Three Gorges Dam Hydroelectric Power Plant, China

Construction on the Three Gorges Dam - the world's largest power project - has been completed up to an intermediate level. The reservoir has been partially filled, and power generation from four of the turbines has begun.

The project should be completed by 2009, when a total of 26 generators will generate 18,200MW.

HARNESSING THE YANGTZE

The Three Gorges Dam project involves harnessing the Yangtze River, Asia's longest, to generate prodigious amounts of electricity. Output should be 85TWh/y, close to one tenth of current Chinese requirements. The dam also aims to end disastrous floods downstream, which have claimed hundreds of thousands of lives this century alone. Improved navigability on the river should also allow much larger ships to sail from Shanghai as far as Chongqing, upstream from the dam and 2,000km from the sea, to aid China's burgeoning domestic and export trade.

The project is located 44km from the city of Yichang in Hubei province. This point is at the end of a series of steep canyons which will form a 630km reservoir, with an average width of 1.3km. The dam will reach 185m in height and stretch across a span of 2.3km.

The plant is the centre of a broad plan for central China's electricity industry. Related transmission and distribution installations will be linked to the three regional grids taking Three Gorges power, forming a single system from the coast to the border of Tibet. The grids and their planned shares of offtake are: Central China Power Network (55%); East China Power Network (39%); Sichuan Provincial Grid (6%).

CHINA YANGTZE THREE GORGES DAM PROJECT DEVELOPMENT CORPORATION

The plant is being built in stages by state-backed sponsor China Yangtze Three Gorges Dam Project Development Corporation. Initial works began in 1993. Up to the end of 1996, around $2.3 billion had been invested. Main equipment orders for the 9,800MW first phase were placed in 1997. 14 Francis units of 700MW each are being brought on-line on the left bank of the river (between 2003 and 2006). They operate at a low head compared to the second phase, since the reservoir is still only partially filled. This will require difficult design work.

In the second phase, 12 more 700MW units will be added on the opposite bank, taking the total to 18,200MW. Three Gorges will then be the largest hydro plant in the world, well ahead of Brazil's 12,600MW Itaipu installation.

During the second phase, the dam will be built to a height of 87m, and 14 turbines and a 135m-high permanent ship-lock will be built on the southern bank. In the final phase, the dam will be raised to a maximum height of 175m and an additional 12 turbines will be installed on the northern bank of the Yangtze River.

ECOLOGICAL CONCERNS

The long-term ecological effect of the dam has been described as possibly catastrophic. The dam will disrupt heavy silt flows in the river. It could cause rapid silt build-up in the reservoir, creating an imbalance upstream, and depriving agricultural land and fish downstream of essential nutrients. Since these problems would also hit the plant's turbines and millions of farmers and fishermen, considering ecology is common sense.

Environmentalist and political opposition to the Three Gorges Dam has been intense. The most emotive issue has been the forced relocation of between 1.2 and 1.9 million people. China points to detailed plans to actually improve the lives of those affected, but independent reports suggest residents are convinced their compensation is miserly. The farmland which will be flooded is more fertile than higher ground, and some 1,600 factories will be submerged.

Opponents of the Three Gorges Dam have had more success outside China. The World Bank, stung by vicious critiques of other hydro projects it sponsored, decided not to fund the project. The US Export-Import Bank also bowed to pressure. The bank hoped to gain further environmental information from the Chinese that would allow a positive decision - it is not against the project in principle. Moreover, its stance did not prevent US groups from bidding for contracts, nor US commercial banks from financing their operations.

SUPPORT FOR THE PROJECT

European governments, however, have snubbed Three Gorges opponents. The export credit agencies of Germany, Switzerland, Sweden, France and the UK all promised support for potential suppliers from their countries. Japan, after initial hesitation, followed their lead. Canada also offered financing to its companies. Long-term commercial loans by banks in these countries backed up the credits.

Arguments marshalled by the Japanese to support their final decision do provide some answers to the project's critics. After intensive reviews by the Japanese Ministry of International Trade and Industry, Japan claimed the project offered the following main benefits:

Flood control: Japan believes the project will achieve its objectives in this area, despite claims that it could actually increase the risk of floods, either through changes in silt flow or a catastrophic dam collapse. This issue in particular has attracted popular sympathy for the project in Japan.

Emissions reduction: the plant's output will be equivalent to several large coal-fired plants burning 40 to 50 million t/y. If it is not built, soaring Chinese emissions will rise even faster, causing more acid rain in Japan.

Relocation: Japan believes current plans are adequate, although the situation would need to be kept under review.

China initially insisted that potential problems had been identified and dealt with. However, there have been further recent calls on Western governments and companies to refrain from further supporting the project until resettlement and human rights problems are resolved. There have been claims that the dam does not address the real source of flooding (deforestation in the Yangtze watershed and the loss of lakes that alleviated floods because of siltation, reclamation and uncontrolled development).

Corruption scandals have also plagued the project. Contractors allegedly won bids through bribery and then siphoned off construction funds by skimping on equipment and materials. After a number of accidents, much of the project's infrastructure ripped out in 1999.

PROJECT FINANCE AND CONTRACTS

The official total cost figure is currently 203 billion yuan ($24 billion), met primarily by special taxes on electricity consumption and revenue from the first phase units now operating.

The Three Gorges Dam main equipment order was divided between six top foreign groups, drawn into two project alliances. Out of 14 700MW units, eight were assigned to Alstom, ABB and Kvaerner, and six to Voith, Siemens and GE.

Alstom had not joined the partnership between ABB and Kvaerner for the bid, or any other leading global name, but the Chinese side clearly preferred to diversify its risks and gain broad access to Western technology rather than rely extensively on one supplier. This probably helped the Voith, Siemens and GE Hydro alliance, which was formed well ahead of bidding, and represents an unusually strong concentration of expertise (GE does not normally work with arch-rival Siemens).

Within the two groupings, work was further divided as follows:

For the eight units, Alstom is the prime turbine contractor, with work worth $212 million. Several of its units are involved, lead by Mecanica Pesada of Brazil and the Tianjin Chinese hydro turbine joint venture. Kvaerner of Norway is supplying design, technology, five runners and components. It put its share of the business at $40 million. ABB will supply eight generators (ABB does not make hydro turbines) under a contract it says is worth around $250 million. This would take the total value of the eight-unit order to around $500 million.

The six-unit order was split between Voith, the lead turbine contractor, Siemens, which will supply generators (like ABB, it does not make hydro turbines), and GE, which will carry out both turbine and generator work. The entire order is worth an estimated $350 million.

Since the first turbine and generator contracts were signed in 1997, Alstom has acquired ABB's power division, and GE Hydro has acquired Kvaerner. In March 2004, Alstom was awarded a €163 million contract to supply the four 700MW turbines and associated generators to the project's Right Bank powerhouse.

TECHNOLOGY TRANSFER

Two Chinese equipment suppliers are playing a major role in the later stages of the first phase. Harbin Power Equipment and Dongfang Electrical Machinery are working with the two foreign groupings, benefiting from extensive technology transfer requirements. Harbin will co-operate with the Alstom grouping, and Dongfang with the Voith consortium. The last two units of the first phase were almost entirely constructed in China.

If Chinese plans proceed, these domestic groups can be expected to take the lion's share of work when the second phase of 8,400MW is assigned. They are currently incapable of providing the kind and volume of units required at Three Gorges but heavy investment in hydro capacity, supported by state financial groups, is underway. Foreign companies may see most of their current role eclipsed by large, low cost, highly skilled and favoured competitors.

CONSTRUCTION

Construction tasks have already been assigned to Chinese groups. Shortly before the equipment announcements, contracts worth $800 million went to Gezhouba Share Holding Ltd, Yichang Qingyun Hydropower Joint Management Co and Yichang Three Gorges Project Construction 378 Joint Management. The work includes the construction of dikes and the powerhouse.