Xiao Yu - ESCO Industry in China

8/6/2019 Xiao Yu - ESCO Industry in China

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ESCO Industry in China:

Status and Way Forward

Xiaoyu Shi June 2011, Manila


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World Resources Institute

A global environmental think tank that goesbeyond research to put ideas into action

Sustainability and development

Non profit organization http://www.wri.org/

Established in 1982

Headquarter in DC with Beijing Office

Over 200 staff
http://www.wri.org/http://www.wri.org/


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China ESCO Industry:Three Stages of Development

Agreedto

introduce

EPC

3 pilotEMCs

EMCAestablished;ESCOs loanguaranteeprogram

launched

taxation andincentive

policies forESCOs

Energyintensity and

carbonreduction

targets

1996 1998 2004 2010 2015


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China ESCO Industry:Three Stages of Development

$


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Continue to be growing at a fast pace To save energy to Vigorously promote energy conservation

7+ strategic emerging industries

Attention shifted to ESCOs and EPCs EE improvement in SMEs and Buildings

Greater leverage with private funding and wider options

New ESCO taxation policy and accounting rules

Cash rewards to eligible ESCOs and EPCs

New Era of ESCOs - 12th 5 YP?


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SWOT Analysis

STRENGTHS

Strong expertise in certain technologiesAbility to provide full-house services andflexibility to deliver customized servicesBusiness experience gained in past 15yearsFast-growing industry with increasing

popularity

OPPORTUNITIES

Conducive policy environmentHuge energy efficiency potentialGrowing funding sources (e.g, commercialbanks such as Industrial Bank Co., Ltd andother financial institutions)Low-hanging fruits already grabbed

Underdeveloped market in public sector

WEAKNESSES

Most ESCOs are small and lack ofcompetitive advantageLack of capitalLow credibilityLimited technological typesInsufficient management skills

Incomplete regulatory framework

THREATS

Insufficient access to commercial financingNarrow coverage of government incentiveprogramsEnergy user entities implement EE inhouse vs. outsourcingInternational ESCOs have stronger

technical, financial, and managerialexpertise


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Characteristics ofESCO Industry in China

Nascent Industry

Many ESCOs are:

limited assets & capital newly established have limited track

record and low marketrecognition

The industry has mixedtrack record and image

Regulatory framework isnot complete

Structural Conflict

Most ESCOs in China

are technologicallyfocused and strong But lack the full range of

skills and strengthsbusiness and finance

Misaligned with the needfor providingcomprehensive solutions

TechnologicalScope Constraint

Single technology (orlimited) Have proprietary

relationship with thetechnologies

Requires customers tocontract with multiple

ESCOs (transactioncosts) Reduce the size of each

transaction


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Insights from RFI

China Energy Efficiency AggregationRFI Response

Difference in EPC experience and limited track record


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Insights from RFI

China Energy Efficiency AggregationRFI Response

Limited technological scope


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Background:

Objectives:

ChinaEnergy Efficiency Aggregation Project

10 Miles

16 Km

Projects clustered in SW Shanghai

Activities:

Wide supports on energy audits1/3 of identified EE projects not implementedGovernment in search for new business model

Adopt a comprehensive approach todemonstrate the need, approach, process, andbenefits of aggregating small and medium sizedprojects in China.

Convening Hosts, ESCOs, financiersOrganizing workshop to explain EPC and the projectDeveloping tools to overcome barriers

Pre-screen Financing ChecklistEE Financing/Investment Decision-Making Supporting ToolRequest For Information and Proposal (RFI/P) template


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Growth opportunity newdevelopment of financial sector

Private equity funds / Venture capital enterinto EE market

Project financing

ESCOs

China, India, and others

Commercial Banks

Minsheng 1:5


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Way Forward what is it?

Aggregation Enabling environment / Eco-system

Regulation to encourage investment in ESCOs andfinancing ESCO projects

NPL financial sector

Quota similar to that to power generators

Accreditation

Rating

New Players Financial services providers

Third party project evaluators

Government qualified or accredited institutions?


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ACKOWLEDGEMENT

Documents

Xiao Yu - ESCO Industry in China