| Hydroelectric power is the largest source of renewable energy in China and in the world, according to the China Electricity Council, and the World Energy Council and International Hydropower Association, respectively. According to the International Energy Agency, China has the world’s largest installed capacity and electricity production of hydroelectric power. According to a report on a multi-year survey of 3,886 rivers in China completed in 2005 by the National Development and Reform Commission and the China Hydropower Engineering Consulting Group Co., or the 2005 Report, at that time China had 541,640 MW of technologically exploitable hydroelectric power resources and 401,795 MW of economically exploitable hydroelectric power resources, calculated as the aggregate of all sites of at least 0.5 MW in size. Total installed capacity at the time of the report was 130,980 MW, representing approximately 24.2% of the technologically exploitable resources and 32.6% of the economically exploitable resources in China, according to our calculations based on data from the 2005 Report. Hydroelectric plants accounted for 485 TWh of electricity generated in 2007, compared to 222 TWh in 2000, according to the China Statistical Yearbook 2008, representing a seven-year compound annual growth rate of 11.8% according to our calculations. Revenue from China’s hydroelectric power generating industry is expected to reach $18.0 billion in 2009, representing an increase of 0.4% from 2008 using constant 2009 prices, according to a report published by IBISWorld Pty Ltd. and All China Marketing Research Co., Ltd. in October 2009, or the IBISWorld-AMCR Report. While the definition of small hydroelectric power used by government agencies, industry groups and plant operators varies widely, we consider small hydroelectric power to refer to projects with installed capacity of 50 megawatts or less. China is particularly rich in small hydroelectric power resources. According to the Ministry of Water Resources, China has approximately 128,000 MW of technologically exploitable small hydroelectric power resources. The total installed capacity in the small hydroelectric power sector reached 51,000 MW in a total of approximately 45,000 plants by the end of 2008, according to the Ministry of Water Resources, representing approximately 39.8% of China’s technologically exploitable small hydropower resources, according to our calculations using data reported by the Ministry of Water Resources. According to the Ministry of Water Resources, around one-third of the counties and more than 300 million of the rural population of China have access to electricity due to small hydroelectric power. The National Development and Reform Commission expects the total installed capacity of small hydroelectric power in China to reach 75,000 MW by 2020. Based on the industry knowledge and experience of our management, we believe small hydroelectric power projects enjoy the following advantages over larger plants. First, the scale and cost of population relocation is usually higher for large projects than for small ones. In addition, small hydroelectric power projects can make use of water resources that would not support a large project, require a shorter approval process than larger projects, have reduced environmental impact compared to larger projects and may be located near geographically remote populations or industries, all with a relatively low capital investment. On the other hand, we believe small projects may lack the economies of scale of large projects and small projects typically generate electricity at a higher unit cost than large projects. The IBISWorld-AMCR Report forecasts that small hydroelectric power plants will become increasingly important in the development of the hydroelectric power industry in China while investment in large projects will moderate. |
