NF Energy Saving Corp. (OTCBB: NFES)
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Company Overview
NF Energy Savings Corp of America (the “Company” or “NF Energy”) (OTCBB: NFES), is a leading provider of energy saving and emission reduction equipment and services for China’s rapidly growing cogeneration sector. The Company is headquartered in Shenyang, China.
The Company manufactures energy efficient flow control systems and wind cogeneration equipment and provides services to improve energy efficiency and reduce emissions The Company also provides energy saving technology consulting, optimization design services, energy saving reconstruction of pipeline networks and contractual energy management services for China’s electric power, petrochemical, coal, metallurgy, construction, and municipal infrastructure development industries.
The Company is a Chinese Representative Firm of The World Bank / Global Environment Funds (GEF), Member of Chicago Climate Exchange (CCX).
The Company provides the following products and services:
Production and Sales of Energy Saving Flow Control Equipment.
Products achieve 20% energy savings for pipelines transporting water, gas, oil, heat and air. In 2007, the Company received contracts for the first three sections of the landmark “South to North Water Redirection Engineering Project.” The first 2 orders were completed and passed inspection in 2008. In 2008, the Company also received flow control equipment contracts for large water supply systems in seven cities in Liaoning Province.
Energy Conservation and Emission Reduction Services.
Through energy auditing and energy conservation planning, an energy efficiency plan is implemented to reduce per unit energy consumption and greenhouse gas emission for the service entity, whether this is a large factory, hospital, school or other institution. This is especially relevant as China State Council in its 11th Five-Year Plan (2005-2010) has set energy conservation and emission reduction targets to be achieved by local governments and industries and will invest no less than 1 trillion RMB to reach these energy savings goals by 2010. The Government will reward enterprises according to the total savings from their energy-saving projects and the Central government has set aside 7 billion RMB to support top 10 key energy saving projects. An important outcome of these regulations is that energy conservation and emission reduction will be important criterion in evaluating the performance of the leaders of local governments and large state owned enterprises. Government and enterprise leaders are now politically motivated to undertake energy conservation and emission reduction projects.
Wind Cogeneration Equipment.
Current products include international wind power equipment components, such as the 1.5MW wind power equipment system (the hub, forward engine room foundation, bearing seat, and the principal axle). 1.5 MW and GW200 lines of wind power equipment systems are in the R&D stage.
The Company’s customers are mainly concentrated in the electrical generation (large-scale thermal power generation, hydroelectric power, wind power, and nuclear power), oil supply (petroleum), gas supply (natural gas), water supply, and heat supply industries. The majority of revenues are from energy efficient valves and other energy-saving products servicing the electrical generation, oil, gas, water and heat supplies industries.
Products
Flow Control Equipment
Flow control system equipment regulates the transportation of water, oil, heat and gas and is the key factor in determining the efficiency in all pipeline systems.
NF Energy’s flow control systems can reduce energy use by 20% and has been successfully installed in projects in China and internationally. This technology was awarded “Number One Energy Saving Value of China” by the Chinese Energy Conservation Association.
In 2008, the Company completed orders for three sections of the “Redirect the Water from the Rivers in the South to the North Middle Section Jingshi Section Water Supply Engineering Project”.
Wind Power Components
Wind Energy equipment will be an important revenue source for the Company going forward due to rapid growth in this industry.
Current products include hubs, forward engine room foundations, bearing seats, and principal axles for 1.5MW wind systems. A new facility that is due to come online in 2009 will dramatically increase production capacity.
Energy Saving Projects
Energy Efficiency and Emission Reduction Services target large factories, hospitals, school or other institutions to reduce energy use and emissions through energy auditing and efficiency planning.
China’s 11th Five-Year Plan (2005-2010) has set energy conservation and emission reduction targets to be achieved by local governments and industries and will invest no less than RMB 1 trillion to reach these energy savings goals by 2010. The Government will reward enterprises according to the total savings from their energy-saving projects and the Central government has set aside RMB 7 billion to support the top 10 key energy saving projects. Emission reduction will be an important criterion in evaluating the performance of the leaders of local governments and large state owned enterprises.
Water Supply Projects
The South-North Water Diversion Project is a multi-decade project undertaken by the People's Republic of China to better utilize water resources available to China. Part of the massive project was brought forward to provide additional water supply for the 2008 Olympics in Beijing. While the main task to divert water from the Yangtze River to the Yellow River and Hai River, other spin-off plans are also loosely included. Among these, a plan calling for the capture and diversion of water from Brahmaputra River, located in Yarlung Zangbo Grand Canyon north of India, has been under study for years. This is because the heavily industrialized Northern China has a much lower rainfall and its rivers are running dry. Already the Yellow River has often gone dry in its lower reaches in recent decades and some of the Hai River tributaries have almost dried out throughout the year.
Eastern Route
The Grand Canal is currently being upgraded. Water from the Yangtze River will be drawn into the canal in Jiangdu City, where a giant 400 m³/s. pumping station was built in the 1980s, and will then be fed uphill by pumping stations along the Grand Canal and through a tunnel under the Yellow River, from where it can flow downhill to reservoirs near Tianjin. Construction on the Eastern Route officially began on December 27, 2002, and water is supposed to reach Tianjin by 2012.
Central Route
The central route is from Danjiangkou Reservoir on Han River, a tributary of the Yangtze River, to Beijing. This route is built on the North China Plain and, once the Yellow River has been crossed, water can flow all the way to Beijing by gravity. The main engineering challenge is to build a tunnel under the Yellow River. Construction on the central route began in 2004. In 2008 the 307 km-long Northern stretch of the central route was completed at a cost of $2 billion. Water in that stretch of the canal does not yet come from the Han River, but from various reservoirs in Hebei Province south of Beijing. Farmers and industries in Hebei had to cut back water consumption to allow for water to be transferred to Beijing. The whole project was expected to be completed around 2010. This has recently been set back to 2014 to allow for more environmental protections to be built. A major difficulty is the resettlement of ~250,000 persons around Danjiangkou Reservoir and along the route. Another problem is the influence on the Han River, where ~1/3 water is diverted. One long-term consideration is to build another canal to divert water from the Three Gorges Dam to Danjiangkou Reservoir.
Western Route
The western route is to divert water from the headwater of the Yangtze River into the headwater of the Yellow River. In order to move the water through the drainage divide between these rivers, huge dams and long tunnels are needed to be built to cross the Tibetan-Qinghai and Western Yunnan Plateaus. The feasiblility of this route is still under study and this project won't start in the near future.
The original plan that began in the 1950s and 60s called for diverting the Nu (Salween), Lancang (Mekong), Tongtian, Yalong, Dadu Rivers into upstream Yellow River. The project was considered too immense and costly to be undertaken at the time. At the present, armed with new technology, feasability studies have been conducted with the plan of connecting the three latter rivers (Tongtian, Yalong, and Dadu, rivers that flow entirely within the borders of China) and diverting them into the Yellow River. Of which, the Tongtian diversion line would be 289 km in length, the Yalong 131 km, and the Dadu 30 km.
Renewable Energy Market
Thermal Power
The thermal power industry has undertaken major initiatives to improve and optimize thermal power units, creating strong demand for valve products. Driven by the solid economic growth in China, the power industry has experienced rapid growth in recent years. In 2008, total power generating installed capacity achieved 793 million KW, up from 571 million KW in 2005, a 3-year CAGR of 15.3% per year. The thermal power generating installed capacity accounted for 70% of total power generating installed capacity in China in 2008. Total thermal power generating installed capacity was 601 million KW in 2008, up from 391 million KW in 2005 or a 3-year CAGR of 15.4% per year.
In addition, despite relatively sufficient installed capacity, the thermal power industry is operating at suboptimal levels. Less sufficient, small thermal power generating units account for roughly 70% of total thermal power production capacity, while larger units (above 300 KW) only contribute to less than 30% of capacity. The small units have greater coal consumption, generate lower thermal efficiency and create higher pollution, which cause severe environmental and energy-saving problems in China. Thus, replacements or upgrades of those inefficient, small units should generate strong business opportunities for valve producers such as NF Energy.
Hydropower
Hydropower is the largest source of renewable energy in China and in the world. China has the world’s largest installed capacity, production and consumption of hydropower. According to a report on a multi-year survey, or the 2005 Report, completed in 2005 by the National Development and Reform Commission, or the NDRC, and the China Hydropower Engineering Consulting Group Co., at that time China had 541,640 MW of technologically exploitable hydropower resources and 401,797 MW of economically exploitable hydropower resources, calculated as the aggregate of all sites of at least 0.5 MW in size. Total installed capacity at the time of the report was 130,980 MW, representing approximately 24.2% of the technologically exploitable resources or 3 2.6% of the economically exploitable resources in China. Hydroelectric plants accounted for 436 TWh of electricity generated in 2006, compared to 277 TWh in 2001, representing a five-year CAGR of 9.5%, according to the China Statistical Yearbook 2007. Revenue from China’s hydropower generating industry is expected to have reached $12.4 billion in 2008.
The Chinese government continues to invest heavily in the water industry to solve water shortage and flooding problems, to expand or upgrade water pipe networks; and to increase hydroelectric power supply. The major projects include major infrastructure projects between western and eastern regions of China, the transformation of the old industry base, construction of downtown pipe networks in major cities, residential buildings, and wastewater treatment and water conservancy. The increased investments in the water industry should create great business opportunities for valve manufacturers.
Wind Power
Wind power generation is a mature technology that is embraced in China due to its relatively low cost (compared to other renewable energy sources such as solar power) and abundance of wind resources. Current Chinese government guideline mandates that 30,000 megawatts of wind power be installed by 2020. The Brussels-based Global Wind Energy Council reported that in 2008, China added more than 6,000 megawatts of wind-power generation capacity, bringing China’s total installed wind-power generating capacity to over 12,000 megawatts. Moreover, the Chinese government has mandated that 70% of wind components be sourced domestically by 2010.
Last year, installed wind power capacity doubled to 12.2GW and China accounted for the most new capacity in the world. The growth rate may stay high, as the original target of 30GW may be reached in 2011 and a new target for 2020 may be revised to 100-150GW. Total investment will likely reach Rmb 1 trillion.
Nuclear Power
Nuclear power has the advantages of zero pollution and high availability. China currently has 11 nuclear power plants with total generation of 9.1GW, 24 units under construction totaling 25.4GW, and nine more planned units. Since August 2008, the NDRC has given approval for 35 plants of over 1GW each. The original target of 40GW by 2020 is expected to be met in 2015, and the capacity in 2020 should be over 75GW. China’s nuclear power plants are still few compared to developed countries (US: 104, France: 59, Japan: 55, Russia: 31, UK: 27) and the contribution to overall energy is small. Total new investment may reach Rmb750bn. By 2020, nuclear power may account for over 5% of total generation, compared to just 1.3% in 2008.
China has accelerated building its nuclear power generating units (reactors) to help increase power generation, leading to strong demand for valve products. China currently has 11 nuclear power generating units. Based on the Medium and Long-term Development Plan for Nuclear Power, the country is expected to build 20 new nuclear power generating units by the end of 2020. The total installed capacity from nuclear power generation is expected to reach 40 million KW in 2020, up from 8.9 million KW in 2008.
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NF Energy Saving Corp.
www.nfenergy.com
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