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Critical success factors for BOT electric power projects in China- Thermal power versus wind power


Renewable Energy 35 (2010) 1283–1291

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Renewable Energy
journal homepage: www.elsevier.com/locate/renene

Critical success factors for BOT electric power projects in China: Thermal power versus wind power
Zhen-Yu Zhao a, *, Jian Zuo b, George Zillante b, Xin-Wei Wang c
a

School of Business Administration, North China Electric Power University, Beijing 102206, China School of Natural and Built Environments, University of South Australia, Adelaide 5001, Australia c Shandong Nuclear Power Equipment Manufacturing Co. Ltd, Haiyang, Shandong 265118, China
b

a r t i c l e i n f o
Article history: Received 5 August 2009 Accepted 18 September 2009 Available online 25 October 2009 Keywords: BOT Critical success factors China Thermal power project Wind power project

a b s t r a c t
Chinese electric power industry has adopted Build–Operate–Transfer (BOT) approach in a number of projects to alleviate the pressure of sole state-owned investment. The Chinese government has taken enormous efforts to create an environment to facilitate the application of BOT approach in electric power projects. Moreover, the growing attention on the sustainability issues puts the traditional major source of electricity – thermal power project under more strict scrutiny. As a result, various renewable energy projects, particularly the wind power projects have involved private sector funds. Both thermal power and wind power projects via BOT approach have met with a varying degree of success. Therefore, it is imperative to understand the factors contributing towards the success of both types of BOT power projects. Using an extensive literature survey, this paper identi?es 31 success factors under 5 categories for Chinese BOT electric power projects. This is followed by a questionnaire survey to exam relative signi?cance of these factors. The results reveal the different levels of signi?cance of success factors for BOT thermal power projects versus wind power projects. Finally, survey results were analyzed to explore the underlying construction and distributions among the identi?ed success factors. This study provides a valuable reference for all involved parties that are interested in developing BOT electric power projects in China. ? 2009 Elsevier Ltd. All rights reserved.

1. Introduction In order to meet the requirements of the rapid economic growth, China demands massive energy, particularly electricity. It is critical to secure affordable and environmentally sustainable energy for its 1.3 billion people. As a result an increasing number of power plants will be built in order to meet the increasing electricity demand. However, high capital requirements of power plants present a big issue, especially for developing countries. The World Bank has estimated that China will spend an estimated total of US $132 billion per annum over the period of 2006–2010, while the Chinese electricity sector has the largest share (44%) of total annual expenditure in infrastructure in East Asia [1]. Being short of capital is one of constraints factors for the development of electricity in China. Build–Operate–Transfer (BOT) is one of project ?nance mode

* Corresponding author. Tel.: ?86 10 80798644; fax: ?86 10 80796904. E-mail addresses: zhaozhenyuxm@263.net (Z.-Y. Zhao), jian.zuo@unisa.edu. au (J. Zuo), george.zillante@unisa.edu.au (G. Zillante), wxw8355@126.com (X.-W. Wang). 0960-1481/$ – see front matter ? 2009 Elsevier Ltd. All rights reserved. doi:10.1016/j.renene.2009.09.016

to overcome the ?nancial problem in the development and operation of infrastructure [2]. In China, BOT approach has been adopted in various industries such as the development of power plants, transportation and water facilities [3]. A number of power plants have been built via BOT approach since then. The earlier experiences of BOT projects brought in needed capital and investment to develop China’s electric power industry. But it also illustrated many problems. One example is the Changsha Power Plant Project where the ?nancial arrangement could not be closed because of the temporary decreased demand and policy adjustment in the energy industry [4]. Although there are a number of publications on BOT in China, none of these studies focus on this approach in China’s electric power sector speci?cally. The focus of this study is placed on the identi?cation and prioritization of factors contributing towards the success of two types of BOT electric power projects, i.e. thermal power plant and wind power plant. Considering the growing emphasis on the renewable energy development from the Chinese government and the international community, this study provides a valuable reference to understand the current situation of the

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involvement of the private sector and foreign investors in the electric power industry. 2. Chinese electric power landscape The Chinese energy market is featured with coal as the primary energy source and an overall development of crude oil, natural gas and renewable resources such as hydropower, nuclear power and wind power (see Fig. 1). In 2007, China consumed approximately 1.8 ? 109 tons of standard coal, which accounts for 67.8% of total energy consumption [5]. Exploitation of renewable energy sources is taking an increasingly prominent position in Chinese energy supply. The Chinese government sets up a target that the production of renewable energy covered 10% of gross energy consumption in 2010 and 15% in 2020 compared to 4% in 1980 [6]. The Outline of the 11th Five-Year Plan for National Economic and Social Development of China projects that the per-unit GDP energy consumption by 2010 will decrease by 20% compared to 2005, and the total amount of major pollutants discharged will reduce by 10%. The Outline stipulates that the electric sector will be optimized to satisfy the demands of national economic and social development. The reform of the electric sector will take various factors, e.g. resources, technology, environmental protection and market into consideration. These measures include: (1) investing in clean coal technologies; (2) building large scale, highly ef?cient and environmental friendly thermal power plants; (3) closing down small scale thermal power plants; (4) developing nuclear power, hydropower and natural gas power with a consideration of the local conditions; (5) building regional power grids and power transmission and distribution networks; (6) expanding the scope of the power transmission from western to eastern China [7]. In order to meet the demands of the economic and social development, a number of electric power projects are under construction or being planned. The Chinese government has recognized the importance of the investment from the private sector, particularly the foreign participation into the electric power development due to the shortage of capital. Over the past decades, China’s electric power industry has undergone marked reform. For instance, the monopoly of exclusive investment in power generation is terminated; the power generation market is gradually opened [8,9]. Using the economic method of Differences-inDifferences, Du et al. (2009) discovered that the regulatory reform of the Chinese electricity industry led to the ef?ciency in labour input and gains in nonfuel materials. A series of preferential policies and laws have been issued to regulate the industry [10]. This facilitates the adoption of BOT approach into more and more electric power projects. A list of examples of electric power projects via BOT approach is described in Table 1.

In China, the legal system applicable to BOT projects has been gradually improved. The political and social environment is stable and the investment environment continues to improve. All these factors gain the con?dence of foreign investors to invest in China. According to the statistics provided by the China Electrical Council, the structure of the Chinese electric power industry has been a fundamental change. The traditional major electricity source, thermal power obtained a negative growth rate (?10.08%) in 2007, 8.26% down since year before. In contrast, wind power achieved a 173.94% growth rate in the same period [11].

3. Research methodology In order to develop a nominated critical success factors for China’s BOT electric power projects, an extensive literature review was conducted. The resources, e.g. academic journals, professional body reports, case study reports and government reports were reviewed. The results of literature survey are presented as shown in Table 3. A questionnaire was developed based on the above literature survey results. The questionnaire consists of three sections. The ?rst section aims to collect the basic information of the respondents, e.g. the type of the organization, working experience, and the type of projects. The second section investigates the relative importance of each success factor to different types of electricity power projects (P1: Thermal power plant projects, and P2: Wind power plant projects). A comment box is given in the third section to allow participants to: (1) make further comments related to items included in the questionnaire; (2) make comments related to BOT electric power projects in China that may not be covered in the questionnaire. A questionnaire survey was conducted with the practitioners involved in the Chinese electric power industry. A sample of 105 industry practitioners received the questionnaire and 73 valid questionnaires were returned for analysis with a response rate of 70%. These respondents are selected from ?ve cities in China: Beijing, Shanghai, Shenzhen, Jinan and Changsha. All interviewees have more than 15 years experience on the electric power industry and have BOT related experience. This makes them as reliable and credible sources of information which is crucial to satisfy the research goal. The distribution of respondents is shown in Table 2. The Likert scale was selected to obtain weights for the 31 success factors to BOT electric power projects in China that are identi?ed in the literature review. A 5-point Likert scale was adopted, where 1 represented ‘‘not signi?cant’’, 2 ‘‘less signi?cant’’, 3 ‘‘signi?cant’’, 4 ‘‘more signi?cant’’, and 5 ‘‘most signi?cant’’. The ranking of each K success factor Wjv is calculated via formula (1):

1 06 t o n s o f St an d ard C o a l Eq u i valen t

3000 2500 2000

Wij ?
Hydro-power, Nuclear Power and Wind Power Natural Gas

31 X j?1

Kv Wij =73

(1)

The questionnaire survey results are shown in Tables 4 and 5. The procedure, ?ndings, and relevant discussion of the analyses are detailed in the following sections.

1500 1000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 Year
Fig. 1. Composition of energy consumption in China 2000-2007.

Crude Oil

Coal

4. Nominated success factors and analysis The conducted extensive literature review identi?ed 31 factors that are critical to the success of BOT electric power projects in China and these factors can be grouped into 5 categories as Table 3.

Z.-Y. Zhao et al. / Renewable Energy 35 (2010) 1283–1291 Table 1 A list of major thermal power and wind power projects via BOT approach in China. Type Project name Project location Installed capacity 2 ? 350 MW 2 ? 360 MW 2 ? 350 MW 2 ? 300 MW 2 ? 362 MW 2 ? 50 MW 100 MW 100 MW 100 MW 100 MW 100 MW 200 MW Project investment value 4.2 billion Hong Kong dollars 616 million US dollars 600 million US dollars 3.1 billion RMB 700 million US dollars 180 million US dollars 778 million RMB 873 million RMB 702 million RMB 870 million RMB 812 million RMB 1.68 billion RMB Concession period (year) 10 18 20 20 20 20 25 25 25 25 25 25

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Project construction period

Thermal power Thermal power Thermal power Thermal power Thermal power Thermal power Wind power Wind power Wind power Wind power Wind power Wind power

Shajiao B power station Laibin B power station Rizhao power station Puqi power station Meizhouwan power station Saide thermal power station Rudong Phase 1 wind farm Rudong Phase 2 wind farm Huilai Shibeishan wind farm Tongyu Unity wind farm Tongyu Unity wind farm Dongtai wind farm

Shenzhen city, Guangdong Province Laibin City, Guangxi Province Rizhao City, Shandong Province Chibi City, Hubei Province Putian City, Fujian Province Tangshan City, Hebei Province Rudong County, Jiangsu Province Rudong County, Jiangsu Province Huilai County, Guangdong Province Tongyu County, Jilin Province Tongyu County, Jilin Province Dongtai City, Jiangsu Province

1986–1988 (22 months) 1997–1999 (33 months) 1996–2000 (42 months) 2002–2004 (25 months) 1998–2001 (25 months) 1995–1998 (32 months) 2004.8–2008.6 (46 months) 2005.10–2007.6 (21 months) 2004–2006 (20 months) 2006.4–2007.10 (19 months) 2006–2007 (18 months) 2005–2007 (23 months)

4.1. C1: Project feasibility Wang and Wu (1995) pointed out that the necessity of the project, e.g. whether or not the project satis?es the key demand is one of the key success factors for BOT power projects [12]. The acceptability of the service and cost from end users to some extent determines the project success. The acceptability to the local community is a signi?cant risk associated with Chinese BOT projects [13]. If the project is located in a region with a high level of economic development, a BOT proposal is easier to be approved [4,14]. The economical ef?ciency of the project is also very important [15]. The expected pro?tability and the expected debt paying ability determine the ?nancial performance of the project, which will affect the motivation of the private sector and foreign investors. In addition, the maturity of the technologies adopted affects the chances of success of BOT electric power projects in China [15]. For instance, it puts the project company into a dangerous position if a complex and immature technologies were employed in the project. Wang and Jia (2005) suggested to seeking for expert judgment to check the suitability of technologies adopted in the project [16]. Wang and Tiong (2000) pointed out that there are some risks associated with the environmental damage derived from Chinese BOT electric power projects [17]. The balance of the new-built power plants and the environmental protection needs to be

considered [18]. Efforts need to be made to promote the BOT power projects with high ef?ciency and low pollution. Chinese government has issued a series of specialized environmental legislation and policies [9]. The growing attention to the environmental issues has stimulated the development of clean and ef?cient power, e.g. clean coal technologies and renewable energies [19].

Table 3 Nominated success factors for Chinese BOT electric power projects. Type C1: Project feasibility Code Factors Necessity of project Level of economic development Degree of public recognition Expected pro?tability of project Expected debt paying ability of project Level of complexity of technologies employed in project Environmental protection requirements Stability of political situation Continuity of policies Currency exchange system Policy of paying foreign currencies Domestic interest rate Credit management system Domestic capital markets and credit rating Legal environment Level of business operation and management of developer Required rate of return on investment Investment structure of developer Level of risk management of developer Credit guarantee system and guarantor Procurement approach Level of contract administration Level of project ?nancing management Competency of personnel from the developer Finance capacity of contractor Business operation and quali?cation of contractor Level of project management of contractor Construction techniques adopted by contractor Supply of raw materials Supply of main equipment Purchaser’s credit

Table 2 Distribution of respondents. Source of respondents Government of?cials Electric power ?rms (Clients) Design institutes Contractors Supervision engineers Financial institutions Total Number of valid respondents 8 15 16 18 11 5 73 Percent of valid respondents (%) 11 21 22 24 15 7 100

L1 L2 L3 L4 L5 L6 L7 C2: Project L8 environment L9 L10 L11 L12 L13 L14 L15 C3: Project L16 company L17 L18 L19 L20 L21 L22 L23 L24 C4: Project L25 contractor L26 L27 L28 C5: Project L29 suppliers L30 L31

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Z.-Y. Zhao et al. / Renewable Energy 35 (2010) 1283–1291 Table 5 The signi?cance of success factors for BOT wind power projects. Code Factors L1 L5 L24 L25 L23 L4 L15 L30 L17 L14 L26 L19 L10 L22 L27 L16 L20 L7 L11 L31 L28 L3 L29 L21 L12 L2 L13 L6 L18 L9 L8 Necessity of project Expected debt paying ability of project Competency of personnel from the developer Finance capacity of contractor Level of project ?nancing management Expected pro?tability of project Legal environment Supply of main equipment Required rate of return on investment Domestic capital markets and credit rating Business operation and quali?cation of contractor Level of risk management of developer Currency exchange system Level of contract administration Level of project management of contractor Level of business operation and management of developer Credit guarantee system and guarantor Environmental protection requirements Policy of paying foreign currencies Purchaser’s credit Construction techniques adopted by contractor Degree of public recognition Supply of raw materials Procurement approach Domestic interest rate Level of economic development Credit management system Level of complexity of technologies employed in project Investment structure of developer Continuity of policies Stability of political situation Weight Ranking 4.13 3.86 3.81 3.68 3.60 3.57 3.55 3.41 3.40 3.30 3.30 3.27 3.24 3.18 3.17 3.05 3.00 2.91 2.90 2.83 2.76 2.71 2.66 2.65 2.58 2.44 2.44 2.26 2.25 1.71 1.62 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd 24th 25th 26th 27th 28th 29th 30th 31st

Table 4 The signi?cance of success factors for BOT thermal power projects. Code Factors L1 L23 L5 L25 L26 L3 L22 L19 L24 L29 L14 L30 L15 L21 L17 L7 L4 L27 L2 L16 L11 L20 L31 L13 L28 L10 L18 L12 L6 L9 L8 Necessity of project Level of project ?nancing management Expected debt paying ability of project Finance capacity of contractor Business operation and quali?cation of contractor Degree of public recognition Level of contract administration Level of risk management of developer Competency of personnel from the developer Supply of raw materials Domestic capital markets and credit rating Supply of main equipment Legal environment Procurement approach Required rate of return on investment Environmental protection requirements Expected pro?tability of project Level of project management of contractor Level of economic development Level of business operation and management of developer Policy of paying foreign currencies Credit guarantee system and guarantor Purchaser’s credit Credit management system Construction techniques adopted by contractor Currency exchange system Investment structure of developer Domestic interest rate Level of complexity of technologies employed in project Continuity of policies Stability of political situation Weight Ranking 4.25 4.01 3.87 3.69 3.56 3.47 3.41 3.40 3.39 3.38 3.37 3.35 3.33 3.32 3.23 3.22 3.12 3.11 2.97 2.87 2.82 2.75 2.75 2.74 2.70 2.55 2.55 2.42 2.16 1.53 1.12 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd 24th 25th 26th 27th 28th 29th 30th 31st

4.2. C2: Project environment Government support plays a key role in China’s BOT power projects to strike risk-return trade-off [17]. Incentives should be provided to stimulate the involvement of the private sector into the supply of power infrastructure. The Chinese government is committed to develop an ef?cient and clean power industry. Measures that have been taken include: tax reduction or reduction, preferential prices, discounted loan, development of renewable energy, energy conversation and cleaner production, special fund and administrative regulations [20]. The political environment and the stability of the political situation is a signi?cant risk to Chinese BOT projects [13,16]. The continuity of policies is another risk. Wang et al. pointed out that the government policy changes present a signi?cant risk to Chinese BOT projects [21]. These government policies include: relevant laws and regulations, methods to address in?ation, currency conversion, taxation rate and methods, the method to determine the electricity tariff. The rapid and sustained economic growth stimulates the strong growth of the domestic private capital [22]. The strong risk resistance nature of the domestic private capital makes it appropriate to be involved in BOT projects in China. Wang et al. pointed out foreign investors receive majority of revenues in Chinese currency from investing in Chinese power projects where a signi?cant proportion of this revenue is converted to other currencies in order to repay the foreign lenders and to import equipment [23]. Accordingly, the ?uctuating exchange rate presents a signi?cant risk to BOT power projects in China [24]. The ?uctuation of foreign exchange rate may result in the signi?cant loss in the project. According to Zhang and Kumaraswamy (2001), the local ?nancing becomes a critical factor as a result of shortage of funding and a more aggressive approach adopted by Chinese lenders concerning lending to domestic projects [25]. The credibility, technology and ?nancing capacity, track record and level of management are key measures to the credit risks of Chinese BOT projects [13]. The reliability and creditworthiness of Chinese entities to some extent determines the success of Chinese BOT projects [26]. A comprehensive legal and contractual foundation is important for effective project ?nancing via BOT [25]. The changes on the legal environment, such as the foreign exchange management system, legal system, tax system, environmental protection and all other legislative changes related to the project are also risks to Chinese BOT projects [16]. For BOT power plant projects, the standards on the air pollution and wastewater treatment may be constantly raised during the construction and operation period [13,27]. No attention to this issue will result in the penalty due to the environmental damage, increasing cost for new equipment to deal with environmental issues, or even suspend the development to meet the environmental requirements [28].

4.3. C3: Project company Project company is one of key stakeholders in BOT electric power projects. There are a numbers of risks associated with BOT projects in China. These risks include: political risks, construction risks, operating risks, market and revenue risks, ?nancial risks and legal risks [23]. Therefore, the risk management skills and capacities of the project company will to some extent to determine the success of Chinese BOT projects. These risks can be managed via a series of ?nancing documents and credit guarantee agreement [15].

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Based on a survey with foreign developers, lawyers and lenders, Wang et al. (1999) concluded that the contract clauses used in Laibin B power plant are relatively adequate in addressing the political risks whilst the improvements can be made to deal with risks associated with approval delays, compensations and law changes [21]. Therefore, the project company should have suf?cient contract administration capacity to ensure the success of BOT power projects. Jing (2002) studied the Shenzhen Shajiao B power plant and pointed out the unreasonable risk management strategy adopted in the BOT project [22]:  The coal price and electricity tariff during the operation period is pre-determined. All loss due to price changes is compensated by the Shenzhen Special Economic Zone Power Development Company (SZSEZPDC). In other words, the Chinese party bears all price risks.  Although sharing 45% of the total investment by means of supplying the water and land resources, SZSEZPDC does not have ?nal decision making power.  Before the project load is paid off, the foreign investor has no liability at all for any loss which the SZSEZPDC suffers due to nil or less electricity generation and supply, regardless the reason.  The SZSEZPDC is required to pay in advance if the power plant runs short of cash during the operating period. In addition, a high level of business operation and management and a reasonable investment structure of the project company help to achieve success in Chinese BOT electric power projects [29]. The project company should have suf?cient in-house resources such as competent management personnel with project ?nancing management skills. Based on the study of contracts in ?ve Chinese BOT projects, Braadbaart et al. (2009) highlighted the lack of contract speci?cations as a threat to the project success. These speci?cations include: allocating responsibility for plant design defects and environmental liabilities, and coverage of commercial risks [30]. Yuan et al. (2009) suggested two measures to improve the procurement process, i.e. standardization of tender documents and maintenance of competitive environment [31]. Involvement of multilateral organizations is identi?ed as a key success factors by Chen and Messner (2005). They argued that it will increase project creditworthiness and contract enforceability as the host country government is reluctant to risk their international credit by not paying amounts due to these organizations [4]. The required rate of return on investment (ROI) affects the ?nancial performance of the project company, which in turn affect the project success. A guarantee to ROI provides an incentive for the foreign investor and operator to improve the project performance (e.g. cost reduction and pro?t enhancement) [22].

techniques adopted by the contractor affects the performance of Chinese BOT electric power projects as well. 4.5. C5: Project suppliers Zhang (2008) identi?ed the supply of raw materials and the main equipment as a signi?cant risk in Chinese BOT electric power projects [13]. This is particularly the case in the renewable energy development. The under-developed manufacturing industry is responsible for this issue [32]. The risks associated with the supply of raw materials and main equipment can be addressed by means of performance bond [16]. Reasonable contract clauses that clearly de?ne the responsibilities and obligations of the supplier can help to mitigate this risk signi?cantly [12]. The creditworthiness of the purchaser is critical to the success of BOT projects. Zhao et al. (2008)’s study found that a trust-building process needs to be made between the supplier and purchaser whereas the authority plays a critical role to maintain and further improve the credit system [28]. The project ef?ciency can be improved signi?cantly if there is a comprehensive credit system in place so that the supplier is able to check the creditworthiness of the purchaser transparently. 5. Questionnaire survey results According to the questionnaire survey results, Tables 4 and 5 shows the ranking of the signi?cance of success factors for BOT thermal power projects versus wind power projects. The top 5 most signi?cant factors to the success of BOT thermal power projects are the necessity of project (L1), level of project ?nancing management (L23), expected debt paying ability of project (L5), ?nance capacity of contractor (L25), and business operation and quali?cation of contractor (L26). By contrast, the top 5 most signi?cant factors to the success of BOT wind power projects are the necessity of project (L1), expected debt paying ability of project (L5), competency of personnel from the developer (L24), ?nance capacity of contractor (L25), and level of project ?nancing management (L23). In addition, the continuity of policies (L9) and stability of political situation (L8) were identi?ed as less signi?cant towards the success of both BOT thermal power and wind power projects. It can be interpreted that China has a very stable political situation and a comparatively continuity of policies so that respondents do not perceive them as the most signi?cant factors affecting the success of BOT projects in China. 6. Analysis of factors 6.1. Project feasibility According to the survey results, Fig. 2 shows the project feasibility category factors comparison between the BOT thermal power projects and wind power projects. Three factors have very similar signi?cance level in both types of projects. They are: necessity of the project (L1), expected Debt Paying Ability of the project (L5), and level of complexity of technologies employed in the project (L6). The ?rst two factors (L1 and L5) are fairly signi?cant to the success of both types projects whilst the last one (L6) is less signi?cant. This is generally in line with the ?ndings by Chen and Doloi (2008) which identi?ed the needing infrastructure development capital as the most signi?cant driving factor for applying BOT in China [26]. With many years research and development associated with experience in real life projects, the technologies for both thermal power and wind power plants are

4.4. C4: Project contractor Considering a number of uncertainties associated with the construction completion, the contractor’s capability is crucial [24]. To achieve success, measures such as guarantee, ?exible schedule to motivate contractors and systematic control can be taken [16]. Wang and Wu (2005) suggested a number of criteria to select tenders, e.g. project management capacity, ?nance capacity, track record, and business operation and quali?cation [12]. The project company normally requests the project contractor to adopt the mature operation technologies in order to ensure the safety and stability of the operation so that a certain amount of electricity output is guaranteed [13]. Therefore, the construction

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5 4

4 3.5 3

Weight

Weight

3 2 1 0

2.5 2 1.5 1 0.5 0 L8 L9 L10 L11 L12 L13 L14 L15

L1

L2

L3

L4

L5

L6

L7

Factor Code
Thermal power projects Wind power projects

Factor Code
Thermal power projects Wind power projects
Fig. 2. Project feasibility category factors comparisons.

Fig. 3. Project environment category factors comparisons.

very mature. This explains why factor L6 is not considered as signi?cant by respondents. Another three factors are far more signi?cant in BOT thermal power projects than in BOT wind power projects. They are: level of economic development (L2), degree of public recognition (L3), and environmental protection requirements (L7). The development of thermal power projects requires a comprehensive consideration of a number of factors such as: coal resources, water resources, electricity market, electricity system, transportation and environment protection. As a clean energy, wind power developments attract little concern from the environmentalists and generally are welcome by the public. Wind power development has less impacts on the environment, except: (1) large wind farms pose aesthetic concerns; (2) soil erosion problems and noise impacts if not installed and landscaped properly [33]. In the past decade, Chinese wind power industry maintained good momentum of development. The goal of installed capacity of 5 million kilowatts in 2010 is expected to be achieved by the end of 2008. It paves a way for the nation to achieve the target of installed capacity of 30 million kilowatts in 2020, which promote the realization of the strategic goal of 1 billion kilowatts installed capacity by 2040 or 2050 [34]. In addition, the Chinese government has preferential policy to promote the development of wind farms wherever the condition is appropriate. Therefore, the level of development of local economy plays a minor role compared to other factors in wind farm development. Another evidence is that majority of wind farms are located in regional areas where the local economy is not highly developed. 6.2. Project environment Fig. 3 shows the project environment category factors comparison between the BOT thermal power and wind power projects. According to Fig. 3, the stability of the political situation (L8) and the continuity of policies (L9) are perceived as less signi?cant in both types of BOT electric power projects. China maintains an annual GDP growth rate of 8% and a stable economy policy. Therefore, regardless of the type of projects, the political stability and the continuity of policies were given low priorities. This is in line with the current economic development in China. According to the 11th ?ve-year plan of China, the following actions will be taken to promote the energy saving and emission reduction in thermal power projects:  To implement the ‘‘Encouraging the large, Inhibiting the Small’’ policy for thermal power generating units by closing down small scale thermal power plants

 To give higher priority to those green projects close to regions with huge demand of electricity  To construct those power projects with convenient transportation conditions, e.g. closing to the port and road  To encourage the adoption of generating units with high parameter and large capacity, e.g. 600 MW supercritical thermal power plants and 1 million kilowatt ultra-supercritical thermal power plants  All thermal power projects must comply with the national policies on the environmental protection, water usage and integrated thermal power generation With the depletion of natural resources, many governments across the world develop preferential policies to promote and support the development of renewable energy. China is no exception. China is currently developing new energy sources while wind power is expected to become the mainstream of renewable energy. The Chinese government has clear policy towards the development of wind power. Taking into effect on 1st January 2006, the China Renewable Energy Law sets up the target where the renewable energy reach 7% share in 2010 and 16% share in 2020 in Chinese energy structure. The Medium- and Long-term Program for Renewable Energy Development (MLPRED) was released in August 2007, putting forward the goal of increasing renewable energy consumption to 10% of the total energy consumption by 2010 and 15% by 2020. In terms of wind power, the installed capacity across the nation is planned to achieve 5 million kWh in 2010 and 30 million kWh in 2020. This target is further promoted in the 11th Five-Year Plan for the renewable energy development, which was released by the National Development and Reform Commission in March 2008 [35]. The new installed capacity by the end of 2010 will reach 9 million kWh and the total installed capacity will reach 10 million kWh, doubling the target which was previously set up in the MLPRED. This shows the ambitious goal from the Chinese government. The introduction of associated supporting policies and regulations provides a very good development environment to the wind power industry, which is expected to achieve a rapid development. The development of wind power is given higher priority. It is planned to build 30 wind farms, each with 100 MW capacity. Four wind farms with million-kilowatt capacity each will be built in Inner Mongolia, Hebei, Jiangsu and Gansu. In China, by the end of 2007, the total installed capacity has reached 5 million kWh, which has achieved the target set to be completed in 2010. The domestic capital market and the credit rating (L14) and the legal environment (L15) are considered as signi?cant. There are a number of legal risks associated with BOT projects therefore

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4.5 4 3.5 3 Weight 2.5 2 1.5 1 0.5 0 L16 L17 L18 L19 L20 L21 Factor Code L22 L23 L24

Thermal power projects

Wind power projects

Fig. 4. Project company category factors comparisons.

a healthy and mature legal environment is imperative to the success of BOT projects in China [23]. Furthermore, a developed area normally has a mature domestic capital market and credit rating, which will facilitate the adoption of BOT approach in the electric power sector. Some respondents also made comments in the end of questionnaire that the current tariff scheme is not reasonable. For the time being the prices for wind power plant is determined by a competitive tendering process. The ?erce competition may result in ‘‘cut-throat’’ practice that some tenderers provide an unreasonable low price [36]. This in one hand brings signi?cant operation risks to the project company, in another hand not bene?cial to the development of local economy. The currency exchange system (L10) is signi?cant in BOT wind power projects whilst less signi?cant in BOT thermal power projects. There is one particular comment made by a number of informants in the last section of questionnaire that the percentage of usage of domestic manufactured equipment is higher in thermal power than in wind power projects. As a result, the currency exchange system does not affect the thermal power project as signi?cant as the wind power.

government encourages renewable energy development and provides a variety of support, including ?nancial incentives. Therefore, it is not that hard to secure the funds in wind power development compared to thermal power development. Considering the complication of the wind farm development and power grid connection, it is understandable that respondents perceived the competency of personnel of the developer is more signi?cant in BOT wind power projects than in thermal power projects. The level of business operation and management of the developer (L16) and the credit guarantee system and the guarantor (L20) are signi?cant in BOT wind power projects while being perceived less signi?cant in BOT thermal power projects. Having been practiced for a number or years, thermal power technologies are comparatively mature compared to wind power projects. The number of potential employees that are familiar with thermal power development is greater than that of wind power development. This may result in this perception of survey respondents. The procurement approach (L21) is signi?cant in BOT thermal power projects whilst being less signi?cant in BOT wind power projects. The respondents made some comments at the end of the questionnaire on this issue. In general, the Chinese government provides incentives and preferential policies to wind power developments. This support enables the smooth business negotiation and procurement of BOT projects in China. Another comment made by respondents is the ?erce competition exists in thermal power developments, which leads to contract disputes in most cases. Moreover, the investment structure of the developer (L18) is less signi?cant in both types of BOT projects. The level of signi?cance of the required rate of return on investment (L17), level of risk management of the developer (L19), and level of contract administration (L22) in BOT thermal power projects and BOT wind power projects varied. However, all these factors are signi?cant to the success of both types of BOT electric power projects. This re?ected the nature of the business and the degree of the complexity of power plant projects. 6.4. Project contractor The four project contractor category factors do not see big differences between BOT thermal power projects and BOT wind power projects as shown in Fig. 5. The ?nancial capacity of the contractor (L25) is considered as highest important within all four factors. Some respondents made comments in the last section of the questionnaire that contractors are required to bring in capital into the project in many cases. More and more clients intend to list the ?nancial capacity of the

6.3. Project company The project company category factors comparison is shown in Fig. 4. The level of project ?nancing management (L23) is most signi?cant to the success of BOT thermal power projects while the competency of personnel of the developer (L24) is most signi?cant to the success of BOT wind power projects. The Chinese

4 3.5 3 Weight 2.5 2 1.5 1 0.5 0 L25 L26 L27 L28 Wind power projects Factor Code Thermal power projects

Fig. 5. Project contractor category factors comparisons.

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contractor as one of most critical criteria to select the project contractor in BOT projects. The business operation and quali?cation of the contractor (L26) is a bit more signi?cant in thermal power projects than in wind power projects. The level of project management of contractor (L27) is signi?cant whilst the construction techniques adopted by the contractor are not signi?cant to the success of both types of BOT electric power projects in China. In order to achieve successful outcomes, the project contractor needs to have appropriate business operation and quali?cation and strong capability of project management, regardless the type of BOT electric power projects. However, most respondents do not perceive the construction techniques proposed by the contractors (L28) are critical.

7. Conclusion The introduction of BOT approach plays a key role in the remarkably rapid development of the Chinese electric power industry. Electric power development via BOT approach alleviates the pressure from the massive energy demand derived from the steady and rapid economic growth. Thermal power and wind power are two most popular projects applied to BOT approach in China. According to the extensive literature review, this study establishes a critical success factors framework for BOT electric power projects in China, which consists of 31 factors under 5 categories. The followed questionnaire survey identi?es the prioritized factors contributing towards the success of both thermal power and wind power BOT projects in China. This study identi?es that the most signi?cant factors to the success of BOT thermal power projects are: the necessity for the project, the level of project ?nancing management of the project company, the expected debt paying ability of the project, the ?nancial capacity of the contractor, and the level of business operation and quali?cation of the contractor. For BOT wind power projects, the necessity for the project, the expected debt paying ability of the project, the competency of personnel of the project company, the ?nancial capacity of the contractor, the ?nancial capacity of the contractor, the expected pro?tability of the project, and the legal environment are more critical. The results also reveal that the relative importance of each factor to the success of BOT electricity power projects varies according to the type of the project. For example, the degree of public recognition, the supply of raw materials, the procurement approach are more important in BOT thermal power projects than those in BOT wind power projects. In comparison, competency of personnel from the developer, expected pro?tability of project and the currency exchange system are more signi?cant in BOT wind power projects. This study offers a reference to both foreign investors and domestic private equity funders when considering the investment into the Chinese electric power market. Those factors highlighted by this study can be considered prior to entering the Chinese BOT electric power market and in order to achieve exceptional project outcomes. This study is of interest to clients as well who may apply the results to select project company, contractor and suppliers. Future research opportunities exist to adopt a qualitative approach so as to have an in-depth analysis of the impacts of these critical success factors on the performance of Chinese BOT electric power projects. Some factors that are not perceived signi?cant towards the success of BOT electric power projects from this study can be further investigated by that means. References
[1] Yepes T. Expenditure on infrastructure in East Asia region 2006–2010, the ADB-JBIC-World Bank East Asia Paci?c infrastructure ?agship study. World Bank; 2006. [2] Yumurtaci Z, Erdem HH. Economical analyses of build–operate–transfer model in establishing alternative power plants. Energy Conversion and Management 2007;48(1):234–41. [3] Shen LY, Lee KH, Zhang ZH. Application of BOT system for infrastructure projects in China. Journal of Construction Engineering and Management 1996;122(4):319–24. [4] Chen C, Messner JI. An investigation of Chinese BOT projects in water supply: a comparative perspective. Construction Management and Economics 2005;23(9):913–25. [5] China statistical yearbook (CSYB) 2001–2008. Beijing: China Statistics Publications; 2001–2008. [6] The medium- and long-term program of renewable energy development. Beijing: China National Development and Reform Commission; 2007. [7] China’s energy conditions and policies. Beijing: State Council of China; 2007.

6.5. Project suppliers Turning to project suppliers category factors as shown in Fig. 6, the supply of raw materials (L29) and the supply of main equipment (L30) see the differences between BOT thermal power projects and BOT wind power projects. The purchaser’s credit (L31) is the same level of signi?cance for two different types of BOT electric power projects. According to respondents, the supply of raw materials (L29) is signi?cant to the success of BOT thermal power projects whilst not signi?cant to BOT wind power projects. It is natural as the thermal power plants require the supply of fuel (i.e. coal) while the wind power plants do not. Therefore, the success of BOT thermal power projects relies on a stable and reliable supply of raw materials. The survey proves the supply of the main equipment (L30) is signi?cant to both BOT thermal power projects and wind power projects in China. According to survey respondents, the global ?nancial crisis does hit the electricity generator manufacturing industry. A number of manufacturers choose to decrease the manufacturing capacity in order to deal with the uncertainties associated with the ?nancial turmoil. Furthermore, the technical level of the domestic manufacturers needs to be improved. One example was given by the respondents that only one wind turbine is made in China in a major wind power development project in Inner Mongolia with 94 wind turbines all together. Informants further commented that this situation has been improved a lot in recent years however the reliability of domestic equipment is not as good as those imported from overseas. That is the reason that the wind turbine market, particularly the large scale turbines is still dominated by foreign brands.

4 3.5 3

Weight

2.5 2 1.5 1 0.5 0 L29 Thermal power projects L30 L31 Wind power projects

Factor Code

Fig. 6. Project supplier category factors comparisons.

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[23] Wang SQ, Tiong LKR, Ting SK, Ashley D. Evaluation and management of foreign exchange and revenue risks in China’s BOT projects. Construction Management and Economics 2000;18(2):197–207. [24] Wang SQ, Tiong LKR, Ting SK, Ashley D. Evaluation and management of political risks in China’s BOT projects. Journal of Construction Engineering and Management 2000;126(3):242–50. [25] Zhang XQ, Kumaraswamy MM. BOT-based approaches to infrastructure development in China. Journal of Infrastruction System 2001;7(1):18–25. [26] Chen C, Doloi H. BOT application in China: driving and impeding factors. International Journal of Project Management 2008;26:388–98. [27] Zhong LJ, Mol APJ, Fu T. Public–private partnerships in China’s urban water sector. Environmental Management 2008;41:863–77. [28] Zhao LL, Liu Y, Tan DQ. Risk management in BOT infrastructure projects. Management Science 2008;22(2):79–82. [29] Zhao ZY. Research report on BOT electric projects in China. Beijing: North China Electric Power University; 2008 [in Chinese]. [30] Braadbaart O, Zhang MS, Wang Y. Managing urban wastewater in China: a survey of build–operate–transfer contracts. Water and Environment Journal 2009;23:46–51. [31] Yuan JF, Zeng AY, Skibniewski MJ, Li QM. Selection of performance objectives and key performance indicators in public–private partnership projects to achieve value for money. Construction Management and Economics 2009;27(3):253–70. [32] Cherni JA, Kentish J. Renewable energy policy and electricity market reforms in China. Energy Policy 2007;35:3616–29. [33] Zhang CH, Zhao ZH, Lai HL, Han JK. Renewable energy in China: a strategic imperative. In: IEEE Canada Electrical Power Conference; 2007. [34] The investment on the new energy and reproducible energy resources. Beijing: Centre for Wind and Solar Energy Resources Assessment, China Meteorological Administration; 2008. [35] 11th ?ve year strategic plan for the development of renewable energy. Beijing, China: National Development and Reform Commission; 2008. [36] Zhao ZY, Shen LY, Zuo J. Performance and strategy of Chinese contractors in the international market. Journal of Construction Engineering and Management 2009;135(2):108–18.


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