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NRDC signs MOU with Hebei Province to Promote Energy Efficiency

Bo Shen

Posted September 19, 2009

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 The Natural Resources Defense Council along with The USAID ECO-Asia Clean Development and Climate Program, Hebei Provincial Electric Power Office, Heibei Power Demand Side Management and Instruction Center, and The China-US Energy Efficiency Alliance entered into a Memorandum of Understanding last week for the Provision of Technical Assistance to Promote the Establishment of a Public Energy Savings Company, DSM Fund and DSM Program in Hebei Province.

 ECO-Asia, NRDC and the Alliance have agreed to jointly conduct a series of technical assistance activities to support DSM development in Hebei province including: ssupporting the establishment and scaling-up of a public Energy Savings Company ("Super ESCO) as well as their existing Demand Side Management (DSM) Fund; supporting the Center in conducting targeted energy audits, performing potential studies, screening and identifying "Efficiency Power Plant" (EPP) projects, designing incentive programs, providing technical assistance in DSM program implementation, and developing an EM&V framework; and, developing and implementing a plan to provide ongoing training and capacity building to support the needs of the Hebei Provincial Power Office and the Hebei DSM Center.

 The Hebei Electric Power Office and the Hebei DSM Center will work closely with ECO-Asia, NRDC and Alliance staff and consultants by: assigning senior managers from Hebei Provincial Power Office or the DSM Center as the primary contact for ECO-Asia CDCP, NRDC and Alliance staff and consultants; providing ECO-Asia, NRDC and the Alliance, upon request, data on provincial energy use, DSM activities to date and existing legal and business framework for the Super ESCO; working closely with ECO-Asia, NRDC and the Alliance, to respond to questions/queries from MDBs and commercial banks; and, overseeing, managing and funding local logistics for meetings/trainings in Hebei province

 To better understand the importance of this Memorandum it is important to understand about Hebei Province. Adjacent to Beijing, Hebei is one of the largest energy users in China, alone responsible for over one-tenth of China's total energy consumption in 2007. While Hebei was ranked 6th among 31 Chinese provinces and municipalities directly under the Central Government in terms of GDP, its energy intensity - measured by tons of coal equivalent of energy consumed per 10,000 RMB GDP - was ranked 24th nationwide. Hebei's economy is 160% more energy intensive than that of Beijing and Guangdong.

 Hebei's economy has traditionally relied heavily on energy consuming heavy industry such as iron and steal, cement, metallurgy, and so on. To greatly improve the air quality in the Capital of Beijing (a very sensitive issue during the 2008 Olympic Games) China's Central Government asked this neighboring province to shut down all polluted, inefficient business operations, thus forcing Hebei's government to take prompt actions to significantly improve the efficiency of its energy system so that its economy could continue to grow.

 Hebei is among very few provinces in China to collect an urban construction fee as a regulatory surcharge from electricity customers to support energy efficiency programs. Each year, the provincial government allocates 80-90 million RMB (equivalent to US$12-13 million) for efficiency projects. This money is currently used as a cash reward and given to enterprises that are willing to retrofit their facilities. In spite of the government's effort to incentivize enterprises, energy savings have been far less than what the government expected.

Thus, to make the government investment more cost effective, Hebei recently decided to use the government incentives as a way of credit enhancement or risk reduction in order to leverage massive private investment in high-return energy efficiency projects. Hebei is thinking of applying for Asian Development Bank loans, seeking the assistance of IFC's risk sharing facility, and exploring all other viable financing options.

 To institutionalize the government's plan, Hebei has initiated the idea of creating a Super-ESCO that will administer the government incentive fund and use it as a leverage to obtain private investments. The Super-ESCO will also be responsible for working with investors to identify high-return projects and leading the efforts in implementing the projects.

 NRDC was instrumental in helping Hebei develop these programs and through our work with them in the past, continuing into the future, we will be able to assist Hebei in realizing energy efficiency and economic growth with a viable finance program and credible results.




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