China Electric Power News: Shanghai Gas-fired Power Plants Confront High Cost, Gas Source Dependence

"Shanghai has a comparatively high proportion in gas-fired power plants with single gas source, with fairly strong dependence on imported gas sources, marine transport, receiving station and submarine pipeline. Nevertheless, the storage capacity of natural gas still has a quite large gap compared with the international standard, with relative high prices for natural gas restricting the market demand," stated the 13th Five-Year Plan for energy development in Shanghai released by the municipal government of Shanghai in 2017.

 

Later in 2017, NDRC issued the Opinion on Accelerating the Promotion of Natural Gas Utilization, aimed at relaxing controls and stimulating development regarding natural gas utilization from various aspects including price, market system, industrial policy and financing channel, which industry insiders believed would provide more room of development for gas-fired power generation in Shanghai.

 

At present, LNG accounts for around 50 percent in the total natural gas consumption of Shanghai. However, according to industry insiders, the current gas amount will be unable to meet the demand regarding the city's natural gas development plan.

 

Although the policy has made clear the resource safeguarding capacity, Shanghai-based natural gas enterprises believed that natural gas-fired power generation projects would not be implemented in a large scale within a short time. "Natural gas is provided for urban residents and public service facilities in the first place, and then power generation enterprises. The scale of gas-fired power generation units in Shanghai relies on natural gas supply," said Shi Peigang, general manager of Shanghai Caojing Cogeneration Co., Ltd.

 

As regards future prospect, Shi believed that global sourcing for natural gas could meet the potential demand. "There is an extremely high proved reserves for natural gas in the world, and it is very convenient for Shanghai to import natural gas considering the present stage with fairly low demand and quite low possibilities for rapid growth in natural gas prices."

 

In the period of the 13th Five-Year Plan, Shanghai will complete the construction of more than 750 km of high-pressure natural gas pipelines in total, which will further improve safe supply capability in the city, with strengthening in natural gas emergency storage capacity.

 

Gas-fired power generation has many incomparable advantages over coal-fired power generation, but in Shanghai, a city with strict requirements on environmental protection, gas-fired units are no match for coal-fired units no matter in power output or in utilization hours, the main reason for which is considered by industry insiders as the price.

 

Under the two-part tariff system, gas-fired power price per KWh is 0.7 RMB in Shanghai, compared with 0.4 RMB per KWh for coal-fired power.

 

Shi believed that the biggest bottleneck for gas-fired power generation lies in the power tariff. "If the natural gas prices in the domestic market could be geared to the international market, gas-fired power price would be competitive with coal-fired power price (in Shanghai)."

 

In order to mitigate the impact of high gas prices on gas-fired power generation, Shanghai is pushing forward the implementation of price linkage mechanism between gas and electricity in line with the requirement of NDRC, aiming at timely adjustment in on-grid tariff for gas-fired power whenever there is a substantial change in the price of natural gas.

 

With the large-scale development of gas-fired power generation just around the corner, domestic gas-fired power plants are still in an awkward situation that gas turbines as the core equipment are highly dependent on imports.

 

The technology on gas turbines is the top-tier technology in the global equipment manufacturing industry at present, which has been monopolized by GE, Siemens and Mitsubishi for a long time. Despite persistent efforts by domestic electrical manufacturers, the core technology such as gas turbine design and manufacturing of high temperature components has been controlled by foreign players, leaving Chinese enterprises no choice but to import key components. The operating costs staying at a high level is another consequence for the monopoly of foreign technology.

 

The maintenance for the gas turbine at Caojing Cogeneration is based on the CSA (Contractual Service Agreement) signed with GE. Between 2009 and 2011, the power plant spent a total of 383 million RMB on repair and maintenance, which exceeded 13 percent of its total investment. Although the negotiation team of the power plant managed to keep the price for the second round of CSA at the same level as the first round and even revise a number of imparity clauses, the overall cost of gas turbine maintenance remained high.

 

"It is necessary to strengthen the integration among policy, industry, university, research and application, expand investment in the fundamental research and applied research in natural gas utilization, and promote achievement transformation. Furthermore, we should keep close track of frontier technology development in the world, enhance communication and cooperation, promote the breakthrough in the material and equipment technology relating to the field of natural gas utilization as well as its localization, and encourage and advance the industrialization of natural gas utilization equipment," Shi commented.

 

On September 28, 2014, China Power United Heavy-duty Gas Turbine Technology Co., Ltd. (Heavy-duty Gas Turbine) was inaugurated in Shanghai. "The test base for heavy-duty gas turbine will be approved by the end of this year, which will definitely promote the development of gas-fired power generation in Shanghai," said Qu Hao, general manager and party secretary of Luojing Gas-fired Power Plant.

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