Pradeep Perera - Energy Efficiency Financing in China Challenges, Way Forward and ADB Experience

7/31/2019 Pradeep Perera - Energy Efficiency Financing in China Challenges, Way Forward and ADB Experience

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ENERGY EFFICIENCY FINANCING IN

CHINA : CHALLENGES, WAY

FORWARD AND ADB EXPERIENCE

Pradeep Perera

Principal Energy Specialist

East Asia Energy Department


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Chinas Energy Sector in Global Context

USA

Japan

OECD Europe

Other OECD

China

IndiaBrazil

Russia

Other Non OECD

World Primary Energy

Consumption in 2009 ( MTOE) China is the largest energy

consumer in the world with 19%share in global energyconsumption.

Chinese Energy Consumption isincreasing at an annual rate of 8%.

Coal contributes to over 65% ofprimary energy demand.

China is a net energy importer and10% of its primary energy supply (mainly oil but increasingly coaland gas is imported.


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Energy Efficiency in China

Chinas energy intensity measured in energy consumption per unitoutput is more than double the world average and OECD average.

However, Chinas energy intensity has reduced by 60% since 1990

and is less than India, Russia and Middle East

There has been a rapid decrease since 1990 to 2000, slight increasefrom 2000 2005 and again decline since 2005.


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Importance of Energy Efficiency

to Emission Reduction

China need to provide 30 % of global emission reductionsrequired for 450 ppm case.

End user efficiency improvement, fuel switching and supply sideefficiency improvement are expected to provide 57% of theseemission reductions.


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Chinas Energy Consumption Mix

315

71

158 276

139

35

112

165

727

Housing Commercial Buildings Transport Iron & Steel Chemical Aluminum Cement Other Indusry

Industrial Energy Consumption

Industrial Sector contributes to 57% of final energyconsumption in China.Iron& Steel ( 22%), Petro chemical (11%) , cement ( 9%)dominate the energy consumption.


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Chinas Strategy for Energy Efficiency

Improvement 2006 - 2010

Set a National target of 20% improvement inenergy intensity compared to 2005.

Focused on Industrial Sector & 1000

Largest energy consuming enterprises. Provinces were given energy intensity targets

and responsibility for implementing nationalenergy conservation program.

Provinces were held accountable forachieving the targets.

Progress was tracked annually.


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Organizational Structure for

Supervicing energy savings in China


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Chinas 1000 Key Enterprise Program

Covered the 1,000 largest energy consuming enterprises. ( Morethan 180,000 tce per year)

The Provincial government expanded the coverage by loweringthe threshold .

Enterprises are required to enter into legally binding contractswith the government for implementing energy saving measures.

Undertaking Energy Audits and identifying energy savingopportunities

Establishing enter price wide EMS systems with dedicated staff.

Government monitoring of enterprise specific energy savingmeasures.

Undertaking energy saving investments by replacing inefficientequipment and processors

Quantitative targets for energy consumption was set based onindustry wide benchmarks


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Energy Efficiency Improvement MeasuresCont.

Fiscal Incentive Program for energy efficiencyinvestments @ RMB 200 ( $ 29) RMB 250 ( $ 36)per tce of energy saved.

This amount o 10% - 20% of investment cost. Limited to investments resulting in 10,000 tce.

Provinces came up with supplementaryschemes to cover smaller investments.

Central government allocated over 100 billionRMB ( $ 15 billion) and Provincial governments $RMB 50 billion ( $ 7.5 billion) for these schemes.


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Energy Efficiency Improvement

Measures Cont. Elimination of backward industrial capacity.

Focused on thermal power, iron & steel, cement,aluminum and coke industries

Replacing small with large

Additional electricity surcharges for backward plants.

Subsidies to mitigate transition cost and incentives forearly elimination

Revoking production permits & credit squeezing

Industrial Technologies are classified as

encouraged, permitted, restricted and eliminated. Energy Efficiency Assessment of new capacity


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Developing Energy Service Industry Third party service providers

o Energy audits, consulting & technology dissemination

o Energy efficiency project design and appraisal

o Energy efficiency project investment & managementunder EPC contracts. ( ESCO model)

o Undertaking monitoring & verification of energy savings

Chinas ESCO industry is the largest in the worldwith over $ 4.5 billion EPC contracts resulting inenergy savings of over 10 million tce in 2010.

Over 75% ESCO investments are in industrialsector and over 60% of the contracts ESCO wasresponsible for mobilizing the investments.


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Results achieved 2006 2010 Chinas energy intensity has improved by 19.1% compared to

2005.

The total energy savings achieved as a result of EE investmentswas 340 million tce. ( i.e. 5 3 % of energy savings required for19.1% improvement in energy intensity).

More than 47% of energy intensity improvements are due tostructural changes in the economy.

Total investment mobilized was RMB 844 billion ( $ 130 billion).

Central government : RMB 102 billion( US $ 16 billion)

Local government : RMB 48 billion ( US $ 7.5 billion).

Host Enterprises : RMB 169 billion ( US $ 27 billion)

Commercial Banks : RMB 488 billion ( US $ 77.5 billion)

ESCO Industry : RMB 20.5 billion ( US $ 3.25 billion)

International Funding : RMB 18 billion( US $ 3 billion)


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Results Achieved 2006 - 2010

Sustainable institutional framework wasestablished for achieving further energy savings.

Industry Buildings Transport

Most of the Energy Savings 56%were achieved in Industrial Sector.

Targets were achieved mainly usingadministrative mechanisms withstrong top- down approach.

Energy saving performancecontracts provides a platform forgovernment to closely monitor the

energy consumption in main energyconsumers.

There is less reliance on marketforces such as energy pricing andcarbon pricing


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Challenges of Financing EnergyEfficiency during 2006 -2010

Most of the bank financing was for capacity expansionprojects .

Small Scale Retrofit Projects and ESCO projects finddifficult to access bank financing.

Banks as well as enterprises consider transaction costs

are too high for EE retrofit projects. Banks demand collateral and enter prices are reluctant

to provide collateral for EE retrofit projects.

Low standalone collateral value of EE retrofit assets.

Difficulty in ring fencing the cash flows associated with

EE retrofit projects. Preference of Chinese banks to finance large projects

and thresholds on minimum project size.

Poor credit ratings of SMEs and ESCOs.


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Targets for Energy EfficiencyImprovement in 12th FYP 2011- 2015

China has set a target of 16% of improvement ofenergy intensity and 17% improvement of carbonintensity over 2010.

The measures initiated in the previous program will

be implemented with increased coverage. Supervision and Monitoring mechanisms to verify

energy savings will be strengthened.

Development and promotion of new EE technologies.

Further Developing energy performance contracting.

Instituting corporate energy management systems inkey enterprises.


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Provincial Energy Intensity

Improvement Targets under 12 FYP


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Strategy for Energy Efficiency

Improvement in 12th FYP


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ADBs Contribution to Energy

Efficiency Improvement in China

ADBs energy efficiency investments focused on the threeprovinces having the largest energy consumption in China. (Shangdong, Hebei and Guangdong) .

ADBs ability to provide low cost funds with long grace andrepayment period enabled the establishment of revolving

fund to provide sustainable financing.

ADBs first energy Efficiency Project in Guangdong,approved in 2008.

ADB has supported 19 SME projects.

Mobilized RMB 1.3 billion ( $ 200 million).

Achieved energy savings of 275,000 tce.

The second round of subprojects utilizing the revolving fundis about to commenced.

Capacity building on energy saving monitoring and industrialpolicy formulation for energy conservation.


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ADBs Response : Hebei & Shangdong

Energy Efficiency Projects

ADB has approved Shangdong and Hebei Energy EfficiencyLoans in 2011.

Use similar structure to Guangdong but make effectivepartnerships with middle level commercial banks.

Focus on Medium to Large scale enterprises for Industrialprocess conversion projects.

Provides Capacity Building for Energy Manager Training inShangdong.

A GEF Project for remote monitoring of energy savings, thirdparty M&V agency capacity building and energy management

system certification in Hebei Province is under preparation. The first round of projects are expected to realize energy savings

of around 250,000 tce each in Shangdong and Hebei.

ADB intend to structure future energy efficiency projects withenhanced leveraging and risk sharing with commercial banks.


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Issues and Challenges for next 5 years. China intend to Mobilize RMB 1,500 billion ( $ 240

billion) for EE investments during 12th FYP to achieveenergy savings of 670 mtce.

This involves scale up of Provincial energy efficiencyprograms and implementation and monitoring capacitywill be an issue.

Channeling the required financing from the banks toenterprise for EE investments require special effortsand incentives.

Need for more market based approaches such asemission trading, sectoral trading of energy efficiency

and tradable energy efficiency certificates. Further expanding the capacity of energy service

industry.

Further expanding the enterprise energy managementcapacity.

Pradeep Perera - Energy Efficiency Financing in China Challenges, Way Forward and ADB Experience

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