Shanghai government announced on Monday that it would improve incentives for local factories and businesses that install an energy-saving power generation system inside their buildings.

The system, named Distributed Generation, is based on a small gas-fueled power generation unit. Operators build these units on site, rather than take power from the national grid, which is powered by coal-fired power stations, usually located far away from power users.

Energy is saved because the distance between the power generator and the user is greatly shortened. In a traditional power grid, up to 70 percent of generated electricity is wasted during its transmission.

"Usually only 30 to 47 percent of electricity generated by large power plants is consumed by users," said Pan Yahong, an engineer with the Shanghai Branch of China Huadian Corp. "The rest is wasted during transmission. But the Distributed Generation system ensures a low rate of wastage and could improve usage efficiency to up to 89 percent." Huadian is a major promoter of the system to the Chinese market.

Distributed Generation also cuts power usage by collecting the heat given off during the power-generation process and using it to heat buildings.

Because it uses natural gas rather than coal, the system could lower greenhouse emissions by 34 to 61 percent, a United States survey found, according to a report on the China Energy Service Website (www.chinaesco.net).

The government Monday announced it would raise the subsidy paid to those companies that install the system. Building owners will be paid 1,000 yuan (US$146) for each kilowatt of capacity their generator has.

The subsidy was 700 yuan when Shanghai first announced the subsidy policy in August 2005.

Local users, such as the Minhang District Central Hospital and Pudong International Airport, will also continue to enjoy discounted natural gas, said officials.

The allowance compensates the expense of buying and installing the gas generators.

The system could reduce operational cost of offices by 11 percent, and that of hospitals by 21 percent, according to the US survey.

(Shanghai Daily December 23, 2008)