The government of the People’s Republic of China (PRC) recognizes that the dominant use of fossil fuel to produce energy is neither environmentally sustainable nor economically desirable. Therefore, it has committed to improving energy efficiency, diversifying the energy supply mix by developing renewable energy sources, and cutting emissions, and has put in place mandatory targets and incentive-based policies to achieve these objectives. Against this backdrop, it has requested for assistance from the Asian Development Bank (ADB) to finance an efficiency power plant (EPP) investment in Guangdong province, using the financial intermediation loan (FIL) modality. In response, ADB approved a three-tranche, $100 million multitranche financing facility (MFF) Guangdong Energy Efficiency and Environment Improvement Investment Program in June 2008.
The investment program is the first program in the PRC involving the establishment of a pilot energy efficiency project financing model, which could be scaled up or replicated in provinces with high energy consumption. Using proven, energy-efficient technologies, it was to support retrofits in (i) motors and motor-drive systems; (ii) transformers and reactive power compensators; (iii) lighting; (iv) heating, ventilation, and air conditioning; (v) air compressors and pumping systems; (vi) recovery of waste energy from industry; and (vii) industrial boilers and industrial cogeneration. Its intended impact was improved energy security and environmental conditions in Guangdong. Its intended outcome was improved energy efficiency in the province’s industrial and commercial sectors.
The project financed by tranche 1 of the MFF, comprising a loan of $35 million approved in June 2008, was successfully completed in December 2011. Tranche 2 project, this report’s focus, was approved for a loan of $22.06 million in December 2009 and was expected to develop EPP capacity of 27.6 megawatts (MW) and produce annual energy savings of 138 gigawatts (GWh). At completion, the project delivered EPP capacity of 35.3 MW and annual energy savings of 176 GWh, exceeding the original estimates.
As with the earlier project, the Guangdong provincial government (GPG) made the Guangdong Finance Trust Company (GFTC) the financial intermediary for onlending ADB loan proceeds to subborrowers. Revolving use of loan proceeds allowed the program to support the implementation of more energy saving and emission reduction projects than would have been possible under each loan tranche. Selection of the tranche 2 subprojects was made while tranche 1 was still in progress. Six subprojects, with an estimated EPP capacity of 27.6 MW and 138 GWh of annual energy savings, were initially identified and assessed, but one was replaced during implementation because of its inability to provide eligible withdrawal application documents.
The project successfully promoted energy service company (ESCO) sector development in Guangdong. Three subborrowers were able to establish their own ESCO arms by 2012. During 2010–2012, the executing agency (EA) hosted seminars and workshops to promote the EPP program, and conducted trainings on M&V of energy savings and financial and economic analysis. These activities strengthened EA capacity to financially manage and evaluate energy efficiency projects in line with energy efficiency regulations. The EA also trained subborrowers in EPP investment, procurement, and disbursement.
The energy savings realized under the tranche 2 project prevented the consumption of 58,175 tons of coal equivalent per year and reduced emissions by 137,505 tons per year (t/y) of carbon dioxide, 1,587 t/y of sulfur dioxide, 353 t/y of nitrogen oxide, and 617 t/y of total suspended particulates. Savings in electricity costs from the subprojects could amount to $20 million annually from 2013. The project has thus fully achieved all its expected results, exceeding expectations and targets in energy savings and emissions reduction.
As with tranche 1, the project had the GPG as EA. Implementation of the EPP subprojects was managed by the EPPPMO.
