Desal in China: Trends & Opportunities
By Louisa Mitchell, CWR 10 November, 2011
Policy researcher & former banker Mitchell reviews the desalination market in China, its history and future.
Desalination in China: Trends and opportunities presented by the 12th FYP
There is a growing focus on desalination globally, the process of removing salt from seawater to produce fresh water, as a core solution for current and impending water crises. This is especially so in China where a dedicated Five Year Plan (FYP) is currently being put together for the sector.
China had desalination targets in its 11th FYP, however these were significantly missed, unusual in China where targets are routinely achieved or heads roll. Debate as to why ranges from weak domestic technology to energy intensity and therefore high cost, to inadequate Government policies and support.
Nonetheless, China’s 12th FYP clearly encourages seawater desalination whilst strictly restricting ground water mining and the desalination capacity target remains aggressive, on the same track as the 11th FYP target that was missed. What can be expected in the coming five years?
History of desalination technology in China
China is said to have started its desalination research and development fifty odd years ago and now has around 40 institutions involved and more than 600 companies manufacturing related equipment, according to a recent report in the China Daily.
Desalination technology removes salt from seawater (and other dissolved minerals from brackish water) as a source of fresh water supply. What started as thermal desalination, boiling seawater and catching steam, has evolved to less energy intensive processes such as reverse osmosis (RO), introduced in the early 1980s, which uses hydraulic pressure pumps to push seawater through highly-engineered membranes that filter out the salt.
In 1980, seawater RO required approximately 8.1 kWh of electricity for each cubic meter (m3) or one metric tonne of potable water it produced. By 2001, it had dropped to less than 3kWh/m31. Though as with most statistics there is debate and some experts put the figure higher at 4-5Wh/m3 as noted below.
Most recently, the introduction of forward osmosis (FO), which is similar to RO but even less energy intensive because it uses a naturally-induced pressure between the concentrations of sea water and fresh water to separate the salt, has made a substantial difference to the potential of the sector. The electricity needs for FO are approximately 0.24 kWh/ m3 (excluding pretreatment) in municipal-scale plants2.
These developments in technology are important for the viability of the sector. Secretary General of China Desalination Association (CDA), Mr Guo You Zhi recently commented to CWR that reducing the energy requirements for the desalination process is critical. High levels of energy intensity do not suit the ‘quality growth’ plan of the 12th FYP and high costs prohibit demand and therefore expansion of the sector.
There was a general focus in the 12th FYP on improving China’s domestic capacity in technology and desalination is no exception. Experts have argued that China falls short on its desalination technology and knows it.
In May, Global Water Intelligence (GWI) predicted that Chinese companies will look to foreign companies to provide the technology to grow their sector. Han Mailiang, chief engineer of Huadian Water, was quoted as saying that Chinese firms do not have the required references to win desalination projects so foreign companies can look forward to a few years competitive advantage on the technological curve3.
Right on cue the following month, Chinese firm Tri-Tech Holdings which designs customized sewage treatment and odor control systems for Chinese cities confirmed its purchase of US firm J&Y international, manufacturer of desalination and industrial wastewater treatment systems. Tri-Tech CEO Warren Zhao was quoted as saying that the deal will enable the firm to expand its business “in a major way” in desalination, industrial wastewater, water treatment and other related fields.
At the ‘2011 Water Industry Advanced Technology Forum’ in China in June, participants agreed that the fact that membranes and pumps for osmosis and energy recovery are imported is a significant stumbling block for the development of the sector.
Mr Amnon Levy, COO of IDE, the Israeli desalination companyrecently told CWR that he believes China ‘is still acquiring experience and making progress on the learning curve’. Levy is therefore not surprised that China still needs to import foreign technologies and believes it will need to do so for several years to come saying: ‘When we first entered the Chinese market in 2003, we thought we had a 5 to 7 year window for opportunities, but luckily we believe the local players will still need 5 to 7 more years to gain experience and credibility.’ , For more information on IDE and its take on the desalination market see also ‘Desalination: A Technology Driven Market’
The desalination market
The Water Sector Handbook recently published by Citigroup recommends desalination as the first of its ‘top ten trends to watch in water’ due to RO and FO developments. Citigroup projects that the global market place, currently around US$9-10 billion, will grow at approximately 10 per cent per annum over the next five years with the RO share occupying around 90 per cent of the market4.
Figure 1 . Production of Desalinated Water by Technology Type
Estimated Growth in Desal5
Source: Desal Data
A 2008 report by UNEP predicted: “China is expected to dramatically expand its capacity and establish itself as the third most important desalination market until 2015, overtaking Spain, Algeria and other countries that are at the moment ranking at the top of the list.”6
Whilst China missed its 12th FYP capacity target of 1 million m3/d and the CDA estimated the country’s capacity in April 2011 was 640,000 m3/d, around one third lower than the target, UNEP’s estimate remains largely on track. The goal for the 12th FYP period of 1.5 to 2 million m3/d by 2015 remains in line with the 2005 growth trend which set the 11th FYP target at 1 million m3/d and the goal by 2020 is 3 million m3/d, so a huge amount of capacity needs to be added.
Tianjin is the centre of China’s desalination activity with the large Beijiang and Dagang power plants, which account for around a third of China’s capacity. Tianjin’s plans are for capacity to be at 480,000 tonnes by 2015, which is almost one third of the nation’s 1.5 – 2m tonnes capacity by 2015. Coastal cities Dalian and Qingdao are to be added as hubs for future projects.
The 12th FYP sector specific plan is currently being drafted and China is becoming more specific regarding its intentions for the desalination market. On 9th May 2011, Beijing, whose water resources per head are one tenth of the world average, explicitly stated for the first time that desalination would form part of its water-resource strategy, together with the diversion of water from the Yellow River and the extraction of groundwater from karst aquifers.
Guo You Zhi, recently recently told China Water Risk that economically and technically he does not see any problems for desalination, concluding that ‘the key issue is whether there is market demand’ for desal water given price differentials and energy requirements. Rumours that the state-of-the-art Beijiang desalination and power plant in Tianjin has only run at quarter capacity since it opened in April 2010 because the plant’s owner has been unable to sign supply deals with three local utilities appear to confirm Mr Guo’s observation
New RO and FO technologies, by reducing energy intensity, have reduced the cost of producing desalinated water.
The Water Sector Handbook states that ‘innovations are driving down the cost of desalinating water through reverse osmosis from $1.50 per m3 in the early-1980s to $0.70 per m3today’7.
Whilst cost is still often cited as a barrier to growth in China, Secretary General of the CDA, Mr Guo You Zhi, recently told CWR that the price of desalination is currently around 5-6 RMB per m3, which is still relatively cheap when compared to some atoll nations for example, that depend largely on desalinated water. For instance in Tianjin, the industrial water price is 7 RMB, higher than the price of desalinated water.
There are many factors that affect pricing of desalination and water pricing in general is one of them. Critics of the handling of the water crisis in China, such as Ma Jun, director of the Institute of Public Environmental Affairs (IPE) in Beijing, cite low water tariffs as a major issue that must be addressed by applying market principles to water prices so that they reflect the scarcity of the resource.
It is generally expected that water will be repriced in the coming years. A recent report on the desalination sector in China states: ‘Desalination will only be a financially viable proposition to public utility supply when the water tariff reflects the investment and operation costs. However, convergence between water tariffs and the cost of desalination is expected during 2011-2015.’8
Figure 2. Evolution of the Total Cost of Water in China
Simon Powell, formerly CLSA’s Head of Sustainable Researchwas recently quoted in the UK’s Guardian newspaper as saying: “We think tariffs will go up and desalination costs will come down so it will be profitable in future.”
However, pricing alone will not be the answer for the development of desalination in China. As Mr Guo You Zhi said to CWR: ‘In the next three to five years, Chinese water prices are bound to rise. The building of large-scale seawater desalination plants cannot rely on government financial support, but on its own resources such as technological innovation, costs reduction and process optimization for achieving its own goals.’
Whilst it is frequently argued that policy does not support the development of the sector, Guo You Zhi further explained to CWR that he expects the Government to launch a series of supportive policies once the dedicated sector 12th FYP has been released.
A recent report on the sector concluded that lack of Government incentives and funds for desalination projects has stalled the sector’s development9. However, Government support does exist. In early 2011, Wang Shichang, director of the Desalination and Membrane Technology Centre at Tianjin University, was reported in the Asia Times
as saying that researchers in China are currently working on more than 200 desal projects, receiving support from the Ministry of Science and Technology and the National Science Foundation of China.
Guo You Zhihas suggested slower than expected growth has much to do with the general economic crisis rather than a lack of support for desalination specifically, but agrees that future policy support and inclusion of desalination in the overall planning of water resources is required for development of the sector.
At the 2011 Water Industry Advanced Technology Forum in June it was confirmed that a special agency has been put in place to lead the sector and this will aid comprehensive planning for the development of the industry including such key elements as regulation, fiscal and tax policy, technology.
However, Guo You Zhi, also refers to the issue of NIMBY (Not In My Backyard), well known in the West, stating that resistance often comes from local officials and local populations. He said that there is much work to be done to convince the public that desalination projects are safe, green and cater to civilian needs.
Figure 3. Desalinated Water by Province in China (2007)
Source: Desalination in China, by Guo You Zhi, secretary General of China Desalination Association, June 2008
What can be expected in the coming 12th FYP period?
The frequently quoted UN statistic that the oceans contain 97 per cent of all of the world’s water means that many people see desalination as the answer to the water crisis problems.
However, the 2008 UNEP report on desalination, attempts to reign in the fervor stating: “Despite offering many socio‐economic, environmental and public health benefits, desalination is not going to be the ultimate solution to the world’s water problems. It is more likely going to remain one piece in the water management puzzle.”10
Critics argue that desalination plants put pressure on marine ecosystems, create extra demand for coal and water and distract attention from the more important goals of improving efficiency, conserving resources and reducing carbon emissions.
But Guo You Zhi summarises the situation as follows: ‘Our approach is to use water by order of priority from groundwater, rivers and lakes, rain water and reused water, etc. Eventually, the ultimate solution is desalination.’ Although at first glance this sounds like a contradiction to the UNEP report’s statement, it is not. Guo You Zhi is confirming that desalination will be one component of the solution for China’s water crisis.
Recent Government attention and policy focus on the sector confirm that it is now going to receive the attention it is due as an approved part of the mix for producing adequate fresh water supply in China, particularly given delays to the South-North Water Transfer project. According to GWI, costs have spiralled upwards due to delays, resettlement costs and coordination difficulties on the central route, setting the completion date back to 201311.
A series of policies encouraging the development of desalination will however be launched in the coming six months. There are rumours not just of financial subsidies and tax relief but of demonstration projects, industry alliances, engineering centres and laboratories, all of which will be put together with the aim that China does not miss its capacity target again.
For further details of Mr Guo You Zhi’s conversation with CWR see From the Horse’s Mouth: Dr Guo You Zhi, Head of China’s Desalination Association.
1‘Desalination Realisation’, Aaron Mandell and Rob McGinnis of Oasys Water , April 2011, http://www.greentechmedia.com/articles/read/guest-post-desalination-realization/
2 ‘Desalination Realisation’, Aaron Mandell and Rob McGinnis of Oasys Water , April 2011, http://www.greentechmedia.com/articles/read/guest-post-desalination-realization/
3 ‘Chinese Deal: Their targets, your technology’, Kathy Liu for Global Water Intelligence, May 2011
4 Water Sector Handbook, Citigroup Global Markets, May 2011
5 Water Sector Handbook, Citigroup Global Markets, May 2011
6 Desalination: Resource and Guidance Manual for Environmental Impact Assessments, UNEP/WHO, (2008)
7 Water Sector Handbook, Citigroup Global Markets, May 2011
8 Global Opportunities in the Chinese Desalination Market, J Peng for Frost & Sullivan Environment (Water) Practice, Beijing, (2011)
9 Global Opportunities in the Chinese Desalination Market, J Peng for Frost & Sullivan Environment (Water) Practice, Beijing, (2011)
10 Desalination: Resource and Guidance Manual for Environmental Impact Assessments, UNEP/WHO, (2008)
11 ‘Beijing hedges its bets on water transfer’, Global Water Intelligence, July 2011 http://www.globalwaterintel.com/archive/12/7/general/beijing-hedges-its-bets-water-transfer.html
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