MARKET ASSESSMENT OF

INDUSTRIAL SIZE COAL-FIRED

BOILERS IN CHINA

Report No. COAL R205

DTI/Pub URN 01/529

by

Dr A J Minchener
CRE Group Limited

The work described in this report was carried out under contract as part of the Department of Trade
and Industrys Cleaner Coal Technology Programme. The Programme is managed by ETSU. The
views and judgements expressed in this report are those of the authors do not necessarily reflect
those of ETSU or the Department of Trade and Industry.

Crown Copyright 2001

First published 2001
 MARKET ASSESSMENT OF INDUSTRIAL-SIZE
COAL-FIRED BOILERS IN CHINA

by
Dr A J Minchener
CRE Group Limited

SUMMARY

Chinas industrial boiler sector is recognised as a major potential market sector for UK industry but is
both large and complex. Consequently the United Kingdom Department of Trade and Industry (DTI)
selected CRE Group Ltd and the China Industrial Boiler Manufacturers Association to carry out a
market review of industrial size coal fired boilers in China. The principal aims of the study were to
assess the current status of industrial boilers in China, to establish future needs in this sector, and to
identify ways by which UK companies and organisations might access this market and benefit from
those needs. It also aimed to identify and prioritise areas where further UK R&D and technology
transfer activity needs to be focused to enhance the market potential in China for UK boiler
technologies and components.

The industrial boiler manufacturing market in China is large, with some 700 boiler makers competing
to supply each year some 20,000 boilers, with a combined thermal output approaching 60,000MWth.
Another 1000 or more manufacturers operate at the fringe of the industrial boiler market,
manufacturing small low pressure hot water (LPHW) boilers. The total value of all IBs and LPHW
boilers produced during 1998 totalled over 9billion Yuan, some 0.7billion.

This market is set to grow over the next decade at 3-5% per annum, possibly reaching 30,000 boilers
per annum of total capacity 100,000MWth. The national stock of industrial boilers currently totals
over 500,000 and consumes some 400 million tpa of coal. Because of the small size of boilers
manufactured in previous years, the average boiler size within the national stock is only expected to
reach 2MWth in 2010, by which time there could be some 620,000 boilers. By 2010 it is estimated
that up to 10% of the national fuel energy for IBs will come from natural gas/oil, but dependence
upon coal will still approach 90%. In a market sector that will be growing at 3-5% per annum, this
represents an actual increase in annual coal burn compared to 2000.

To date, UK opportunities within the Chinese coal boiler industry have been restricted due to the
unfamiliar and varying combustion characteristics of raw coal which is the normal feedstock for IBs
in China. Although UK grates and other combustion stokers could improve Chinese boiler
performance, modifications would be required to cope with raw coal. Even then, performance would
be unpredictable and could not be guaranteed, and the resulting boiler price would be higher due to
the western involvement. Since customers of coal-fired boilers are sceptical of performance claims,
consequently the higher costs that would be incurred have to date severely limited the realisation of
market potential.

However, the plan to introduce gas to many cities has acted as a spur to national and local
governments, to improve air quality in city centres. New air pollution laws have been enacted which
place strict limits on dust and SO2 emissions. For cities where gas can be introduced coal boilers are
to be banned in central zones. However, not all cities will receive gas and not all cities with gas will
be able to supply sufficient gas to all city areas. So substantial coal burning will persist, despite the
new environmental legislation. Compliance with strict emission limits while burning raw coal on low
quality moving grates will be near impossible. Consequently there is a legislative driving force which
will result in overall boiler energy and environmental performance being a key issue rather than just
price.

i
The Chinese hope to improve coal burning by improving coal quality. Initially this will be by
grading industrial raw coal, to minimise the fines content. However, this degree of coal preparation
is unlikely to be sufficient and further selection to produce a niche coal via coal beneficiation to
ensure low sulphur, low ash and low swelling characteristics is expected to be applied in the near
future. Chinese industrial coal quality for city centre use is therefore changing in a way that makes it
compatible with UK industrial coal. Once such coal is available, a whole range of coal technology
options from the UK become applicable and relevant to China. Equipment and fuel costs need not
then be an insuperable problem for the Chinese market, since the newly introduced legislation will
enforce the need for quality fuel and combustion systems to meet the new emission standards. The
likely timescale to this market change is, some 2-3 years.

Therefore, at that time for the coal burning IB sector, the UK can:
Introduce higher quality, more efficient coal-fired boilers with acceptable dust control systems
Improve and ensure more effective use of existing coal-fired systems
Offer technical support and training to manufacturers and end users

In order to facilitate the right conditions for UK market entry, CRE has identified some further
studies/R&D initiatives which should be undertaken to improve detailed market understanding and to
improve UK-China contact. The key is for the Chinese Government to establish a rigorous coal
quality production chain. Once this can be established, the coal quality will be similar to that in the
UK and so the opportunity will be there for the provision of UK technology and expertise. The
proposed strategy to enhance the market potential for UK companies is to assist the relevant Chinese
authorities to evaluate the options and opportunities. This will be achieved via some detailed studies,
to identify the exact opportunities.

For example, a joint UK / China study needs to be carried out to identify niche coal quantities, source
appropriate coal supplies, specify required beneficiation techniques and establish marketing
arrangements suited to a variety of cities where environmental improvement is required but gas is not
an imminent or indeed realistic prospect. The study would be phased to ultimately include the
prospect of a demonstration of UK combustion and particulate capture technologies to show the
potential for efficiency gains and emissions control.

A further study is suggested of the performance and environmental improvements possible by

applying UK combustion grate know-how to indigenous chain grate boilers. These boilers, by being
based upon a design strategy suited to burning raw coal, could take full advantage of all levels of coal
improvement strategy, including those falling below fully beneficiated niche coal.

The key Chinese organisations involved in this project are very much in favour of the strategy and
approach as set out above. Consequently if the proposed studies are implemented they would have
the benefit of better defining market prospects while raising greater awareness within China of UK
technology and technology suppliers, thereby ultimately enhancing UK market prospects. It is
recognised that DTI support would be very helpful to initiate such studies which should be
collaborative activities involving appropriate UK and Chinese organisations. It is noted that a
similar study on coal benefication in China as a means for sulphur control, albeit for a different
market sector, was supported recently by the DTI.

There is also the need to recognise that many of the UK coal boiler manufacturers are small (several
are SMEs) and as such may not have the resources to establish a co-operative venture with Chinese
counterparts. Accordingly, consideration needs to be given to whether DTI assistance can be
provided, possibly on the basis that assistance to improve the efficiency of Chinese industrial boilers
should be consistent with the aims of the Clean Development Mechanism.

While coal will continue to dominate the IB market, there are significant gas related prospects. The
UK opportunities with gas fired boilers arise from Chinas almost total lack of indigenous burner

ii
manufacturing ability. Several thousand burners, with their controls, are imported into China each
year, mostly from Germany, and to a lesser extent Italy, costing China 200 million in 1999. These
burners are supplied via local Import Agents, who provide after-sales service and spares. This
system, while working quite well for the foreign suppliers, is slowing down the rate of coal to gas
conversion programmes because of the resulting high cost of gas fired boilers.

The UK is a relatively small supplier, and as brand awareness is critical it may prove difficult to
achieve a greater market share. However there would appear to be opportunities to join with Chinese
industry in JVs to begin burner manufacturing in China. This merits serious near term consideration
because of the longer term, large, market potential.

UK industry is already able to sell complete package shell boilers into China, with two manufacturers
already having the necessary Chinese SQLO certification. Certain Chinese customers prefer to pay
extra for assured safety and reliability and so despite the higher costs, this is a realistic possibility, but
only in the short term. While early Chinese shell boilers with imported burners did not always
perform correctly because of equipment mismatch, such problems seem to have been resolved. Thus
the current generation of Chinese boilers and imported burners seem able to satisfy the market, not
withstanding the JV issue noted above.

There is a further opportunity in the medium term with gas firing equipment suited to LPHW boilers,
for small scale heating applications. China has long used coal fired district heating boilers for winter
heating north of the Yellow River in the Three Bei region. Each boiler house serves a number of
apartment buildings, but heat losses from distribution pipework is high and individual apartment
dwellers have no independent heat control, encouraging further waste. Reform is now being
considered in cities where gas is available. Apartment buildings can be equipped with their own
heating boilers, releasing valuable land that currently houses large boilers, coal stockpiles etc.
Individual apartments can then receive metered heat. Eventually, individual home heating may be
installed, using either small central heating boilers and / or radiant gas fires, as in the UK.

This is an embryonic market in China, but local entrepreneur manufacturers are already recognising
the huge market potential and are starting JVs for small scale, but sophisticated, heating boilers.
There is scope here for UK heating boiler manufacturers, plus ancillary equipment suppliers, to find
partners and exploit this new market. Boiler and burner equipment need to be simplified in order to
lower costs and bring forward the opportunity for market entry.

All of these gas related opportunities are either immediate or medium term, and are best taken forward
by the UK companies themselves. There may be merit in a better definition of the small scale heating
applications in conjunction with appropriate UK and Chinese organisations, for which DTI support
would be beneficial.

iii
CONTENTS PAGE NO
1. INTRODUCTION 1
1.1 Aims and Objectives 1
1.2 Background to the Study 1
1.3 The Project Consortium 1
1.4 Scope of the Report 2
2. MARKET SECTOR REVIEW 2
2.1 Background 2
2.2 Definition of Technology 2
2.3 Current Overall Market 3
2.4 Projected Overall Future Market 8
2.5 Current/Future Capacity Requirements 10
2.6 Current/Future Fuel Mix Requirements 13
2.6.1 Coal Availability and Use 14
2.6.2 Oil Availability and Use 15
2.6.3 Gas Availability and Use 16
3. SUB-SECTOR ISSUES 18
3.1 Low Quality Coal and Boilers 18
3.2 Importation of Gas and Oil Burners 21
3.3 Equipment Costs 23
3.3.1 Coal Boiler Costs 23
3.3.2 Gas and Oil Boiler Costs 23
3.3.3 Imported Burners Costs 24
3.4 Environmental Regulatory Issues 24
3.4.1 Air Pollution Laws 24
3.4.2 Implementation of Environmental Measures in Beijing 27
3.5 The LPHW Market 28
4. TECHNOLOGY NEEDS AND OPPORTUNITIES 29
4.1 Coal Firing 29
4.1.1 Likely Timescale for Implementing Coal Technology Options 32
4.2 Gas (and Oil) Firing 33
4.3 Competitors 35
4.4 Other Opportunities 36
5. MARKET ENTRY STRATEGY 37
5.1 Options for technology transfer 37
5.2 Proposed way forward for coal 38
5.3 Proposed Way Forward for Gas/Oil 40
5.4 Overall dissemination 41
6. CONCLUSIONS 41
7. RECOMMENDATIONS FOR FUTURE ACTIVITIES 43
7.1 Coal 43
7.2 Gas 44
8. ACKNOWLEDGEMENTS 44
9. REFERENCES 45
10. ABBREVIATIONS 46

v
TABLES PAGE NO

Table 1 Estimated Fuel Consumption of Industrial Boilers 4

Table 2 Installed Capacity of IBs in 1991, 1998 and estimated end of 2000 & 2010 4
Table 3 Industrial Boiler Production; 1988 to 1998, plus 2010 Estimate 5
Table 4 Distribution of IB Production Between the Six Administrative Regions 5
Table 5 Distribution of Installed Capacity of IBs in 1998 5
Table 6 Production Information of Boiler Manufacturers in 1998 6
Table 7 Number of IB Manufacturing Enterprises Exceeding 350MWth
Annual Production Capacity 7
Table 8 Sub-Division of Industry Sector Demand for IBs 9
Table 9 Annual Boiler Demand by Boiler Size in 1991 and 2010 10
Table 10 Thermal Percentage Production of Different Types of IB Plus Variations in
Firing System and Fuel Type 11
Table 11 Relative Fuel Prices in China, mid-2000 14
Table 12 Prediction of Natural Gas Demand Between 2010 and 2020 (billion m3) 18
Table 13 Dust Emission Limits for Coal Fired Boilers (GWPB3-199) 25
Table 14 SO2 Emission Limits for Coal Fired Boilers in All Areas of China (GWPB3-199) 25
Table 15 Estimated Relative costs of 2MWth Gas Fired Shell Boiler Packages in China 33

ANNEXES

Annex A Listing of UK Boilermakers and Ancillary Equipment Suppliers

Annex B Industrial Boiler Market Sector Quantification Considerations
Annex C Overview of the Role of Various State and Non-Governmental Organisations
Annex D Overview of the WB/GEF Industrial Boiler Project

vi
 MARKET ASSESSMENT OF INDUSTRIAL-SIZE
COAL-FIRED BOILERS IN CHINA

1. INTRODUCTION

1.1 Aims and Objectives

The principal aims of the study are to assess the current status of industrial boilers in China,
to establish future needs in this sector, and to identify ways by which UK companies and
organisations might access this market and benefit from those needs. It also aims to identify
and prioritise areas where further UK R&D and technology transfer activity needs to be
focused to enhance the market potential in China for UK boiler technologies and components.

1.2 Background to the Study

UK companies and organisations have extensive capability in the provision of hardware and
services relating to industrial boiler plant and components. A list of UK boilermakers (both
coal and oil/gas fired) is provided in Annex A, with the coal-fired manufacturers being
designated by their product range. Also included is a list of UK oil and gas burner
manufacturers plus some ancillary equipment suppliers. The coal-fired boilermakers can
mostly be categorised as SMEs, with many being located close to what were the traditional
industrial regions and coalfields. Output range is mostly upto 12MWth but with a capability
to meet larger requirements through modular construction. In general, such companies do
not undertake much R&D directly although two of those listed do have some input via the
ECSC programme.

Chinas industrial boiler sector (IB) is both large and complex. The study therefore is
designed to provide a detailed review of Chinas industrial boiler sector and identify the
market potential of this sector. Furthermore, and very importantly, bearing in mind the
structure of the UK coal-fired boiler manufacturing industry, the study describes how UK
companies and organisations might access and benefit from this market. Thus, the study
comprises two parts. The first part covers market quantification and the second part covers
the market entry strategy.

1.3 The Project Consortium

The project consortium, selected by the United Kingdom Department of Trade and Industry
(DTI) to undertake this activity, comprised CRE Group Ltd and the China Industrial Boiler
Manufacturers Association. CRE has extensive experience in improving the efficiency and
environmental consequences of energy utilisation by giving technical assistance to energy users
and developing new technologies with improved environmental performance. CRE has
particular expertise in the industrial sector, including numerous activities in China involving
technical assistance and technology transfer. This has involved technical and financial
assessment of fossil fuel technology options for all sectors, other technical and feasibility
studies, environmental management, financial and economic appraisals, advice on energy and
environmental policy, regulation and legislation, multi-national project and consortia
management, and technology transfer and training. CRE also has an extensive background in
certification and accreditation of fossil fuel fired equipment, in particular, operating the only
NAMAS accredited testing laboratory in the UK able to test solid fuel, gas and oil domestic
appliances for approval. CRE has recently been awarded Notified Body Status under the
Boiler Efficiency Directive.

1
 The China Industrial Boiler Manufacturers Association (CIBMA) plays a key role in China.
It formulates the development plan of China's industrial boiler sector in support of the State
Bureau of Machine Industry (SBMI) for the State Planning and Development Commission
(SPDC); organises technical information exchanges on industrial boiler technology, including
exhibitions and symposia; disseminates new technology and experience of industrial boilers;
co-ordinates the pricing policy for industrial boiler products; and develops international
exchange and co-operation. There are 500 corporate members of CIBMA. These are
industrial boiler works and the related auxiliary equipment factories.

1.4 Scope of the Report

The terms of reference require CRE and CIBMA to undertake a market quantification study
with the following objectives:

to assess and quantify the current market for coal-fired industrial boilers in China (in the
range 0.5 50MWth)
to assess and quantify the likely development of that market over a 10 year timeframe

Allied to, and indeed integrated with, the task of quantifying the current and future market, is
an analysis of the key regulatory and institutional issues which bear upon both the current
market and the likely future development of the market.

The output from this market quantification study is to form the input for a second phase of
work, which has the objectives of determining the market potential for UK boiler makers and
equipment suppliers. Areas where further UK R&D and technology transfer activities need to
be focused, to enhance the market potential in China for UK suppliers of boiler technologies
and components, are to be identified and prioritised. A comprehensive market entry strategy
into China also has to be identified and prioritised, so that UK boiler companies and
equipment suppliers might access the market, to the mutual benefit of China and the UK.

The report therefore comprises two volumes, i.e.

Volume 1 Executive Summary

Volume 2 Main Report (Comprising Market Study and Market Entry
Strategy)

2. MARKET SECTOR REVIEW

2.1 Background

The approach adopted in the market quantification study is set out in Annex B. It should be
noted that the starting point was consideration of a report published in 1994 entitled China:
Issues and Options in Greenhouse Gas Emissions Control Pre-Feasibility Study on High
Efficiency Industrial Boilers prepared under the auspices of the World Banks Global
Environment Facility (GEF) by a joint team of Chinese and International experts (1).
Throughout subsequent sub sections comparative reference is made to the 1991 data
contained within the Pre-Feasibility GEF report.

2.2 Definition of Technology

IBs are defined (in China) as individual boilers having a steam (or hot water thermal
equivalent) capacity of up to and including 130tph and an operating pressure up to and
including 6Mpa. Although not directly convertible, it is usual to equate 1tph of thermal
steaming capacity to 0.7MW (MWth). Thus, a 130tph steaming rate is reasonably equivalent

2
 to 90MW thermal (90MWth). The IB parameter definitions have increased since 1991, both
in terms of thermal output and operating pressure, when values of 65tph (45MWth) and
2.45Mpa were reported.

Although the top end of the IB operating range is well defined, the lower end is less so.
Small, low pressure hot water (LPHW) boilers, operating very near to ambient pressure and
which do not, therefore, have to abide by stringent design codes, form a separate, but
substantial, secondary market sector below the primary IB market.

IBs are manufactured by boiler works which are State graded to signify their capability for
constructional quality and pressure integrity. Presently there are 706 boiler makers with
Grades from A, the best, down to E, whereas in 1991 the total of Grades A to E was 553.
Below Grade E there are many (>1,000) Ungraded factories which produce boilers, mainly
in competition with Grade E, for the secondary IB market. Manufacturers of small LPHW
boilers do not need to be State licensed by the Labour Bureau, so do not need to be within the
Grade structure.

Grade A manufacturers concentrate their efforts on the highest pressure, site erected, utility
boilers, so their production of IBs is small. There are 9 of these boiler makers (10 were
declared in 1991). The Grade B manufacturers similarly devote much of their manufacturing
skill to boilers operating at pressures above the IB range, but also make the larger IBs. There
are 18 of this grade of manufacturer (10 were declared in 1991). Grade C and D boiler works
are where the majority of primary IB manufacture takes place, not necessarily in terms of
tonnage capacity but certainly in terms of the number of individual boilers. There are 40
Grade C and 149 Grade D manufacturers (compared to declared numbers of 27 and 153,
respectively, in 1991).

Grade E boiler works are plentiful. Currently 490 are classified (353 were declared in 1991).
The Ungraded works, below Grade E, were not mentioned in the 1991 report as they are a
recent phenomenon caused by former rural workers seeking industrial employment.

2.3 Current Overall Market

The overall market can be considered in terms of its total installed capacity split by fuel mix,
technology type, unit size distribution, geographical consideration of manufacture and sales
market value. The following tables provide basic information for the decade up to 1998, the
latest year for which full statistical information is available. For completeness, the tables also
include estimates to 2010 (where such information is available and relevant). Estimates to
2010 are based upon SPDC/SBMI forward plans, as presented by CIBMA (see Annex B).

Table 1 indicates the size of the IB market in China in terms of fuel burn. Unlike in the UK,
where the industrial coal burn sector is dwarfed by the utility sector, the industrial and utility
sectors in China are similar in size. The Chinese industrial sector accounts for some
400million tpa of coal. For comparison, industrial coal use in the UK was around 50million
tpa in the late 1950s but fell progressively, until now less than 4million tpa are consumed by
UK industry.

3
 Table 1 Estimated Fuel Consumption of Industrial Boilers
Coal Oil Gas
Million tonnes of coal
390 3 5
or equivalent
1998 Units of fuel 1.75million 3.5billion m3
390mt
tonnes oil gas
Thermal % 98.0 0.8 1.2
Million tonnes of coal
400 5 8
or equivalent
2000 Units of fuel 3m tonnes
400mt 5.7b m3 of gas
of oil
Thermal % 96.9 1.2 1.9
Million tonnes of coal
460 10 45
or equivalent
2010 Units of fuel 6m tonnes
460mt 32b m3 gas
of oil
Thermal % 89.3 2 8.7

China is currently very dependent on coal, with an estimated 97% of the energy for its IBs
coming from that source. Historically, very little gas and oil have been burned, though gas
use is now increasing as distribution pipelines from western fields bring natural gas into the
major cities of the industrialised eastern Provinces.

Table 2 shows how the total installed stock of IBs has grown over the last decade, both by
duty (heating or industrial application) and by the broad division of steam raising or hot water
production. The growth rate is slower than the official Plan; CIBMA disclosed that China
had expected an installed stock of 1.12million MWth by the end of 2000, against the current
expectation of 900,000MWth. This is probably the result of the economy slowing during the
mid-1990s, as the State brought inflationary pressures under control.

Table 2 Installed Capacity of IBs in 1991, 1998 and estimated end of 2000 & 2010
Division by
Division by Type
Purpose Average
Boiler Boiler
Year Boiler Hot Totals
Used Steam Size
Used In Water
For Boiler MWth
Industry Boiler
Heating
Number 236,300 195,800 149,625 282,475 432,100
1991 Capacity 1.6
280,380 407,780 196,435 491,725 688,160
MWth
Number 263,455 237,785 165,805 335,435 501,240
1998 Capacity 1.75
399,135 480,680 288,745 591,070 879,815
MWth
Capacity
2000 Similar in relative terms to 1998 935,000 1.8
MWth
Number No individual estimates given by CIBMA; 620,000
2010 Capacity relative division likely to remain similar to 2.0
1,215,000
MWth that seen at the end of the previous decade.

It can be seen that the average size of Chinas installed IBs is small, though slowly growing.
The average installed capacity (steam and hot water equivalent) in 1991 was 1.6MWth out of

4
432,100 installed units. By 1998, the average was still only 1.75MWth out of 501,240
installed units.

Table 3 shows the annual production of IBs in terms of their total thermal capacity. Volume
production of IBs began around 1960 and reached 10,000MWth by 1970, 20,000MWth by the
mid-late 1970s and 30,000MWth by 1980. The present plateau of 50,000MWth to
60,000MWth was first attained in 1985 and has been fairly constant since, apart from a sharp
downturn in 1989 (Tiananmen) which did not fully recover until 1993. The less pronounced
slow down from 1995 to present was the result of an overheating economy. A tightened
economic policy was imposed in 1995 which caused a negative growth in IB production, but
the economy is now recovering, with a projected 7.3% GDP in 2000 and 7.6% in 2001 (6).

Table 3 Industrial Boiler Production; 1988 to 1998, plus 2010 Estimate

Year 1988 1990 1991 1994 1995 1996 1997 1998 2010

60,000
to
Production, 100,000
65,325 35,040 46,525 60,550 63,420 59,500 57,120 52,640
MWth see
Section
2.4

Although boiler making factories are located all over industrialised China, there is some
imbalance between supply and demand between the six administrative regions. Table 4
shows the distribution of the production of IBs from 1994 through to 1998.

Table 4 Distribution of IB Production Between the Six Administrative Regions

East North North Central North South
Year Units Totals
China China East China West West
MWth/a 25,180 13,735 7,985 6,635 3,640 1,645 58,700
1994
% 42.9 23.4 13.6 11.3 6.2 2.8 100
MWth/a 28,605 11,740 8,280 7,540 3,585 2,100 61,785
1995
% 46.3 19.0 13.4 12.2 5.8 3.4 100
MWth/a 27,395 10,315 8,685 6,470 3,670 1,515 58,285
1996
% 47.0 17.7 14.9 11.1 6.3 2.6 100
MWth/a 27,075 7,115 9,895 6,340 3,280 1,835 55,595
1997
% 48.7 12.8 17.8 11.4 5.9 3.3 100
MWth/a 23,155 7,015 10,415 4,950 3,405 2,835 51,565
1998
% 44.9 13.6 20.2 9.6 6.6 5.5 100

Table 5 shows the distribution of total installed capacity of IBs within the same six
administrative regions as the production distribution shown in Table 4.

Table 5 Distribution of Installed Capacity of IBs in 1998

East North North Central North South
Units Totals
China China East China West West
MWth/a 202,735 208,810 193,595 118,870 84,550 49,200 857,760
% 23.64 24.34 22.57 13.86 9.86 5.74 100

The distribution of production (supply) of IBs and the installation (demand) for IBs, is not
uniform. It can be seen, for example, that even though IB manufacture in the East of China

5
averaged near 46% during the 5 years leading up to the 1998 installed capacity shown in
Table 4, the percentage of installed boilers in the East of China was <24% in 1998. Therefore,
IBs are transported between the six administrative regions. However, selling from one
administrative area into another is not without penalty. Local governments try to protect the
local manufacturers by applying a form of tax on the importation of IBs into their area.

Table 6 illustrates the production scale of manufacturers within the Chinese IB industry, by
providing details of product value during 1998.

Table 6 Production Information of Boiler Manufacturers in 1998

Grade Grade Grade Grade Total of Grade E
A B C D AD LPHW
No. of Boiler Makers 9 18 40 149 216 490
Production MWth 1,850 11,850 18,770 20,170 52,640 12,600
No. of Boilers 225 2,449 6,440 11,547 20,661 12,000
No of Employees 42,438 29,991 43,140 69,220 184,789 56,467
Product Billion
Value Yuan
5.082 1.495 2.115 3.177 11.869 1.62
All
Production
Percentage
Product % 2.83 93.7 100 100 57.6 100
that is IB
Product Billion
Value Yuan 0.144 1.401 2.115 3.177 6.837 1.62
Of Ibs
Billion
0.012 0.112 0.169 0.254 0.547 0.130
GB

In 1998, when the annual IB production was 52,640MWth capacity (some 20,000 boilers) and
despite fierce competition engendered through industry over-capacity, the market for IBs
from the Grade A-D manufacturers totalled 6.84billion Yuan i.e. more than 0.5billion. The
490 Grade E manufacturers, who compete with more than 1,000 Ungraded manufacturers in
what is inevitably a fiercely competitive market for LPHW boilers, constructed another
12,000 boilers worth 1.62billion Yuan, i.e. some 130million. CIBMA estimate that in 1998
the total market for LPHW boilers was worth some 2.26billion Yuan, some 180million.
The total of all production from the boiler making industry (including utility boilers) was
14.13billion Yuan, around 1.15billion.

Production capacity of the four main IB manufacturing Grades is currently 100,000MWth to

125,000MWth per annum, i.e. at least twice the current demand, so competition is fierce and
unit price is a major selling factor. This applies especially for chain grate boilers, which are
held in low esteem by Chinas IB customers because of their poor record of failing to meet
rated output and having low efficiency.

SBMI and CIBMA judge the significance of an IB manufacturer by whether its annual
production of IBs exceeds an aggregate thermal output of 350MWth (500tph). Table 7 shows
how this statistic has varied from 1987 to 1997.

6
 Table 7 Number of IB Manufacturing Enterprises Exceeding
350MWth Annual Production Capacity
1987 1988 1989 1990 1991 1997
>350MWth 52 54 50 34 41 49
>700MWth 25 33 26 11 16 17
>1400MWth 4 6 6 5 4 6

In 1988, the highest manufacturing year so far in Chinese IB production history, when some
65,000MWth of boiler capacity was produced, 54 manufacturers exceeded 350MWth. In
1991, when the total combined production was 46,500MWth, only 41 (out of the 553 graded
manufacturers) exceeded 350MWth. In 1997, CIBMA found that, out of the 706
manufacturers with Grades A to E licences, only 49 exceeded 350MWth of IB production. Of
these, 17 manufacturers exceeded 700MWth and 6 exceeded 1,400MWth. Around 70% of all
IB manufacturers do not even produce 70MWth of production (mainly these are within
Grades D and E). This was the case in 1989 and was still true in 1998.

In recognition of the excess capacity over demand in IB manufacturing, some managerial and
technical reforms are taking place, including alliances and mergers, but thus far the
effectiveness of these changes seem limited. Joint Ventures (JVs), sub-contracting (the
Chinese call this co-production) and the purchase of know-how licences, are all methods by
which advanced foreign technology is being obtained in hopes of improving competitiveness.
Such hopes are not always realised, however, since, at present, anything which puts up the
price of an IB can destroy its market potential, despite quality and performance gains. This is
certainly true of conventional coal burning methods e.g. chain and travel bar grates.
Currently, Chinese consumers have little faith in ever obtaining a good performance from
such combustion systems and so purchase the cheapest IB available, requiring only that
output is guaranteed. For advanced coal burning methods e.g. CFBC, there is more tolerance
of a higher price.

As would be expected, the higher graded manufacturers tend to produce the larger IBs. In
1991, the mean capacity of boilers from the Grade A and B Major and Key manufacturers
was 4MWth, while production from the Grade E boiler works averaged only 0.4MWth. The
industry average for all IBs produced in the five years to 1991 was 1.8MWth, rising to
2.2MWth in 1991. In 1998, Grade A manufacturers supplied boilers with an average thermal
capacity of 8.5MWth, Grade B supplied boilers of average size 5MWth, Grade C supplied
boilers of 2.8MWth, Grade D supplied boilers of 1.75MWth and Grade E manufacturers
supplied boilers of 1.1MWth. The overall average IB size produced by Grades A to D in
1998 was 2.5MWth. With an annual national production of 52,640MWth, this equates to
some 21,000 boilers.

The comparison of 1991 and 1998 boiler production shows a gradual increase in average unit
capacity. The market demand for larger boilers is possibly a result of the more successful of
the many industrial enterprises in China expanding and amalgamating, which started
following the 1984 economic reform.

As the average unit capacity of the year by year production increases, this gradually increases
the thermal capacity of the national stock, as is evidenced by the national IB stock totals and
thermal capacities shown in Table 2.

Overall, despite small increases in the thermal capacity of individual boilers within the annual
production, most Chinese IBs are relatively small. The predominance of small coal fired IBs
is encouraging for the marketing of UK industrial coal burning technology, since much
development effort was expended by the British Coal Corporation (BCC; formerly the

7
 National Coal Board, NCB) into small combustion systems, suited to thermal outputs of
<1MWth up to 5MWth. This development effort emanated from the NCBs 1974 Plan For
Coal, which sought to encourage UK industrialists to convert to coal (at a time of escalating
oil prices) by improving the amenity of smaller industrial coal burning systems.

2.4 Projected Overall Future Market

CIBMA have estimated a range of possible IB production demands for 2010.

The simplest projection is shown in Table 3 where, if the economic downturns following
1989 and in the late 1990s are ignored, the average production demand for IBs during the
decade 1988-1998 is near 60,000MWth. This demand has been much the same since Chinas
industrial economic reforms in 1984. Thus, it could be argued that a similar steady demand
for 60,000MWth of production might continue for the decade to 2010. CIBMA suggest that
the average boiler size might then be near 3MWth, meaning that the number of boilers
required per annum, in round figures, might be 20,000. The total installed capacity by that
time is expected to be some 1,200MWth, comprising some 620,000 individual boilers (Table
2).

CIBMA admit, however, that this is an over simplified expectation and that, with a growing
industrial sector, demand could rise as high as 100,000MWth. Various growth scenarios were
examined and reported in the 1991 GEF study and a similar demand range was estimated
(70,000 to 104,000MWth). The range of demand estimates arises from the consideration of
various boiler replacement and demand growth scenarios. These scenarios consider:

the rate of replacement of time-expired old boiler stock, and

the likely increase in new boiler demand within individual market sectors.

CIBMA suggest that demand for new IBs i.e. those IBs which increase the national stock as
distinct from those which replace time-expired old stock, is fairly constant at around
28,000MWth, i.e. some 10,000 boilers per annum at an average 2.5-3MWth over the decade
to 2010. With regard to the need to replace time-expired boilers, Chinese IBs generally have
a 20 year life span, so (simplistically) the rate of replacement should relate to the rate of IB
production some 20 years previous. Based upon their more in-depth knowledge, CIBMA
estimate the likely need to replace 35,000MWth of capacity in 2000, rising to 50,000MWth
by 2010. Thus, on this simple basis, the demand estimate for 2000 might be 63,000MWth
(28,000+35,000), perhaps 25,000 boilers, and by 2010 it might be 78,000MWth
(28,000+50,000), perhaps 26,000 boilers. The conversions of MWth into numbers of boilers
recognises that the average boiler size is increasing. Currently the average production IB is
2.5MWth, but is expected to rise to 3MWth by 2010. The increase in the average boiler size,
together with a tendency for several small ageing boilers to be replaced with a single large
boiler, are two tempering effects on the number of boilers required to be produced.

Higher estimates for IB production demand arise if demand growth occurs over and above
that required merely to replace time-expired stock.

The industrial sector (as opposed to the heating sector) accounts for some 55% of IB
production i.e. currently some 28,000 37,000MWth per annum. It consists mainly of light
industry & textiles, energy, construction, petrochemicals, metallurgical, transport and military
sectors. The division of annual demand capacity between the main industrial sectors is shown
in Table 8.

8
 Table 8 Sub-Division of Industry Sector Demand for IBs
Annual Capacity Demand
Industry Sector
MWth
Light Industry & Textiles 6,700 10,400
Energy Industries 6,200 7,300
Construction Materials 2,300 3,700
Petroleum and Chemical Engineering 2,100 3,200
Metallurgical 1,800 2,700
Traffic & Transportation 1,600 2,200
Military 1,100 1,900

CIBMA has considered factors relevant to the likely demand growth of these sectors and
identifies growth areas as:

Light industry and textiles are the largest customer for IBs, accounting for 19% of annual
demand. A continuing growth of 2 3% per annum is expected into the near future.

Main products of the construction industry are cement and glass, which need waste heat
boilers to recover heat from 300-400C exhaust flue gases. Demand growth for waste
heat boilers is expected to exceed 7% per annum.

The demand within the petroleum and chemical engineering sector accounts for 15% of
IB production. The annual growth rate within this sector is expected to be 5 8%.

The major industry within the metallurgical sector is iron and steel production. This
sector is expected to double its installed capacity of IBs between the present time and
2010. One of the reasons, according to CIBMA, is that China is introducing vacuum de-
gassing techniques using steam powered venturis.

Based upon these considerations, CIBMA predict an average annual industry sector demand
growth expectation of 3 5%.

Within the heating sector, which accounts for the remaining 45% of IB production, the
strongest influence on demand growth is the need to supply apartment heating to all
residential buildings in the Three Bei (three north) regions, Huabei, Dongbei and Xibei (the
central, eastern and western regions of northern China), situated north of the Yellow River.
These regions account for 13 Provinces and cities (including Beijing) and suffer severe
winters. The State is aiming to provide central heating to all apartments to discourage the use
of individual stoves.

In 1991, Combined Heat and Power (CHP) was seen as a key part of the strategy involving
large scale district heating in the Three Bei, made possible by using steam boilers rather
than hot water (41% by number, 36% by capacity, of installed heating boilers were steam
raising in 1998). Now that there is a surplus of electricity it has become uneconomic for
small CHP boilers to export power to the National Grid; hence there is an increased demand
for hot water boilers. Even so, in areas not connected to the grid, CHP is still encouraged.

Typically, 1m2 of apartment floor area requires a heat supply during the winter months of
100kcal/h; hence a 7MWth boiler can serve around 60,000m2. The actual heating rate varies
with latitude e.g. in Beijing the figure is 80kcal/m2 whereas in Harbin the figure is
150kcal/m2. Where district heating is available, it is provided from early/mid November to
mid/end of March, ie some 3,300h per annum.

9
 In 1990, some 12.1% of the apartment areas in the Three Bei region was heated i.e. some
190million m2 out of a total area of 1,570million m2. Currently, only around 30% enjoy a
district heating facility, though the State Plan intended 49% by 2000. It is therefore intended
to increase the apartment area served by district heating by 70 80million m2 per annum,
requiring additional heating boilers aggregating to some 7,700MWth to 9,100MWth per
annum, an increase to between 20,300MWth and 21,700MWth on the previously typical
12,600MWth of IB demand required for the heating sector.

Summing all these demands, therefore provides the following market projection:

A 3 5% annual increase on the 15,400MWth of new IBs serving the industrial sector,
results in an industrial sector annual demand expectation of 21,000MWth to
25,000MWth.

The average annual demand for new heating boilers becomes 20,300MWth to
21,700MWth.

The annual demand for replacement of time expired old stock is estimated as
50,000MWth by 2010.

These demands total 91,300MWth to 96,700MWth, equivalent to an annual requirement of

some 30,000 to 32,000 boilers in 2010. These are top estimates, but it should be noted that
even the base expectation of a 60,000MWth annual demand equates to some 20,000 boilers.

The overall conclusion is that the Chinese IB market demand is very large by any standards
and is expected to remain so, or even increase, at least into the medium term future, within an
annual demand range of 20-32,000 boilers.

2.5 Current/Future Capacity Requirements

The capacity range of boilers expected to make up the 2010 demand is shown in Table 9, with
comparison data drawn from the 1991 GEF study.

Table 9 Annual Boiler Demand by Boiler Size in 1991 and 2010

Percentage Annual Annual Boiler
Capacity
of Boiler Demand Numbers
Year of Boiler
Demand, Demand Numerical % of Boilers
MWth
% MWth
0.7 8 2,910 38 6,100
1991 1.4 4 62 21,670 56 9,000
7 30 10,450 6 1,000
2,800 30
0.7 4 5 6,000 9,000
3,500
38,500 60
2010 1.4 4 55 60 12,000 18,000
42,000
24,500 10
7 35 41 2,000 3,000
28,700

By 2010, the average size of boilers being produced is expected to approach 3MWth, whereas
in 1991 it was 2.2MWth. However, due to the sheer size of the Chinese IB market, boilers
7MWth, although numerically representing only 10% of the expected demand, still equates
to 2,000 to 3,000 boilers per annum.

10
Table 10 shows the percentage of IB production during the 1990s with regard to boiler types,
their firing systems and fuels used. These figures, supplied by CIBMA, do not always total
100% within their individual categories, but the percentages as given are assumed to be
correct on the basis that various other, more minor, components have been omitted for clarity.

Table 10 Thermal Percentage Production of Different Types of IB

Plus Variations in Firing System and Fuel Type
1991 1995 1996 1997 1998
Steam Boiler 72.18% 69.65% 66.94% 74.91% 60.12%
Hot Water
27.82% 30.35% 33.06% 24.84% 39.88%
Boiler
Type of Boiler
Vertical 1.33% 0.52% 0.69% 1.64% 0.11%
Horizontal 3.56% 4.47% 6.51% 6.60% 10.81%
shell
Water & fire- 45.28% 39.01% 35.32% 28.60% 23.67%
tube
Single drum 9.90% 12.66% 10.15% 27.04% 21.62%
Bi-drum 35.55% 39.63% 38.08% 34.77% 35.11%
Forced 3.81% 2.28% 2.85% 2.20% 2.45%
circulation
Type of Combustion System
Fixed grate 4.65% 4.12% 3.81% 10.40% 2.45%
Chain grate 60.84% 68.74% 67.20% 64.47% 57.87%
Reciprocating 16.73% 7.68% 7.59% 6.04% 6.92%
grate
Bubbling FBC 2.00% 1.55% 0.55% 6.17% 1.20%
Circulating 0.92% 5.77% 1.66% 4.62% 1.31%
FBC
Waste heat 0.5% 1.42% 0.56% 3.46% 3.54%
Type of Fuel
Anthracite coal 1.43% 1.81% 2.39% 0.84% 1.31%
Bituminous 88.61% 88.51% 84.50% 82.65% 74.23%
coal
Oil and Gas 5.62% 6.01% 9.35% 8.36% 12.21%

The main trends seen in Table 10 are the steady rise in the manufacture of horizontal,
internally fired, shell boilers, with the accompanying increase in the use of oil and gas fuels,
the predominance of the chain (including travel bar) moving grate combustion systems firing
coal and the decline of the coal fired water and fire-tube boiler.

The wider availability of natural gas has prompted the development of wet-back shell boiler
construction and also flame reversal shell boilers. During the 1991 GEF study, shell boilers
were rarely seen and very few boiler makers listed them within their constructional range.
Now there are over 60 boiler makers manufacturing wet-back shell boilers with capacities
from 0.35MWth to 14MWth. There are also 20 or 30 boiler makers who can make the Ygnis
type flame reversal shell boiler, though these are 1.4MWth, mostly LPHW units.

The water and fire-tube boiler uses a composite construction of water-tube combustion
chamber and shell waste heat boiler. The Chinese developed this design in 1960 and
popularised its use due to its constructional simplicity, relatively low steel content and
compact design. By 1990 it accounted for over 60% of the installed IB stock. However, it
was criticised by the international experts within the GEF Pre-Feasibility Study due to its

11
safety shortcomings (flame radiation from the grate acted upon the underside of the fire-tube
shell, an undesirable situation especially if, as previously in China, water quality is not
maintained and a hardness scale and sludge accumulates in the base of the shell). There is
a noticeable decline in the use of this type of boiler. In 1990, 57.6% of IB production was of
that type, but, as Table 10 shows, production has since declined, becoming <25% in 1998. Its
market share has been taken over by the horizontal shell boiler (firing gas and oil) and more
especially by an increased use of (totally) water-tube boilers (single drum, bi-drum and forced
circulation designs).

In this regard, CIBMA admit performance shortcomings with the original design of waste and
fire-tube boiler, though claim that its manufacturing decline is more due to difficulty of
increasing its output to match the trend for larger boiler sizes. An improved design has now
been developed which can be used up to 45MWth. It is safer by virtue of having refractory
radiation shields to prevent direct flame radiation onto the underside of the shell component.
The modified water and fire-tube boiler retains compact dimensions. At 45MWth it is
claimed to be 5m shorter than a totally water-tube boiler. The introduction of this new design
may promote a recovery in the percentage market share for the water and fire-tube boiler.

In discussions with CIBMA and the several boiler Chinese organisations visited during the
June 2000 mission , the following factors emerged as likely to influence the market demand
for boilers and associated equipment to 2010 and beyond.

A developing trend is the use of co-generation boilers within the sugar industry and at
paper mills, generating electricity and supplying heat via back-pressure turbines. These
will demand IBs running to 6MPa with capacities from 15 50MWth. The paper industry
is also applying waste burning black liquor boilers, a newly developed technology in
China.

The proportion of hot water boilers manufactured each year is rising. In 1998, 33% of
IBs within the 501,238 total installed stock were hot water boilers compared to the 1998
annual production of 40%. By 2010, the annual production of hot water boilers is
expected to reach 21,000MWth, with boilers having individual capacities of 7 70MWth
expected to be in increasing demand.

The maximum size of hot water boilers is set to rise, perhaps to 100MWth. Some 10% of
the thermal demand (6,000 9,600MWth) is likely to be large hot water boilers, probably
in the range 30 100MWth, representing perhaps 100 200 boilers per annum.

The proportion of (totally) water-tube boilers will increase, accounting for perhaps 50%
of the annual thermal production within 5 years. Water-tube boilers with capacities from
14MWth to 90MWth, capable of being used in CHP schemes, are likely to account for
10% of annual thermal demand, i.e some 100 200 boilers. Some 50% of these may be
CFBC boilers, with a capacity of, say, 30MWth upwards, even as early as 2005. This
could represent a demand for 50 100 CFBC boilers per annum.

Small coal boilers, situated in city centres where gas availability is not a medium term
prospect, will be influenced by stricter environmental legislation into using higher grade,
perhaps washed (niche) coals. This is a market opportunity for UK coal fired boiler
technology (see Sections 3 and 4). Medium and large coal fired IBs will similarly be
influenced, but over a longer timescale of closer to 10 years.

Where natural gas is becoming available in the near term, gas and (perhaps initially) oil
fired shell boilers (3-pass wet-back and flame reversal types) will prematurely replace
small coal fired IBs in city centres. Initially, these will cover a thermal range from
0.35MWth to 7MWth, mostly using Chinese made shell boilers fitted with imported

12
 burners. In 1998, the total production of such boilers with unit capacities >0.35MWth
was about 5,000 units (with some 6,000 burners of all sizes being imported). By the end
of 1999 some 38,000 gas and oil fired boilers were installed and 7,000 burners
>0.35MWth had been imported during the year. It is expected that the annual demand for
shell boilers could reach 8,000 per annum, with perhaps a total 10,000 gas and / or oil
fired burners (with their automatic controls) being required, due to additional demand for
spares, boilers <0.35MWth and for applications outside of IB production.

Presently there is some potential for importing complete packaged shell boilers from the
west, but this is likely to be short term. The Chinese are becoming more knowledgeable
in the application of imported burners to their own shell boilers, with commensurate cost
savings. While some customers still opt to pay the additional cost of a complete imported
shell package, due to its perceived greater reliability and safety, this market is likely to
diminish considerably over the next 2 3 years.

The secondary IB coal fired LPHW market sector, currently dominated by Grade E and
Ungraded manufacturers, is likely to change over the medium to long term, encompassing
higher technology products and entrepreneur manufacturers making stand-alone gas
fired appliances for providing potable hot water and heat to commercial buildings,
individual apartment blocks and even individual apartments. These appliances require
thermal ratings from, say, 2MWth down to 10kWth.

New markets are arising and there is becoming more opportunity for boiler exports. As
the Chinese economy grows and diversifies, its dependence on heavy industry is
reducing and new sectors are developing eg, high technology industries and the service
sector industry. There is also more private enterprise.

Export potential for Chinese manufacturers is another growth area, especially considering
Chinas relatively low manufacturing costs and excess production capacity. Presently,
China exports only a small number of boilers, some 1.5% of its total production,
predominantly to SE Asia. More opportunity may arise when China is ratified as a full
Member of the World Trade Organisation (WTO), especially if it can offer conventional
oil and gas fired shell boilers rather than coal fired boilers designed specifically for
Chinese raw coal. This could pose a major threat to boiler makers around the world.

2.6 Current/Future Fuel Mix Requirements

Fuel consumed by Chinese IBs covers the expected fossil fuel range of coal, oil and gas. In
1991, nearly all IBs burned coal, though the burning of gas and oil was already being
encouraged with the intention of improving pollution control in tourist cities and ensuring
reliable heating and air conditioning at high ranking hotels and hospitals.

Table 10 shows that during 1998 the manufacture of oil and gas fired IBs reached 12.2%
(thermally) out of the total national production, equating to some 5,000 boilers above
0.35MWth out of the 20,000 boilers manufactured. In relation to the installed stock, however,
5,000 boilers represents less than 1% of that stock. Thus, although the use of gas and oil is
growing, its rate of impact on the installed boiler stock is inevitably slow.

Table 1 indicates the past and current predominance of coal firing of IBs. The table also
shows the expected continuation of that dominance during the decade to 2010, despite the rise
in natural gas consumption as new gas pipelines reach the major eastern cities. Fuel oil is not
an economic alternative, as its availability is poor and its cost is high (Table 11). Its use is
often temporary, mainly a consequence of environmental pressure in geographical areas
where gas is anticipated as coming available in the short to medium term.

13
Table 11 indicates the absolute cost and relative thermal cost of various fuels.

Table 11 Relative Fuel Prices in China, mid-2000

Fuel Cost Approximate Relative
Cost versus Coal
IB Coal 200Y/t (probably +/- 1
20%)
Coke Oven gas 1 Yuan/m3 7
Natural gas 1.3 Yuan/m3 4.5
Heavy Fuel Oil 1,800 Yuan/t 5.5
Petrol 3 Yuan/litre 10
Imported Liquefied 1.7 Yuan/m3 6
Natural Gas

2.6.1 Coal Availability and Use

The industrialisation of China has been fuelled using coal. China has an abundance of coal,
mostly bituminous but also with large reserves of anthracite and (some) lignite (2). According
to the 1993 BP Statistical Review, China has 114 billion tonnes of coal reserves, representing
some 11% of the worlds total (7). By 2010, coal use in China is expected to fall from the
present 72% of all energy usage down to 60%, with 50% planned by 2050 (3). No equivalent
reduction in coal use within IBs is expected.

Currently, as shown in Table 1, some 98% of the fuel used in IBs is coal. This dominance
will persist to 2010, despite environmental legislative pressure preferentially encouraging gas
use in those cities where gas is gradually becoming available. Coal is expected to still
account for near 90% of IB fuel usage in 2010, being some one third of all coal mined.

Of the 400million tpa of coal currently supplied to IBs, some 80% is bituminous. Although
bituminous coal is preferred for IBs, the bituminous category is wide and includes prime
quality coking coals and mid-range coals suitable for making coking coal blends, as well as
the preferred low swelling, high volatile, steam coals. Coking coals, particularly the mid-
range coals used in blends, have a tendency to swell when heated, making sticky coke masses
which impede the free access of combustion air. Thus, to simply describe a coal as
bituminous gives no guarantee that it is best suited for IB application.

While using an unsuitable, highly swelling, bituminous coal is doubtless a factor which
contributes to low efficiency, another reason relates to the development pattern for coal
mining in China. The rapid increase in energy demand that accompanied the 1960
industrialisation, and especially the 1984 reforms, meant that coal was regularly in short
supply and all effort was put into correcting this deficiency. A large number of small mines
were sunk over a short time period, a costly pace of development which financially
discouraged the construction of ancillary equipment for screening, blending and washing the
mined coal. In the past, some 80,000 small mines have been operated by Town and Village
Enterprises (TVEs) but now, with coal supply in excess of demand and with the aim of
improving coal quality to lower environmental pollution, many of these mines are being
closed, with 15,000 closed already.

State statistics suggest that 22% of national coal production is washed and screened.
However, only a very small proportion of this washed coal is supplied to utility and industrial
boilers. In the past, washing of coal has been seen only as a necessary prerequisite for
making a strong coke suitable for use in blast furnaces during steel manufacture. More
recently, Chinese authorities have accepted in principle the benefits of supplying washed coal

14
to IBs. However, making washed coal widely available is limited by the huge investment
cost, plus obtaining the substantial water supply required to operate a washery in many areas
of China.

In consequence of the lack of coal washing facilities, IBs in China (virtually) exclusively rely
upon unwashed, unsized, run-of-mine raw coal, much of which will be further unsuitable
because of its swelling (coking) properties. While this situation will persist for most IBs into
the medium and longer term, a new initiative is currently being implemented which will
require the grading of coal supplies to city centre IBs, to enable them to meet increasingly
stringent environmental standards.

This practical recognition of the benefits of coal pre-preparation could usefully lead to further
coal beneficiation techniques for city centre IBs, promoting market opportunities for UK coal
combustion technology.

2.6.2 Oil Availability and Use

In 1989, a World Bank report suggested an annual oil production in China of 124million
tonnes, representing 19% of total fossil fuel energy usage (2). During the early 1980s, oil had
been used as a source of foreign income, with some 20% exported. However, because of the
fall in the international oil price (at that time), plus a stronger home demand, Chinese
authorities began reducing exports from 1987. Home production was being absorbed
increasingly within the transport and petrochemical sectors.

In 1998, oil accounted for 19.8% of Chinas total energy consumption, stated as 1360million
tonnes of standard coal. This suggests an oil consumption of around 150million tonnes.
The 1989 World Bank report noted that China hoped to achieve 200million tonnes production
by 2000, but doubted this could be achieved due to a run down of ageing fields.

In 1997, State sources (8) reported that Chinas reserves of crude oil ranked 9th in the world,
but considering the countrys 1.2 billion population, this figure reduced to only 45th on a per-
capita basis. China National Petroleum Corporation (CNPC) had selected eight areas for
further prospecting, six being in the West of China, a less populous region believed to be
resource opulent. At that time, Daqing was Chinas largest oil field, producing 50million
tonnes of crude oil per annum and expected to continue doing so for another 15 years.

Over the years to 2000, the rapid growth in vehicle numbers, air transportation, agricultural
mechanisation and petrochemical production has placed increasing pressure on petroleum
supplies. In 1999, China processed 161 million tonnes of crude oil and is expecting to raise
this to 183 million tonnes during 2000 (9).

In tandem with rapid economic growth, Chinas domestic oil demand is expected to rise by
around 4 per cent annually, creating a significant challenge for its energy self-sufficiency.
China has not been able to pump enough oil to satisfy its increasing demand since 1993 when
it became a net importer. In 1996, China imported about 30 million tonnes of crude oil. This
increased to more than 40 million tonnes of crude oil and oil products in 1999, 20 per cent of
its total consumption. In 2000, the figure is expected to be 50 million tonnes (10).

China is attempting to gain access to foreign petroleum resources, though cost is an issue, as
international price fluctuations make oil imports high risk. Besides the Middle East, China is
considering oil suppliers in Central Asia, Russia, Africa and Latin America (11).

Fuel oil use for IBs is rare, both because of cost and availability. Ironically, however, despite
these disincentives, many of the 12.2% of IBs manufactured in 1998 (maybe 5,000 boilers)
were suited to both oil and gas firing and CIBMA expect that around 80% might burn oil

15
initially. This is due to them being installed in areas where environmental pressure is already
resulting in coal use being limited, but natural gas is not, yet, available.

For example, in Wuxi City, shell boilers are mostly oil fired at present, but natural gas is
expected within 3 years. Presently, light fuel oil is used in the city centre, with heavy fuel oil
(HFO) used for boilers above 7MWth. Wuxi Boiler Works reported selling boilers rated up
to 34MWth burning HFO, but admitted HFO was so expensive that some customers preferred
to convert back to cheap coal, despite the environmental pressures to burn oil.

By 2010, with natural gas more widely available throughout China, CIBMA think the current
situation will be reversed i.e. of the boilers having a technical capability for both oil and gas
firing, greater than 80% will only ever burn gas.

With natural gas already available in Beijing, oil firing is rare and many boilers are equipped
with gas only burners. Light fuel oil is kept as a standby supply at important institutions
and hotels, but otherwise e.g. at universities and ordinary apartment buildings, gas is the only
option. A possible standby for gas is electrical heating, which is considered technically
feasible up to a boiler size of 7MWth.

Oil is expected to contribute perhaps 25% of overall energy usage in China by 2010, but
substantially this will be within the transport and petrochemical sectors. Comparatively little
fuel oil will be available for IBs. Table 1 estimates only 2% of IB sector energy coming from
oil in 2010, up from around 1% at present.

2.6.3 Gas Availability and Use

Apart from natural gas, there are also liquefied petroleum gas (LPG) and coke oven gas in use
in China.

LPG is a by-product of the oil refining industry, with 1.24 million tonnes being produced in
1987 (2). Generally it is bottled and used to fire small cooking stoves. During a World Bank
study of Benxi City in Liaoning Province during 1994-95 (12), LPG was sold in 15kg bottles at
25 to 35 Yuan per bottle (some 5 times the current thermal cost of raw coal, though the cost
of LPG will have risen since the 1995 study). At the end of 1999 some 150,000 tonnes per
annum of bottled LPG was in use in Beijing (13).

Coke oven gas is a by-product of Chinas steel making industry, coming from coke ovens
either integrated into a steel works or operated as stand-alone merchant coke plants operated
by municipal governments, selling coke to a neighbouring steel works and supplying coke
oven gas to the city. Suitable coking coal is converted into blast furnace coke, during which
process a medium calorific value gas is released (around 17,600kJ/m3, akin to the UKs
Towns Gas before the arrival of natural gas from the North Sea in 1967). When coke ovens
are integrated into a steel works, most of the coke oven gas is used as process gas within the
works. Although some gas must be used to heat the coke ovens and continue the coking
process, surplus gas can be made available for export from the works (as occurs with
merchant coke plants). Gas export requires the gas to be cleansed of associated chemicals,
including hydrogen sulphide. Cleansed and desulphurised coke oven gas has been used
widely over many years in China for cooking and in a few small IBs, the latter mostly at
important institutions, demonstrating best practice. At the end of 1999, some 3million m3 of
coke oven gas per day was being used in the southern part of Beijing city (13).

Natural gas represented only 2% of Chinas total energy consumption at the beginning of the
1990s (2) and this had hardly changed in 1998. The estimates in Table 1 indicate a similar
thermal proportion of gas usage (natural and coke oven) within the IB sector. Low prices
initially impeded exploration and development, while the petroleum companies saw oil as a

16
more lucrative product, bringing a higher price and badly needed foreign currency. In 1989,
14.4billion m3 of natural gas were produced, of which about 9billion m3 were sold
commercially with the rest being used in oil fields or flared. Most of the sold natural gas
went into industrial applications, primarily for fertiliser, petrochemicals and (especially)
ammonia production. The production of natural gas in 1998 was 20.5 billion m3.

Chinas total reserves of natural gas are huge, possibly as much as 38,000 billion m3. Proven
reserves are much less, 2,000 billion m3 at present, but expected to reach 3,000 billion m3 by
2010.

Thus far, most of Chinas natural gas has been consumed local to the production fields, but
this is changing as long distance pipeline projects are completed (14). Several PetroChina
pipelines are either installed or under construction as described below:

Running from the Changqing gas field in NW Chinas Ordos Basin, in the central part of
Shanxi, Gansu and Ningia Provinces, to Beijing. The construction of this Shaan-Jing
860km pipeline was started in May 1996 and completed in September 1997. It began
providing gas to Beijing in December of that year. Its annual capacity is 3 billion m3.
This pipeline is now being extended to Tianjin and cities in Hebei Province. Another
pipeline from the same Shanxi field is planned to supply gas to Hebei and Shangdong
Provinces

Running from the Tarim and Tulufan Basins of the Xinjiang Autonomous Region to the
Shanghai delta, with an eventual total capacity of 20 billion m3 by 2010. It will reach this
capacity in 4 phases, as follows:

4 5 billion m3 in 2003
7 8 billion m3 in 2004
10 billion m3 in 2005
20 billion m3 in 2010

Although currently still only in planning, this 4,200km pipeline seems certain to be laid. It
is intended to link up with the existing pipeline from Shanxi to Beijing at Jingbian, a
county in northern Shanxi. This will provide both Beijing and Shanghai with two major
gas supplies.

Running from Sebei, in Qinghai Provinces Qiadam Basin to Qinghais capital city,
Xining and to Gansu Provinces capital Lanzhou. This 950km pipeline was started in
April 2000. Completion is expected by October 2001. The pipeline is designed to
transport 2 billion m3 of natural gas annually.

Running from Sichuan Provinces Zhongxian to Wuhan in Hubei Province. This

proposed 695km pipeline is planned for construction during 2000. This pipeline will
eventually also serve Hunan province. It is designed to carry 3 billion m3 gas per annum.

Further gas (and possibly oil supplies) are planned from the East and South China Seas. Thus
the China National Offshore Oil Corporation (CNOOC) have comprehensive plans relating to
the East China Sea. They intend to pipe gas from the East China Sea to Shanghai.
Production over the next 10 years is expected to rise from 400 million m3 per year to
10 billion m3. The field has supplied gas to Shanghai since 1998. The East China Sea is
believed to be rich in oil and gas. CNOOC has also exploited gas reserves in the Bohai Bay
to fuel Tianjin and other coastal cities. Off shore oil and gas fields already supply natural gas
from the South China Sea to Hong Kong while a liquefied natural gas (LNG) import terminal
is planned to be built in Shenzhen, Guangdong Province, with an annual capacity of 3 million
tons.

17
 BP Amoco have announced their involvement in a gas marketing JV with PetroChina.
BP Amoco own a 2.2% share in PetroChina, purchased for US$620million in April 1999, and
are considering purchasing a similar share of Sinopec, the 2nd largest oil company in China
(15)
. The JV includes building a LNG terminal to supply imported and domestic gas, but it is
not known whether this is yet another terminal or the same one at Shenzhen as bulleted above.
BP Amoco refer to supplying gas to the Shanghai and Yangtze River delta (16), which is a
considerable distance north of Shenzhen. The deal also gives BP Amoco a share in the west-
east PetroChina pipeline (presumably the one from Xinjiang to Shanghai) and in the longer
term the potential to market gas from East Siberia, where the company has an interest in the
Kovyktinskoye field.

China ratified the UN Framework Convention for Climate Change on January 5, 1993 and
sees conversion from coal to gas firing as an element of Chinas global environmental
strategy. The prediction of gas demand throughout the economic sectors in 2010 and 2020 is
shown in Table 12.

Table 12 Prediction of Natural Gas Demand Between 2010 and 2020 (billion m3)
Items 2010 2020
Domestic and commercial 34.38 63.0
Power generation 21.24 49.33
Industry 20.20 32.25
Chemical engineering 20.15 43.19
Total 95.97 187.77

Natural gas usage will focus on city centre IBs during the forthcoming decade, driven by
legislation seeking to reduce air pollution during (especially) the November to March heating
season.

3. SUB-SECTOR ISSUES

3.1 Low Quality Coal and Boilers

Coal used in IBs in China is almost always run-of-mine raw coal. It is not even size graded,
much less washed. Ash content averages 20%, with values to 30% being common. Fines
content, i.e. coal <3mm, can reach 60%, while lump coal, >10mm, is only 15-30%. The
latter includes some very large pieces which have to be broken manually, creating ever more
fines. Making matters worse, IB coal is not selected with regard to its coking i.e. swelling,
tendency on heating. Coal which swells excessively can form sticky coke masses on the
grate, which adhere together and prevent the free flow of combustion air. These factors all
contribute towards low efficiency performance from Chinese IBs. In addition, besides
coking and ash properties, there are no specified limits for volatile content, calorific value,
sulphur content. As such, typical properties for a Chinese industrial coal cannot readily be
defined (but see Section 3.4 with regard to the likely forthcoming changes for industrial coal
quality).

Chinese Authorities recognise the benefit of washed coal, but the cost of installing washeries
to treat 400million tpa, together with a shortage of water in many parts of China, have
prevented this option being adopted. Equally importantly, while coal customers would see a
benefit from higher boiler efficiencies and lower emissions, such customers are sceptical,
near-term price driven and at present choose not to see the overall advantages, including a
healthier environment. To put that in context, in Beijing the price of washed coal is 290
Yuan/ton compared to raw coal at 230 Yuan/ton. Elsewhere in China the raw coal price may

18
 be as low as 80 Yuan/ton. Consequently the differential may be between 26% and 75% of
the price of raw coal.

Apart from the issue of raw coal, the combustion systems of Chinese IBs are of lower quality
than their western counter-parts. Chain and travel bar combustion grates are used within 60%
of Chinese IBs (mostly 1.4MWth to 30MWth, but with occasional examples up to 60MWth)
and probably account for more than 85% of IBs <7MWth. The <7MWth boilers (especially)
are sold on price alone, so quality control is poor. Although the boilers themselves are
constructed to an efficient specification, the ancillary equipment, including the combustion
grates, suffer from unacceptably wide tolerances. Raw coal, burnt on low quality combustion
grates, is a combination which results in poor boiler efficiencies. Even on relatively well
operated and well maintained travelling grate boilers, combustion efficiencies are typically
only 75% and (net ) boiler efficiencies only 60%-65%. This was confirmed by CRE Group
Ltd during practical testwork carried out during their Department for International
Development (DfiD) Guizhou and Shanxi Energy Efficiency project (GASEE) (17). Smaller
IBs, using chain and reciprocating grates, are reported to have boiler efficiencies below 50%.

The Chinese national stock of 500,000 IBs waste significant amounts of coal by having
combustion efficiencies 15 30 percentage points lower than their UK counterparts. Thus,
improving combustion efficiency would lead to lower pollution resulting from a reduction in
fuel requirement, unnecessary mining and coal transportation.

In summary, the following reasons for low combustion efficiency have been identified by
CRE Group Ltd:

Excessive fines in the raw coal, together with a poor quality grate construction, increase
the tendency for partly burnt coal to be lost by sifting through the grate links into the
combustion air chamber (windbox). These losses are referred to in the UK as riddlings.

Excessive coal fines, inadequately moistened before firing, exacerbate carbon lost as
flyash at the boiler exit. This increases the solids loading entering the downstream
particulate capture equipment.

Excessive ash in the raw coal, together with inappropriate coal swelling characteristics,
slow down the rate of coal burning, so that combustion is incomplete at the end of the
grate.

Variations in coal size grading cause an imbalance in air flow from the undergrate
windbox, so parts of the firebed wastefully receive an excess of combustion air while
other parts are air starved. Poor edge sealing around the grate also lets air bypass the
firebed, further starving the firebed of coal and impeding its rate of combustion.

In order to relieve air starvation, Chinese operators use high levels of excess combustion air,
aggravating sensible heat losses. Fortunately, the use of high excess air causes less efficiency
loss than would be expected from UK experience, due to Chinese boilers being designed to
operate at relatively low flue gas exhaust temperatures by virtue of economisers being applied
almost universally. These temper the loss of sensible heat so that the effect of high excess air
is tolerable, at least when heat transfer surfaces are clean. Unfortunately, heat transfer
diminishes with use, as low temperature surfaces foul with flyash and condensation. Also,
economisers and (especially) airheaters require higher pressure forced draught (air) and
induced draught (flue gas) fans, which means more powerful fan motors.

Footnote:
All Chinese boiler efficiencies are quoted on a net basis, rather than gross.

19
Modifications to enable excess air levels to be reduced would enable airheaters to be removed
without any rise in sensible heat losses, and boiler house operating efficiency would rise due
to the saving of electrical power absorbed by smaller fans. CRE Group Ltd, during their DfiD
project, demonstrated the benefits of controlling excess air usage, applying variable speed
drives (VSDs) to fans and eliminating airheaters. This resulted in low cost, fast payback
reduction in operating costs and a saving in pollution by reduced electricity usage.

By way of contrast to Chinese raw coal, all UK industrial coal is washed i.e. is subjected to a
variety of water based beneficiation techniques, to remove adventitious inert material,
separate out the finest (dust sized) particles and reduce sulphur content by eliminating part of
the pyrites. It is also selected to have low swell characteristics. The NCB developed a Rank
Classification system, which defines a coals propensity to swelling, relative to its volatile
content. Highly swelling coals are not used for IBs in the UK.

Apart from type selection and washing, UK coal for IB use is size graded into two main
products:

washed singles, being essentially 25-10mm in size, and containing only a small
percentage <3mm. This coal, of typically 5% ash and with 35%-40% volatile content on
a dry, ash free, basis (daf), is used to fire small industrial appliances, individually
<5MWth,

washed smalls, having up to 10% ash and being around 13mm top-size, with around
30% <3mm. The latter helps to give uniformity of firebed air flow resistance and so
assists with even air distribution for efficient combustion on moving grates, individually
5-50MWth.

Selected, washed and graded coals give reliable clean combustion (97% efficiency is normal)
that is reproducible. Equipment can be guaranteed for thermal output, while boiler efficiency
will be typically 80% from small (shell) boilers and 85% from larger (water-tube) boilers.
Stack emissions are predictable, as is the performance of emission control equipment.

Thus, although there is much in common between Chinese coal burning equipment and that
developed in the UK, UK equipment is more compact (due to much smaller grate areas and
boiler designs), and burns washed coal at boiler efficiencies 20 35 percentage points higher
than the Chinese counterpart.

Low efficiency from Chinese moving grate boilers is not caused through lack of development
effort. In order to improve coal burn-out, design engineers utilise a grate area that can be up
to twice that of an equivalent UK thermal rating. Also, extensive rear refractory arches are
used to radiate heat down onto the firebed, keeping the fire alight when burning might
otherwise be extinguished prematurely. The large grate areas and the need to accommodate
refractory overfire arches, explain why coal fired shell boilers have not been popular in
China. Restricted firetube dimensions prevent such modifications.

Despite these endeavours, low efficiency is the norm during day to day use at customer
premises. However, under controlled conditions, using Design coal, Chinese boilers
perform much better, as evidenced by the type-testing which takes place before a newly
developed boiler or grate arrangement can be marketed. Efficiency tests are carried out (often
by the Shanghai Industrial Boiler Research Institute, SIBRI, in a similar manner to the UK
methods described in BS 845 (18). Results are always of a reasonable standard, approaching
what would be expected from burning high grade coals in western boilers. Boilers are
subsequently issued with an official performance certificate to verify the results.

20
 There are three key factors which result in a boiler performing better while undergoing an
official test than subsequently at customer premises:

A better standard of operation.

Better quality control of all components, especially the grate (including its air seals and
air distribution arrangements).
Selected Design coal that is more uniformly size graded.

The combination of the latter two factors enables more even air distribution throughout the
firebed, encouraging uniform and complete burn-out without recourse to excessive undergrate
combustion air. A reduction in undergrate air flow must further assist by reducing the
tendency for carbon losses as flyash.

While high quality, western, grates could no doubt improve the performance of Chinese IBs,
the physical and chemical variability of raw coal will act as a weak link, much as occurs
when Chinese boilers achieve reasonable results when type-tested using Design coal, but
achieve less than mediocre results at customer premises.

The current WB/GEF High Efficiency Boilers project is based upon the application of
western combustion equipment to Chinese raw coal. Certain combustion technologies are
relatively insensitive to coal quality e.g. bubbling fluidised bed combustion (BFBC), CFBC
and, to a lesser extent, spreader stokers, so the Technology Transfer (TT) for these projects
should more easily accommodate Chinese raw coal. However, chain and travel bar grates
will require increased plan area in order to achieve their thermal rating, stack emissions will
remain a function of the raw coals constituents (its high ash and possibly high sulphur
content) and the resulting boiler efficiency may still prove disappointing for end-users when
coal quality varies from the specified Design coal.

Finally, there will remain the need to persuade sceptical Chinese customers that more costly
moving grate boilers, no matter that they contain western designed components, are worth
their additional cost. The current culture in China with respect to such IBs is always to expect
low performance. The Chinese are cynical of the performance of chain grate fired boilers.
Low efficiency results are so endemic that customers pay little or no attention to
manufacturers claims, judging a boiler only on price and whether it can in one way or another
reach its rated steam output. The success of a western JV with a Chinese manufacturer,
therefore, currently depends upon convincing sceptical customers that a higher cost design is
worth purchasing. However, as is noted below the introduction of environmental legislation
drivers will result in a change in attitudes.

3.2 Importation of Gas and Oil Burners

The growth in natural gas availability has caught Chinas ancillary equipment manufacturers
unawares. Shell boilers firing gas and/or oil, through automatically controlled burners, were
relatively few in number at the start of the 1990s. Their importance in the coal dominated IB
sector was insignificant. Under such circumstances there was general acceptance of using
imported burners and controls rather than risk unproven Chinese equipment on fuels which
can easily explode unless correct pre-purging, leak testing and ignition conditions are
observed scrupulously.

By the end of 1999, the number of installed gas and oil fired shell boilers had grown to
38,000 and over 60 manufacturers were making shell boilers. Table 10 indicates how
production has grown, year on year, being some 5,000 to 6,000 boilers per annum since 1996.
In 1999 the actual number of imported burners, with controls, was probably nearer 9,000,
allowing for burners purchased as spares, small burners for boilers <0.35MWth and burners
used for firing other applications e.g. process kilns. CIBMA estimate the demand for burners

21
might even reach 10,000 per annum. With the importation cost of burner equipment in 1999
being 200million, China is concerned about its lack of indigenous manufacturing capability

Imported burner equipment makes gas and oil fired shell boilers expensive in China, even if
the boiler shell itself is home produced. Boiler costs and higher fuel costs (Table 11) are two
reasons slowing the rate of conversion from coal to gas in city centres where gas is available.

Very few, only 200-300, burners and controls have been manufactured in China,. Two
Chinese burner companies identified by CIBMA are:

The Xangxing (Instrumentation Factory) Company, in Juijiang City, Jiangxi Province,

were said to have a design Licence from the UK company Hamworthy. All key parts
and controls are purchased directly from the UK, with some solenoid valves coming from
Germany,

An Aircraft Engine Company in Guizhou Province have their own design of burner, up
to 3MWth, though the atomiser (for fuel oil presumably) is purchased from the USA.
Controls come from Siemens. These burners are used mainly for firing kilns.

Chinese customers are nervous of buying burners manufactured in China, especially if there is
only limited foreign technology input. Fear of the consequences arising from choosing an
unknown brand, outweigh the natural desire for cost savings. Thus foreign burners,
purchased from Import Agents, are the preferred option.

Imported burners come mainly from Germany and to a lesser extent Italy. Only a relative few
come from the UK, the USA and Japan. The German company of Weishaupt has over 50%
of the market. Saacke (via their office in Germany) are more expensive than Weishaupt but
are preferred for burners above 4MWth. Riello and Baltur, both of Italy, were mentioned as
suppliers, as was the USA company Comsai (Combustion Systems Associates, Inc, part of
Johnson Burners).

It appears that UK firms get relatively little business, though Nu-Way, Hamworthy and
Dunphy Burners were mentioned by SIBRI (see Annec C for details of meetings).

There is a State sponsored move to try and establish a JV with reputable western burner
manufacturers. This suggests a Chinese drive to break the import Agent near monopoly.
Their requirements are:

a reputable brand name, that would give credibility to the eventual Chinese produced
product,

a western burner company doing relatively little trade via an import Agent and so might
wish to exploit their name in a JV to increase their market share.

Weishaupt, Saacke and Riello currently sell so successfully via their Import Agents that they
have no incentive to become involved in a JV.

22
3.3 Equipment Costs

3.3.1 Coal Boiler Costs

The total annual production of Chinas primary IB market had a sale value of around
6.84billion Yuan (550million) in 1998. This production, totalling some 52,640MWth of
predominantly coal fired boilers (Tables 3 and 6), equates to some 130,000Yuan/MWth of
steam (or steam equivalent). Putting this into conventional UK boiler manufacturers terms, it
equates to some 3/lb of steam.

With the virtual elimination of new UK coal fired boiler demand, it is difficult to draw a
direct cost comparison with the above Chinese figures, but during the 1980s a simple UK coal
fired shell boiler, ex-works, complete with its firing system but without additional ancillary
equipment such as coal hoppers and flue gas cleaning, cost some 8-10/lb of steam, 3 times
the present average Chinese cost.

Even ignoring the decade time difference between these two relative costs, it has to be
remembered that Chinese water-tube coal fired boilers are physically far larger than UK shell
type boilers. Shell boilers are rarely, if ever, used for coal firing in China, since their
capability to incorporate sufficient grate area for burning Chinese raw coal is limited. Thus,
while it is not possible to draw a truly direct price comparison, it is likely that Chinese costs
are actually more likely one quarter of UK manufacturing costs, especially since the 3/lb
Chinese cost is an average including complex coal boilers up to 90MWth and 6MPa operating
pressure, whereas the UK price of 8-10/lb is for the simplest of coal fired designs.

3.3.2 Gas and Oil Boiler Costs

Chinese gas and oil fired shell boilers of typically 2MWth firing capacity, complete with
western burners and controls, cost around 312,500 Yuan ie, 156,250 Yuan/MWth or, in UK
terms, some 3.7/lb of steam (or steam equivalent). The current UK price for a complete
shell boiler package of this thermal size is around 5/lb.

The UK selling price is inflated somewhat for boilers being manufactured for sale into China,
due to the need to observe the Chinese SQLO design code and also to cover the cost of
transportation. In the UK, Cochrans and Wellman Robey have SQLO certification (Cochrans
were first, around 1995, but now more than 100 boiler makers world-wide have SQLO). All
foreign suppliers who apply for SQLO receive a copy of the Chinese Import Regulations.

Overseas boilers are inspected on arrival by the State Councils Technical Quality
Supervision Bureau (previously by the Labour Bureau), who charge 0.1% of the selling price
for this inspection. Despite UK stories of Chinese inspectors requiring cost inflationary
repairs to be carried out before imported boilers are certified fit for sale, CIBMA insist that
the system is fair. All Chinese boilers are also inspected, but these inspections take place at
each boiler makers own works.

Chinese Import Agents may also influence the price, depending upon whether they have
knowledge that an order is certain to go to a western supplier (some customers stipulate this).
CIMBA reported a case where Import Agents, knowing the order would go to western boiler
manufacturers, priced 3 off 3.5MWth at 5million Yuan (476,190Yuan/MWth; 11/lb),
against a Chinese supply price of 1.8million Yuan (171,430Yuan/MWth; 4/lb), some 175%
higher. Normally, however, the western selling price is found to be some 60 - 80% above the
Chinese price.

23
 A cost saving compromise that has become acceptable is the fitting of imported burners to
Chinese made shell boilers. This provides a significant saving on the price demanded by
Import Agents for complete western packaged shell boilers, but this route proved
problematical when it was first tried. Mismatches between Chinese firetube dimensions and
western burners and flame patterns causing flame impingement on the water-cooled wall of
the fire-tube. This led to incomplete combustion, causing chimney smoke and carbon
monoxide production. The latter caused smoke-tube end cracking by promoting high gas
temperatures at the tube entries. It was probably these experiences which encouraged SIBRI
to produce their two volume comprehensive compilation of western burner data, so as to
assist CIBMA members to correct their shell designs. Although the problem of burner and
boiler mismatch seems now to have been overcome, it has left some customers preferring to
pay the higher price for a fully western product.

The total package boiler cost, complete with burner and controls, even when the shell is made
in China, is said to exceed the cost of a (small) Chinese coal fired boiler. In the west, the
opposite is true, with a gas and/or oil fired shell boiler costing only half the cost of a simple
shell type coal fired boiler and maybe only one third the cost when allowance is made for
ancillaries like coal storage, feeding, ash handling and flue gas cleaning.

3.3.3 Imported Burners Costs

The need to use imported burners and controls impacts significantly on Chinese shell boilers
packaged with imported burners and controls. The imported burner equipment is said to cost
70% of the total package price. Thus, if a typical Chinese 3-pass wet-back shell boiler with
its imported burner and controls is assumed to cost near 4/lb steam, a complete boiler shell
but without a burner must cost little more than 1/lb of steam. If burners and controls could
be made in China, the Chinese expect that a packaged gas/oil shell boiler would cost only
60% of its present cost i.e. below 2.5/lb of steam.

During 1999 some 7,000 burners and controls were imported into China, substantially via
Import Agents appointed by the western manufacturers. These Agents re-sell to boiler
makers and take care of the after sales service eg, training in operation and maintenance, plus
keeping stocks of spares. China is reported to have paid some 200million for imported
burners during 1999. Allowing that this cost covers, say, 7,000 burners for IB use plus
another 2,000 burners for other uses, the average burner (and controls) price must be around
20,500, or 3/lb of steam. This fits with the cost estimates quoted above for complete
Chinese shell boilers (1/lb for the boiler and 3/lb for the burner and controls), and
illustrates the order of cost increase incurred by Chinese boiler makers and their customers
through using imported equipment.

3.4 Environmental Regulatory Issues

3.4.1 Air Pollution Laws

There are encouraging signs that China is at last applying pressure to improve IB coal quality
as part of an overall energy and environment policy.

The Peoples Congress has recently passed the Air Pollution Law. From 1st September 2000,
it will be illegal to exceed air pollution emission levels when using coal fired equipment.
Although exact details are not yet finalised, Tables 13 and 14 are believed relevant to Chinas
new Emission Standard of Air Pollutants for coal fired IBs (GWPB3-1999). Limits have
been set for dust and SO 2 emissions (but not NO x emissions). It should be noted that the dust
emission limits vary geographically, while both the SO2 and dust emissions vary with respect
to the age of the boiler, with newer installations being expected to operate more cleanly.

24
 Table 13 Dust Emission Limits for Coal Fired Boilers (GWPB3-199)
Applicable Area Dust Emission Dust Emission
legislation legislation
(see footnote 4) (see footnote 5)
mg/Nm3 mg/Nm3
First Area (see footnote 1) 100 80
Second Area (see footnote 2) 250 200
Third Area (see footnote 3) 350 250

Table 14 SO2 Emission Limits for Coal Fired Boilers

in All Areas of China (GWPB3-199)
SO2 Emission Limit SO2 Emission Limit
(see footnote 4) (see footnote 5)
mg/Nm3 mg/Nm3
1200 900

Footnotes to Tables 13 & 14:

First Area: forests and scenic areas

Second Area: residential, commercial and general industrial areas
Third Area: special industrial area
Boiler in operation before 31st December 2000
Boiler in operation after 1st January 2001

The local Environmental Protection Administration (EPA) will set limits for each plants total
annual SO 2 emission, as well as setting a limit on instantaneous emissions. Depending upon
the annual SO2 emission, IB plant managers will have to pay an SO2 tax, which will vary
geographically. In Beijing, the tax is expected to be set at 1.7Yuan/kg of SO2, though it may
average nearer 0.7Yuan/kg of SO2 in China generally.

If an IB manager exceeds either his instantaneous emission limit or annual allowance, he will
be served Notice of the need to improve his plant. He will then have a fixed period of time in
which to deal with the problem. At the end of that period, if the improvement has not been
made or is not effective, the IB manager will either be fined, his plant closed or he will be
required to relocate his plant away from the city area.

The local EPA are responsible for monitoring emissions, for serving improvement Notices
and for collecting taxes and fines. Of the fines, 80% can be recycled to pay for environmental
control improvements. At present the EPA administers this, though in the future it may come
under the jurisdiction of the State Tax Bureau. The State Economic and Trade Commission
(SETC) are responsible for the development of an environmental protection equipment
industry and they also makes policy decisions.

Some of the consequences for coal fired boilers are:

All power stations in SO2 controlled zones (big cities and parts of central and southern
China) are to be fitted with flue gas desulphurisation (FGD) equipment and will then be
encouraged to use higher sulphur coals. Low sulphur coals will be directed to power
stations located where FGD is not to be fitted and to the IB sector.

25
 Every city now has a Coal Trading Company (CTC) who are responsible for coal
distribution. They will sell fine coal to power stations and retain the coarser grades for
IBs. The CTC will either buy graded coal from mines or will grade it themselves.

For smaller IBs, say <7MWth, the preferred option is that they convert to natural gas
firing. However, where gas is not an option, the local EPA may prescribe some form of
coal quality enhancement to improve boiler operation. One such option is coal briquettes
(sometimes called shaped coal, being briquetted coal fines mixed with limestone to
control SO2 emissions). Briquetting has been under development since 1992, but the
SIBRI revealed that the technology has not become popular due to the cost of making
briquettes and the poor quality of briquetting machines. Boilers require modifications to
get maximum combustion benefits from the use of briquettes. The alternative to
briquettes is to use selected and graded coal, which seems a more acceptable alternative.

Coal Free Zones (CFZs) are being declared in city centres where gas is either already
available or will shortly become available. All small coal fired IBs within these zones
will need to be replaced with a gas fired boiler. Where, perhaps for reasons of boiler size
(>7MWth) or lack of access to gas, city centre coal fired district heating IBs have to be
tolerated, they must use high quality coal (<10% ash and <0.5% sulphur content).
Polluting IBs serving an industrial facility will be relocated outside of the designated
CFZs.

The Ministry of Science and Technology (MOST) and the State Environmental Protection
Administration (SEPA), working with related Ministries in conjunction with the SETC,
have organised a Clean Air Programme, which intends to adjust city centre energy
structure through increasing the proportion of clean energy usage. While the Programme
wishes to control the consumption of coal, it recognises the inevitable role that coal will
continue to play and so includes organising clean coal technology dissemination and
demonstrations. One area of clean coal technology being promoted is the co-
development of improved boilers under the WB/GEF project (see Annex D). Another
technology being encouraged is the Chinese development called Layered Combustion.
This technique, which adds about 60,000Yuan to the cost of a 7MWth IB (some 6% cost
increase), size grades the raw coal as it falls onto the moving grate, putting the coarser
coal nearer to the grate mat and the fines on top. Its combustion efficiency benefit was
evaluated by CRE Group Ltd during the DFID GASEE project (17). The benefit was
found to be positive but variable. It seems to improve coal:air distribution across the fire-
bed, through generating a more consistent air flow resistance. The variability of its
performance is probably a consequence of the size distribution of some batches of raw
coal influencing firebed resistance to an extent that defeats the palliative capabilities of
the layered effect.

The SETC are seeking other suggestions that will assist IBs to operate more cleanly and
efficiently in pollution sensitive areas, especially in city centres where gas is not a near term
prospect and fuel oil is scarce and expensive. The SETC, in conjunction with MOST and
SEPA, are conducting an investigation whereby all boiler manufacturers have been asked to
submit their best design of coal fired IB with respect to emission control capability. Thus far,
some 280 IBs have been submitted for consideration. The best IBs will be designated as
Recommended for the Market.

CIBMA recognise the difficulty that implementing the new Standards will create and are
already thinking that coal beneficiation may be the only way forward. The China Coal
Research Institute (CCRI) have confirmed the intention of the State Bureau of Coal Industry
to raise IB coal quality at source. During the earlier Planned Economy, coal customers had
no choice but to accept the quality and size distribution of coal made available to them.
Today, coal supply exceeds demand and there is an opportunity to be selective. Taking

26
advantage of this, Beijing and other large cities have made local regulations to limit the use of
low grade coals. In support of these regulations, the State Bureau of the Coal Industry (SBCI)
is to make a National Standard for coal supplied to moving grate boilers. The particle size
range should have a maximum of 50mm and customers can select the proportion of smaller
particles (fines), below 6mm or 3mm. There is a drive to close mines where sulphur content
is greater than 3%. Also, in conjunction with the SETC, they wish to see the proportion of
coal that is washed, or in other ways prepared, raised from the present 20-30% to 40-50%
over the next 5 years, with the resulting coal being used in IBs. This could benefit UK coal
equipment manufacturers by bringing Chinese coal quality nearer to that for which UK coal
equipment was designed. Several UK coal burning technologies could then be exploited that
would provide high boiler efficiencies and reduced emissions.

3.4.2 Implementation of Environmental Measures in Beijing

The BMG wish to achieve world class status for their city with regard to a clean and healthy
environment. Taking advantage of the natural gas supply that became available in Beijing
from the end of 1997, together with locally produced coke oven gas, the BMG has decided
that fuel conversion, coal to gas, is the solution to central Beijings pollution problems. The
gas supply pipe network, within and around Beijing, is zoned to enable the co-existence of
coke oven and natural gas, a situation which is expected to continue for some time.

Prior to the start of the coal to gas conversion programme, coal use within central Beijing was
2.8 million tpa (though some 20 million tpa of coal is burned in IBs if the total administrative
region of Beijing is included).

In 1998 the BMG designated about 20% of the urban area as 40 CFZs, in which no small coal
burning boilers i.e. <7MWth, will ultimately be allowed (13). This conversion, covering
1040km2, is planned for completion by 2004. Mainly, the affected boilers are district heating
boilers, providing heat from November to March to apartment buildings, schools, hospitals,
hotels, offices and government buildings. The BMG is trying to expand the CFZ designation.

Natural gas consumption in Beijing was 300million m3 in 1998, 720milliomn m3 in 1999 and
is estimated to rise to 3billion m3 by 2010. By 2010, no coal will be utilised within the citys
designated inner area (within the 3rd ring road) leaving natural gas and electricity as the main
energy sources.

The conversion programme is lagging due to customer resistance for a number of reasons.

the higher thermal cost of gas against coal (see Table 11),
costs for gas fired boilers are higher than for coal, due to the need to use expensive
imported western burners and controls,
public perception that gas is a dangerous fuel, best avoided.

The BMG, lacking its previous command strategy, is having to rely upon various incentives
to encourage conversion e.g. strengthening emissions standards and introducing a sulphur tax.
It has also accessed a World Bank loan to assist with conversion costs and a GEF grant to
fund the setting up of a Gas Boiler Technology Centre (GBTC) and an Energy Conservation
Centre (ECC). The latter is responsible for improving the thermal efficiency of the larger
district heating systems that will remain coal fired.

The World Bank insists that equipment purchased using its loan should be procured using a
transparent International Competitive Bidding (ICB) arrangement. This is being organised
via a Chinese led Project Management Office (PMO). The first request for tenders under this
arrangement, for boilers to be installed prior to the November 2000 heating season, closed in
mid-July. Mainly it called for packaged oil and gas fired shell boilers.

27
 How successful tenders received from the UK and other western based boiler companies will
be, is uncertain, as imported boilers will certainly be higher cost than Chinese made boilers,
even though both will require western burners and controls. A factor which may assist
western suppliers to win some orders are the experiences which resulted from early attempts
by Chinese boiler makers to fit western burners to Chinese made shell boilers (see earlier
section).

Apart from converting coal fired boilers to gas firing, Beijing road traffic has also come in for
attention. The citys petrol stations have sold only lead free petrol since the end of 1997 (19).
Further improving emissions, is the introduction of compressed natural gas (CNG) fuelled
vehicles, a development being led by CNPC. In 1997, it was claimed that there were some
3,000 CNG vehicles and 42 refuelling stations in China (mainly near gas fields). LPG vehicle
technology is also known in China, with 1,000 such vehicles on the road in 1996, refuelling
from 15 LPG stations (20).

Shanghai will follow the lead of Beijing and has already made local regulations limiting the
use of low grade coals and encouraging the use of clean energy from natural gas and
electricity in the future. Other cities taking a similar route are Hangzhou and Chongqing.
The provinces of Shandong and Liaoning, amongst others, are also taking environmental
protection measures to encourage the use of clean energy sources in their major cities.

3.5 The LPHW Market

Below the primary market for pressurised IBs, built by the manufacturers Graded A to
D, is the secondary boiler market, serviced by Grade E and the Ungraded manufacturers.
This sector consists of simple LPHW boilers, designed for operation at, or near to,
atmospheric pressure and so not requiring adherence to strict constructional codes. One
boiler type within this category is the teapot boiler, commonly seen throughout
industrialised China. It is of vertical design, fired by manually charging coal onto a static
grate located near the base of the boiler and manually extracting ash from the chamber
beneath. Potable water is brought to near boiling temperature and used for tea making,
distributed in Thermos type flasks to adjacent offices and workshops. Separate water
circuits are often provided for showers and space heating. Despite being fired on raw coal,
they have no emissions control.

Entrepreneur manufacturers are seeing the market potential that becomes possible in this
sector once natural gas is available. A new, high technology, design of teapot boiler is
being evolved, that can be made fully automatic and environmentally clean, albeit at a price.

Gas has, potentially, a far greater future role in the LPHW sector than just substituting for
coal in teapot boilers. While converting city centre district heating IBs to gas firing is the
short and medium term aim, the longer term advantages of using gas in smaller appliances,
suited to heating individual apartment buildings and even individual apartments, are
becoming recognised. Such an approach, referred to herein as localised heating, to
distinguish it from conventional district heating, would have several advantages:

Localised heating would release valuable city centre land, that is currently occupied by
district heating boilers, for redevelopment. Converting such boilers to gas releases a large
proportion of the land, as coal stockpiles are no longer required and gas fired boilers
occupy a smaller plan area than the equivalent coal fired IB, especially including its coal
bunkers and flue gas emissions control equipment. The eventual transition to localised
apartment heating would enable the release of all the such land.

28
 Localised heating would improve efficiency of gas utilisation, by avoiding the heat losses
associated with district heating pipework. It would further reduce wastage by avoiding
the current imbalance of heat supply between the many apartments, whereby some
individuals open windows if their heat supply is excessive, while others are left
uncomfortably cold.

Localised heating would offer the potential of social reform, whereby individuals could
be made responsible for their own heat usage. Instead of the Work Group paying the
district heating bill, including all wastage associated with pipework heat losses and end-
users having no way to regulate their heat supply, localised gas appliances would
facilitate end-users controlling their own living conditions and paying their own bills.
This would further improve the environment through energy economy.

The World Bank, as part of its current coal to gas conversion assistance to the BMG, is
providing GEF grant funding to the newly formed GBTC and ECC for joint study of the
above propositions and to sponsor demonstrations. Localised heating could take the form of
small radiant gas fires, rather than going to the complexity of fully distributed heating within
small apartments. A typical Chinese apartment would require a heating appliance rated, at
most, at 10kW.

Although these sponsored demonstrations will be carried out in Beijing, gas fired domestic
scale heating might emerge first in the south of China, below the Three Bei northern area, in
Provinces where district heating is not State provided, but winters can still be uncomfortably
cold. This is already happening in Hangzhou, where a wealthy farming community is
building houses that are large, even by most western standards, and it is anticipated that the
owners will install individual gas (perhaps initially oil) fired central heating boilers. Such
houses will require heating systems rated around 30 50kW.

Boiler designs for small gas and oil fired appliances are new to China and some joint ventures
have been established to exploit this market. One uses locally produced cast sectional boilers
based upon Japanese technology, and fitted with European burners. Such boilers are efficient
but expensive, being fully up to UK price levels. Unlike shell boilers, sectional boilers can be
dismantled and re-assembled, affording ease of installation within existing buildings where
access can be restricted.

Although the witnessed sectional boiler range extended down to 20kWth, its reliance upon
imported forced draught burners, even at the lowest ratings, makes small, home heating
LPHW boilers expensive. In the UK, such boilers are designed to be of low flue gas flow
resistance, enabling the use of cheap open grid gas burner construction, operating under
induced chimney draught.

4. TECHNOLOGY NEEDS AND OPPORTUNITIES

Technology needs and opportunities are divided between the coal firing sector and the gas
and/or oil firing sector with emphasis on UK strengths and capabilities. Consideration is then
given to competitors. Finally, more general opportunities are reported.

4.1 Coal Firing

Within China as the environmental legislation is implemented, there will be a need to ensure:

adequate boiler and combustion efficiency

adequate dust control
adequate SO2 control

29
 Consequently in due course this means that in overall terms the selection of boiler technology
cannot be made on the basis of price alone. As such China will need:

improved boiler technology including better combustion systems and all ancillary
systems such as pollution control and coal/ash handling
better understanding through technology transfer of the principles upon which the
improved boiler technology has been based.

Thus the Air Pollution Law, recently passed by the Peoples Congress, is stringent, generally
setting tighter emission limits than are applied to industrial coal fired boilers in the UK.

Most UK IBs are individually <50MWth and come under Local Authority Regulation, which
allows 300mg/m 3 of particulate emissions and 3,000mg/m3 of SO2 emissions . New boilers
>50MWth come under Environment Agency Regulation which contains more severe limits of
25mg/m3 for particulates and 400mg/m3 for SO2. However, the latter are stated as achievable
releases rather than mandatory imposed limits and, since virtually all UK coal fired IBs were
already in existence at the time of enactment of the 1990 legislation, applied limits to large
moving grate boilers are nearer to those imposed under Local Authority Regulation.

It is unlikely that the new Chinese limits will be applied rigorously to all IBs, at least not in
the short term. Apart from the impracticality of imposing stringent new limits on a national
boiler stock exceeding 500,000, compliance will not be easy for IB managers. Particulate
control is inevitably more difficult when burning high ash, raw coal. Equally, the SO2
allowances of 1200mg/m3 and 900 mg/m3 imply coal sulphur contents of <1% and <0.75%
respectively in a raw coal containing 20% ash. Indeed, it could be argued that the sulphur
content values need to be even lower, <0.8% and <0.6% respectively, to allow for additional
SO2 released from incompletely burned coal.

In the short term, legislative pressure will be applied most vigorously in city centres,
especially those in scenic areas popular with (domestic and foreign) tourists, and cities which
have strong commercial links overseas, so that foreign business people can see, and report
back, evidence of Chinas environmental recovery.

In those cities where natural gas is becoming available over the next few years, coal use will
be discouraged, even banned by applying the CFZ designation. Light fuel oil will be
encouraged as an interim solution, using dual-fuel burners which can also burn gas when it
arrives. In cities where there is no short term expectation of a gas supply, the new legislation
will drive forward the need for improved coal quality and consequently improved coal
burning technology. These requirements will mean that price can no longer be the sole issue
for consideration by boiler house managers when purchasing coal boilers and selecting their
coal supply.

Footnote:
The flue gas volume that applied to the calculation of mg/m3 is defined, in the UK, as being the volume of flue gas that
would theoretically result from burning the fuel with sufficient excess air to give a residual 6% oxygen (O2) content in a
water vapour free (dry) flue gas sample. This implies the fuel is burned with some 30% to 40% excess (over stoichiometric)
air. The resulting volume is measured at a temperature of 0C and a pressure of 101.3kPa (though more likely it will be
measured under different conditions and later corrected to these conditions by established techniques).

It is understood that a similar calculation basis is applied in China, since otherwise emission limits could be achieved simply
by diluting the high pollutant concentrations with unnecessary, additional, air.

30
To best satisfy their needs for clean and efficient coal burning in city centre heating boilers,
CRE Group Ltd has discussed with CIBMA and the SETC the setting up of this higher quality
niche coal supply market. In this niche market, higher cost coal, reflecting its selection and
preparation, used in conjunction with proficient combustion equipment, reflecting its design
and quality controlled manufacture, could provide substantially higher efficiency and
substantially reduced emissions (especially low in relation to the reduced amount of coal
needed to be burned at the higher appliance efficiency) while still showing a substantial fuel
cost saving compared to the only technical alternative i.e. light fuel oil.

The niche coal will preferably consist of selected, washed and graded coal, though washing
may not be necessary if indigenous ash and sulphur contents are low. Where water is in short
supply, dry beneficiation may need to be accepted. If the coal is washed, then ash and
sulphur will be minimised (although at present information on typical percentages of total ash
and total sulphur in Chinese coals that can be removed on an economic basis by washing is
not known by the SETC). The coal will need to be low swelling by virtue of the initial
selection process. Such coal will ideally be capable of meeting SO2 emission criteria without
the need for limestone blending, a process which adds to dust emission problems.

Once this market is established, this coal would be suitable for use with UK developed
combustion equipment with little or no equipment modification, since the coal will be of
similar quality to UK washed singles and smalls. By virtue of the extensive development
work into clean industrial coal combustion carried out under the auspices of British Coal at
the Coal Research Establishment and in collaboration with many of the UKs industrial
equipment manufacturers, an extensive technology base is available. Apart from combustion
systems, similar in-depth development was undertaken of every conceivable item of ancillary
equipment e.g. emissions control equipment and coal reception/storage/feeding facilities. The
latter are vital to maintaining a quality coal supply, from preparation site to point of use. If
this niche coal market is established the Chinese IB coal firing sector would become a natural
area for co-operative ventures between the UK and China. Indeed the availability of niche
coal is a prerequisite for using UK industrial coal technology, so confirming the feasibility
that such coal will be prepared is a priority (see Section 5).

With regard to UK coal-fired technology that may find application there are several
candidates. A simple form of coal burning system that has proven popular in the UK and is
suitable for a wide range of duties up to around 1.75MWth, is the underfeed stoker. It
requires a low swelling, (preferably washed) singles coal, to enable good permeability of air
through the firebed from the peripheral retort. Underfeeds can be automated and applied to a
variety of boiler geometries, including horizontal shells. Dust emissions are low (from
washed coal) but a simple cyclone is advisable to capture the higher solids emissions that take
place during the twice daily, manual, de-ashing.

Larger thermal outputs can be met using mini-coking and sprinkler (top-feed) stokers, but
these also require a singles size grading. To ease the logistics of providing suitable niche
coal, alternative technology requiring a washed smalls coal would better complement the
underfeed stoker. This naturally selects moving grate technology, but moving grates are
already commonplace in China, albeit built to lower quality control than in the west. So
marketing UK designs might be difficult without prior demonstration of their superiority (see
Section 5).

With regard to overall technology transfer, an alternative approach might be for UK

manufacturers and associated institutions to offer know-how and experience to assist
upgrading existing Chinese designs. This will also avoid competing directly with the existing
GEF project, where western moving grates (not from the UK) are being made available to
selected Chinese boiler makers (albeit for use with raw coal). A further benefit of improving
an existing Chinese boiler and chain grate is that it will already be equipped with the

31
additional grate area and overfire refractory arches needed to cope with raw coal. Although
these aspects will be superfluous with niche coal, they will do no harm if retained and will
enable a niche coal boiler to equally burn selected (low swell, size graded) raw coal, as is to
be made available for moving grate boilers under the national standard proposed by the State
Bureau of the Coal Industry (as an agreed first step in improving coal quality).

The use of niche and selected coals will minimise difficulties in meeting dust emission
standards, but downstream particulate capture will still be required. The simplest device,
used extensively on IBs around the world (including China), is the inertial cyclone, but
cyclone designs and performance vary widely. BCC, in conjunction with the EEC, sponsored
studies of high efficiency cyclones and this know-how could be valuable in China.

For the highest efficiency of dust capture, fabric (bag) filter equipment is unsurpassed, as was
confirmed at industrial coal fired sites in the UK under BCC sponsorship with collaborating
manufacturers. However, China has little experience in this technology, so the significantly
higher costs, physical equipment size and care needed during operation, have to be weighed
against the relative gains. If bag filters are found to be necessary to meet the Air Pollution
Law when burning selected raw coal, but cyclones are adequate with niche coal, this would
increase pressure to introduce beneficiation to niche coal standards for all environmentally
sensitive areas.

Where niche coal with sufficiently low sulphur content to meet SO2 emission limits is not
available, legislation may impose a need for simple FGD. The Chinese have carried out
testwork into the effectiveness of briquetting raw coal fines with limestone. This has been
underway since the early 1990s, intending to improve raw coal combustion and suppress SO2
emissions. The early work was not totally successful because of low quality briquetting
equipment which has produced variable quality briquettes. Since then, CRE Group Ltd, in
conjunction with local manufacturers in China, have established the basis for a technically
improved system. With subsequent development this could well meet Chinese needs.

A wet flue gas cleaning system, based upon irrigated brick towers, is widely used in southern
China (where water availability is less an issue) on boilers from around 7MWth. Although
claims are made that it offers some degree of FGD, in practice it primarily captures
particulates. Little SO 2 will be removed as flue gas contacting with the water is poor and the
recirculated water must quickly reach an equilibrium pH-value.

Various FGD arrangements suited to IBs have been studied under BCC sponsorship,
including mixing limestone with the feed coal and, preferably, injecting it above the firebed.
UK knowledge of such techniques, together with CRE Group Ltd experience of enhancing
Chinese briquetting capabilities, could form the basis of further technology transfer.

Linked to all of these future requirements, is the need for appropriate instrumentation,
monitoring and control systems.

4.1.1 Likely Timescale for Implementing Coal Technology Options

As ever with China, there is a need to see whether the legislative drivers will be enforced
rigorously. That said, there are encouraging signs that such enforcement is already being
applied (eg CFZs have been set up and steps are being taken to implement a phased approach
to improving coal quality). Consequently it is likely that market opportunities for UK coal
based technologies, including environmental controls, might arise within, say, 2-3 years.

What might encourage the Chinese authorities to implement their Air Pollution legislation
outside of cities where gas burning will shortly become available, is to provide them with
objective knowledge of strategies available for meeting the stringent limits other than by

32
 boilers being converted to oil or gas firing (see Section 5). CIBMA already recognise the
difficulty that implementing the new Standards will create and are thinking that coal
beneficiation may be the only way forward. Confirmation of the uncertainty is evidenced by
the investigation being conducted by MOST, SEPA and the SETC. They are asking all boiler
manufacturers to submit their best designs of coal fired IB with respect to emission control
capability. The best IBs will be designation as Recommended for the Market.

A successful outcome with UK assistance would offer a way forward for the Chinese to
implement their new emission Standards and at the same time open a route for UK coal
equipment manufacturers to market their technology into China (see Section 5).

4.2 Gas (and Oil) Firing

With the increased use of gas for firing industrial boilers, there is already a strong existing
market demand for gas-fired burners and controls and, in some instances, complete packaged
shell boilers. The key issue is to define the options for UK manufacturers to introduce their
technology into China.

Although UK burner manufacturers supply a part of the market demand, it seems that the bulk
of the demand is supplied from Germany and, to a lesser extent, Italy. Since the Chinese are
cautious regarding gas use in boilers, and the German and Italian burners have proved to be
reliable, it is likely that the these suppliers will continue to dominate. Thus, if the UK wishes
to expand its market share it may have to take an alternative approach. Chinese organisations
(seemingly Government backed) are seeking an opportunity to set up one or more JVs with
reputable manufacturers. With the large and long term future market that exists in China for
(especially) gas burners, this needs serious consideration.

The rapid growth in gas fired boilers, and the need for safe, automatic burners to satisfy this
growth, has caught out the Chinese equipment supply infra-structure. For the time being,
China has little option but to pay the prices demanded by Import Agents. But, China is
resourceful, and will look to avoid spending large amounts of hard currency each year on
imported items. Such equipment costs are also slowing down the conversion from coal to
gas, which is contrary to the rapid conversion that the Chinese Government requires in order
to repair the poor environmental reputation of its leading cities.

Lesser known burner manufacturers exist world-wide, and although China would prefer to co-
operate with leading international brand names, there is little doubt that China will obtain the
necessary know-how for burner and controls manufacture from somewhere. Although
persuading customers to purchase Chinese burner equipment will take time, the immediate
savings for complete Chinese boiler and burner packages will tempt some customers and,
provided their experiences are satisfactory, customer numbers will grow. To show the
possible savings, estimates of the relative costs of complete packaged 2MWth shell boilers in
China are given in Table 15.

Table 15 Estimated Relative costs of 2MWth Gas Fired Shell Boiler Packages in China
(Units of GB/lb of steam reflect UK manufacturers pricing methods)

Imported Boiler and Burner 6.5 per lb of steam (or equivalent)

Chinese Boiler with Imported Burner 3.7-4 per lb of steam (or equivalent)
Chinese Boiler with a Chinese Burner 2.2 - 2.4 per lb of steam (or equivalent)

Therefore, although it may take another decade before China acquires, proves and proliferates
its capabilities for burner manufacture, once this happens the demand for imported burners is

33
likely to fall considerably. A well run JV would enable the market to be exploited into the
long term future.

It might seem that the opportunity to supply complete packaged shell boilers is less an
opportunity due to the unfavourable cost comparison with a Chinese made unit. However,
some opportunity to sell complete packages does exist due to certain Chinese customers
preferring to spend extra on a totally western design for its perceived higher reliability and
safety. This opportunity, which the UK is well able to exploit, having two boiler
manufacturers with the necessary SQLO certification, is likely to remain for only a few years,
until the second generation of Chinese shell boilers are proven to operate reliably with
imported burners. Beyond that, imported boiler and burner packages will need to rely upon
some novel high technology feature, such as low NOx emissions, a requirement which does
not, as yet, feature within Chinese air pollution control legislation.

There are other opportunities to consider. While converting city centre district heating IBs to
gas firing is the short and medium term aim, the longer term advantages of using gas in
smaller appliances, suited to heating individual apartment buildings and even individual
apartments, are becoming recognised.

Entrepreneur manufacturers are already seeing the market potential in offering clean,
efficient, automatic, gas fired appliances for commercial, down to domestic scale, heating
requirements, while also providing potable hot water for tea making. These devices could
replace the present coal fired teapot boilers in legislatively controlled, environmentally
sensitive, areas, and also where growing wealth is creating a new market for home central
heating. Where gas pipelines are not yet installed, but environmental legislation is being
imposed, oil firing is offered as an interim solution, with facility for later conversion to gas.

Boiler designs for small gas and oil fired appliances are new to China and some joint ventures
have been established to exploit this market. One uses locally produced cast sectional boilers,
based upon Japanese technology, fitted with European forced draught burners (Italian Riello
on the examples seen). Such boilers are efficient but expensive, being fully up to UK price
levels, mainly due to them incorporating sophisticated imported burners and controls.

For the lower end of the range, down to 10kWth for small Chinese apartments, market
opportunities might be expanded by adopting a lower cost boiler package, more akin to UK
central heating boilers i.e. low gas-side resistance boilers, fitted with simple open grid burners
operating under induced chimney draught. Thus, opportunity exists for manufacturers selling
similar equipment in the UK. Although the full market potential for small appliances will
only be realised in the medium to longer term, some opportunity already exists amongst
certain wealthy sections of society.

In the longer term, a combination of social reform and growing wealth amongst all classes of
society will create a rapidly expanding market for smaller gas appliances. The future market
in China for heating individual apartment buildings and ultimately individual homes, both by
direct radiant fires and by indirect water heating, could be substantial.

Thus, in summary, within the small LPHW gas-fired boiler market, there is potential for input
to:

help the Chinese to avoid the need to utilise imported forced draught burner packages

establish a new, small, home heating boiler design, using natural draught gas firing
technology, and

34
 provide manufacturing know-how for radiant gas fires, to complement central heating
boilers.

4.2.1.1 Likely Timescale for Implementing Gas Technology Options

For gas burner technology transfer and accompanying JV possibilities, the market
opportunities are immediate. Brand recognition is a key requirement and so, for the UK
suppliers, those who already have a market presence in China are best placed to benefit.
These include Nu-Way, Hamworthy and Dunphy. While UK manufacturers can continue to
operate in this market sector via Import Agents, consideration needs to be given to alternative
approaches.

Western manufacturers who are profitably selling large numbers of burners into China
through Agents may prefer to continue with this option. However, UK manufacturers seem to
have only a modest market share via the Agent route, so a JV could be the way to enjoy a
substantial, long term, trade. The opportunity appears to be a near-term one.

The full potential for smaller commercial and domestic scale gas fired appliances seems
hardly recognised in China, so the timescale for technology introduction is longer. However,
the World Bank are actively encouraging the demonstration of such appliances in Beijing and
entrepreneur Chinese manufacturers see the future prospects. Hence, Chinese organisations
receptive to the idea of small appliances already exist and would no doubt welcome an
opportunity to discuss commercial ventures with manufacturers of small, low cost, heating
systems, that avoid the need for expensive, imported, forced draught burners.

4.3 Competitors

Within the coal sector, there are various manufacturers world-wide which must be considered
potential competitors.

The UK boilermakers product range mostly covers 0.5 to 12MW. The most direct
competitors in that range are those companies involved in the WB/GEF Industrial Boilers
Project, ie MFU, BayGMBH of Germany, John Thompson of South Africa and Volund Co/
Danstoker of Denmark. The GEF projects will, if concluded satisfactorily, result in the
establishment of Western boiler technologies firing Chinese raw coal. However, although
efficiencies will doubtless be improved over values attainable using Chinese boiler designs,
the weak link variability of raw coal will remain. CRE experiences in China are that this
variability can impact unpredictably and may lower the performance of even the GEF designs
once they are in regular use at customer premises. Chinese boiler designs perform acceptably
well using selected raw coal, as happens during official boiler type-testing procedures, but
measured performances deteriorate considerably when subsequent customers receive typical
run-of-mine deliveries.

If the performance variability consequent on burning raw coal affects the GEF boiler designs
in a similar way to Chinese designs, this will happen most noticeably with small boilers fitted
with chain (and travel bar) grates i.e. designs which predominate in China, especially for city
centre district heating duties. Allowing that raw coal will always have higher ash and sulphur
contents than selected, prepared, niche coal (as is now the SETC proposed way forward for
use in city centre boilers), the GEF designs are unlikely to equal the clean and consistent
performance that could be achieved by following the niche coal route.

Since major tonnages of raw coal will continue to be burned throughout China for many years
to come, the GEF project boiler designs have the potential to be a valuable addition to the
ranges available in China. They will be more reliable and will operate more efficiently than
indigenous designs, but they will be more expensive. Only time will tell how successful they

35
 will be in terms of customer acceptance or indeed whether there will be an acceptable level of
dissemination (see Annex D). Indeed, with regard to the latter point, a common comment
from many boilermakers was that the likelihood of successful dissemination from the
WB/GEF Project was low, in part because the overall project has lost momentum but also
because of the introduction of changes in coal quality for the industrial sector.

Thus by adopting the niche coal strategy for city centre boilers, and burning such coal using
either simple, low cost, western combustion technology for thermal ratings <1.75MWth, or
using UK modified Chinese technology at ratings up to, say, 7MWth, equipment costs should
undercut the GEF designs, though the cost of niche coal will, of course, be higher than raw
coal. The benefit of niche coal more easily and consistently meeting rigorous dust and SO2
emission Standards must be set against this fuel cost disadvantage. Consequently a detailed
techno-economic analysis of the possible variants is required.

With regard to the oil/gas burner market in China this is currently dominated by certain
European manufacturers, but these do not appear to include UK suppliers. The enviable
position occupied by German manufacturers, Weishaupt and to a lesser extent Saacke, plus
Riello of Italy who are selling, via import agents, over 70% of the burners used in China, is
unlikely to be assailed in the short term. Chinese customers have been satisfied with the
performance of the burners they have purchased and prefer to continue with what has proven
successful, rather than risk disaster for the sake of a small cost saving. Therefore, the only
route that would seem likely to change this position is when China acquires its own burner
manufacturing capability. Indigenous manufacture will enable significant price cuts,
sufficient to gradually persuade customers to adopt the Chinese product. This adoption will
be considerably eased if Chinese burners bear recognised and respected western trade marks.
Hence the desire on the part of the Chinese Authorities for Joint Ventures with western
manufacturers who feel they can offer quality and reliability comparable with that from
Germany, but are currently only minority players in a market that looks set to require up to
10,000 burners (and controls packages) each year for the foreseeable future.

4.4 Other Opportunities

The points included below arose during the CRE missions to China as part of this project. As
such they are listed for completeness but CRE Group Ltd has not evaluated either the
accuracy or robustness of the points so made.

There is interest from certain equipment makers to establish co-operation for the
introduction of domestic gas fired heating equipment. The CRE Group Ltd schedule did
not provide opportunity to explore all the detail of ancillary equipment that is required to
automate a gas fired heating system. However, it is likely that opportunities exist for
suppliers of associated equipment e.g. heating controls, thermostatic radiator valves,
pumps, heat meters and gas meters etc. Simple, low cost means of heat metering would
be saleable under circumstances where an apartment building is fitted with a communal
gas fired heating system and the heat consumed by individual apartments is required to be
metered for subsequent cost charging. Whether individual apartment buildings or
individual apartments have their own gas appliances, a substantial number of small gas
meters will be required.

Coke oven gas has been used extensively in China for many years. Now, with the arrival
of natural gas, coke oven gas appliances will gradually need either replacing or
conversion. A similar procedure happened in the UK during the late 1960s, when Towns
Gas was replaced by North Sea natural gas. Although Beijing is currently retaining its
coke oven gas pipeline in the south of the city, separate from its new natural gas supply
from the north west, this will be a temporary expedient. Although coke oven gas has
been used mainly for cooking, a significant number of coke oven gas boilers exist that use

36
 imported burners that would be expensive to replace. Therefore, it is likely that in the
medium term China will be seeking co-operation with western burner suppliers able to
offer conversion know-how, to avoid costly replacement of entire burner assemblies.

Boiler house operators accustomed to the relatively quiet low pressure fans used for coal
burning boilers, complain about the noise levels of high pressure gas and oil burner fans.
Therefore, simple sound attenuation equipment, as might already be sold by UK vendors
of gas and oil burners, should find application in China.

Incineration of refuse is on the increase in China. The need for grate and boiler
technology was mentioned during meetings with several Chinese boiler manufacturers.
Apart from combustion and heat recovery technology, a major future market may lie in
emissions control. So far it appears that the Chinese have installed their own flue gas
clean-up equipment, probably consisting of simple particulate control by electrostatic
precipitation or wet washing. Similar simple clean-up was normal in the UK before 1980,
at which time the recognition that incinerators caused high releases of dioxins showed the
need for additional measures. The current generation of UK incinerators have design
strategies which limit the formation of dioxins and also capture volatilised heavy metals.
These more sophisticated clean-up technologies will be required in China in due course,
when pollution legislation limits the emission of trace species. However, this is probably
at best a medium-term requirement.

A Chinese entrepreneur company manufactures solar panels, consisting of a series of

parallel vacuum tubes connected to supply/return headers. Their quality seems good and
they are priced reasonably due to their Chinese manufacture. A panel 30 tubes wide by
1.2m long has a radiation collecting area of 3m2 and sells for around 150. There may be
an opportunity for a UK company seeking to import such panels into the UK.

5. MARKET ENTRY STRATEGY

5.1 Options for technology transfer

These options have been referred to throughout the report and include:

Direct Export-Import
Direct Manufacture in China
Licensing
Joint Venture

Each has advantages and disadvantages. Thus as is noted above, the direct export of
equipment into China via an import agent works well for, say, the gas burner market where
brand recognition is critical and there is a major demand to be met for which there is little
indigenous competition. For the coal fired IB sector where there is and will continue to be
major competition and where price will remain important if not the only consideration, this is
not a preferred option since imported equipment will always be significantly more expensive
than locally produced items.

Direct manufacture in China is attractive as the equipment supplier maintains control and
there are examples of UK companies (eg Spirax Sarco) who have successfully used this
approach. However, all capital investment and start-up costs are borne by that supplier. For
the UK coal-fired IB sector, which is relatively fragmented, the investment level is likely to
be unattractive as the UK companies are mostly small.

37
 Licensing the rights to manufacture and sell equipment to a Chinese company is a popular
route with the western equipment supplier, but in many instances less attractive to the Chinese
company. For the licensor, the risk is mostly covered by the licensee while the latter will
have to make all the upfront capital investment. Indeed unless the licence fee and subsequent
royalty fees on sales are relatively small, many Chinese companies claimed that this approach
gave them significant cash flow problems. They also noted that if the Chinese business plan
is flawed then they cant sell the technology to recover the license payment. While such an
approach should reinforce the need for a sound business plan it is clear that this is not the
Chinese preferred approach.

Finally, the joint venture approach must be considered. The western partner invests his
technology IPR and perhaps makes some financial input while the Chinese partner provides
manufacturing facilities, a labour force etc. There are many examples of successful JVs being
established but equally there are many cases where the JV has not worked. The problems
appear to be due to both sides having unrealistic expectations or indeed hidden agendas.
That said the Chinese seem to prefer the JV approach to that of licensing presumably because
it puts a greater onus on the Western partner in terms of ultimate commitment. Indeed for the
(Western) technology supplier the JV approach requires faith that his IPR will be respected at
the negotiation stage and he then has to make a significant investment in training his JV
(Chinese) partner in marketing, manufacture, quality control and commissioning of the JV
product. This represents a long lead in time before any return on investment is seen.

5.2 Proposed way forward for coal

Environmental legislation in China is starting to be enforced rigorously and as such the need
to achieve improved air quality standards in city centres will be critical. Wherever possible,
gas will be introduced to replace coal. However, not all cities will receive gas in the
foreseeable future. Oil is very expensive and there is a shortage in China, necessitating its
import. Therefore, there will be a need to introduce replacement coal-fired boilers in such
cities, with significantly higher efficiencies and improved environmental performance
compared to the existing units. The SETC believe that the way forward is to ensure that a
higher quality niche coal is available such that in combination with improved boiler
technology, the environmental legislation can be met but through the use of coal and not oil
nor perhaps even gas.

Therefore, CRE Group Ltd identify this niche coal market as the way forward to introduce
UK coal burning IB technology to China. This is where environmental legislative
enforcement will not permit coal firing to continue as in the past, so IB managers will be
prepared to accept higher equipment and operating costs to solve their dilemma. The use of
higher priced niche coal, in conjunction with UK combustion technology, will increase
costs, but to a lesser extent than the alternative of burning fuel oil. The higher boiler
efficiency obtainable from niche coal should offset its increased cost.

The SETC in conjunction with the SBCI are reviewing the options to improve coal quality.
CRE believe that the UK strategy should be to assist in such an investigation by making
known its strategies involving niche coal and a joint UK and Chinese Study could be carried
out to demonstrate its feasibility. This would identify necessary coal quantities, source
appropriate coal quality, specify required beneficiation techniques and establish marketing
arrangements suited to a variety of cities where environmental improvement is required but
gas is not an imminent or even realistic prospect. The Study would need to be phased but,
subject to the techno-economic assessments being attractive, it would be appropriate for the
UK to consider including demonstration of selected combustion and emissions control
techniques. This could then lead to full commercial arrangements being established between
UK equipment suppliers and (to be) selected Chinese counterparts.

38
Thus, there is a need to quantify the size of the niche market and the technology options
potentially available. Such a study would include:

Quantification of the likely national market in terms of total coal requirements (and split
geographically).

Examination of the potential for supplying washed and graded coal into this niche coal
market. The coal would also have to meet certain sulphur content and swelling criteria.

Coal preparation (washery & grading) techniques that are economical in water usage or
even avoid water usage, would be particularly appropriate to certain areas of China.
Whether this is feasible for making coal of suitable quality for the niche market, or
whether the UK has knowledge of beneficiation techniques which can at least minimise
water consumption, are areas that merit co-operation. Such items could usefully form
part of this niche coal Study.

If a preliminary Study suggested that suitable coal could be made available to cities
without a foreseeable gas supply, from mines not too remote, then a demonstration could
follow to show that coal can be burned in an acceptably clean manner, provided it is
washed, graded and in other ways selected. The intention would be to carry out such a
demonstration using UK stoker technology. Without in any way predetermining the
outcome of such a Study several UK technologies would merit serious consideration.
Thus for small sizes, say to 1.75MWth, this could be an automatic (but not self de-ashing)
underfeed stoker. An underfeed could be fitted either to a small Chinese shell boiler
and/or to some form of sectional boiler that could be constructed by a local manufacturer
(probably for thermal sizes below the sensible size for a shell boiler). Demonstration of
good cyclone technology would be an obvious further addition to the Study. At larger
sizes, say to 7MWth, the sprinkler stoker could be considered. An alternative would be
the mini-coking stoker, to 2.8MWth, although that is more complex. In the range to
7MWth there is also the need to consider small chain grate systems.

Naturally, the use of clean selected coal with any appliance, in conjunction with high
quality stoker equipment (from UK or China), will increase the price over the present
Chinese situation. However, for the intended niche city centre market (which will by UK
standards still represents a very significant tonnage of coal), an increased price could be
the only way China can retain boiler use in city centre areas without oil and gas. In any
case, such an approach should undercut the running costs (even capital costs until
Chinese made burners are available) of gas and oil alternatives.

To keep equipment costs to a minimum, it could be sensible to take advantage of the

profusion of chain grate designs which already exist within China, rather than necessarily
transferring new technology from the UK. The UK could exploit its know-how in a co-
operative venture improving the quality and performance of an indigenous boiler and
chain grate stoker system to suit the niche market

Niche washed coal will only serve a small part of the coal fired IB sector (although very large
by UK standards) and raw coal use will predominate for many years, though with an
increasing use of selection and size grading procedures. Therefore, it might be appropriate to
study the efficiency and environmental improvements possible by applying certain raw coal
selection criteria to a chain grate boiler from one of the better Chinese manufacturers. Design
aspects for inclusion in such a Study are:

steam conditioning,
better grate castings,
better air sealing of grate to boiler,

39
 better quality access, viewing doors, and other air ingress areas,
better quality air dampers and air distribution,
even cross-grate distribution of coal,
improved insulation

Again, a UK cyclone development could accompany this Study.

The resulting improved boiler which would in effect be a joint UK-China cooperative
design for which a formal exploitation agreement would be needed, would be more
expensive, but should perform to noticeably higher efficiency and environmental standards.
The combination of selected raw coal in an improved Chinese boiler design would provide a
compromise in fuel and equipment costs between the situation at present i.e. totally raw coal
and boilers made to the lowest possible price, and the niche coal market i.e. fully beneficiated
coal used with imported combustion equipment. The improved Chinese chain grate boiler
should equally be suited to the niche coal market.

Above and beyond the issue of technology supply, there is a further issue regarding the
provision of technical support to introduce improvements to existing coal-fired units. As has
been noted in Section 2.3, existing boilers fired on raw coal achieve poor combustion and
boiler efficiencies. As has been demonstrated already, albeit to a limited degree, the UK (in
this example CRE) has assisted Chinese boiler end users to introduce low cost, fast payback,
efficiency improvements. Chinese boilermakers have indicated that combustion efficiency
improvements of fifteen to twenty percentage points can be achieved, with payback periods of
less than a year in many instances. It could be worthwhile to disseminate these findings
extensively via training courses for the boilermakers and end users.

This approach, and indeed the introduction of new, improved coal-fired boilers, needs to be
considered within the context of the Clean Development Mechanism. The 500,000 existing
boilers in China produce some 600mtpa of CO2. If the boiler efficiencies of such units could
be improved by a very modest five percentage points then the CO2 emission saving would be
up to 50mtpa.

5.3 Proposed Way Forward for Gas/Oil

The UK burner manufacturers need to consider carefully the Chinese offer of forming a JV
for manufacture of gas/oil burners and controls. While for the present, trading through import
Agents is certainly the established way to do business, China is resourceful when it comes to
acquiring new technology. Burner manufacturers exist around the world, and while well
known and long established brand names are preferable in encouraging Chinese customers to
purchase Chinese products, if the well known names resist, then lesser known names will be
considered. Eventually, the know-how will be acquired and then it is possible that, even in a
rising market, the import burner market will gradually decrease.

The current market leaders, Weishaupt, Saacke and Riello, who are taking a substantial share
of the 200million annual import market, have indicated that they prefer to maintain their
current approach, especially as it could take another 10 years before China acquires, proves
and proliferates its own burner manufacturing capability. For other western manufacturers
who have a much smaller market share, the longer term pragmatic view may be more
sensible. The UK is considered a possible source of at least one such manufacturer since,
ironically, the UK sells relatively few burners into China. Thus Nu-Way, Hamworthy and
Dunphy are, relatively, minority players, but their names are known and respected in China.
The Chinese think that manufacturers doing relatively little business might be the ones most
willing to capitalise on their brand name by engaging in a Joint Venture. CIBMA will be
happy to link interested UK suppliers with the appropriate representatives of the SBMI.

40
 The full potential for smaller commercial and domestic scale gas fired appliances seems
hardly recognised in China, so the timescale for technology introduction is longer. However,
the World Bank are actively encouraging the demonstration of such appliances in Beijing and
entrepreneur Chinese manufacturers see the future prospects. Hence, Chinese organisations
receptive to the idea of small appliances already exist and would no doubt welcome an
opportunity to discuss commercial ventures in the near/medium term. This can best be taken
forward via dialogue with CIBMA.

5.4 Overall dissemination

There is a clear need to ensure that the findings of this study are made available to the
following:

DTI Export Promoters

UK coal/gas boiler manufacturers and suppliers of ancillary equipment
Chinese coal/gas boiler manufacturers and suppliers of ancillary equipment
Chinese State bodies, to include SETC, MOST, SBMI

CRE would intend that DTI will send a copy of this report to each of the UK coal/gas boiler
makers and equipment suppliers listed in Annex A together with an invitation to a DTI
Workshop at which the findings of this study will be presented by CRE.

6. CONCLUSIONS

The industrial boiler manufacturing market in China is large, with some 700 boiler makers
competing to supply each year some 20,000 boilers, with a combined thermal output
approaching 60,000MWth. Another 1000 or more manufacturers operate at the fringe of the
industrial boiler market, manufacturing small LPHW boilers. The total value of all IBs and
LPHW boilers produced during 1998 totalled over 9billion Yuan, some 0.7billion.

This market is set to grow over the next decade at 3-5% per annum, possibly reaching 30,000
boilers per annum of total capacity 100,000MWth. The national stock of industrial boilers
currently totals over 500,000 and consumes some 400 million tpa of coal. Because of the
small size of boilers manufactured in previous years, the average boiler size within the
national stock is only expected to reach 2MWth in 2010, by which time there could be some
620,000 boilers.

By 2010 it is estimated that up to 10% of the national fuel energy for IBs will come from
natural gas/oil, but dependence upon coal will still approach 90%. In a market sector that will
be growing at 3-5% per annum, this represents an actual increase in annual coal burn
compared to 2000.

To date, UK opportunities within the Chinese coal boiler industry have been restricted due to
the unfamiliar and varying combustion characteristics of raw coal which is the normal
feedstock for IBs in China. Although UK grates and other combustion stokers could improve
Chinese boiler performance, modifications would be required to cope with raw coal. Even
then, performance would be unpredictable and could not be guaranteed, and the resulting
boiler price would be higher due to the western involvement. Since customers of coal-fired
boilers are sceptical of performance claims, consequently the higher costs that would be
incurred have to date severely limited the realisation of market potential.

The availability of natural gas to Beijing since late 1997 and the plan to introduce gas to many
other cities before 2005, has acted as a spur to national and local governments, to improve air
quality in city centres. New air pollution laws have been enacted which place strict limits on

41
dust and SO2 emissions. Coal boilers are to be banned in central CFZs. However, not all
cities will receive gas and not all cities with gas will be able to supply sufficient gas to all city
areas. So substantial coal burning will persist, despite the new environmental legislation.
Compliance with strict emission limits while burning raw coal on low quality moving grates
will be near impossible. Consequently there is a legislative driving force which will result in
overall boiler energy and environmental performance being a key issue rather than just price.

The Chinese hope to improve coal burning by improving coal quality. Initially this will be by
grading industrial raw coal, to minimise the fines content. Excess fines will be sent to
pulverised fuel power stations. However, this degree of coal preparation is unlikely to be
sufficient and further selection to produce a niche coal via coal beneficiation to ensure low
sulphur, low ash and low swelling characteristics is expected to be applied in the near future.
Chinese industrial coal quality for city centre use is therefore changing in a way that makes it
compatible with UK industrial coal. Once such coal is available, a whole range of coal
technology options from the UK become applicable and relevant to China. Equipment and
fuel costs need not then be an insuperable problem for the Chinese market, since the newly
introduced legislation will enforce the need for quality fuel and combustion systems to meet
the new emission standards. The likely timescale to this market change is, some 2-3 years.

Therefore, at that time for the coal burning IB sector, the UK can:
Introduce higher quality, more efficient coal-fired boilers with acceptable dust control
systems
Improve and ensure more effective use of existing coal-fired systems
Offer technical support and training to manufacturers and end users

In order to facilitate the right conditions for UK market entry, CRE has identified some
further studies/R&D initiatives which should be undertaken to improve detailed market
understanding and to improve UK-China contact (see Section 5).

There is also the need to recognise that many of the UK coal boiler manufacturers are small
(several are SMEs) and as such may not have the resources to establish a co-operative venture
with Chinese counterparts. Accordingly, consideration needs to be given to whether DTI
assistance can be provided, possibly on the basis that assistance to improve the efficiency of
Chinese industrial boilers should be consistent with the aims of the Clean Development
Mechanism.

While coal will continue to dominate the IB market, there are significant gas related
prospects. The UK opportunities with gas fired boilers arise from Chinas almost total lack of
indigenous burner manufacturing ability. Several thousand burners, with their controls, are
imported into China each year, mostly from Germany, and to a lesser extent Italy, costing
China 200 million in 1999. These burners are supplied via local Import Agents, who
provide after-sales service and spares. This system, while working quite well for the foreign
suppliers, is slowing down the rate of coal to gas conversion programmes because of the
resulting high cost of gas fired boilers.

The UK is a relatively small supplier, and as brand awareness is critical it may prove difficult
to achieve a greater market share. However there would appear to be opportunities to join
with Chinese industry in JVs to begin burner manufacturing in China. This merits serious
near term consideration because of the longer term, large, market potential.

UK industry is already able to sell complete package shell boilers into China, with two
manufacturers already having the necessary Chinese SQLO certification. Certain Chinese
customers prefer to pay extra for assured safety and reliability and so despite the higher costs,

42
 this is a realistic possibility, but only in the short term. While early Chinese shell boilers with
imported burners did not always perform correctly because of equipment mismatch, such
problems seem to have been resolved. Thus the current generation of Chinese boilers and
imported burners seem able to satisfy the market, not withstanding the JV issue noted above.

There is a further opportunity in the medium term with gas firing equipment suited to LPHW
boilers, for small scale heating applications. China has long used coal fired district heating
boilers for winter heating north of the Yellow River in the Three Bei region. Each boiler
house serves a number of apartment buildings, but heat losses from distribution pipework is
high and individual apartment dwellers have no independent heat control, encouraging further
waste. Reform is now being considered in cities where gas is available. Apartment buildings
can be equipped with their own heating boilers, releasing valuable land that currently houses
large boilers, coal stockpiles etc. Individual apartments can then receive metered heat.
Eventually, individual home heating may be installed, using either small central heating
boilers and / or radiant gas fires, as in the UK.

This is an embryonic market in China, but local entrepreneur manufacturers are already
recognising the huge market potential and are starting JVs for small scale, but sophisticated,
heating boilers. There is scope here for UK heating boiler manufacturers, plus ancillary
equipment suppliers, to find partners and exploit this new market. Boiler and burner
equipment need to be simplified in order to lower costs and bring forward the opportunity for
market entry.

7. RECOMMENDATIONS FOR FUTURE ACTIVITIES

The proposed way forward to enhance the UK market opportunities in the coal and gas fired
industrial sectors are summarised below. Central to all such activities is the need for effective
dissemination of this report, both in the UK and China. CRE has noted that for China the DTI
may wish to employ the services of CCII to implement this task. However, CRE has also
recommended that CIBMA should be involved in a key capacity to ensure effective
dissemination to the Chinese industrial boiler industry and associated organisations.

7.1 Coal

For the coal-fired boiler market the opportunities are likely to arise within 2-3 years. The key
is for the Chinese Government to establish a rigorous coal quality production chain. Once
this can be established, the coal quality will be similar to that in the UK and so the
opportunity will be there for the provision of UK technology and expertise.

The proposed strategy to enhance the market potential for UK companies is to assist the
relevant Chinese authorities to evaluate the options and opportunities. This will be achieved
via some detailed studies, to identify the exact opportunities.

For example, a joint UK / China study needs to be carried out to identify niche coal quantities,
source appropriate coal supplies, specify required beneficiation techniques and establish
marketing arrangements suited to a variety of cities where environmental improvement is
required but gas is not an imminent or indeed realistic prospect. The Study would be phased
to ultimately include the prospect of a demonstration of UK combustion and particulate
capture technologies to show the potential for efficiency gains and emissions control.

A further study is suggested of the performance and environmental improvements possible by

applying UK combustion grate know-how to indigenous chain grate boilers. These boilers,
by being based upon a design strategy suited to burning raw coal, could take full advantage of

43
 all levels of coal improvement strategy, including those falling below fully beneficiated niche
coal.

The key Chinese organisations involved in this project are very much in favour of the strategy
and approach as set out above. Consequently if the proposed studies are implemented they
would have the benefit of better defining market prospects while raising greater awareness
within China of UK technology and technology suppliers, thereby ultimately enhancing UK
market prospects. It is recognised that DTI support would be very helpful to initiate such
studies which should be collaborative activities involving appropriate UK and Chinese
organisations. It is noted that a similar study on coal benefication in China as a means for
sulphur control, albeit for a different market sector, was supported recently by the DTI.

7.2 Gas

For the industrial gas fired sector, the opportunities are either immediate or medium term, and
are best taken forward by the UK companies themselves. There may be merit in a better
definition of the small scale heating applications in conjunction with appropriate UK and
Chinese organisations for which DTI support would be beneficial.

8. ACKNOWLEDGEMENTS

The work was fully funded by the Department of Trade and Industry under its Cleaner Coal
Technology Transfer Programme. This report has been prepared by CRE Group Ltd and the
China Industrial Boiler Manufacturers Association on behalf of ETSU for the UK Department
of Trade and Industry. Any views, express or implied, in this report are those of the authors
and not necessarily those of ETSU and/or the DTI.

The authors wish to acknowledge the very significant contributions made by the Chinese
organisations listed below:

State Planning and Development Commission

State Economic and Trade Commission
State Environmental Protection Administration
Ministry of Science and Technology
State Bureau of Machine Industry
China Coal Research Institute
China Coal Information Institute
Tsinghua University
Tangshan Boilerworks
Beijing Dongshen Boilerworks
Hangzhou Boilerworks
Shanghai Industrial Boiler Institute
Shanghai Sifang Boilerworks
Wuxi Taihu Boilerworks
Wuxi Municipal Bureau of Machine Industry
Jian Boilerworks
Tai An Boilerworks
Project Management Office of the World Bank/GEF Industrial Boilers Project.

44
9. REFERENCES

1. China: Issues and Options in Greenhouse Gas Emissions Control Part C, Output 2.2, Pre-
Feasibility Study on High Efficiency Industrial Boilers prepared under the auspices of the World
Banks Global Environment Facility. Project CPR/91/G32/IG/42, 1994.

2. China: Efficiency and Environmental Impact of Coal Use. Stephenson, K et al. Report No
8915-CHA, The World Bank, Industry and Energy Division. January 1991.

3. Miners Face Uncertainty. Chang, W and Zhao, G. China Daily, Business Weekly. December
5th to 11th, 1999.

4. Power Industry: Development and Prospects. Huang, W. Beijing Review. November 21st to
27th, 1994.

5. Contractors Chinese Challenge. Ottewell, S. The Chemical Engineer, pp13 18. March 31st
1994.

6. Growth Rate Forecasted at 7.3%. Meng, Y. China Daily, Friday, 16th June, 2000.

7. China The Final Frontier. Read, C. World Coal, pp 14 19. October 1993.

8. China Daily. Friday 13th June 1997.

9. Official: Fuel Prices to Hold Steady. Gong, Z and Zhao, S. China Daily, Business Weekly.
January 16th to 22nd 2000.

10. Rise in Oil Prices Poses a Challenge. Zhao, S. China Daily, Monday July 3rd 2000.

11. Experts Call for Oil Strategy. Shao, Q. China Daily, 10th January 2000.

12. Benxi Energy and Air Quality Management Study (BEAQMS). World Bank project. September
1994 to November 1995.

13. China - Second Beijing Environment Project. World Bank Project on Coal to Gas Conversion
in Beijing. Project No: CN-PE-42109. 1999-2000. Private Communication.

14. East-West Transport Deemed Feasible. Zhao, S; Shao, Q; Hai G; Song, B; Zhao, J and Xiao, Z.
China daily, Business Weekly, Sunday, June 25th to July 1st 2000.

15. London. BP Amoco to Buy Sinopec Stakes. China Daily (in brief), Monday, June 26th 2000.

16. China Crazy, BP Amoco Announces Important Gas Developments. The Chemical Engineer,
p9. 6th April 2000.

17. Guizhou and Shanxi Energy Efficiency project (GASEE). Department for International
Development (DfiD). 1996 through to 1999.

18. BS 845 : 1987 British Standard methods for assessing thermal performance of boilers for steam,
hot water and high temperature heat transfer fluids.

19. Use of Gas Increasing Rapidly in Beijing. Liu, Y. China Daily. Friday, June 5th 1998.

45
20. Natural Gas to Power More Cars. Zhao, S. China Daily, Business weekly. Sunday, September
28th to October 4th, 1997.

10. ABBREVIATIONS

BCC British Coal Corporation

BFBC Bubbling Fluidised Bed Combustion
BMG Beijing Municipal Government

CCRI China Coal Research Institute

CCII China Coal Information Institute
CEEIA China Electrical Equipment Industrial Association
CFBC Circulating Fluidised Bed Combustion
CFZ Coal Free Zone
CHP Combined Heat and Power
CIBMA Chinese Industrial Boiler Manufacturers Association
CNG Compressed Natural Gas
CNOOC China National Offshore Oil Corporation
CNPC China National Petroleum Corporation
CTC Coal Trading Company

daf dry, ash free

DfiD UK, Department for International Development
DTI UK, Department for Trade and Industry

ECC Energy Conservation Centre

EPA Environmental Protection Agency

FGD Flue Gas Desulphurisation

GBTC Gas Boiler Technology Centre

GDP Gross Domestic Product
GEF Global Environment Facility

HFO Heavy Fuel Oil

IB Industrial Boiler
ICB International Competitive Bidding

JV Joint Venture

KWe Kilowatts electrical output

LNG Liquefied Natural Gas

LPG Liquefied Petroleum Gas
LPHW Low Pressure Hot Water (boilers)

MBWMI Municipal Bureau of Wuxi Machinery Industry

MMEI Ministry of Machinery and Electronics Industries
MOST Ministry of Science and Technology
MWe Megawatts electrical output
MWth Megawatts thermal output

NCB National Coal Board

46
pH-value Index used as a measure of solution acidity
PMO Project Management Office

SBCI State Bureau of the Coal Industry

SBMI State Bureau of Machinery Industry
SEPA State Environmental Protection Agency
SETC State Economic and Trade Commission
SIBRI Shanghai Industrial Boiler Research Institute
SO2 (gaseous) Sulphur Dioxide
SPDC State Planning and Development Commission.

tpa tonnes per annum

tph tonnes per hour
TT Technology Transfer
TVE Town and Village Enterprise

WTO World Trade Organisation

47
 ANNEX A

LISTING OF UK BOILERMAKERS AND ANCILLARY EQUIPMENT

SUPPLIERS

Industrial Boiler Manufacturers

Ashwell Engineering Services Ltd Evershot Engineering
Woodland Road Orston Lane
Leicester Bottesford
LE5 3PG Nottingham
Tel 0116 2767151 NG13 0AU
Fax 0116 2763636 Tel 01949 844155
Fax 01949 842807
Boiler range 0.03 to 2.6MW
Fulton Boiler Works (Great Britain) Ltd
Babcock Wanson UK Broomhill Road
7 Elstree Way Bristol
Borehamwood BS4 4TU
Herts Tel 0117 972 3322
Tel 0181 953 7111 Fax 0117 972 3358
Fax 0181 207 5177
Guillot Heating
Byworth 2 Fitzhammon Court
D.Baldwin & Sons Ltd Featherstone Road
Parkwood Boiler Works Wolverton Mill
Parkwood Street Milton Keynes
Keighley MK12 6LB
West Yorks Tel 01908 227720
Tel 01535 665225 Fax 01908 227716
Fax 01535 680997
Hamworthy Heating Ltd
Boiler ranges 0.44 to 4.3MW Fleets Corner
Poole
Beel Industrial Boilers PLC Dorset
Becor House BH17 0HH
Green Lane Tel 01202 665566
Lincoln Fax 01202 665111
LN6 7DN
Tel 01522 510510 Hartley & Sugden Ltd
Fax 01522 525900 Atlas Works
Gibbet Street
Boiler ranges 0.6 to 11.7MW Halifax
W.Yorkshire
HX1 4DB
Tel 01422 355651
Fax 01422 359636

Boiler ranges of 0.22 to 3.0MW

Beeston Heating Ltd Hoval Ltd
Derwentside Industrial Park Northgate
Derby Road Newark
Belper Notts
Derbyshire NG24 1JN
DE56 1UX Tel 01636 72711
Tel 01773 828383 Fax 01636 73532
Fax 01773 829091
Ideal Boilers Ltd
Boiler ranges 0.07 to 0.7MW Hull
HU5 4JN
Boughton & Yarrow Tel 01482 492251
98 Gladstone Road Fax 01482 448858
Willesborough
Ashford James Proctor Ltd
Kent Hammerton Street
TN24 0DD Burnley
Tel 01233 625939 Lancs
BB1 1LJ
Boulter Boilers Ltd Tel 01282 453816
Magnet House Fax 01282 416178
Whitehouse Road
Ipswich Stoker Manufacturer Outputs of 0.6 to 5.9MW
IP1 5JA
Tel 01473 241555 Kayanson Engineers Ltd
Fax 01473 241321 Unit 34
Lydney Industrial Estate
Bradlee Boilers Ltd Harbour Road
Unit 3 Lydney
Stamberill Industrial Estate Glos
Timmis Road GL 15 4EJ
Lye Tel 01594 843 494
Stourbridge Fax 01594 843501
DY9 7BJ
Tel 01384 423859 Boiler ranges 0.44 to 2.9MW
Fax 01384 895435
Mitsui Babcock Energy Services Ltd
CBR Engineers Ltd Porterfield Road
Ergon House Renfrew
Weeland Road PA 4 8DJ
Eggborough Tel 0141 886 4141
Goole Fax 0141 885 3366
N.Humberside
DN14 0RX Boiler ranges (former) 3 to 117MW
Tel 01977 661266
Fax 01977 661742 Senior Thermal Engineering Ltd
PO Box 80
Certuss (UK) Ltd Calder Vale Road
Unit 45 Wakefield
Gravelly Industrial Park West Yorkshire
Tyburn Road WF1 5YS
Birmingham
B24 8TG
Tel 0121 327 5362
Fax 0121 328 2934
Clayton Thermal Products Ltd Strebel Ltd
5 Boleyn Court 1F
Manor Park Albany Park Industrial Estate
Runcorn Frimley Road
Cheshire Camberley
WA7 1SR Surrey
Tel 01928 579009 GU15 2PL
Fax 01928 571155 Tel 01276 685422
Fax 01276 685405
Cochran Boilers
Newbie Works Thermax Europe
Annan 94 Alston Drive
Dumfriesshire Bradwell Avenue
DG12 5QU Milton Keynes
Tel 01461 202111 MK13 9HF
Fax 01461 205511 Tel 01908 316216
Fax 01908 316217
Boiler ranges 0.6 to 12.9MW
Trianco Redfyre Ltd
Thorncliffe
Chapletown
Sheffield
S35 2PZ
Tel 0114 257 2300

Boiler ranges of 0.09 to 0.59MW

Wellman Robey Ltd

Newfield Road
Oldbury
W.Midlands
B69 3ET
Tel 0121 552 3311
Fax 0121 552 4571

Boiler ranges 0.88 to 30MW

 Industrial Oil & Gas Burner Manufactures
Comtherm Engineering Ltd Hamworthy Combustion Engineering Ltd
Comenco Works Fleets Corner
Union Lane Poole
Droitwich Dorset
Worcs BH17 0lA
WR9 9Az Tel 01202 662700
Fax 01202 669875
Dunphy Combustion Ltd e-mail info@hamworthy-combustion.com
Queensway Internet http://www.hamworthy-
Rochdale combustion.com
Lancs
OL11 2SL Hot Developments Ltd
Tel 01706 649217 Bretton St
Fax 01706 655512 Savile Town
Internet http:www.dunphy.co.uk Dewsbury
West Yorkshire
E.O.G.B. Energy Products Ltd WF12 9DB
Howard Rd Tel 01924 465272
Eaton Socon Fax 01202 452201
St Neots e-mail: 100064.2654@compserve.com
Camb
PE19 3ET Lanemark International Ltd
Whitacre Road Industrial Estate
Eclipse Combustion Ltd Nuneaton
Wassage Way Warwickshire
Hampton Lovett Industrial Estate CV11 6BW
Kiddeminster Rd
Droitwich Lion Industries UK Ltd
Worcs Unit 9
WR9 0NX Titan Way
Britannia Enterprise Park
Eurograde Plant Ltd Lichfield
Unit 3 Staffs
Viscount Industrial Estate WS14 9TT
Horton Rd
Poyle Maxon Combustion Systems Ltd
Colnbrook Chantry House
Slough High Street
SL3 0DF Coleshill
Birmingham
Nordsea B46 3BP
Broadway
Globe Lane Industrial Estate Whites Burners Ltd
Dunkinfield Termal Ho
Cheshire Mylord Cres
SK16 4UU Campertown Industrial estate
Tel 0161 3398689 Killingworth
Fax 0160 344 1144 Newcastle Upon Tyne
e-mail: 101505.141@compserve.com NE12 0UJ
Nu-Way Ltd John Zinc & Co Ltd
PO Box 1 High Common
Vines Lane 77 Woodside Road
Droitwich Amersham
Worcester Bucks
WR9 8NA HP 6AA
Tel 01905 794331 or 7942242 Tel 01494 434100
Fax: 01905 794017 Fax: 01494 434999
e-mail jim.Findley@nu-way.co.uk e-mail: HarckaD@kochind.com

Oil Equipment & Engineering Co Ltd

Southgate Ave
Mildenhall
Bury St Edmonds
Suffolk
IP28 7AT

Saacke Ltd
Cherry Lodge
Greenmare
Woodcote
Reading
Berks
RG8 0RG
Tel 01491 680284
Fax 01491 682124
e-mail admin@saake.com
ken.lyndon@tesco.net

Todd Combustion Ltd

Forest Rd
Denmead
Waterlooville
Hants
PO7 6TJ
 Steam Equipment Suppliers

Spirax_Sarco Ltd
Charlton House
Cheltenham
Glos
GL53 8ER
Tel: 01242 521361
Fax: 01242 573342
Email: eng@spiraxuk.attmail.com
Internet: http://www.spirax-sarco.co.uk

Trouvay & Cauvin Ltd

VIP Centre
Vulcan Street
Oldham
Lancs
OL1 4LA

Hopkinsons Ltd
Britannia Works
Wheathouse Road
Birkby
Huddersfield
HD2 2UR
Tel: 01484 820820
Fax: 01484 518092
 Emissions Control and Ancillary Equipment
Lodge Sturtevant Ltd
George Street
Birmingham
B3 1QQ
Tel: 0121 2141300
Fax: 0121 2002555
Email: lodgesturtevant@dial.pipex.com
Ian Fantom Email: irf@flsmiljo.com

Clyde Blowers Plc

47 Broad Street
Bridgeton
Glasgow
G40 2QR
Tel: 0141 5505441
Fax: 0141 5505402
Email: bthomson@clydeblowers.co.uk
Mr W Thomson
 ANNEX B

INDUSTRIAL BOILER MARKET SECTOR QUANTIFICATION

CONSIDERATIONS

B1. INTRODUCTION

B1.1 Background

This report has been prepared by CRE Group Ltd in association with the China Industrial
Boiler Manufacturers Association (CIBMA). This Association is ultimately a part of the
State Bureau of Machine Industry (SBMI) and as such contributes to and has access to the
forward planning agreements in the industrial boiler sector made by SBMI on behalf of the
State Planning and Development Commission (SPDC). Consequently, CRE Group Ltd was
well placed to gain the data necessary to quantity the current and future potential market for
the industrial boiler sector, in a form compatible with the Chinese planning system.

In terms of the approach adopted for the quantification of the industrial boiler (IB) market, the
starting point was consideration of a report published in 1994 entitled China: Issues and
Options in Greenhouse Gas Emissions Control Pre-Feasibility Study on High Efficiency
Industrial Boilers prepared under the auspices of the World Banks Global Environment
Facility (GEF) by a joint team of Chinese and International experts (1) (also, see Footnote ).
At the time of preparation of that report (1991 is the base year for its statistical information,
though the GEF Study took place in 1992-93) the Chinese experts worked under the
leadership of the Ministry of Machinery and Electronics Industries (MMEI; now the SBMI).

Information presented in the GEF Pre-Feasibility Study report is very comprehensive, with
statistical information on a wide variety of interrelated aspects and anticipated future trends,
including IB types, the numbers manufactured per annum and total numbers installed, their
uses, locations and performance, plus details of the manufacturers. Throughout
subsequent sections of this Market Quantification report, comparative reference is made to the
1991 data contained within the Pre-Feasibility GEF report.

In terms of updating this information to give a robust extrapolation to at least 2010, CREs
Chinese Associates revealed various changes in the IB situation since 1991. This included
various step changes in the overall market and as such it was decided that obtaining and
extrapolating the considerable amount of detail contained in State IB statistics was of
questionable benefit. In particular, the validity of any extrapolations might be influenced by
similar unforeseen occurrences as have taken place during the last decade. Thus, it was
thought better to produce a more generalised overview of the IB market situation, based on
the SPDC procedures, indicating all trends relevant to UK equipment manufacturers.

B1.2 Industrial Boiler Sector Considerations

Compared to the situation in 1991, when coal totally dominated the sector at a time when
demand outstripped supply, there have been the following changes:

Natural gas is becoming a significant resource. Currently, natural gas from Shanxi Province is
being piped into Beijing, with plans for 15 other major cities to receive gas over the next 10 years.

Footnote:
Since 1991, the GEF project has evolved from its Pre-Feasibility stage to being a fully operational programme , involving
Chinese and International boiler makers in several major technology transfer sub projects. Reviews of the progress of
several of these GEF sub projects are contained in the individual reports of meetings which took place in June 2000.
 At the time of the GEF Study only a small number of IBs burned oil or gas (<5%), such that gas
and oil fired shell boilers were rarely seen. Apart from locations close to oil and gas extraction
facilities, the use of gas in IBs was largely restricted to prestigious locations. Otherwise, gas was
only a cooking fuel. Now, gas and/or oil fired shell boilers are manufactured by at least 60 boiler
works around China and the use of this IB design is spreading under the influence of
environmental legislation discouraging coal use in certain situations

Recently, coal supply has outstripped demand. In 1991 consumers had to take whatever quality
coal was available (2), whereas now consumers can select on price. In addition, environmental
legislation is requiring that consumers in certain areas purchase only the cleaner coals in terms of
ash and sulphur content. For example, the Beijing Municipal Government (BMG) specifies
<0.5% sulphur, <10% ash and >5,400kcal/kg net calorific value, increasing the cost of coal from
around 190Yuan/t to 230Yuan/t. (In June 2000, the exchange rate was approximately 12Yuan =
GB1). The cities of Shanghai and Hangzhou have also introduced local regulations to limit the
use of low grade coal.

Statistics for coal usage have been revised downwards. Coal consumption in 1999 has been
declared around 1billion tonnes per annum (tpa), which is similar to the amount claimed in 1991.
The quota for 2000 has been set at only 900million tonnes (3). Although there is an attempt to
explain this reduction in terms of Chinas changing economy (less heavy industry; more reliance
on higher technologies and service industries), the statistics remain questionable. Although
natural gas consumption is on the increase, in 2000 it still remains <3% of all energy usage
(totalling all coal, oil and natural gas) and cannot account for the change in the coal usage
statistics.

China currently has a surplus of electricity generating capacity. At the end of 1994 China had an
electrical generating capacity of 193million kW electrical (kWe), being some 0.15kW per capita,
1/33 of the world average (for comparison, the USA has about 2kW per-capita while the UK has
about 1kW). At that time, generating capacity increases of 15-20million kW per annum were
designed to be required into the foreseeable future to alleviate the serious shortage of electricity
(4)
. The current surplus capacity is enabling China to close the smaller, polluting, utility
pulverised fuel fired boilers, and legislation is now in place to prevent any more to be built.
Those plants with a capacity <50MWe (MWe), equivalent to a steaming rate of 220tonnes per
hour (tph), must be closed forthwith, while boilers <100MWe (400tph) must be closed before
2003. This has eliminated market demand for the smaller pulverised coal fired IBs, but has
encouraged the faster proliferation of IBs using circulating fluidised bed combustion (CFBC), a
designated clean coal technology due to its ease of sulphur dioxide (SO2) emission control.

The Chinese economy can be prone to overheating. For example, this occurred in the mid-
1990s, with inflation exceeding 20% in the major cities (5). A tightened economic policy was
imposed in 1995 which caused a negative growth in IB production. The economy is now
recovering, with a projected 7.3% Gross Domestic Product (GDP) in 2000 and 7.6% in 2001 (6),
reversing the downward trend of the past several years. Such perturbations confirm the difficulty
in judging likely future IB market demand by studying past performance.
 ANNEX C

OVERVIEW OF THE ROLES OF VARIOUS STATE AND NON-

GOVERNMENT ORGANISATIONS

Overview of the role of the State and Non-Governmental Organisations

Throughout the report reference is made to various organisations that can have some
influence/involvement on the development of the industrial boiler market. For completeness, these
organisations are described below.

The State Development and Planning Commission (SDPC) has government responsibility for the
planning of Chinas socialist market economy. As such it has overall responsibility for forward
planning of the industrial sector. In practice, however, there are no boiler specialists employed at the
Commission. Rather it is concerned with macro economic issues.

SETC Energy Resources Bureau SBMI?

Energy Saving Environment New Energy Comprehensive SBCI

Dept Dept Sources Utilisation
of Resources

Environmental
Control
Equipment
Development

Consequently, any boiler related issues are dealt with by the State Economic and Trade Commission
and more particularly the State Bureau of Coal Industry.

The State Economic and Trade Commission (SETC) has overall responsibility for the development of
the economy and is a key organisation with regard to Chinas forward planning, policy and
development programme. The SETC is split into a number of bureaux of which the energy resources
bureau is pertinent to this study, see illustration above.

The SETC has, for example, asked each Provincial Government to prepare a detailed regulation on
boilers performance and to set up a local supervision team to monitor that performance.

It is understood that the State Bureau of Machine Industry will become a bureau within the SETC,
thereby integrating a major industrial manufacturing body.

It is also understood that the State Bureau of Coal Industry (SBCI) will be assimilated into the SETC
in the near future. As such SETC will dictate policy on coal quality from a user rather than a supplier
perspective. At that time, SETC will be able to attempt to reconcile the conflicting interest of
boilermakers and coal suppliers.
The State Environmental Protection Administration (SEPA) is responsible for monitoring emissions
from industrial processes, for serving improvement notices and for collecting pollution taxes and
fines. SEPA is also responsible for supervising the introduction of new environmental (gas clean-up)
equipment at industrial sites and for evaluation of performance.

The Ministry of Science and Technology (MOST) has responsibility for the overall programme of
development of new technology. This includes coal-fired industrial equipment.

The State Bureau of Machine industry (SBMI) presently is an independent body that is responsible for
a wide range of equipment manufacturing.

The China Industrial Boilermakers Association (CIBMA) is a subsidiary of the China Electrical
Equipment Industrial Association which itself comes under the SMBI, CIBMA is the trade association
and expert body for the industrial boiler sector.

With the ongoing re-organisation and rationalisation of the various Commissions, Ministries and
Bureaux, it is apparent that the SETC is ultimately the driving force for the industrial energy sector. It
is also apparent that the SETC recognise that reform of the coal production sector is critical and that
major adjustments are needed within the coal burning industries in order that the State directives on
improving both air quality and energy efficiency are to be achieved.

It is noteworthy that the SETC recognise that while such changes may cause some problems for the
coal production sector they will also result in a wide range of industrial development opportunities,
which will require international co-operation/technology transfer if the timescale of the intended
reforms are to be maintained.
 ANNEX D

OVERVIEW OF THE WB/GEF INDUSTRIAL BOILER PROJECT

The WB/GEF Industrial Boiler Project has the objective of helping China to reduce greenhouse gas,
acid gas and particulate emissions through the introduction of affordable energy efficient and cleaner
boiler designs. The intention is to establish nine cooperative ventures between western boilermakers
and Chinese boilermakers, each dedicated to a particular technology; see Table E1 for details of
partners and boiler technologies.

To date, this project has suffered significant problems. The prefeasibility study was undertaken in
1992/93 and there then followed numerous assessments of potential Western/Chinese partners,
technology options and modes of operation. Eventually, after numerous changes of personnel in the
WB/GEF PMO, terms of reference were issued for each subproject and selection of preferred Western
bidders commenced. There then followed a formal bidding process which was fraught with
difficulties. The following statement by the World Bank Project Officers is pertinent:

The process of getting a boiler technology supplier for each subproject has been difficult and took
much longer time than expected. The implementing agency has at the beginning of the project
identified a pool of potential boiler technology suppliers and has prequalified these suppliers.
However, as the time comes to actually engaging in proposal submission, discussion of specific
technical performance criteria for each subproject as well as commercial terms, the discussions got
bogged down because of difference in views and the inability of the suppliers either to meet the
technical performance criteria, or the commercial terms. Many suppliers quit the process and the
Chinese has to look for new potential suppliers. Consequently, many rounds of bidding process has
not been successful, resulting in lengthy rebidding of the technology transfer process. Fortunately, to
date, all the nine subprojects found a supplier and concluded a technology transfer contract and are all
under implementation.

The reason for these difficulties are threefold:

1) The technology transfer terms were financially very tight in overall terms.
2) There were significant penalty clauses for non-performance to specification. This in
itself is not a problem. However, the Chinese input data, particularly on coal quality and size
specification, were very vague. As such most of the experienced potential bidders declined to
offer guarantees on performance outputs where the inputs were not defined adequately.
3) In some instances there was concern and lack of trust that payment would be made on
a schedule satisfactory to the Western equipment suppliers

As is noted in various notes of meetings with the appropriate Chinese boilermakers, while nine
subproject contracts have been signed not all are proceeding satisfactorily. It is understood that
Subprojects 3 and 9 are proving successful, probably despite not because of the WB/GEF input as the
partners have been cooperating for some time. In contrast, Subproject 8 is static due to problems in
identifying a demonstration site while Subproject 7 also appears in some difficulty for similar reasons.

The other issue to be considered is the need to establish a sustainable dissemination plan. As is
discussed in detail in the main report, the IB market sector has changed significantly since 1994/95
and consequently the use of raw coal will not be a viable option for many parts of China. Again the
statement of the WB Project Officer is pertinent.

The second issue is the future boilers market in China. Phase 1 of each project calls for obtaining the
appropriate boiler technology for each subproject and the manufacturing of a verification boiler unit.
Upon approval, the boilermakers will go into mass production in the Phase 2 of project
implementation. The approval process includes not only the verification of the model boiler, but the
boilerworks should make sure that they have a marketing plan, a production plan, a financing plan in
place. With the changes in coal consumption policy in China, more and more cities would be banned
form using coal in district heating, many of which use the coal-burned boilers. This situation is likely
to affect the marketing plan of the boilerworks and therefore affect the approval of their going into
Phase 2 implementation.

The most important challenge facing the implementing agency is the long-term sustainability of the
boiler technology transfer. This is a very important consideration for obtaining the GEF grant. The
objective is that upon obtaining the technology for more efficient burning of coal in each of the boiler
subprojects, this technology should be replicated throughout China to achieve the projected coal
savings, and thus reduction in CO2 emission. The mechanism and the organisational setup to
disseminate this technology are still under discussion and remain one of the biggest challenges for this
project.
 TABLE D1
WB/GEF Industrial Boiler Project
Technology Transfer Component

PROJECT IDENTIFICATION CHINESE BOILERWORKS INTERNATIONAL BOILER CO

Subproject 1 Packaged water tube boiler (1-6t/h) Tianshan Boilerworks MFU of Germany
Subproject 2 Improved packaged firetube-watertube boiler (1-6 t/h) Yingkou Boilerworks John Thompson of Africa
Subproject 3 Modular water tube boiler burning low sulfur coal (6-20 t/h) Shanghai Sifang Boilerworks Volund Co. of Denmark
Subproject 4 Modular water tube boiler burning high sulfur coal (6-20t/h) Jiangxi Boilerworks Bay GMBH of Germany
Subproject 5 Packaged and modular hot water boiler with water tube (0.7-14 MW) Changzhou Boilerworks Volund Co. of Denmark
Subproject 6 Packaged and modular extended furnace water and fired tubes boiler (4-20 t/h) Zhengzhou Boilerworks Bay GMBH of Germany
Subproject 7 Medium capacity steam boiler (35 100 t/h) Jinan Boilerworks John Thompson of Africa
Subproject 8 Medium capacity hot water boiler (7-70 MW) Hangzhou Boilerworks Danstoker Co of Denmark
Subproject 9 Fluidized bed combustion (FBC) boiler (35 100 t/h) Harbin Boilerworks CPC Co. of USA