Yangtze River Sustainable Hydropower

Yangtze River Sustainable Hydropower Main Authors: The Nature Conservancy China Three Gorges Project Corporation Goldman Sachs Group Changjiang River Scientific Research Institute of CWRC China Institute of Water Resources and Hydropower Research Hydrology Bureau of CWRC Nanjing University Nanjing Institute of Geography and Limnology, Chinese Academy of Sciences China Hydrobiology Research Institute Ecology and Hydro-engineering Research Institute, Ministry of Water Resources April 2011

Project Leads: General Gerry Galloway: retired U.S. Army Corp of Engineers, adviser on Flood Control and Floodplain management to Clinton White House. Dr. Guo Qiaoyu: TNC North Asia Freshwater Conservation Director. Formerly with Ministry of Water Resources. David Harrison, J.D.: Water law, attorney and engineer. Colorado, USA. Brian Richter:Director of TNC Global Freshwater Team. Michael Millette: Vice President of Goldman Sachs Group. Gregory A. Thomas: President of Natural Heritage Institute. Reviewers: 汪 光 焘 ( 全 国 人 大 环 资 委 主 任 ) 汪 纪 戎 ( 全 国 人 大 环 资 委 副 主 任 ) 何 少 苓 ( 全 国 人 大 环 资 委 委 员 ; 中 国 水 利 水 电 科 学 研 究 院 副 总 工 程 师 ) 孟 伟 ( 全 国 人 大 环 资 委 委 员 ; 中 国 环 境 科 学 研 究 院 院 长 ) 汪 恕 诚 ( 水 利 部 前 部 长 ) 蔡 其 华 ( 长 江 水 利 委 员 会 主 任 ) 马 建 华 ( 长 江 水 利 委 员 会 副 主 任 ) 赵 坤 云 ( 长 江 水 利 委 员 会 防 汛 抗 旱 指 挥 办 公 室 主 任 ) 陈 桂 亚 ( 长 江 水 利 委 员 会 防 汛 抗 旱 指 挥 办 公 室 教 授 级 高 级 工 程 师 ) 胡 维 忠 ( 长 江 水 利 委 员 会 设 计 院 规 划 处 副 总 工 程 师 ) 宁 磊 ( 长 江 水 利 委 员 会 设 计 院 规 划 处 防 洪 室 高 级 工 程 师 ) 翁 立 达 ( 长 江 流 域 水 资 源 保 护 局 前 局 长 教 授 级 高 级 工 程 师 ) 史 立 山 ( 国 家 能 源 局 新 能 源 和 可 再 生 能 源 司 副 司 长 ) 熊 敏 峰 ( 国 家 能 源 局 新 能 源 和 可 再 生 能 源 司 处 长 ) 李 俊 峰 ( 国 家 发 改 委 能 源 研 究 所 副 所 长 ) 刘 昌 明 ( 中 国 科 学 院 地 理 科 学 与 资 源 研 究 所 院 士 ) 贾 金 生 ( 中 国 水 利 水 电 科 学 研 究 院 副 院 长 ) 郭 军 ( 中 国 水 利 水 电 科 学 研 究 院 副 总 工 程 师 )

程 晓 陶 ( 中 国 水 利 水 电 科 学 研 究 院 减 灾 所 副 总 工 程 师 ) 郭 庆 超 ( 中 国 水 利 水 电 科 学 研 究 院 泥 沙 所 总 工 程 师 ) 廖 文 根 ( 国 家 水 电 可 持 续 发 展 研 究 中 心 常 务 副 主 任 ) 董 哲 仁 ( 全 球 水 伙 伴 中 国 委 员 会 副 主 席 ; 水 利 部 国 际 合 作 与 科 技 司 前 司 长 ) 胡 和 平 ( 清 华 大 学 校 长 ) 倪 广 恒 ( 清 华 大 学 水 利 系 教 授 ) 顾 洪 宾 ( 中 国 水 电 顾 问 集 团 公 司 规 划 处 处 长 ) 李 延 亮 ( 农 业 部 渔 政 指 挥 中 心 副 主 任 ) 樊 祥 国 ( 农 业 部 渔 政 指 挥 中 心 水 生 野 生 动 物 管 理 处 处 长 ) 马 毅 ( 长 江 渔 业 资 源 管 理 委 员 会 副 主 任 ) 赵 依 民 ( 长 江 渔 业 资 源 管 理 委 员 会 办 公 室 主 任 )

Proposals on the Financial Mechanism of the Yangtze River Sustainable Hydropower Ecological Compensation (General Overview) To ease the conflict between the ecological environmental protection of the Yangtze River and hydropower development as well as flood control, the Nature Conservancy (TNC), starts from a new perspective to seek social, economic and ecological multi-objective win-win, proposed to establish the "Financial Mechanism of the Yangtze River Sustainable Hydropower Ecological Compensation ", excavating the potential of the joint operation of cascade hydropower. To transfer all or part of capacity of the flood control to the flood diversion area so as to improve flexible space of depoly and circulation of the dam, whose positive effects include: - Increase the amount of hydroelectric power, especially in the peak seasons in summer; - Reduce the impact of the deploy of the dam on the natural hydrological process and it is favorable for the aquatic ecosystem; - Reduce the reservoir drawdown zone area; The task of storing and detenting flood is still taken by the flood diversion area, or take other measures like heightening and consolidation of the embankment to improve the standard of flood control in special sections. The required investment and cost is covered by the additional revenue generated by the cascade of power stations, and the positive impacts include: - To set up the long-term sustainable financial mechanism for the construction and management of the flood diversion area; - To increase the possibility of recovering part of the lakes and wetlands of the flood diversion area strategically; Based on the above concept, TNC takes the Jinsha River downstream Cascade Hydropower Station (Wudongde, Baihetan, Xiluodu and Xiangjiaba) as an example and designs in detail the "Financial Mechanism of the Yangtze River Sustainable Hydropower Ecological Compensation ", including: The economic benefits of the hydropower generation: 1

-According to the average electricity price of the Three Gorges Hydropower Station currently, the yearly additional revenue will be 2.4 billion yuan if we take the scheme that maximizes the hydropower output. If the hydropower and thermal Power are made with the same quality and price, the profits will be higher; - If we take the rise of average water level into consideration and expand by 20% based on the current capacity to improve economic efficiency, the yearly revenue increase will be 4.5 billion yuan; - Suppose to establish a "Financial Mechanism of the Yangtze River Sustainable Hydropower Ecological Compensation" with 80% of the yearly additional revenue, that is 3.6 billion. Financial compensation for flood control and deploy: - To increase the flood control standard from once in 5-10 year currently to once in 50-100 year in major cities Yibin and Luzhou by reinforcing and heightening dikes, about 3.75 billion yuan is needed, with a period of 15 years; - The capital required for the construction and management of the six flood diversion and storage areasof middle River Yangtze is 5.7 billion yuan, with a period of 15 years; - Since the Three Gorges Project has begun to play a role in flood control, the Yangtze River Cascade s protective effect for middle Yangtze River will appear only when the flood happens once every 500 years; - But considering the extreme importance of flood control, we need to estimate the possible loss more conservatively: the cost of water storage in Chenglingji is 2.324 billion yuan with a 50-year frequency while the cost Jingjiang is 8.023 billion yuan with a 100-year frequency. The ecological and social benefits: - Ease the impact of spring and autumn on the natural hydrological processes, and it will effectively protect the habitats of rare and endemic fish along the upper Yangtze River; - Solve the problem of water storage of Cascade Reservoir after the flood; - Reduce the Bag Gorges Reservoir area; 2

- Facilitate the protection and restoration of important lakes and wetlands of the middle reaches of Yangtze River ; - Promote the establishment of the flood control system based on an efficient flood diversion area and adaptation to the climate change; - Provide 1.36 billion for the ecological and environmental protection of the Yangtze River basin, with a period of 15 years; With the development of the meteorological and hydrological monitoring and forecasting system, the information on which reservoir operation decision rely are more fully. Mid and long-term forecast accuracy is gradually improved. All these are favorable for the improvement of the operation mode the reservoir operation. What needs to pay special attention to is that the ongoing Jinsha River hydropower cascade engineering design has begun to consider to make adjustments of the capacity of the flood control smiliar to our recommendations, which further proves the feasibility of such an adjustment. Hydropower development in the Yangtze River is still at the stage of rapid progress, especially after the Three Gorges project runs at normal water level. Therefore, the opportunity is mature enough to probe into the rationality of single power station and cascade operation, and consider the relationship between the operation of cascade power station and the protection of freshwater ecosystems of the Yangtze River, from the whole perspective of the basin hydropower development as well as the joint deploy. In addition, it helps to seek the solutions of win-win of multi--objectives, promote the ecological sustainable development of the Yangtze River, and rebuild the harmony between human beings and ecology of the Yangtze River. 3

General Feedback Jia Jinsheng (Vice President of IWHR) The content of this report is pretty good and abundant. Some conclusion has a big difference with current management reality, in other words, it would be rather difficult to be accepted. So I suggest to make suitable adjustment of some wording and suggestion to achieve a better balance between ideal and reality. For example, make some changes on urban flood control constructions to make it nearer the practicality. He Shaoling (Chief Engineer of IWHR, Member of Environment and Resources Committee, National Congress) Generally speaking, I feel this proposal raise a great significant question, the standpoint is definite, the expression is clear, the scheme develop something new and constructive, it really worth being further researched by the involved agencies. Cheng Xiaotao (Deputy Engineer of IWHR) Generally speaking, this proposal is integrated and all the main conclusions are supported by the data and analysis, you really do a lot of work and the proposal is really instructive. Guo Qingchao (Chief Engineer of Sediment department, IWHR) TNC s conclusion on sedimentation is feasible and credible, that is the amount of sedimentation of TNC s reoperation proposal doesn t change a lot with the original dam cascade operation scheme. Liao Wengen (Deputy Director, National Hydropower Sustainable Research Center) General speaking, this proposal do a pretty good job and the preview for the future work is overall. I do learn a lot from it and feel it enlightened to my work. The research objective is definite, the technical route is articulate, the research method is feasible, the research emphasis is striking and the outcome makes a good basis for the further research on this issue. Guo Jun (Deputy Chief Engineer of IWHR) "Yangtze River sustainable ecological hydropower compensation fund proposed by TNC explore an effective way for a broader context of optimization of flood risk management, hydropower and ecosystem protection from the entire river basin angle. Dong Zheren (Deputy Chairman of GWP China, Former Director of International Cooperation, Science and Technology Department, Ministry of Water Resources) This proposal developed the qualified environmental-flow recommendation and conservation priorities of Yangtze River, which is very important for Yangtze River ecosystem conservation. Zhao Kunyun (Director of Flood Control and Drought Relief Headquarter, CWRC) Basically, the ideas for flood control in middle and lower Yangtze are feasible. 4

Chen Guiya (Senior Engineer, CWRC) The conclusion is credible. Hu WeiZhong/Ning Lei(Senior Engineer, CWRC ) This proposal has much new ideas. Weng Lida (Professor, CWRC) TNC develop a constructive and instructive proposal here and it worth being further researched by the related agencies. Questions for further study This proposal chose the most difficult and challenging issue, actually, it might be extremely difficult to find a win-win solution to solve the problem covering hydropower development, flood detention area (FDA) management and freshwater ecosystem conservation. 1. Yangtze Sustainable Hydropower Ecological Compensation Fund is a feasible design in theory, however, its implementation is conditioned by the relative regulation, law and management mechanism at present. Main Barrier and deficiency is below: The proposed FDA use scheme is different and conflict with the flood control scheme of Yangtze River Basin Comprehensive Plan which propose that using flood control capacity of cascade reservoir is the priority strategy and it would gradually take place of flood control function of middle Yangtze FDA. Once operation scheme is approved, it s very difficult to revise it. Whether CTGPC would like to share the extra revenue to construct this compensation fund is not clear so far. How to balance this fund and the current funding source of dike and FDA construction How to coordinate multiple departments to construct the fund management mechanism 2. As middle Yangtze FDA is densely populated and economic developed, the usage of middle Yangtze FDA would not only cost huge economic price, but also cost huge social price, including resettle large numbers of people, take measures to solve threaten of disease and worsen sanitation, reconstruction of life and productivity after disaster. 3. For the financial point of view, firstly, this proposal doesn t take the additional cost of increasing turbine capacity and additional tax into account, so the estimated extra revenue is more than that of the real situation. Also, the FDA construction, operation and management is public investment, however, hydropower revenue is the revenue which is produced by the corporation s own investment. They are totally different. Requesting 5

the corporation to pay for the public investment which should be assumed by the financial sector with their own revenue produced by their own investment, it doesn t accord with China s current financial system of revenue and expenditures. The proposed way constructing a new fund under the central financial system is lack of realistic operational feasibility. 4. As this proposal covers a series of complex social, economic, technical and environmental issues, the current research is based on a series of necessary assumption and simplification, the analysis conclusion would be a valuable reference for coordinating relationship between flood control, power generation and ecosystem of China s great river. However, the current research is different with reality to some extent because of these assumption and simplification, it s necessary for this proposal to carry out a further research. 6

A Proposal for Yangtze River Sustainability Fund Compensation Mechanism (Condensed Version) Yangtze River is one of the rivers of vital importance to the origin and development of the Chinese people for thousands of years. Its water system supports economic and social development of numerous regions in China, and contributes greatly to the prosperity of many cities. In the past decades, hydropower development in Yangtze River Basin has been aggressive, which is expected to continue in the coming decades given China s encouraging energy development policy. Increasing hydropower construction is mainly driven by huge demand of China, one of the fastest growing economies in the world, for relatively clean and low-carbon energy. After the completion of Three Gorges Dam, China Three Gorges Project Corporation (CTGPC), as the Employer, is building 4 largescale hydropower stations including Wudedong, Baihetan, Xiluodu and Xiangjiaba along the lower reaches of Jinsha River. As planned, the total installed capacity of the above four stations shall be 38,000,000kW, which is now increased to 42,000,000kW. Under the influence of monsoon climate, summer flood has long plagued Chinese people in the Yangtze River basin. One of Chinese government s major concerns for the development of Yangtze River is how to conduct efficient flood management. Therefore, flood control is taken into account during the design and construction of almost each dam. According to a river basin plan by Changjiang Water Resources Commission, the reserved flood control capacity of cascade hydropower stations in lower Jinsha River is more than 10 billion m 3. Flood control operation inevitably affects hydropower generation, and hydropower stations are often confronted with low water levels in flood seasons and low flow rate at full capacity. Human activities including hydropower development pose a serious threat to ecosystems in Yangtze River basin. With respect to the conflict between conservation and development facing this basin, The Nature Conservancy (TNC) has been cooperating with Chinese government agencies, hydropower companies and other organizations in site selection, design and operation of more sustainable dams in hydropower developments along main stream and tributaries of Yangtze River, and in planning and policy-making of hydroelectric development and conservation of major ecosystems in the basin. Since 2006, TNC has been working with CTGPC on cascade ecological flow recommendation along lower Jinsha River with a view to protecting national nature reserves for 7

endemic & rare fishes in upper Yangtze River from the said cascade reservoirs down to Chongqing. In the course of this program, TNC has come to realize that flood control operation is central to the realization of ecological flow, and that an effective ecological flow solution cannot be found unless the flood risk management is taken into consideration. According to current practice of flood control operation, at the turn of spring and summer each year, cascade hydropower stations need to lower the reservoir level to flood limit level, thus causing high flow above natural needs. In autumn, the reservoirs heighten reservoir level for water storage, which causes low flow in the lower reaches. Considering the adverse impact of flood control operation on natural reserves for fishes, TNC has set out to study the feasibility of adjusting this cascade flood control plan, i.e., employing flood detention areas (FDA) in middle Yangtze River for flood risk management. FDA is an important component of Yangtze River flood control system. In the flood control planning finalized by Changjiang Water Resources Commission, a comprehensive response plan has been formulated for the use of FDA, including pre-warning system, relocation, emergency evacuation and post-disaster reconstruction. The bottleneck restricting the implementation of this comprehensive plan is the lack of special fund intended to maintain and strengthen the construction and management of FDAs, and to pay all expenses incurred by the use of such areas. At the current stage of economic development, flood insurance has not been widely recognized and applied. China is currently working hard to rebuild the harmony between local people and Yangtze River s ecosystems, and maintain the river s health. And the international community is also advocating sustainable hydropower development, which calls for the combination of economic, social and ecological benefits, and demands that the site selection, design and operation of specific dams or cascade reservoirs should be planned from the perspective of the whole river basin. For this purpose, TNC makes the proposal of Yangtze River Sustainability Fund Compensation Mechanism, which is designed to explore an effective approach to improve flood risk management, hydropower development and ecosystem protection from the more expansive scope of the entire river basin. This proposal chiefly involves: strengthening the construction and management of major FDAs in middle Yangtze River, strategically restoring some lakes and wetlands in FDAs, shifting flood control capacity planned for 4 dams in lower Jinsha River to FDAs in order to enhance the flexibility for dam operation, increase hydropower generation and attain the objective of ecological operation; establishing Yangtze River Sustainability Fund Compensation Mechanism with additional gains from hydropower generation, and such fund will be used for flood risk management in FDAs in undertaking economic losses arising from the use of FDAs, in restoring the natural flood detention 8

capacity of FDAs in Yangtze River, and in boosting the conservation of freshwater ecosystems in other areas of the basin to compensate for the impact of hydroelectric development. With regard to manifold issues involved in this proposal, over the past 2 years, TNC and its partners have carried out relevant feasibility studies. Quite a few research institutes have been engaged in this program. This proposal attempts to demonstrate the feasibility of this proposal in various aspects involved in Yangtze River Sustainability Fund Compensation Mechanism, such as flood risk management, environmental sustainability of hydropower development, and financial model of fund operation. Adjustment to operation plan of cascade power stations and the resulting additional benefits The design installed capacity of 4 cascade hydropower stations in lower Jinsha River totals 42,000,000kW (equivalent to 2 Three Gorges Hydropower Stations), and they are designed to generate more than 185.0 billion kwh electricity. The total capacity of these reservoirs is around 41.0 billion m 3, with the maximum flood control capacity of 14.5 billion m 3. CTGPC and TNC have jointly commissioned Yangtze River Scientific Research Institute to evaluate and analyze different flood control plans. A total of 6 operation schemes and 15 scenarios are set, including the previous planning scheme, the scheme of maximizing power generation, the scheme of reserving half of flood control capacity, and the scheme targeting the accomplishment of ecological flow. Yangtze River Scientific Research Institute simulates the power generation and effluent status of cascade hydropower plants under various scenarios based on existing operation model of cascade hydropower stations in lower Jinsha River and 58 years (June 1, 1950~May 31, 2008) flow data from Pingshan station. Given currently average on-grid electricity rate of 0.25 yuan/kwh for Three Gorges Hydropower Station, the scheme of maximizing power generation is expected to result in additional benefit of 2.4 billion yuan each year; if, for higher economical efficiency, the existing installed capacity is increased by 20% by considering the rising average water levels of reservoirs, then the annual additional benefit will amount to 4.5 billion yuan annually. The comparison results of major scenarios are shown below: 9

Annual average Annual average Increase from annual Increase from annual power output benefit (billion average power output average benefit (billion kwh) yuan) (billion kwh) (billion yuan) Previous planning scheme 190.271 47.568 Scheme of maximizing power generation 199.98 49.995 9.709 2.4 Scheme of maximizing power generation, installed capacity increased by 10% 204.86 51.215 14.589 3.6 Scheme of maximizing power generation, installed capacity increased by 20% 208.399 52.1 18.128 4.5 Scheme of maximizing power generation, installed capacity increased by 30% 211.131 52.783 20.86 5.2 In addition, by the end of 100 years from initial use of cascade reservoirs, compared with the previous planning scheme, total sediment accumulation under the scheme of maximizing power generation and the one of reserving half of flood control capacity will have increased 0.5% and 0.9% respectively, and such increase is insignificant. In terms of total sediment outflow by the end of 100 years from initial use of cascade reservoirs, the value under the said two schemes will have decreased 1.3% and 1.6% respectively compared with the value under the previous planning scheme, and the difference is just minor. Analysis of flood risk in Chuanjiang section and middle Yangtze River If flood control operation of 4 cascade reservoirs in lower Jinsha River is changed, that will increase the flood control risk of Chuanjiang section and FDAs in middle reaches which are designed to store and detain floods from main stream. TNC has engaged experts from Yangtze River Scientific Research Institute, Nanjing University, Bureau of Hydrology under Changjiang Water Resources Commission and Nanjing Institute of Geography & Limnology, Chinese Academy of Sciences to weigh over the potential impact of such adjustment on flood risk in lower reaches. Flood risk management in Chuanjiang section 10

Chuanjiang section features high mountains and gorges, and major flood protection targets are the cities of Yibin and Luzhou. According to historical hydrological data of Chuanjiang section, the floods in Chuanjiang section are affected by water inflow from Jinsha River, and by water from other tributaries including Min River. Even if the flood control capacity is reserved under the previous planning scheme, Chuanjiang section is capable of fighting against 50-year flood. If the scheme of heightening and reinforcing dikes in Yibin and Luzhou is adopted as an alternative to increasing the protection level to 50-100-year flood control, total engineering cost is projected at 3.75 billion yuan. Flood risk management in middle Yangtze River In accordance with the deployment and planning of FDAs in middle Yangtze River, FDAs subject to floods from main streams along the upper reaches of Yangtze River include Jingjiang, Yuanshi, Huxi, Renmindayuan, Honghu East and Jiangnanluchenyuan. Those areas are shown in the map below. Based on orthophotomaps formed in 2007 and 2008, the data on land utilization in the above 6 FDAs are obtained. With socioeconomic development data and the rate of loss from flood detention also considered, the maximum losses arising from the use of each FDA are estimated. In addition, with reference to the expenses of flood diversion and residents evacuation in Jingjiang FDA in 1998, 11

1998-2008 CPI and the population projection of each FDA in 2010, the estimation results of losses to be suffered by FDAs due to flood diversion and evacuation are shown below: Cost of using FDA (billion yuan) Jingjiang Yuanshi Huxi Renmindayuan Honghu East Jiangnanluchenyuan Total Maximum loss from inundation 2.136 0.185 0.19 0.85 1.513 0.483 5.357 Loss from flood diversion and evacuation 2.054 0.519 0.455 1.614 0 0.328 4.97 Total 4.19 0.704 0.645 2.464 1.513 0.811 10.327 Since FDAs along main stream of Yangtze River have been left idle for years, their construction and maintenance is relatively backward. Therefore, it is imperative to strengthen the construction and management of those areas to ensure they can truly undertake flood risks. According to Planning for Construction and Management of Flood Detention Areas in Yangtze River finalized by Changjiang Water Resources Commission, the total costs of construction and management of Jingjiang, Yuanshi, Huxi, Renmindayuan, Honghu East, and Jiangnanluchenyuan FDAs for 2010-2030 are projected at 5.7 billion yuan, with details shown below. Costs of flood control construction and management (billion Jingjiang Yuanshi Huxi Renmindayuan Honghu East Jiangnanluchenyuan Total yuan) Levees and penstocks 0.147 0.086 0.077 0.35 1.96 0.016 2.636 Safety zones and safety platforms 0.988 0 0 0 0.911 0.427 2.326 Evacuation roads 0.18 0.025 0.041 0.105 0.221 0.022 0.594 Telecommunication and pre-warning devices 0.046 0.003 0.005 0.02 0.04 0.024 0.137 Total 1.362 0.113 0.123 0.475 3.132 0.489 5.694 12

Probability of flood risk in middle Yangtze River In conjunction with flood control operation of Three Gorges Project, adjusting the flood control operation mode of cascade reservoirs in lower Jinsha River will increase the flood diversion at Chenglingji. In the face of a 200-year or bigger flood, the flood diversion at Jingjiang will have to be increased; with regard to FDA use, no remarkable difference will occur, and additional loss of any adjustment scheme is zero compared with the previous planning scheme. Nevertheless, considering extreme importance of flood control and possible losses estimated from a more conservative perspective, it is advisable to estimate the frequency of use of Honghu East and Jiangnanluchenyuan in Chenglingji, and of 4 FDAs in Jingjiang based on 50-year flood and 100-year flood respectively. Hydropower development for environmental sustainability The ultimate goal of TNC in its attempt to adjust the operation mode of cascade reservoirs in lower Jinsha River is to help alleviate the adverse influence of hydrological rhythm changes on freshwater ecosystems in national nature reserve for rare and endemic fishes in upper Yangtze River, thereby establishing a sustainable long-term effective fund mechanism for the conservation of freshwater ecosystems in this river basin. Ecological flow requirement of national nature reserve for rare and endemic fishes in upper Yangtze River TNC and its partners have chosen three groups of fishes as conservation objects, and initially established the relationship between their major life processes of each group and water flows. In accordance with the foregoing relationship and historical hydrological data, they have determined base flow period and its sustainable flow boundary, base flow and other specific components of ecological flow in wet season, and developed the initial recommendation for ecological flow shown in the following diagram. 13

Flow (cms) 25000 20000 Frequency: 2-4 high-flow events/year Duration: 20 60 days Size: 8,500 14,000 cms Timing: triggered by natural swell The first swell each year shall be used to trigger spawning; the first flood pulse each year shall correspond to the size and duration of inflow. 15000 10000 5000 0 1/1/1965 2/20/1965 4/11/1965 5/31/1965 7/20/1965 9/8/1965 10/28/1965 12/17/1965 Planning of prioritized freshwater biodiversity reserves in Yangtze River As an aquatic biodiversity region of global importance, Yangtze River Basin boasts the highest richness and endemicity of fishes in Palaearctic realm. TNC has carried out the planning of prioritized 14

freshwater biodiversity reserves along the Yangtze River Basin, with a view to achieving effective conservation of significant ecosystems in this basin. With freshwater ecosystem as planning unit and according to natural connectivity between water-area flow and energy exchange, use DEM to generate interbedded catchment basin of ecological significance as evaluation unit. To evaluate the distribution and status quo of conservation objects (ecosystems) on a case-by-case basis, interference factors (conservation costs) including biodiversity value and socioeconomic factors are chosen to help define the conservation objects. Through calculation using the internationally applied MARXAN spatial optimization model as well as expertise, the areas with high biodiversity value but low conservation cost will be selected as biodiversity conservation priorities. Prioritized freshwater biodiversity conservation areas are deployed as shown in the map below. One important purpose of Yangtze River Sustainability Fund Mechanism is to provide sustainable fund support for the establishment and maintenance of an effective freshwater reserve network along the Yangtze River Basin. According to the planning of Yangtze River Basin freshwater biodiversity conservation priorities, hydropower development and the relevancy between flood storage & detention and priorities, we have selected the 13 regions or conservation projects shown in the following map to be financed by the proposed fund mechanism. 15

Ecosystem monitoring Ecosystem monitoring is a basic approach to verify the effectiveness of all conservation initiatives. For the purpose of establishing effective conservation projects or verifying the fulfillment of project s preset objectives, ecological monitoring is of vital importance. However, China s existing freshwater monitoring system does not effectively integrate information on water flow process, water quality and aquatic organisms, but such information is the very basis to judge the ecological health of rivers. To change this situation, TNC has been striving to promote a collaboration program aimed at establishing a freshwater ecosystem monitoring network, and its partners include Yangtze River Fisheries Resources Management Committee, Yangtze River Water Environment Monitoring Center and the U.S. Geological Survey. The upper Yangtze River rare and endemic fish reserve is a priority of this program. Financial model Considering all abovementioned factors, the incomings and outgoings of Yangtze River Sustainability Fund Mechanism include: Based on current electricity price, the scheme of maximizing power generation and increasing the installed capacity by 20% is chosen. Suppose 80% of annual additional 16

benefit is used for the Yangtze River Sustainability Fund Compensation Mechanism, i.e., 3.6 billion yuan each year; The alternative scheme on flood control of Chuanjiang section requires the input of 3.75 billion yuan, and construction cycle is 15 years. The operation and management cost is estimated at 5% of the amount already invested; 6 FDAs in middle Yangtze River which are designed to detain floods from main stream calls for 5.7 billion yuan investment in their construction and management, and the construction cycle is 15 year (previously planned for 20 years). The operation and management cost is estimated at 5% of the amount already invested; For the cost of using FDAs in middle Yangtze River designed to contain floods from main stream, a total of 2,324 million yuan is required for the application of 2 FDAs in Chenglingji, and the frequency is set at 50-year flood; 8,023 million yuan is needed for the use of application of 4 FDAs in Jingjiang, and the frequency is set at 100-year flood; 1.36 billion yuan is allocated for the construction of prioritized ecological conservation areas over the period of 15 years, and the operation and management cost is estimated at 5% of the amount already invested. In addition, another 5% of the amount already invested will be appropriated for annual conservation commitment by prioritized conservation areas. On the basis of the said hypothetic data, Goldman Sachs, a savvy investment banking consultancy, has developed the financial model in conjunction with TNC. The model considers financing the construction of flood control works and of prioritized ecological reserves at Chuanjiang section and in middle Yangtze River, and also intends to undertake possible flood risks by procuring flood insurance and issuing catastrophe bonds. All insurances of flood insurance package including flood insurance, catastrophe bond and risk retained will be bought within 11 years before the 4 reservoirs are completed and operational, and by then the maximum flooding loss assumed will be USD 1.5 billion. Judging from current market situation, the Fund shall consider purchasing USD 0.9 billion of traditional reinsurance and issuing USD0.45 billion of catastrophe bonds to optimize the pricing and marketability. 17

Organization structure Legal and organizational framework is central to the success of the fund mechanism. Despite successful practices of establishing similar frameworks for various funds in US or Europe, legal and organizational framework involved in this proposal must adapt to China s laws and administrative system. Detailed design of legal and organizational architecture of the fund mechanism is beyond the scope of this proposal, but it will be one of the key issues in further studying and analyzing this proposal. The following critical issues must be weighed over in the design of organization structure: How to ensure longtime and continual incomings to satisfy fund requirements for all projects; How to establish such a fund mechanism under China s current legal framework; How to establish the relationship between the fund mechanism and competent authorities; Whether it is necessary to establish an independent commission similar to the board of directors of appropriation authority, who are responsible to evaluate the suggestions of executive agency; Whether it is necessary to set up two professional committees which are responsible to manage the funds allocated for flood risk management and for ecological conservation respectively. Conclusion According to the results of feasibility researches on Yangtze River Sustainability Fund Compensation Mechanism, the proposed adjustment of operation mode is economically reasonable and viable, and has rather limited effect on dam safety and sediment transport. It helps give full play to the power generation potential of cascade reservoirs in lower Jinsha River, thereby considerably increasing electric output at summer peak load periods; provides sustainable fund support for Yangtze River flood risk management system including construction and management of FDAs; helps realize ecological flow, promote the conservation and restoration of significant lakes and wetlands in middle Yangtze River, and address the problems facing post-flood cascade reservoirs including lack of water for storage. The sustainable fund mechanism thus formed will become strong guarantee for the implementation of ecological compensation in hydropower development, freshwater ecosystem conservation network as well as freshwater ecosystem monitoring and adaptive management. 18

All estimations completed are based on existing electricity price. If the possibility of setting the same price for the same quality in terms of hydroelectricity and thermal electricity is taken into consideration, the benefits will be further increased. With the development of meteorological & hydrological monitoring and forecasting systems, decision-making supportive information upon which reservoir operation relies will be more sufficient and medium and long-term forecasting accuracy will be gradually increased. All this sets the stage for improving reservoir operation mode. Hydropower developments in Yangtze River Basin are still in full swing, especially after the Three Gorges Project begins its operation at a normal storage level. The time is ripe to reevaluate the rationality of each power station and cascade planning from the perspective of hydropower development and joint operation in the entire basin and comprehensively consider the relationship between the operation of cascade hydropower stations and the conservation of freshwater ecosystems in Yangtze River Basin. It is also the right time for us to seek a multi-win solution, push forward ecological sustainable development in Yangtze River Basin and rebuild the harmony between Yangtze River s ecological health and local people. 19