IEASERIESINSUPPORTOFIEACHINAENERGYCO-OPERATIONDISTRICT ENERGY SYSTEMS in CHINAOptions for optimisation and diversificationIEASERIESINSUPPORTOFIEACHINAENERGYCO-OPERATIONDISTRICT ENERGY SYSTEMS in CHINAOptions for optimisation and diversificationINTERNATIONAL ENERGY AGENCYThe International Energy Agency (IEA), an autonomous agency, was established in November 1974. Its primary mandate was and is two-fold: to promote energy security amongst its member countries through collective response to physical disruptions in oil supply, and provide authoritative research and analysis on ways to ensure reliable, affordable and clean energy for its 29 member countries and beyond. The IEA carries out a comprehensive programme of energy co-operation among its member countries, each of which is obliged to hold oil stocks equivalent to 90 days of its net imports. The Agencys aims include the following objectives: n Secure member countries access to reliable and ample supplies of all forms of energy; in particular,through maintaining effective emergency response capabilities in case of oil supply disruptions.n Promote sustainable energy policies that spur economic growth and environmental protectionin a global context particularly in terms of reducing greenhouse-gas emissions that contributeto climate change.n Improve transparency of international markets through collection and analysis ofenergy data.n Support global collaboration on energy technology to secure future energy supplies and mitigate their environmental impact, including through improved energyefficiency and development and deployment of low-carbon technologies.n Find solutions to global energy challenges through engagement anddialogue with non-member countries, industry, internationalorganisations and other stakeholders.IEA member countries:AustraliaAustria BelgiumCanadaCzech RepublicDenmarkEstoniaFinland FranceGermanyGreeceHungaryIreland ItalyJapanKoreaLuxembourgNetherlandsNew Zealand NorwayPolandPortugalSlovak RepublicSpainSwedenSwitzerlandTurkeyUnited KingdomUnited StatesThe European Commission also participates in the work of the IEA.© OECD/IEA, 2017International Energy Agency Website: ieaPlease note that this publication is subject to specific restrictions that limit its use and distribution. The terms and conditions are available online at iea/t&c/TogetherSecureSustainable© OECD/IEA 2017 District Energy Systems in China Options for Optimisation and Diversification Page | 3 The Tsinghua University Building Energy Research Center (BERC) was created in 2005. BERC is devoted to developing energy-efficient and environmentally responsible buildings in China, in accordance with national and international energy and environmental targets, including buildings research and innovation. The principal research activities within BERC include: Assessment of the current buildings status in China and strategic outlooks on buildings energy consumption and efficiency. Occupant behaviour and buildings simulation research. Research and development of innovative high-efficiency buildings technology and systems. Energy efficiency application research on sub-sectors, including: space heating in Northern China; rural residential buildings and urban residential buildings; and public and commercial buildings. BERC is involved in international exchange and co-operation projects, including its ongoing collaboration with the International Energy Agency. BERC is also responsible for the Annual Report on China Building Energy Efficiency, which has been published annually since 2007. District Energy Systems in China © OECD/IEA 2017 Options for Optimisation and Diversification Page | 4 Foreword International Energy Agency The Peoples Republic of China (hereafter, “China”) has the largest district energy system in the world, with more than 200 000 kilometres of networks providing heat to close to 9 billion square metres of building space, which is equivalent to more than one fourth of the total floor area of the United States. With Chinas rapid urbanisation and increasing demand for thermal comfort, energy use in heating and cooling systems is set to rise even higher over the coming decades, placing heavy pressure on energy supply and the environment. Coal continues to be the predominant fuel for heat production, but a rapid switch to other fuels such as gas, geothermal or excess heat is under way. Unlocking the potential of cleaner district energy systems is key for Chinas urban development strategy. Modern district energy can provide reliable heating and cooling services while improving energy efficiency and reducing greenhouse gas emissions, serving as a flexible and efficient medium to transform the energy sector. Within the context of Chinas urbanisation and policy framework, this report highlights cost-effective options and business models that can decarbonise and optimise district energy systems. Through clean energy measures, China can continue to make a transition away from coal and improve air quality. The International Energy Agency (IEA) has more than 20 years of in-depth bilateral co-operation with China in a wide range of fields, including energy security, statistics, policy and analysis. China joined the IEA family as an Association country in 2015. A three-year work programme was agreed in February 2017, supported by the establishment of an IEA China Liaison office in Beijing. Most recently, in December 2017, I had the pleasure to meet with Mr. Zhang Gaoli, Vice Premier of the People's Republic of China, to discuss deepening IEA-China cooperation its cooperation during the countrys economic and energy transition. This publication benefited greatly from the strong relations that now exist between the IEA and China. With the support of the Tsinghua University Building Energy Research Center (BERC) and the National Development and Reform Commission (NDRC) of China, it builds on the IEAs expertise in clean district energy technologies. China has entered a new era in which environmental considerations such as reducing air pollution and carbon dioxide emissions have gained great importance. More efficient and cleaner district energy can make a key contribution to mitigating climate change and air pollution, while offering numerous benefits to households and businesses alike in terms of cost and comfort. During the IEA Ministerial meeting in November 2017, with attendance from China, participants recognised the major importance of heating and cooling in developing an economical, secure and sustainable energy sector. It is my hope that this publication will support these efforts, both in China and globally. Dr. Fatih Birol Executive Director International Energy Agency © OECD/IEA 2017 District Energy Systems in China Options for Optimisation and Diversification Page | 5 Foreword Tsinghua University Building Energy Research Center This IEA publication, District Energy Systems in China: Options for optimization and diversification is perfectly timed to appear just as China began to move towards cleaner winter heating. The dispersed large and small coal boilers in suburban area for space heating are one of the major sources of air pollution in the Northern part of China. Although the amount of coal burned by boilers is lower than the total coal used by power plants in this area, the contribution to PM2.5 emissions is at least 7 times higher than for power plants. To combat air pollution, China has implemented stringent measures to curb the use of coal from small and medium-sized boilers for residential and industrial use, prompting the switch to natural gas or electricity as a cleaner alternative. However, the high prices and limited supplies of natural gas and the high price of electricity have put policy makers in a dilemma. What would be the sustainable and affordable options for China to replace the poor efficiency and heavy polluting coal boilers? This pioneering publication indicates options to improve air quality and decarbonise district energy system within the context of potential energy sources and local and regional synergies. Case studies included in this report also demonstrate how modern district energy system can use diverse energy sources and technologies to improve energy efficiency. Tsinghua University and the International Energy Agency (IEA) have a long-standing relationship on cooperative activities related to energy issues. In 2015, Tsinghua University and the IEA signed a letter of intent to expand co-operation. This report on Chinas district energy system is an important concrete outcome of our ongoing co-operation. Many cost-effective options are already available in the buildings sector that can reduce both energy consumption and air pollution. As indicated by this report, a clear policy framework and predictable market context are needed to support cost-effective diversification of heat sources, including renewables. Meanwhile, locally-based and tailored solutions are required to avoid unintended consequences of reform. I hope that this publication can be used as a tool to evaluate policies and programs in China. Pr. Jiang Yi Vice dean School of Architecture, Tsinghua University District Energy Systems in China © OECD/IEA 2017 Options for Optimisation and Diversification Page | 6 Acknowledgements This publication was prepared as a collaborative project according to the Three-Year Work Programme between the International Energy Agency (IEA) and the National Energy Administration (NEA) of China, and according to the letter of intent between the IEA and Tsinghua University. It was jointly prepared by the IEA Office of Global Energy Relations, the IEA Directorate of Sustainability, Technology and Outlooks and the IEA Directorate of Energy Markets and Security, along with the Tsinghua University Building Energy Research Center (BERC). The report was supported by the National Development and Reform Commission (NDRC) of the Peoples Republic of China. The authors were David BÉNAZÉRAF, Ute COLLIER, Brian DEAN, John DULAC, Volker KRAAYVANGER, and Pharoah LE FEUVRE of the IEA, Professor XIA Jianjun and LI Yemao from Tsinghua BERC, and LIU Yang from the Harbin Institute of Technology. Laszlo VARRO, IEA Chief Economist, provided generous expert input. Kevin Tu, IEA China programme manager, provided overall guidance. The report benefited from valuable inputs, reviews and support from other experts within the IEA, especially Thibaut ABERGEL, Simon BENNETT, BI Yunqing, Amos BROMHEAD, Jean-Baptiste DUBREUIL, LYU Zhong, YANG Lei, Aya YOSHIDA, and ZHOU Ruiyu, as well as LI Xiang and WANG Shuli from the IEA China Liaison office. Lisa-Marie GRENIER and Andrew LALLY provided significant assistance. Andrew JOHNSTON edited this publication. The IEA Communication and Information Office, including Rebecca GAGHEN, Muriel CUSTODIO, Astrid DUMOND, Therese WALSH, Katie RUSSELL and Bertrand SADIN, was crucial in designing, translating and publishing this report. Two workshops were organised to obtain essential input to this study. The publication also benefited greatly from the support, expertise and reviews of Chinese and other international experts from energy companies and research and government institutions, especially ZHENG Lijun, QI Jingfeng (China District Heating Association), LIU Weitao (China Electricity Council), JUN Li (China Energy Conservation Association), ZHAO Yongqiang, DOU Kejun (China National Renewable Energy Centre), John YU, CHE Alfred Wei (Danfoss), LIANG Chuanzhi (Ministry of Housing and Urban-Rural Development), REN Shuben, WANG Shancheng, ZHAO Huaiyong, JIANG Jinhao, XIONG Huawen (National Development and Reform Commission), Jaap KOPPEJAN (Procede Biomass BV), Ao Luo, Professor JIANG Yi (Tsinghua University Building Energy Research Center), CHEN Zhuolun (UNEP Copenhagen Centre on Energy Efficiency), Ragnhei GUDMUND (Veolia), and members of the District Heating and Cooling Technology Collaboration Programme (DHC TCP). © OECD/IEA 2017 District Energy Systems in China Options for Optimisation and Diversification Page | 7 Table of contents Executive Summary . 11 Introduction . 13 District energy systems play a key role in China . 17 Rapid urbanisation fuels district energy growth . 18 Urbanisation favours centralised district energy systems . 18 Integrated energy and urban/regional planning could boost district energy . 19 District energy systems are expected to expand . 21 Heat demand will continue to increase . 22 Demand for cooling is growing rapidly . 24 Policy framework is fostering further development . 25 Opportunities for cleaner district energy systems in China . 29 The role of energy efficiency . 30 The role of excess heat . 33 Excess heat from co-generation: potential and options for heating . 34 Industrial excess heat potential and options for heating and cooling . 35 Barriers and market frameworks for excess heat options . 38 The role of renewables . 40 Renewable energy options for heating and cooling . 42 Scaling up solid biomass district heating in China . 44 The economics of renewable options . 49 The role of natural gas . 52 Business models . 55 Applying district energ