Promoting EPC Mechanism andStrengthening Northeast Asian
Energy Conservation Cooperation
Shen Longhai
Senior Adviser, National Developmentand Reform Commission Energy
Research InstituteDirector, EMCA
October 2007

Overview• Importance and urgency of energy
conservation in China• Basic concept and model of EPC energy
conservation mechanism• China Energy Conservation Promotion
Project• Suggestions

1

Importance and urgency of energy
conservation in China• China faces rising constraints imposed by
the shortage of energy resources supply,
growing supply-demand contradictions,and serious environmental pollution.
China’s huge challenge: saving energy
resources, protecting ecosystem, reducing
energy consumption as well as pollution.

Importance and urgency of energy
conservation in China• China’s exploitable energy reserve percapita stands far below the world average.
As of the end of 2002, proven reserves ofcoal, oil, and natural gas per capita wereabout 56%, 8.4%, and 5% of the world
average, respectively.

2

Importance and urgency of energy
conservation in China
2.5
2.235
2.06

21.5

primary energy
production inbillion tce
primary energy
consumption inbillion tce

1.3861.29

10.502000

2005

Importance and urgency of energy
conservation in China• As indicated by the graph, China iscurrently the 2nd largest producer andconsumer of primary energy following theUnited States. Its energy consumption
coefficient of elasticity reached 1.05 during
the 2000-2005 period.

3

Importance and urgency of energy
conservation in China• With coal being the leading source ofenergy, China is the 2nd largest emitter of
CO2 in the world. 70% of CO2 and 90% of
SO2 emissions come from coal burning.
SO2 has caused one third of China’s landto be encroached by acid rain.

Importance and urgency of energy
conservation in China• China’s growth and energy consumption
2006

2007 (1st half)

GDP growth: 10.7%

GDP growth: 11.5%

Energy consumption:
9.61%
Energy use per GDP
unit output: 1.33%

Energy use per GDP
unit output: 2.78%

4

Importance and urgency of energy
conservation in China• Conserving energy and promoting efficient
use and re-use of energy resources will be
key to easing up supply-side constraints,
reducing the pressure on ecosystem
brought by increased energy use, andbuilding a well-off, conservation-oriented,environment-friendly society withsustained economic growth.

Importance and urgency of energy
conservation in China
Chinese leaders attach great
importance to energy conservation---- Resources conservation is one ofChina’s basic national policies;---- Chinese government has formulated<Medium- and Long-term Plans on Energy
Conservation> in 2004;

5

Importance and urgency of energy
conservation in China----Chinese government laid out the goalof reducing energy consumption per unit of
GDP output value by some 20% during the<Eleven Five Plan>(from 2006 to 2010);----Chinese government has formulated<Decision on Strengthening Energy
Conservation> in 2006.

Importance and urgency of energy
conservation in China----The State council has made the<Leading Group on Energy Conservation
and Pollution Reduction> and <Integrating
Implementing Project on Energy
Conservation and Pollution Reduction>.

6

Importance and urgency of energy
conservation in China• In his 2007 report on government work,
Premier Wen Jiabao proposed eightmeasures aimed at
improving energy efficiency,
protecting environment,
improving energy conservation policies
and regulations,reducing pollution,

Importance and urgency of energy
conservation in China
developing technology,
reinforcing laws,
strengthening supervision, andimplementing a system of accountability
and responsibility for every facility insaving energy and protecting environment.

7Importance and urgency of energy
conservation in China•

In April, Wen decided to form an energy
conservation and emission reduction
task team in the government to tackle
the following 10 issues:
1, Effectively control the growth ofsectors with high consumption and highpollution;
2, Speed up the phase-out of oldtechnology and equipment;

Importance and urgency of energy
conservation in China
3,Fully implement key energy conservationand emission reduction projects;
4,Focus on key corporations’implementation;
5,Promote technology and innovation;
6,Develop cyclic economy;

8

Importance and urgency of energy
conservation in China
7, Improve systems and policies;
8, Increase spending on energy
conservation and emission reduction;
9, Improve legislations and law
enforcement; and10,Strengthen monitoring and management.

Importance and urgency of energy
conservation in China• Main problems and obstacles:
China has not yet established a new energy
conservation mechanism that adapts to market
economy. Some mechanisms widely adopted
overseas only have pilot projects or are still in
try-out stage in China. For example, EPC -Energy Performance Contracting --wasintroduced in 1998 but its nationwide adoption
has not been realized.

9Basic concept and model of EPC
energy conservation mechanism• What is EPC?
EPC, introduced in developed countries in
the wake of oil crisis in the 1970s, is apractical and effective way to finance andinstall proven energy-efficient technologies,
improve the energy performance of yourbuilding or facility, and save your moneyand energy.

Basic concept and model of EPC
energy conservation mechanism
Your energy efficiency plan is typicallydesigned and installed by an energy
service company, or ESCO. You pay theESCO through reduced energy bills,
typically sharing the energy cost savings
over a predetermined length of time, after
which all of the energy savings revert toyou, the facility owner.

10Basic concept and model of EPC
energy conservation mechanism• What is ESCO?
Also known in China as EMCo or energy
management companies, is a business thatdesigns, installs, maintains, and in many cases
finances retrofit and upgrade projects to improveenergy efficiency of buildings and facilities.
EMCo typically use performance contracting as
a way to finance and implement energy
efficiency contracts, which will result in not only
profits but social and environmental benefits.

Basic concept and model of EPC
energy conservation mechanism• There are three EPC models
currently adopted in China.
1) Energy conservation profit sharing –ESCO finances and implements energy
efficiency contract and shares profits withclient in line with agreement. All
equipment and profits will belong to client
after contract expires.

11Basic concept and model of EPC
energy conservation mechanism
2) Energy conservation guarantee – ESCO
implements contract financed by client andmakes profits from guaranteed energysavings. ESCO is obliged to compensate
client if the energy savings do not reachthe level guaranteed in the contract.

Basic concept and model of EPC
energy conservation mechanism•3) Energy fee trusteeship – ESCO
manages and upgrades energy equipment
and systems for client. Both will benefit
from reduced energy costs.

12China Energy Conservation
Promotion Project• China’s largest energy saving project inpartnership with World Bank and Global
Environment Fund aims at improving
energy efficiency, reducing greenhousegas emissions, and protecting global
environment. The project is divided into
two phases.

China Energy Conservation
Promotion Project• Phase I: 1998 - June 2006
Three pilot energy service companies:
Beijing EMCo
Liaoning EMCo
Shandong EMCo

13

China Energy Conservation
Promotion ProjectNo. ofclients

Totalprojects

Total
Net earnings
investment

405

475

RMB 1.33
blnEMCo: RMB 480
mln
Clients: 8-10 x
RMB 480 mln

China Energy Conservation
Promotion Project• The Project has brought in both energy
conservation and environmental benefits:-- annual energy saving of 1.49 million tce-- annual carbon dioxide reduction of 1.45
million tons

14

China Energy Conservation
Promotion Project• Areas of focus of energy conversation
projects implemented by the three pilot
EMCo
Beijing EMCo: buildings
Liaoning EMCo: industrial boilers, steam
heating systems, etc.
Shandong EMCo: industrial boiler retrofit,district cogeneration, etc.

China Energy Conservation
Promotion Project
total investment in mln yuan

No. of clients300

No. of projects

400

20050810585100 8396
50200

480

340

300

1500600
500

274237250

total capital in mln yuan

183

210

247

1000Beijing
EMCo

Liaoning
EMCo

Shandong
EMCo

Beijing
EMCo

Liaoning
EMCo

Shandong
EMCo

15China Energy Conservation
Promotion Project• Phase II: 2003 – 2008
The objective of Phase II is to promote theadoption of EPC energy saving
mechanism, foster and develop energy
service industry, expand investment inenergy efficiency projects, and reducecarbon dioxide emissions and otherpollution.

China Energy Conservation
Promotion Project• Phase II includes two subprojects –1) a Loan Guarantee Special Fund wasestablished to help EMCo secure loans
from commercial banks to implement
energy efficiency projects.
2) the Energy Management CompanyAssociation (EMCA) was created in April
2004 to facilitate the operation of EPC inChina.

16

China Energy Conservation
Promotion Project250
212200158

150
100505902004

2005

2006

EMCA members increase at an average 54%

China Energy Conservation
Promotion ProjectEnergy conservation projects implemeted by EMCA
members between 2004 and 2005

15, 3%

194, 39%
industrial sectors
construction
transportation

294, 58%

17

China Energy Conservation
Promotion Project
Capital spending in the EMCA projects in 2004-2005 (inmln yuan)

18.92, 1%
668, 23%
industrial sectors
construction
transportation
2216, 76%

China Energy Conservation
Promotion Project• The Loan Guarantee Special Fundfunded 85 projects between 2004 and2006.
total investment: 440 million yuan
amount loaned: 274 million yuan
amount guaranteed: 247 million yuan

18

China Energy Conservation
Promotion Project----annual energy conservation:
261,000 tce----annual reduction of carbon
dioxide emission: 168,000 tons

Suggestions
1) Strengthen energy conservationcooperation among each Northeast
Asian country.
• Since there exist no differences among
Northeast Asian governments in terms ofenergy conservation cooperation, we
should deepen our cooperation bothbilaterally and multilaterally.

19Suggestions•Companies with high energy
consumptions, energy service companies
and financial institutions should further
collaborate in this area. Many firms inJapan, South Korea, and China shoulduse their technology, products, andmanagement skills and experiences topromote such cooperation and exchange.

Suggestions
2) Strengthen cooperation in energy
saving technology, products andmanagement.
• China and Japan should work together on
the development of clean coal technology.
• We should increase explorations andefficient use of natural gas, liquefied
natural gas, and coal-bed gas.

20Suggestions• Japan has complete energy conservation
laws and regulations as well as expertiseand management skills, and therefore weshould strengthen our cooperation withJapan.

Suggestions
3) Strengthen cooperation in promoting
EPC and Electricity Demand-side
Management mechanisms.
• It is essential that we continue to develop
the energy conservation industry andpromote such concepts as EPC and DSM
in Northeast Asia. Multilateral cooperation
among China, Japan, and South Korea isespecially important.

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Suggestions• With the 2nd Asia ESCO Conference heldin Beijing in September, we should
continue to promote cooperative relations
among energy service companies in theregion. EMCA and JAESCO have signed
the cooperation agreement on ESCO inSep.27,2007 in Beijing.

Suggestions
4) Strengthen cooperation intechnological exchange and personneltraining.
• We should in particular further collaborate
over energy auditing, measurement andverification on energy saving.

22Suggestions
5) Strengthen cooperation in energy
development and consumption to
reduce green house gas emissions andcontribute to global environmentalprotection.
Each Northeast Asian nation should
further work together on the overall
process of energy conservation andenvironmental protection

Suggestions• involving exploration, transportation,consumption, and transfer of energy, fossil
energy in particular. They should also
jointly develop new technology andproducts and implement more projects inan effort to reduce green house gas
emissions.

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Suggestions
6) Strengthen cooperation in thedevelopment of renewable energy anduse less and phase out fossil energy.
In recent years, China has made muchprogress in the development and use ofwind power, solar energy, geothermalenergy, and biomass energy.

Suggestions• It should deepen cooperation with regional
members, Japan and South Korea inparticular, in the development ofrenewable energy.

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Contact Us--Addr: Floor 12B, Gate 7, Dacheng Plaza,No.28 West St. Xuanwumen,Beijing 100053, P.R.China--Tel: (8610) 63600182--Fax:(8610) 63600459
Email: slh@emca.cn
Website: www.emca.cn

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