Creative financing for energy efficiency in China through energy management companies

Abstract

China is the world's second largest energy consumer and second largest producer of greenhouse gases after the United States. Despite its remarkable success in energy conservation over the past two decades, China's energy efficiency is far behind developed countries. Further improvements in energy efficiency are crucial to China's sustainable development. In this study, I focus on energy-efficiency financing because I believe that financial constraint is one of the most critical barriers to energy-efficiency projects. The concept of the Energy service companies (ESCO) is a financing innovation of energy efficiency projects that has been widely used in North America and Europe and was recently introduced in developing/transitional countries. As one of the main components of the WB/GEF China Energy Conservation Project, the ESCO concept was introduced in China in 1996. The ESCOs are called energy management companies (EMCs) in China. I elaborate the ESCO concept, how ESCOs work, and EMCs' current progress in China. Through two case studies of excess coal-gas recovery, I discuss the feasibility of two energy-efficiency projects and how EMCs can effectively promote the projects through their financing services. China's EMCs are still in the nascent stage. Through the comparative analysis of ESCOs' development in the United States, South Korea, Hungary, India, and China, I identify the key factors influencing ESCOs' development and analyze their implications for China. I emphasize the importance of government-supported policy to EMCs' development and provide some detailed recommendations for the government to promote the development of the market for energy-efficiency projects, the development of the local financing market, and the development of EMCs' capability to conduct energy-efficiency projects. Finally, I expect that China's EMCs will prosper with China's improvement in the financial market and legal system, as well as the placement of government-supported policy. EMCs' successful development will support sustainable development both in China and the world.