Between now and 2030, world energy demand is projected to grow by 1.6 percent annually, adding up to a dramatic 45 percent increase. Meanwhile, energy demand in developing and transitioning countries is predicted to exceed that of developed countries. Such rapidly growing energy demand is particularly challenging given that most of the world’s population still relies on energy from limited fossil fuel sources.

The increased energy demand together with the soaring price of energy and stricter energy consumption reduction targets pose a particular challenge – as well as unique opportunities – for the energy efficiency projects set to take place in China. From 1996, the Ministry of Finance together with the World Bank and Global Environment Faculty implemented the “World Bank/GEF Chinese EnergyConservation Promotion Project”. Since then, professional energy efficiency service providers have blossomed in the Chinese market.

The most popular energy efficiency projects are: normal equipment deals (turn-key delivery); energy service companies (ESCo, savings go to the seller for a fixed period); shared savings (normal deal plus the seller takes a bonus share of the savings); as well as energy savings performance contracting (EPC, sellers invest in the equipment and share the savings with buyers). Of these options, EPC has proven especially popular on the market as it is a convenient approach for the buyer to accept the energy efficiency project. However, the EPC approach faces great challenges on the Chinese energy efficiency market.

In one extreme case, Honor East Company signed an EPC with Yunnan Qujing Far East Cement Plant three years ago. In the contract, both parties agreed that Honor east Company would invest in the energy efficiency equipment and share the saved electricity cost equally for ten years. In June the first equipment was stalled and in August, Honor East Company received a report from the cement plant that 25% of the electricity had been saved with same output. Over the following three years, Honor East Company received over ten equipment maintenance and technical support requests from the cement plant and Honor East Company provided the services according to the contract. Unfortunately Honor East Company did not receive any profit from the Far East Cement Plant. Both the Chairman and Vice Manager of Sales from Honor East Company visited the Far East Cement Plant regarding the debt several times but yielded no result. Honor East Company also turned to the local Qujing government for help. At first the Qujing government managers felt it was an easy case and promised to help. Several weeks afterwards the government managers cut off the assistance contact with Honor East Company. When a journalist contacted the legal representative of Yunnan Qujing Far East Cement Plant, XING Zeming, he denied signing an EPC with Honor East Company. Even worse, local lawyers do not want to take this civil case. With this situation, Honor East Companies has lost RMB 14 million of income and equipment worth RMB 4 million. The consequent effect is enormous. Honor East Company started to demand for at least 30% deposit or normal equipment deal.

A new energy efficiency subsidy has been launched by the Chinese central government in 2010. The subsidy is targeted to small projects and directly to service providers. Unfortunately, the sincerity has been abused by big energy consumption companies who established their own energy efficiency companies. Some experts suspected that those companies will utilize affiliate transactions to swindle the government subsidies. However, given the current untrustworhty business atmosphere, some experts believe that these affliiate transactions could offer a partial solution to this mistrust.

Source of the case : article on the case (retrieved on 22.12.2011, only in Chinese)

Read more:

Global Environment Facilty Report, Investing in Energy Efficiency – the GEF Experience , PP. 2 (pdf)


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