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Market Development of ESCO
in China
Dai Cunfeng
Chinese Renewable Energy Industries Association (CREIA)
Adviser of EMC Association (EMCA)
Background
• Investigations and reports during 1992-1994
indicate very low energy efficiency in China
and great potential for energy conservation
and emission reduction
• Many energy conservation projects cannot
be implemented because of various barriers
Unit Product Energy Consumption in 1980
20
13
2500
0
coal-fired
Power
34
0
70
5
20
3.
13
8
5.
7
500
44
8
33
8
1000
steel
cement
ethene
Int'l
Energy consumption unit:
87
0
1500
China
11
00
12
01
2000
truck
coal fired power
Std. coal g/kwh
steel, equiv.
Std. coal kg/ton
cement, overall
Std. coal kg/ton
ethene
Std. coal kg/t
truck
Oil L/10000t-km
China Energy Conservation Project
Phase I (ECP I)
• International cooperation projects jointly
implemented by Chinese government and
World Bank are supported by GEF and EU
– GEF Grant 5 million US$
– EU Grant 1 million Euro
– World Bank Loan 21 million
• Term: 1997-2006
Objective
• Introduce, demonstrate and promote Energy
Performance Contracting (EPC) Mechanism,
facilitate energy conservation to market
driven based mechanism.
• Support implementation of energy
conservation projects
• Control growth rate of greenhouse gas
emission in China
Main Components of ECP I
• Support establishment of three pilot ESCOs, which is
name EMC in China, to demonstrate
– EPC mechanism
– ESCO business model
• Set up National Energy Conservation Information
Dissemination Center(NECIDC)
– Build information dissemination network and capability building:
website, newsletter, workshops, etc.
– Case study and Promotion
– Energy conservation technology guidance in main areas
• Institutional Strengthening
–
–
–
–
Dissemination of EPC
Technical assistance
National policy suggestions
Monitoring and regulation
Results of ECP I
Three Pilot ESCOs
• Beijing ESCO
• Liaoning ESCO
• Shandong ESCO
• Financially sustainable ESCOs without support of grant
• Ability of annually average investment of 50-70 million
RMB. Sales network were established in the main market
area.
• Technology and human resource reserve
• The biggest three ESCOs in China

Total investment：300 energy conservation projects, with
total investment of 0.88 billion RMB

Total sales revenue: 1.11 billion RMB. Average project
IRR: 48%. Average ESCO IRR: 19%

Energy saving and CO2 emission reduction capacity:

1 million tons tce per year

CO2 emission reduction : 720,000 t-c per year.
Investment of pilot ESCOs, 1997-2004
in 10000 RMB
25,000
20,000
17,751
17,242
19,483
15,077
15,000
9,719
10,000
5,000
1,329
2,985
4,266
0
1997
1998 1999
2000
2001
year
2002 2003
2004
Main project lines of three pilot ESCOs
1.
Green Lighting
2.
ASD
3.
Boiler Renovation
3. District Heating
4. Power grid renovation
5. Building Conservation
6. Waste Heat Recovery
7. Furnace Conservation (Heating furnace, arc-furnace)
8. Co-generation
Impacts
• Have obtained practical experience of ESCO
business
• Have demonstrated profitability of ESCO business
model in China. Have promoted adoption of EPC
in some areas.
• Attention and support from government
• Attention from enterprises with large energy
consumption
• Attention from financial institutions (potential
investors)
• Equipment vendors start to sell equipment by
using EPC mechanism
Challenges and Issues
• China still has a huge energy conservation market
• EPC and ESCO business model still need further
dissemination and application
• ESCOs, particularly new ESCOs, need
professional technical assistance.
• Financing obstacles
– Lack of fund
– Poor bank credit records
China Energy Conservation Project Phase II
(ECP II)
Objectives
• Promote market-based EPC in whole China,
facilitate ESCO’s large-scale development, and let
China’s energy conservation industry take form as
soon as possible.
Main Components of ECP II
• Institutional Strengthening
– Continue to promote EPC and ESCO business model
– Support establishment of EMC Association（EMCA）
– Provide professional technical assistance to ESCOs
• Establish a guarantee Fund for ESCO commercial
loans
– Support to overcome financing barriers
EMC Association (EMCA)
• Established on December 30, 2003
• First group of members: 59
• Members include potential ESCOs,
equipment vendors, local energy
conservation centers, financial institutions,
consulting firms, etc.
EMCA’s Main Responsibilities
• awareness and promotion
– Government regulations and policies awareness
– EPC dissemination
• Communication and exchange
– Communication on new concept of energy conservation service and new
products information
– Communication table among sellers/buyers
– Organize expo, workshop, study tours, etc.
• Technical assistance
– Training, consulting services,
– Policy research and lobbying and initiatives: government, public utilities,
taxation, favored policies, etc., Such as support the development of
national medium- and long-term energy conservation development plan
• ESCO qualification Certifications
ESCO Commercial Loan Guarantee Plan
GEF grant
Reallocation after the end the project
Guarantee fund
Leverage (10 times)
Size:22 million US$
Funded by GEF
Grant
Commercial bank loans
ESCOs
Organization Chart of Relevant Parties of Project Phase II
The World
MOF
Bank
NDRC
Project office
commercial
banks
Guarantor
Cooperative
guarantors
ESCOs
Client
EMCA
Remarks
• Grant was not given directly to any specific ESCO so as to
cover and support more ESCOs.
• Help ESCOs to establish credit records with financial
institutions, so as to get commercial loans without guarantee.
• Guarantee applications will be approved independently by
using guarantor’s normal business procedures
• Interest rate/guarantee fee/counter guarantee measures
• Percentage guarantee, no more than 90% of principal, risk
sharing with commercial banks
• Only support loan for energy conservation projects
ECP II Total Investment, Energy Savings and
CO2Emission Reduction Targets
Project Year
Total
total invest
(mil. USD)
Energy
saved
(mil.tce)
CO2
emission
reduction
(mil. t-c)
1
2
3
4
5
6
7
14.4
22.2
38.0
62.4
80.2
82.4
84.8
384
1.3
2.0
3.5
5.7
7.4
7.6
7.8
35.3
0.9
1.4
2.3
3.8
4.9
5.0
5.2
23.5
NECIDC
EMCA
Guarantee
Fund
Market
Development
National Policy
Support