Straw power generation projects are facing a complete downturn

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In December 2006, China’s first **-class biogas power generation demonstration project, the Guoneng (Shandong) Shanxian Biogas Power Generation Project, was put into operation, marking a significant breakthrough in China’s use of biomass energy from scratch. The commissioning of this straw power generation project not only signifies that our country has mastered the international advanced technology for direct combustion of biomass for power generation, but it also shows that our country has found new ways to utilize renewable energy sources. 　　However, this renewable energy project that has attracted widespread attention both at home and abroad and for which high expectations were placed – the straw power generation project – is currently facing a severe downturn. Of the six straw power generation projects in China that are currently connected to the grid and operating commercially, five of them are operating at a loss, while one manages to break even only by generating more electricity than planned. Another project that has been put into operation but not yet commercialized also faces the dilemma of incurring losses as soon as it starts operating. 　　Straw power generation projects are facing a severe downturn. At present, there are seven straw power generation projects in operation in China; all of them are operated by Guoneng Bioenergy Power Generation Co., Ltd., a company affiliated with power grid companies, and each has an installed capacity of 25,000 kilowatts. Among them, Guoneng (Shandong) Shanxian Bioelectric Power Co., Ltd. began operations on a commercial basis on December 1, 2006, and was the first of its kind in China. In addition, at present, Guoneng (Henan) Junxian Bioelectric Power Generation Co., Ltd. is already generating electricity on the grid, but it is still working to address operational issues and is in the trial operation phase. 　　Zhang Yibin from the General Manager’s Office of Guoneng Bioenergy Power Generation Company said that among the six straw power generation projects that are already in operation and generating revenue, aside from the Guoneng Shanxian Bioenergy Power Generation Project, which operates at break-even, the other five projects are operating at a loss. This year, the loss for each of these five projects ranged from 10 million to 20 million yuan. The project in Wangkui, Heilongjiang, has already started operations, but it is not yet in commercial operation, and it faces the risk of incurring losses as soon as it begins to operate. “Such a situation **has undermined confidence in the industry regarding the prospects of the straw power generation sector.** ”He said. 　　Guoneng Gaotang Bioelectric Power Co., Ltd. began generating electricity on January 29, 2007. After completing its trial operation phase, it started full commercial operations on April 18 of this year. As of October 16, it had generated a total of over 98 million kilowatt-hours of electricity. Reports from journalists show that in mid-October, after most of the crops in Shandong province had been harvested, from noon to evening, only about 10 delivery trucks with a load capacity of around 5 tons were used to transport materials such as cotton stalks and tree bark to the factory on an intermittent basis. 　　Although the factory continues to burn straw to generate electricity, Zhu Liangyi, the company’s deputy general manager, Wang Zhirong, the company’s financial director, and others told reporters with worried expressions that since last year, the company has purchased approximately 200,000 tons of fuel, at a cost of around 290 yuan per ton. Zhu Liangyi said, \"The cost of lighting alone amounts to over 58 million yuan, which is far too high; it’s really unaffordable.\" ” 　　Industry insiders did some calculations of income and expenses. Zhu Liangyi did some calculations for the reporters. Revenue: The grid-connected electricity price for straw power generation in Shandong consists of two components – the local desulfurization benchmark grid-connected price in Shandong (0.344 yuan/kWh) and the local subsidy price (0.25 yuan/kWh), resulting in a total of 0.594 yuan/kWh. Based on the projected annual power generation of 165 million kWh for the Gaotang project, the company’s gross revenue at that time will be approximately 98 million yuan. Expenses: Fuel cost of 59 million yuan ； Guoneng Gaotang Bioenergy Generation Co., Ltd. has a total investment of 270 million yuan. Apart from the 50 million yuan in registered capital for the project, the remaining 220 million yuan, along with the working capital required for purchasing raw materials each year (at least 60 million yuan), is all financed through loans. At an annual interest rate of 6.12% on these loans, the interest expense amounts to at least 15 million yuan per year ； The annual depreciation rate for the equipment in straw power generation projects is 6.33%, with annual depreciation costs amounting to approximately 15 million yuan ； Employee salaries, as well as production and management costs, amount to nearly 10 million yuan (the in-house production system at the Gaotang project is managed and operated by Liaocheng Thermal Power Company, which is part of Luneng Development Group; an annual contract fee of around 9 million yuan must be paid). 　　“As can be seen from the income and expenditure statement, the sales revenue has been almost completely offset. In addition, in accordance with relevant national and local regulations, the company is also required to pay value-added tax, urban construction tax, education surcharge, local education surcharge, property tax, land use tax, and so on on an annual basis; the total amount of these payments is approximately 10 million yuan, which represents the company’s annual loss. ”Wang Zhirong frowned and said worriedly. 　　Cui Mengshan, manager of the Development Planning Department at Guoneng Bioenergy Generation Co., Ltd., told reporters that according to relevant regulations, for straw power generation projects approved before January 1, 2006, the grid-connected electricity price can be determined reasonably based on the principle of cost coverage. He said, “Of the six straw power generation projects that Guoneng has put into operation, only the Shanxian project was approved before 2006. The current grid price for electricity generated by the Shanxian project is 0.796 yuan per kilowatt-hour, which allows the company to operate at break-even levels at present.” ”The other five straw power generation projects operated by Guoneng were approved after 2006, and therefore are only eligible for a subsidy of 0.25 yuan per kilowatt-hour. 　　However, the reporter also learned that Guoneng Duanxian Bioelectric Power Co., Ltd. was able to operate at break-even by generating more electricity than planned. The total investment in this project is 330 million yuan, with an estimated annual power generation of around 175 million kWh. As of October 15, however, the project has already generated 180 million kWh of electricity, with an average daily operation time of over 20 hours. “At that time, the electricity price we had agreed on was still a bit low; now, with high fuel costs, we have no choice but to run the machines at full capacity. ”Recalling the situation when the price was set, Liu Chengjiang, general manager of Guoneng Shanxian Bioenergy Co., Ltd., regretted not raising the price a bit more at that time. He said, “I didn’t expect fuel prices to be so high at that time.” ” 　　In addition, the domestic straw power generation industry faces a common issue: while key equipment such as boilers and steam turbine generators operate fairly stably, the quality of auxiliary equipment such as feed water pumps, screw feeders, feeding systems, and exhaust fans is not yet stable enough. “The equipment such as the exhaust fans for our project was purchased through bidding at that time; it was all relatively advanced equipment available in China. However, it was later found that the exhaust fans experienced significant vibration, which affected the stable operation of the entire straw power generation system. This required frequent shutdowns for maintenance, which in turn impacted the project’s efficiency. ” 　　Zhang Yibin from the General Manager’s Office of Guoneng Bioenergy Power Generation Company said that since the world’s first straw biofuel power plant was built in Denmark in 1988, straw-based power generation projects have received increasing attention from many countries around the world due to their advantages in reducing carbon dioxide emissions, protecting the environment, and being renewable sources of energy; they have also been identified by the United Nations as projects worthy of promotion. He said, “The fate of the straw power generation project in China is worth careful consideration.” ” 　　Relevant parties have pointed out that the market system for straw is not yet fully developed or sophisticated, which results in high fuel costs for straw-based power generation projects; this is a key reason why China’s straw power generation industry is facing difficulties at present. 　　“The “ideal model” is faced with numerous difficulties. In recent years, as the living standards of farmers in our country have improved and the ways in which energy is utilized have changed, environmental problems caused by agricultural and forestry waste such as straw in rural areas have become increasingly prominent. During the summer and autumn harvests, large amounts of crop straws such as wheat and corn have no effective ways to be utilized, forcing villagers to burn them directly in the fields, which causes serious environmental pollution. 　　Near the Guoneng Gaotang biomass power generation project, Zhao Fangshun, a broker from Dengzhuang Village, Dongli Town, Xiajin County, Shandong Province, purchased around 10,000 cubic meters of straw to be sent to the factory last year. Now, he has developed a fairly stable group of clients (farmers) who supply raw cotton and firewood, numbering over 30 people; each of them can earn more than 3,000 yuan per year. He said, “When no one used to collect cotton stalks, most farmers simply burned them in the fields, which had a negative impact on highways and airports.” Some are placed in front of or behind houses, affecting the appearance of the village, or piled up by the riverside where they rot in the rain and pollute the water. ” 　　By October 13, 2007, the Guoneng Shanxian Biomass Power Generation Project had produced 175 million kWh of green electricity. To date, the project has utilized over 200,000 tons of agricultural and forestry waste, saved more than 100,000 tons of standard coal, and reduced carbon dioxide emissions by over 100,000 tons – demonstrating very significant results in terms of energy conservation and emission reduction. In addition, during the fuel collection, storage, and transportation process, the project has generated over 60 million yuan in direct income for local farmers, while creating more than 1,000 job opportunities in rural areas. The electricity generated by the project is sufficient to meet the annual energy needs of 400,000 farmers. 　　It is precisely because of these many advantages that the straw power generation project has attracted the attention of power generation companies. Cui Mengshan, manager of the Development Planning Department at Guoneng Bioenergy Power Generation Co., Ltd., said that the company has 39 approved biomass power generation projects, of which seven are already in operation (one of them is in the trial operation phase), with a total installed power generation capacity of 175,000 kilowatts ； There are 12 projects under construction, with an installed capacity of 183,000 kilowatts. In accordance with the power grid company’s 11th Five-Year Plan, by the end of 2010, 2 million kilowatts of biomass power generation capacity would have been established. Among them, several projects also bear the important task of reducing carbon dioxide emissions both domestically and internationally. 　　“The straw power generation project has played an important role in **developing new energy sources and generating significant economic and social benefits; it is undoubtedly the ‘ideal model’ for such projects». ”Cui Mengshan said, “However, only a small part of the ‘ideal model’ for generating electricity from straw has been realized at present; the challenging realities of operation are truly disheartening.” ”