1. Market Development of ESCO in China Dai Cunfeng Chinese Renewable Energy Industries Association (CREIA) Adviser of EMC Association (EMCA)

2. 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

3. Unit Product Energy Consumption in 1980 coal fired power Std. coal g/kwh steel, equiv.Std. coal kg/ton cement, overallStd. coal kg/ton etheneStd. coal kg/t truckOil L/10000t-km Energy consumption unit:

4. 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

5. 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

6. 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

7. Results of ECP I

8. 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

9. 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 CO 2 emission reduction capacity: 1 million tons tce per year CO 2 emission reduction : 720,000 t-c per year.

11. 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

12. 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

13. 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

14. China Energy Conservation Project Phase II (ECP II)

15. 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.

16. 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

17. 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.

18. 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

19. Guarantee fund Leverage (10 times) Commercial bank loans Reallocation after the end the project ESCO Commercial Loan Guarantee Plan GEF grant ESCOs Size:22 million US$ Funded by GEF Grant

20. GuarantorEMCA commercial banks ESCOs Client Cooperative guarantors The World Bank MOF NDRC Project office Organization Chart of Relevant Parties of Project Phase II

21. 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

22. ECP II Total Investment, Energy Savings and CO 2 Emission Reduction Targets Project Year Total 1234567 total invest (mil. USD) 14.422.238.062.480.282.484.8384 Energy saved (mil.tce) 1.32.03.55.77.47.67.835.3 CO 2 emission reduction (mil. t-c) 0.91.42.33.84.95.05.223.5

23. Guarantee Fund National Policy Support Market Development EMCA NECIDC