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World Bank, GEF-Backed Energy Efficiency Program Expands in China

January 14, 2008

  • China is second largest energy consumer in the world.
  • World Bank Group expertise is brought to bear to help China achieve its targeted 20 percent reduction in energy intensity.
  • Bank-China Partnership includes a mix of programs to conserve energy or reduce pollution.

January 14, 2008— A 10-year effort to slash energy waste and greenhouse gas emissions by appealing to businesses' bottom line is beginning to "catch hold" in China, says World Bank Lead Energy Specialist Bob Taylor.

Energy management companies known as ESCOs, whose business involves helping industries save money by using less energy, are springing up around the country and now number at least 100, up from just three in 1998.

Many ESCOs are gathering at a conference in Beijing this week (January 17-18) to take stock of an industry that saved about as much energy in 2006 and 2007 as France would have consumed in standard-grade coal in the last two years.

Such results show the ESCO industry's energy conservation efforts have the potential to significantly reduce the climb in China's coal use-a major source of greenhouse gases, says Taylor.

"Energy efficiency would do the most, the quickest" to reduce the amount of carbon dioxide released from fuel combustion in China, he says. China's industries are the heaviest users of coal, he adds.

Surging ESCO Industry

The ESCO concept, introduced by the Bank to China in 1997, "caught the imagination of key energy efficiency policy makers" as a new way to promote energy efficiency investment commercially, says Taylor.

China's energy conservation industry began with three ESCOs created in 1998 in Shandong, Liaoning, and Beijing by the US$151 million China Energy Conservation Project backed by the Government of China, World Bank, Global Environment Facility (GEF), and the European Commission.

In Brief: Energy Efficiency Efforts

Since 1990, the World Bank Group has invested nearly $3.1 billion in energy efficiency in about 120 projects in 40 countries, according to a new report on progress on renewable energy and energy efficiency in fiscal 2007.

In China, the Bank Group, along with other partners, supports the government's bid to reduce energy usage per unit of GDP by 20 percent by 2010 by:

The Bank and Chinese counterparts are also developing a large-scale financing program for industrial renovation projects costing US$1 million to $5 million to be launched through the proposed China Energy Efficiency Financing Project.

The government estimates the top 1,008 largest industrial energy consumers account for 30 percent of China's total primary energy consumption, offering a potential "goldmine" in energy savings.

In 2006, about 100 ESCOs financed over 400 energy conservation projects in 16 provinces totaling US$280 million in investment. With further rapid growth last year, investment levels in 2007 could be double this amount, says Taylor.

Projects begun in 2005 and 2006 are expected to generate energy savings equivalent to 18 million tons of standard-grade coal and 21 million tons of coal, respectively, exceeding original targets by "several orders of magnitude," according to a recent assessment of the program.

New energy efficiency investment through ESCOs could reach US$1 billion in three to five years and provide some 70 to 80 million tons of coal equivalent (tce) in energy savings over the life of the projects supported, says a recent report on World Bank innovations in China.

Energy Efficiency Investments

Under their full-service business model, ESCOs use innovative energy performance contracts to finance energy efficiency projects that save money on fuel or electricity.

Such projects include boiler renovations, technology upgrading in combustion systems, renovation of kilns and furnaces, waste heat or gas recovery and use, motor drive system renovations, cooling system replacements, internal power supply renovation, and heating, ventilation, air conditioning system renovations and innovations, and even light bulb replacements.

The companies are paid a large percentage (usually 80 percent) of the estimated cost savings until their investments are paid off-typically in one-to-three-years. With the investments paid from the savings, the host enterprises receive more efficient equipment to use for years to come with no cash outlay.

The EMC concept is particularly attractive for small and medium-sized energy efficiency projects. But larger scale energy efficiency project investments are also needed for the country to cut back on energy use by the steel industry and other energy-intensive industries as China's rapidly growing economy continues to expand, says Taylor.

Focusing on this market, the Chinese Government and World Bank have prepared a new Energy Efficiency Financing Project, using a proposed new US$200 million World Bank loan and US$13 million GEF grant. This project, expected to be approved in a few months, will foster the development of large-scale energy efficiency loan programs in three Chinese national banks, to lend for projects in the $5-10 million range in heavy industries.

The World Bank Group's private sector arm, International Finance Corporation (IFC), along with GEF and the government of Finland, also supports energy efficiency improvements through the China Utility-Based Energy Efficiency Finance Program (CHUEE). IFC estimates the program has resulted in more than US$120 million in energy efficiency lending, with a much larger pipeline of expected future investment.

Besides energy conservation, including fostering the energy management companies and reducing heat loss in buildings, the World Bank is backing renewable energy, environmental protection in the energy sector, and efforts to make coal plants cleaner and more efficient.

The solution is "not one single thing - it's a whole mix. You have to have a whole mix of programs, all of which have to contribute."

"All of our work in energy is on clean energy, and all of it's growing," says Taylor.

Coal Powering China's Economy

Coal contributes 30 percent of the world's CO2 emissions and is China's most abundant energy resource, supplying about 62 percent of the country's energy needs in 2004, according to the International Energy Agency. While per capita energy use in China remains much lower than in Europe or the United States, China has become the second biggest energy consumer in the world. Its share of new CO2 emissions is expected to rise to 40 percent of the world's total by 2030 if measures are not taken to reduce them.

In 2005, the Chinese government set an ambitious goal of reducing energy usage per unit of GDP by 20 percent between 2006 and 2010. The 20 percent "is a very tough target to make," observes Bob Taylor, World Bank Lead Energy Specialist for East Asia. Indeed, Chinese Premier Wen Jiabao said last year that China's per-unit-GDP energy consumption only fell 1.23 percent in 2006, well short of the projected target of 4 percent.

But Taylor, who has worked on World Bank-China energy projects for 25 years, says "the level of commitment is very high - I have never seen energy conservation pushed so hard in any country, from the highest level all the way through the system. China's leaders have a good understanding that the country cannot continue growing very fast and consume resources at the same efficiency it has thus far. You can see very quickly there's not enough energy in the world to support that."