1　Introduction

1.1　Research Background

1.1.1　Profile of Hydropower Resources in Zhejiang

The connotation of target set for allocation efficiency of domestic hydropower resources has been enriched and improved,similar to the evolution progress from the planned economic system to the socialist market economic system.Zhejiang Province,just as other provinces in China,actively encourages to develop and exploit hydropower resources.Thanks to its sound economic development and structure,the province has been playing a typical and distinctive role in hydropower development and harnessment,and making some theoretic research and application achievements in this aspect.

Zhejiang Province has abundant hydropower resources.Its exploitable hydropower capacity reaches over 8 million kW,half for rural small hydro power.With the development practices and changes of electricity market in the past years,the hydro plants play an increasingly important role in electricity peak load shifting,and the utilization hours of installed capacity decrease from 3,000-5,000 h to 2,000-2,500 h.Meanwhile,the exploitable hydropower capacity of the province has been substantially improved because of the intensified cascade basin planning,increased efficiency of power generation units due to technical progress,increased output and input capacity of power grids,etc.The most recent survey report on hydropower resources shows that the hydropower resources of Zhejiang mainly distribute in Hangzhou,Wenzhou,Lishui,Jinhua and Quzhou.Among the eight rivers in the province,Qiantang River basin and Oujiang River basin boast the highest exploitable hydropower resources,followed by Feiyun River,Lingjiang River,Cao'e River,Tiaoxi River,Yongjiang River,and Aojiang River.See Table 1-1 for more details.

Since 2000,the electricity output of hydro plants in Zhejiang Province has been increasing year by year,as shown in Table 1-2.By the end of 2012,the total installed capacity of 3,230 hydro plants in Zhejiang Province has amounted to 6.6868 million kW,of which 3.83 million kW is small hydro.The exploitation rate reaches 78.4%,surpassing that of some developed countries.

1.1.2　Stage Characteristics of Hydropower Resources Development

The development of hydropower resources in Zhejiang Province can be segmented intofive phases.

The first phase was during the two or three decades since the founding of the People's Republic of China.A batch of large-scale hydro plants were constructed at that time to meet the electricity consumption of urban and rural residents,and industrial electricity consumption as well.In addition,a batch of plants with large reservoir storage capacity but small installed capacity,were also established to affiliate to the flood control and irrigations projects.They contributed greatly to meeting the urban household demand for electricity and the later local industrial power consumption.The phase of hydropower development was featured by government investment and farmers'participation in form of labor.The hydro plants did not pay attention to economic benefits;instead,they attached importance to their electricity output,capacity of meeting the urban power supply needs,and amelioration of fundamental facilities in urban and special areas.During this short-economy stage,the hydropower electricity generation was far lagged behind to meet the demand.Therefore,development of hydropower resources contributed to meet power consumption in urban and rural areas.

The second phase began in mid-1980s.China determined to establish the first two batches of counties preliminarily electrified by rural hydropower to promote economic development in mountainous areas.Consequently,many counties got rid of poverty and backwardness.Aiming at comprehensive control of small and medium-sized river basins,a set of hydraulic projects were constructed mainly for power generation to propel establishment and rehabilitation of power grids in rural and hilly areas.The hydropower development in this stage was also characterized by government investment and farmers'participation in form of labor and money pooling.Hydropower and rural power grids in the second phase gave full play to the advantage of distributed energy,helping the society and its economic development in rural areas.In short,the deployment of hydropower resources contributed to the regional society and its economic development.

During the third stage starting in 1993,the local governments attracted private investment to hydropower development via investment promotion.Private capital was utilized,and private owners paid attention to the economic benefits of hydro plants.Whereas the local governments transferred its target of deve-loping hydro resources from resolving electricity supply to increasing local tax revenue,intending to promote the economic development and social progress in rural and mountainous areas.Hence,the hydropower resources development at this stage focused on both economic benefits of hydro plants and regional economic development.The principal contradiction at that time,however,was between the fast hydropower development and the backward power grid construction.Power generation surpassed the regional demand and electricity surplus could not be scheduled and transmitted due to restrain of poor power grids.As a result,many hydropower selfsupplied zones appeared,carrying out policies of generating,supplying and utilizing hydropower electricity on themselves.

During the fourth phase starting middle or late 1990s,China proposed power system reform scheme and industrialization of water resources.Hydropower(especially small hydro)was Consequently on the way to be industrialized,which however was suspended by the inundation over Yangtze River in 1998.It was at that time that Zhejiang began to connect local power grid to bigger grid and independently drafted reform on small hydro tax policy.Since 2000,investment on harnessing hydropower resources had been regarded as a new incentive by social capital to drive the local economic development.The pouring of private capital into the industry caused many social and ecological problems to some basins and regions.As a result,the main contradiction during the phase was between the hydropower resources development and ecological protection.The Ministry of Water Resources of China promoted the results[1]achieved by the Project Team,such as the Paid Use of Hydropower Resources and Three Compensation Mechanism,for developing hydropower resources sustainably.It required that attentions was paid to the surrounding environment while investing and constructing hydro plants to realize resources,economic and ecological compensations.Emphasis was also given to the efficiency of developing hydropower resources on basin scale to gain not only economic but also social and ecological benefits.

The last phase began when the Renewable Energy Law was implemented on January 1,2006.Listing the hydropower in renewable energies and putting forward intensive style of using resources,the law vigorously advocated clean and renewable energies to reduce the carbon dioxide remission and allocate resources in an even larger scale.Although hydropower resources development was not mentioned in its corresponding policies,Zhejiang Province and the other three provinces were selected by the National Committee of Development and Reform and Energy Bureau of the World Bank as four pilot provinces in a renewable energy scale-up development project financed by the World Bank.The Ministry of Water Resources and the Ministry of Finance proposed in 2010 Capacity Expansion and Efficiency Renovation Program after field trips made on old hydro plant rehabilitation in Zhejiang.It could be argued that during this phase,Zhejiang has been regarding hydropower resources as economic resources and ecological environmental resources.Some local governments or owners even realized the allocation of carbon assets generated in developing hydropower resources at a global level on international carbon emission trading market.The trading for economic benefits has objectively embodied the efficiency target of hydropower resources allocation in the economic and social targets of sustainable development.

1.1.3　Research Background

The project team initiated its research on optimal allocation of hydropower resources in 2000 under a special background.Moreover,the reflection on that background was very helpful to refine the sustainable hydropower development in Zhejiang Province.

After the first four phases of developing hydropower resources in Zhejiang Province,the contradiction between the rapid economic development and severely lagged electric power development became obvious.The province actively encouraged to develop and utilize hydropower resources to raise the exploitation rate so as to tackle the problem of coal shortage and tight power supply.It has taken many reform measures since 1990s,and blazed a trail of its own.

Firstly,private capital was attracted to develop hydropower resources.Since the Reform and Opening-up,the major part of the investment on small hydro in Zhejiang Province had been transferred from the state(or collective)capital to private capital.Obtaining the right of developing hydropower resources with approval from government and without paying was replaced by bidding and paying.Private investors had to be prompted to participate in hydropower development,but later they were vigorously competing for the right of developing hydropower resources.The scattered and small-scaled development of hydropower resources proceeded to flourished and large-scaled exploitation.Hydropower resources development in Zhejiang Province were open to private investment in early 1990s when the province suffered from serious power supply shortage and power rationing was very common due to backward hydro plant construction and shortage of funding for grid rehabilitation.The government hence transferred the financing channels for building up hydro plants to social capital,and banking facilities offered private investors a policy where only 30%capital was required and the other would be covered by banking financing.

Secondly,unified feed-in tariff was put in place.In 2000,new small hydro feed-in tariff policy was implemented in Zhejiang Province,which changed the benefit structure institutionally by replacing the approval system of“one price for one plant”with unified feed-in tariff at provincial level.Before the introduction of the new policy,every hydro plant priced the electricity based on the construction cost and appropriate profit and submitted it to the provincial pricing bureau for approval.Such an approach to a great extent resulted in stubbornly high construction cost and waste,because the higher the cost was,the higher electricity price would be approved.The new policy,however,classified the small hydro feed-in tariff into three categories:0.33 yuan/(kW·h)for hydro plants commissioned before 1990,0.39 yuan/(kW·h)for those commissioned between 1990 and 1993,and 0.45 yuan/(kW·h)for those commissioned after 1993 and all newly built plants.It also stated that the increase of construction cost and other expenditure should not be covered by raising feed-in tariff.Under these circumstances,the profit of a hydro plant was largely determined by its resource endowment.That is to say,unlike before,the returns of a small hydro plant,would be directly affected by its resource endowment,and different locations of hydropower resources would lead to different developing costs and economic benefits.Consequently,the pursuit of economic benefits turned out to be the selection of and fighting for sites of resources.

Thirdly,the state grid took over the small hydro grids without charging.Power consumption and supply capacity were greatly improved in mid-1990s,but the construction of power grids was severely left behind.The rural power grids in coastal areas of eastern Zhejiang had been relying on small hydro plants and the adhered to the policies of building,supplying,administrating and consuming on their own,resulting in low power supply sufficiency,and higher power consumption cost,and severely affected the rural economic development.Thus a sharp conflict was caused with fast rural economic development on one side and many grid problems on the other side,such as the lack of state grid,little investment on rural self-supply zones,and low power supply sufficiency and grid efficiency.In order to accelerate the construction and upgrading of power grid,a policy requesting grid at provincial level or above to take over small hydro self-supply grids was implemented in Zhejiang.It enabled the transformation from small hydro self-generating and selfsupplying to separated power generation and supply,and hydro plants settled with state grid instead of self-supply grid.When the small hydro plants connected to state grid,the two sides were not used to each other,and the settlement of feed-in tariff was not standardized in the beginning,causing some difficulties in feeding small hydroelectricity into the state grid and settling tariff,which produced adverse impacts on hydropower development.

Fourthly,water administrations had different views.When the rural local grids in Zhejiang were replaced by the state grid in 1990s,the water administrations in Sichuan and Zhejiang,two leading provinces in water industry,held different views and argued on selecting major investors for developing hydropower resources.The former insisted on state ownership,while the latter invited private capital to join the development.The focus was whether the hydro plants built by private investors could provide public services as those publicly owned plants,for instance,flood control,and how the conflict between self-supply zones and hydro plants could be tackled.

Hence,the investment,pricing,and operating related to hydro development in Zhejiang embraced great changes under those circumstance.The profit of a hydro plant was largely determined by its resource endowment.That is to say,the returns of a small hydro plant,unlike before,would be directly affected by its resource endowment,and different locations of hydropower resources would lead to different developing costs and economic benefits.Consequently,the pursuit of economic benefits turned out to be the selection of and fighting for sites of resources.Thanks to the adequate private capital supply,and governmental supports with taxing[2]and financial policies,Zhejiang achieved great improvement in hydropower development,as shown in Table 1-3.Exploiting hydropower resources not only helped meeting rural power demand,but also enabled residents in rural areas to shake off poverty and became rich by involving in processing industry.The open of investing on hydropower development to private capital,in particular,provided rural residents a direct channel to become shareholders of hydro plants and invigorate the economic development.

However,in some places due to improper treatment of the relationship between development and protection,conflicts existed among investors,residents,government and even grids,which caused some instability.It was therefore of high importance to innovate the system of developing hydropower resources and further standardize hydro constructionprocedures,combine development with protection and give overall consideration to stakeholders so as to promote sustainable social and economic development.Fundamentally,the conflicts captioned above could be attributed to imbalanced economic development and a set of livelihood,environmental and ecological problems caused by poor administration after the market mechanism was introduced to the industry.

Another contributing issue occurred on April 16,2001 in Wencheng County.With the support of county government,open tender was successfully conducted and local resident Lin Shanping was awarded the right of developing the hydropower resources to build Baiwanshan Hydro Plant at 3.621 million yuan.Although the plant was not constructed due to planning adjustment,the tendering itself attracted the attention of our team and inspired us to carry out further research both theoretically and practically.