines, and nine out of 10 heat exchangers have been installed, and 20 out of 121 old small boilers have been dismantled. The project was partially operated during the 2014/15 heat supply season. The installation and civil works will be completed by June 2015.

Jinzhong District Heating Supply.

The scope of the subproject includes the expansion of heat supply network by 77 kilometers and installation 33 heat exchanges and a SCADA system for the heat supply network. The subproject uses an existing heat and power plant as the heat source. The scope of the project include laying of heat supply pipelines of 151 km (i.e. including the parallel pipes for return path) and installation of 58 heat exchanges. As of March 2015, 35 km of pipelines and 48 heat exchanges have been installed.

Qin District Heating Supply.

The subproject consists of replacing small coal-fired boilers with 2x58 MW high efficient boiler and expansion of the heat supply network. The boiler and heat exchanges have been delivered. The installation of boiler house and heat exchanges is under progress. The civil works are also expected to be substantially completed during 2015 and the project will be commissioned for heat supply in 2015/16 heating season.

Zhongyang District Heat Supply.

The original project scope consists of 29 MW coal fired boiler, 10.8 km of heat supply pipelines, and 7 heat exchanges to expand the capacity and coverage of existing heat supply network. After the project approval, the county government has decided to change the boiler to a gas-fired boiler due to environmental reasons. ADB had agreed to this change and requested the PMO to supply environmental performance data to ADB to formalized this revision. DThe change in design has also delayed the finalization of bid documents.

Liulin Coalmine Methane Gas Distribution.

The subproject consists of supply of coal mine methane to residential and industrial use. The subproject scope includes: (i) gas supply pipelines from the gas extraction points of the three coal mines to the gas storage station (10 km), (ii) a gas storage station with a capacity of 100,000 m3, (iii) 20 pressure regulating stations, (iv) gas distribution pipelines of low (12 km) and medium pressure (21 km), and (v) a SCADA system. The equipment supply contract has been awarded and 30% of the equipment has been delivered. The Phase 1 is expected to be completed in 2015 and the phase 2 in 2016.

Recruitment of consultants has been suspended pending advise from the executing and implementing agencies, PMO and Finance Bureau.

Geographical Location
Safeguard Categories
Environment B
Involuntary Resettlement B
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects The project results in substantial environmental benefits by improving energy efficiency and avoiding combustion of 85,390 tons of coal per year, resulting in emission reductions of 4,121 tons of SO2, 16,234 tons of total suspended particulates, 1,942 tons of NOx, and 254,379 tons of CO2. The potential adverse environmental impacts from the project include (i) during construction: noise, soil erosion, and safety risks to community members and workers, including fire and explosion risks posed by working with CMM; (ii) during operation: (a) inappropriate handling of waste when decommissioning small boilers; (b) untreated wastewater, solid and hazardous wastes; (c) noise and air pollution from boiler stacks and from coal handling, gas emissions and safety risks. The initial environmental examination (IEE) concludes that the potential adverse environmental impacts can be adequately mitigated by measures outlined in the IEE, and the project will result in environmental and socioeconomic benefits that significantly outweigh potential negative impacts. The project fully complies with ADB's information disclosure and consultation requirements.
Involuntary Resettlement

The gas storage site has been changed and the local goverment has allocated a government owned land which had not been used by the local people for past 10 yeaqrs. Hence, land acquisition will no longer be requiredin Luilin and the resettlement plan prepared during project appraisal is no longer relevant. A due diligence report on the new site will be prpared and uploaded to confirm that it does not entail any resettlement impacts. The other sub projects do not entail any resettlement impacts.

The other subprojects entail no land acquisition, restriction in land use, or structure demolition, as they will be implemented on government land or existing premises. Hence, the resettlement plan prepared for Luilin sub project will not be implemented and a due diligence report

Indigenous Peoples No indigenous peoples will be adversely affected by the project.
Stakeholder Communication, Participation, and Consultation
During Project Design A fact finding mission of the Asian Development Bank visited Shanxi province, the People's Republic of China, to discuss the project preparatory technical assistance (PPTA) for Shanxi Energy and Environment Improvement Project with the executing agency (EA), the Shanxi Provincial Government represented by the Shanxi Provincial Development and Reform Commission (SDRC) and the Shanxi Finance Bureau (SFB), and the project implementing agencies (PIAs). The mission reached a good understanding with the EA, PIAs and the Ministry of Finance on the objectives, scope, cost estimates, financing plan, and implementation arrangements of the TA. A loan fact finding mission was also subsequently fielded after the review conducted by the PPTA consultants and agreements were reached with the stakeholders on the final scope, project cost estimates and financing plan for the proposed loan.
During Project Implementation The project team is closely coordinating with the project management office (PMO), local government at county level and sub project implementing agencies on the implementation requirements.
Business Opportunities
Consulting Services International and national consultants may be hired by the PMO or the implementing agencies through a consulting firm and/or individual selection method in accordance with ADB's Guidelines on the Use of Consultants (2010, as amended from time to time). The required positions and person-months are indicated in the Project Administration Manual (a linked document to the Report and Recommendation of the President). Disbursements will be made in accordance with ADB's Loan Disbursement Handbook (2010, as amended from time to time).
Procurement All ADB-financed procurement for the project will be conducted in accordance with ADB's Procurement Guidelines (2010, as amended from time to time). Indicative procurement packages and financing plan for all subprojects are indicated in the Project Administration Manual (a linked document to the Report and Recommendation of the President). Disbursements will be made in accordance with ADB's Loan Disbursement Handbook (2010, as amended from time to time).
Responsible ADB Officer Xinjian Liu
Responsible ADB Department East Asia Department
Responsible ADB Division PRC Resident Mission
Executing Agencies
Shanxi Provincial GovernmentSXWZC2007@163.COM12 Dong Xuoxiaohe St., Taiyuan, Shanxi
Province , PRC
Timetable
Concept Clearance 14 Dec 2010
Fact Finding 24 Oct 2011 to 04 Nov 2011
MRM -
Approval 31 Aug 2012
Last Review Mission -
Last PDS Update 26 Mar 2015

Loan 2885-PRC

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
31 Aug 2012 27 Mar 2013 24 Apr 2013 31 Dec 2017 - -
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 166.10 Cumulative Contract Awards
ADB 100.00 31 Aug 2012 92.64 0.00 93%
Counterpart 66.10 Cumulative Disbursements
Cofinancing 0.00 31 Aug 2012 70.00 0.00 70%

Evaluation Documents

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