requires technical knowledge and
access to extension services.
Box 5.2: Barriers to Be Removed for Medium or Large Biogas System Development
For livestock farms that could take advantage of an onsite biogas digester system, several barriers are confronting them.
Financial barrier. No specific policy exists to promote commercial implementation of anaerobic digester systems
on intensive livestock farms. While the Renewable Energy Law encourages the establishment of large-scale power generators, it only allows generators beyond 500 kilowatts (KW) to connect to the grid, yet most medium-sized biogas digesters can only generate 50–150 KW of electricity. In addition, inadequate national and provincial financial resources are failing to achieve the significant benefits of medium and large biogas systems, which improve the environment, expand rural biomass energy, and improve farm incomes.
Technical barrier. The inadequate system for providing technical support to existing medium and large biogas
systems has led to poor maintenance and shortened lifespan of plants. Some biogas plants have stopped operating completely. The few engineers involved with medium-scale digester design typically come from working on the industrial wastewater treatment process, and do not have enough experience to deal with the complicated physical and chemical features of animal manure. Moreover, technical standards and procedures are not sufficient to ensure effective engineering design, construction, and operation of medium and large biogas systems.
Environmental enforcement and risk. Local officials and livestock owners believe direct discharge to anaerobic
lagoons is the only economic solution. As a result, other options and benefits—such as developing on-farm biogas systems—are not being explored or encouraged, and environmental standards are not being sufficiently enforced. In addition, environments surrounding livestock farms are especially at risk, because there is usually not enough surrounding farmland to utilize the organic fertilizer produced from the biogas systems since many of these livestock operations are now in peri-urban areas. The transport and distribution of the sludge-fertilizer need testing to make the biogas plants attractive to farmers and livestock owners as well as make them environmentally safer.
Institutional barrier. Different agencies are promoting different technologies through different financial sources.
This lack of cooperation between responsible agencies and lack of coordinated institutional arrangements have prevented medium and large biogas systems from getting the collective support they need to attract interest and commitment by the various stakeholders to really advance this technology’s development.
The PRC government has recently issued a package of policies, including risk reserves, subsidies, and tax breaks, to encourage the development of the biomass energy and
biochemical industries. First, under the Renewable Energy Law, the PRC now regulates the price of electricity generated by biomass power plants. For biomass-based power generation, the law specifies a tariff premium of CNY0.25/kWh higher than the base electricity generation cost in each province, usually between CNY0.3–0.45/kWh. The base electricity price is the average cost of generation from existing coal and hydropower plants in the province.
challenges, private investment is more focused on specific areas within renewable energy technology, such as equipment manufacturing rather than energy production.
The current scenario makes it necessary to use existing funds as efficiently as possible and to investigate possible mechanisms for raising special funds and attracting foreign investment. Identifying low-interest loans, loan guarantees, mobilizing grants from the Global Environment Facility, and securing extra revenues through the Clean Development Mechanism become very important to removing the financial barrier.
Another new policy focuses on encouraging private sector financing by mitigating some of the risks. Under this policy, enterprises will set up risk reserves, which will be used to offset their losses when oil prices are low. If prices remain too low, a government subsidy regime would then be triggered to cover the losses of enterprises. The new policies were jointly issued by the National Development and Reform Commission, the ministries of finance and agriculture, the State Administration of Taxation, and the State Forestry Administration.3
These actions have resulted in some initial successes in promoting public–private partnerships for constructing and operating biomass power plants (Box 5.4). Overall, though, these new policy measures—particularly the tariff premium on biomass-based electricity—do not account for the various factors affecting the cost and development of biomass energy, and as a result, inherently undermine the adoption of modern biomass energy. For instance, the TA study team found that the tariff level established under the Renewable Energy Law may be insufficient to make biomass power plants cost-effective. The study investigated the likely impact of the current renewable energy tariff and several possible tax incentives on the cost- effectiveness of several biomass power plants under construction in the PRC (some began operating in 2007). The economic analysis indicated that even with the most favorable tax treatment (0% value- added tax and 0% income tax), most of the planned plants do not appear cost-effective, mainly because
Box 5.3: Government Support for Biofuels The PRC’s Renewable Energy Law established the Renewable Energy Fund to assist with “biofuel technology research and development, standards development and demonstration projects and support biofuel investigation and assessment of raw material resources and information dissemination and domestic related equipment manufacturing.” Biofuels are also included in the National Renewable Energy Industry Development Guide Directory so that discounted loans and tax incentives can be obtained for equipment manufacturing and cultivation of energy crops.
According to government data commissioned by the Global Subsidy Initiative, the PRC provided a total of CNY780 million ($115 million, about $0.40 a liter) in biofuel subsidies in 2006. This amount comprised support for bioethanol in the form of direct output-linked subsidies paid to the five licensed producers, as well as tax exemptions and low-interest loans for capital investment. Further support was provided through mandatory consumption of ethanol-blended fuel in 10 provinces (a 10% blend with E10 gasoline). Total support for bioethanol and biodiesel is expected to reach approximately CNY8 billion ($1.2 billion) by 2020, according to official estimates. In addition, support is also given to farmers growing feedstock on marginal land, CNY3,000 ($437) per ha per year.
Source: Global Studies Initiative. 2008. Biofuels – At What
Cost? Government Support for Ethanol and Biodiesel in China. Geneva. Available: www.globalsubsidies.org/files/assets/
China_Biofuels_Subsidies.pdf
3 Xinhua News Agency. 2006. China to Provide Subsidies to Bio-Energy Sector. Beijing Pioneer Technology Co. Ltd. 1 December.
Available: http://210.51.191.165/show.php?contentid=20866
of expensive imported technologies and the high price of biomass fuel (50% higher than the current price of coal). Given this assessment, the level of the current tariff premium under the Renewable Electricity Law may need to be revisited once actual