THE WORLD BANK Coping with Cold The Challenges of Meeting China’s Fast-Rising Urban Heat Demand Wu Junhui Sector Manager Energy and Mining Sector Unit East Asia and Pacific Region The World Bank

THE WORLD BANK Rapid Urbanization and Construction Boom China’s urban building stock has increased dramatically: doubling between 1995 and The urban building stock is likely to double again in the next 15 years. This rapid growth has major energy and environmental implications. Sources: China Statistical Yearbook Estimated 2020 figures.

THE WORLD BANK Building Energy Demand Has Soared Heating coal demand has increased nearly as fast as the building stock has, growing nearly 8% a year. So has residential and commercial electricity use, growing nearly 13% a year, owing much to rising cooling demand. Sources: China Statistical Yearbook 2004

THE WORLD BANK Rapid Growth of Building Energy Demand Will Continue There still is much room to grow for heating and cooling energy demand in China’s buildings. Driven by growth in building stock, as well as by growth in wealth. Energy used in buildings is projected to grow 3.5 times from 2000 to 2020, even with pro- efficiency policies. Share of building energy use in overall energy demand would grow from 17 to 26%. Source: Development Research Center of the State Council: Basic Concept of the National Energy Strategy, 2005

THE WORLD BANK Why should Space Heating Be of Concern in China? About 600 million people need 3-6 months of space heating per year. It is almost exclusively dependent on coal, and fast growing. About 200 million tons of raw coal was used to heat buildings in northern cities and towns in Accounts for 10% of total energy use, 15% of coal use, and over 50% of building energy use in China per annum. Results in 4 million tons of sulfur dioxide emissions and 400 million tons of carbon dioxide emissions per year. Heating coal use and relevant emissions could double by 2020, without significant improvement of space heating energy efficiency.

THE WORLD BANK Energy Waste in China’s Urban Space Heating Too much heat is lost through building envelopes.  Current Chinese standards still far less stringent than in North America and Europe.  Existing buildings fare even worse, requiring perhaps three times as much energy to heat as comparables in North America. Too much energy is wasted in heat production and distribution. Neither heat suppliers nor consumers care much about the excessive energy waste. Allowed Maximum Heat Conduction Coefficients for New Residential Buildings (W/m 2 -K°) RoofExterior WallWindow Beijing, 1995 National Bldg. Energy Code US region of similar climate Canadian region of similar climate  Average thermal efficiency of delivered heat in China is at least 30% lower than that in Northern Europe.  No market incentives for saving energy.

THE WORLD BANK Barriers to Improving Space Heating Energy Efficiency Heat is not a “commodity”, preventing its efficient production and consumption:  State/government employees do not pay or pay little for heating services;  Heat is not metered. There is no measure of either heat delivered or consumed;  Heat is not priced according to cost of investment, production and operation; and  Heat is charged based on the area of apartment, not actual consumption. Heating system design and technologies are outdated:  Soviet-era designs and technologies are still widely applied and used in new construction.  Heat production is dominated by small and medium coal-fired heat-only boilers, especially in small and medium cities.  Consumers cannot control and adjust heat consumption. Lack of systematic and rigorous enforcement of building energy code for new buildings:  Building code enforcement is not an integral part of the existing building quality inspection system.

THE WORLD BANK International Experiences and Lessons Market reforms to “commodify” heat are critical:  Consumers must pay for heat based on how much they consume;  Heat price must cover the cost of heating system investment and O&M costs;  Targeted financial assistance to low income households for paying heat bills is needed;  Heating companies must become financially independent and viable commercial operations. Investments in building thermal quality improvement need go hand in hand with improvements on heat generation and distribution systems. Replacement of small coal-fired boilers with connections to a DH network supplied with heat from CHP plants results in major energy savings and air pollution reduction. Mandatory building energy code is most effective for improving thermal quality of new buildings:  When it is systematically enforced as part of the existing procedures for construction quality inspection.

THE WORLD BANK A Success Story In Poland 1991/ Change Household heat bill subsidy 67%<5% (1994 figure) Heat bill charged to households (1999US$/m 2 ) % Heated floor area (million m 2 ) % Heat energy sold (Gcal/m 2 ) % Estimated energy savings 22% Between 1991 and 1999, the Cities of Warsaw, Kracow, Gdansk and Gdynia phased out heat subsidies, undertook renovations of heat supply systems, installed building-level heat meters, and implemented a two-part heat tariff charged at the building level. Results in Four Cities Source: World Bank Staff

THE WORLD BANK Maximum Efforts in China Are Needed Now To avoid locking in wasteful buildings and heating systems for decades to come: Up to 30 million tons of raw coal per year could be saved by 2020 in newly built residential buildings in northern China. Source: World Bank Staff Estimates

THE WORLD BANK Policy Reforms and A Two-Handed Approach China needs to adopt a two-handed approach to simultaneously address energy waste in heat production and distribution, and in buildings Accelerating heating sector market reforms Making consumers pay for heat based on actual consumption, Implementing real cost-based heat pricing, and Commercializing and modernizing heating services provision. Rigorous enforcement of building energy code: Integrating building energy code enforcement with existing construction quality control system, and Further increasing the stringency of building energy code.

THE WORLD BANK World Bank Assistance in China’s Efforts The World Bank is assisting the GOC’s heat reform and building energy efficiency agenda through a comprehensive Heat Reform and Building Energy Efficiency (HRBEE) Program including a major GEF investment project and multiple policy- support - technical assistance projects. The Objective of the HRBEE program is to help achieve sustained and growing increases in energy efficiency in urban residential buildings and central heating systems in China’s cold regions, through supporting: –the improvement of building energy code enforcement and demonstration and replication of improved building designs and improved energy-efficiency measures; –reform of heat pricing and billing; and –demonstration and replication of heating system modernization, heat metering and user control, and demand-driven heat supply operation.

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