Funding energy efficiency, PRD, China

The Guangdong municipal Government in South China has created an energy efficiency funding scheme, not unlike CP3 (Cleaner Production Partnership Programme). For energy and environmental improvement projects RMB 300 million (Approx. US$ 44 million) has been allocated for 1:1 cost match basis. Also upto RMB 300,000 (approx US$ 43,000) is available for a specific project proposal.

[PRD – the Pearl River Delta region]

by John A. Herbert, Consultant, Kelcroft E&M Limited
helping lower the cost and impact of doing business in Asia

You’re paying too much

Those shoes you bought last week, that new furniture you ordered, your laundry bill, even that trendy shirt cost too much.  Why? because the manufacturers, and their supply chain have wasted energy, that in turn means higher costs that ultimately you as consumer have to pay.  As you reading there are countless injection moulding machines, chillers, entire data centres, and other production equipment operated with careless abandon wasting energy Gigawatts of energy with nobody minding the store. I have visit many facilities, a couple of recent examples might surprise you:

  • Comfort air conditioning plant running 24 hours/day for an office block with only 9-5 occupancy!
  • Steam systems where process equipment burns unnecessary fuel, poor steam distribution, no condensate recovery

Reality bites, its you the consumer pays that for this waste.

Why waste energy?
So the real question: why do these businesses keep wasting energy? Is it the often cited lack of technology, finance, or availability of know how? I think not. Seriously, is it that difficult to Goggle energy consultant, pick up a phone and ask? It might be an awareness problem, but it’s not a shortage of resource problem.

A code problem?
One of the often cited explanations is absentee regulation. Generally every facility must be built to the current “code” for example the local fire code. But in circumstances where no code exists, i.e. energy waste, there is no limitation to the amount can be wasted.  However, assume for a moment the plant was efficient on day one, it is commonly recognized that maintenance budgets are wholly inadequate, so over time the plant efficiency deteriorates resulting in excessive waste. For buildings an energy code is not going to solve all the problems.

Yes, having an Energy Czar, reporting at board level puts a driver at the wheel of the bus, but is that enough? You also need the ability to handle change, without guidance and drive we all generally work to avoid change. We are creatures of habit, and prefer the easy way, its less stressful, less pain, than considering change.  We need support, we need systems to motivate and embrace change. And I feel that is the real key to understanding energy efficiency projects, we all know having management “buy in” is critical, however if the employees fear change little progress would be made.

Often the employees already know where energy could be saved, but businesses are not structured to leverage that knowledge. Large facilities with quality circles, etc. have the opportunity to use that change structure to benefit the bottomline.

– John Herbert, Consultant, Kelcroft E&M Limited

helping lower the cost and impact of doing business in Asia

International Energy Efficiency Finance Protocol

Hope on the horizon for ESCO’s and Energy efficiency projects? EVO has released (April 2009) a new publication (cover see right) titled International Energy Efficiency Financing Protocol or IEEFP to tackle the issue of bank training.

This guide is based on work conducted by EVO in Mexico, and Thailand is targeted at your local financing institution, primarily banks, essentially helping them to understand and evaluate energy efficiency project finance risk.

As mentioned here ESCO’s historically suffer from a  weak balance sheet, and often find difficultly finance for viable energy projects, one of the reasons most often cited being Financial Institutions lend only based on collateral.

Considering the financial chaos gripping the US, perhaps that prudence should have been extended across all sectors of banks activities?  Anyway, the present approach, demanding asset based collateral, overlooks the benefits of energy efficiency improvement projects, including the income stream from lower energy costs and to some extent lack of understand the mechanics of energy efficiency programmes.

This guide aims to show financial institutions how energy projects that generate energy savings, result in cash flow revenue, and can increase credit capacity for repayment of loans. It is comprehensive overview including a plan for a two day training programme, what expected risks strategies from new and emerging technologies one might encounter.

Unlike the Hong Kong’s recently launched Buildings energy funds it clearly states the obvious, the need for Investment grade energy audits and M&V (Measurement and Verification) to ensure that projects are sound and that projected energy savings are sustainable.

Risk is always an issue, especially for banks entering new territory, recognizing the outstanding opportunities and potential benefits multinational financial institutions (MNF) such as IFC created a programme for help manage the credit risk, for example this publication cites the experience from using IFC/GEF Commercializing Energy Efficiency Finance (“CEEF”) programme.  Locally, we already have IFC’s CHUEE programme which is entirely focused on China energy efficiency projects.

I agree that education, and edcuating the banking sector as a whole, not one person at a time, is a critical issue for wider adoption of energy efficiency improvement projects.  So will this guide answer all of your questions? Unfortunately no, as stated in the preface, it only provides a framework, it is intended as a starting point for a series of further IEEFP programmes and a perhaps a teaser for their two day training course.

Overall yes it is a useful energy efficiency primer, IEEFP 101. It does provide the bare bones of a programme, however key points are only covered with a list of bullet points and likely to leave the reader equally unsatisfied.

John Herbert
Kelcroft E&M Limited
helping lower the cost and impact of doing business in Asia