Legal & Regulatory

Small Hydropower Advances and Challenges in China

In many countries, the days of massive hydropower projects appear to be waning, for an array of environmental and cultural reasons. As in other parts of the world, small hydropower is becoming increasingly important in China. 

In China, small hydropower (SHP) development not only provides power, especially to rural areas, but it also plays an important role in developing local economies and human capacity building. Regions, rather than the central government, are responsible for most planning, developing, and management of these smaller but essential systems, which are designed to provide local power for local communities. What follows is a condensed version of the online feature “The Outlook for Small Hydropower in China” associated with this issue in the archives at

Clean, Local Power Development

SHP construction in China was initially aimed at supplying electricity for mountainous areas in collaboration with small-scale water conservancy projects. China has an estimated 120 GW of potential SHP resources. By the end of 2011, more than 45,000 SHP stations were built with a total installed capacity of 62 GW. Small hydropower installed capacity and annual power generation accounts for about 27% of China’s hydropower.

SHP is an essential part of China’s efforts to add clean power capacity and is part of its “small hydropower substituting for fuel” plan, introduced in 2012. Investment in the sector from the central government continues to increase, although local financing is also emphasized.

Unique Circumstances

Several aspects of SHP development in China are different than in other countries. Many have helped support the sector’s development, although challenges remain.

Decentralized, local development and management of SHP is one distinguishing characteristic. While the development strategy, objectives, standards, guidelines, and policies of SHP are formulated by the central government, other planning plus design, development, operation, management, and equipment manufacturing of SHP are undertaken by local governments.

Given the size of China, electrifying rural areas has been a challenge. Rather than rely solely on the larger transmission system, local generation and distribution have been important, and SHP has been a key part of such development.

Funding for SHP from multiple sources is encouraged and can range from individuals and groups of farmers to foreign investment. Preferential, supportive policies, including lower value-added taxes, also help to support the sector’s development.

With the focus on local development and management, economical and practical technology choices have been central to success.

Challenges Ahead

As with most power generation development projects, SHP development in China faces a number of challenges.

Market Policy. Energy policy reforms designed to reduce monopoly power, which include the separation of generation and transmission ownership, have made progress but have also led to unexpected complications. For example, when competition in the electricity market is intensified and is added to external administrative intervention, electricity market confusion is likely to emerge in SHP supply regions, especially because rural electrification cooperatives are nonprofit electricity enterprises. For the future of rural areas in China, a stable rural electricity market is needed.

Decentralization’s Disadvantages. Given the small size of a single power station, SHP is a vulnerable industry. The development of SHP in the future depends largely on whether its social benefits, environmental benefits, and welfare status will be recognized by the entire society. Because the whole society is the beneficiary of the social and environmental benefits derived from SHP, it is reasonable to pay a certain price; however, the problem is that society does not take the initiative to pay such costs.

Technology Roadblocks. In general, SHP technologies should be compatible with the local development level, striving to enable simplicity and low-cost development and management. However, operators often focus only on immediate benefits, lacking long-term awareness, and are unwilling to spend money to engage in technological innovation.

Institutional Issues. After 1998, China began to carry out large-scale “two reforms and one price” work, which referred to reform of the rural power management system, the transformation of rural power grids, and achieving the same price in urban and rural power networks. Due to the relevant departments’ one-sided understanding of the State Council’s documents, they expanded their monopolistic range, encroached on local interests, harmed the interests of the masses, and created institutional barriers depending on “two reforms and one price,” making any measure promoting the development of SHP policy measures difficult to enforce.

Supply (Distribution) Areas and Grid-Access Issues. The well-established policy of “small hydropower should have its own power supply areas” has greatly promoted development of SHP and rural electrification. However, there is an inherent conflict with this principle because all generating capacity must access a large grid. Further, the central power enterprises with a monopoly position allow less grid-connected electricity for SHP generation enterprises, so the excess is called “invalid electricity.” Even if it is integrated in the grid, there is almost no profit. Meanwhile, the tariff for SHP is also far lower than that of thermal power. As a result, this unreasonable situation is a severe blow to the development of small hydropower. ■

Dr. Liu Ximei ([email protected]) and Prof. Zeng Ming are in the School of Economics and Management, North China Electric Power University, Beijing, China.

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