China Utility Energy Efficiency Program (CHUEE)

Program Type

Guarantee/risk-sharing facility
Technical assistance

Program Type - Description

Partial risk guarantee supported by a technical assistance and information dissemination program

Target Group

Large
Cross Sectoral

Geographic coverage

China

Year

2006

Ongoing

No

Status

In operation

Sponsoring Entity

International Finance Corporation (IFC)
Supported by funding from Global Environment Facility (GEF).

Counterpart Entity

Commercial Banks

Implementing Entity

Bank of Beijing (BOB)
Industrial and Commercial Bank of China (ICBC)
International Finance Corporation IFC
Shanghai Pudong Development Bank (SPDB)

Objective

The principal objectives of the program were:

  • Risk sharing facility through a partial credit guarantee to banks, combined with a technical assistance program to build the banks’ in-house knowledge and capacity.
  • Technical assistance to the market partners for project development and facilitation of introductions to potential financiers.

Information dissemination program as well as technical assistance to energy end-users; to increase their knowledge and capacity to tap into ESCOs and banks.

Energy Efficiency / GHG Goals

No specific targets identified; but general target to increase commercial financing into EE.

Barriers Addressed

  • Information barrier on the end-users’ side as well as a lack of know-how / capacity among Chinese commercial banks on EE financing.
  • Lack of financial and technical skills in industries to prepare investment grade or bankable EE project proposals.
  • High risk perception surrounding intangible nature of EE projects (i.e. lending against energy savings with no collateral to support financing) coupled with risk aversion among Chinese banks.

Financing Mechanism

Partial risk guarantee fund

Partial credit guarantee – provided by IFC to address financial risk issues and reduce risk aversion of the participating banks.
Technical assistance to EE stakeholders –assisting them to assess their facilities’ EE potential and to structure their EE projects.
Market outreach and information dissemination – to create market momentum and increase the general awareness of EE in the market.

Eligibility Criteria

Based on bank’s loan eligibility criteria which evolved and improved with TA component of the facility.

Major Activities

Industrial EE programs;

Key Results

  • Total number of projects: 98
  • Number of participating companies: 78
  • Leverage achieved of USD 3.75 of private sector finance (loan and equity investment) for each USD 1 of public finance guarantee.
  • Although the program was designed with a prudent / conservative default rate of 2.5%; there were no defaults (compared to the experience of Chinese commercial banks default rate of 1.14%)
  • The projects financed concentrated on heavy industries: steel (37%), Chemicals (20%); Cement (17%); as well as cooking, food and glass, but the average size of the projects were relatively large at USD 5.7 million.
  • Estimated GHG reductions of 14 mt CO2e.
  • The program failed to tap into the SME sector.

Lessons Learned

  • Flexibility is needed in the program design to respond to unexpected challenges and opportunities. In this case, although the CHUEE program was designed as a utility-based support program, it evolved as a program to support financial institutions due to the misalignment of stakeholder interests in the original concept.
  • A combination of multiple approaches in the program is more likely to succeed. Although guarantees are necessary they might not be sufficient to increase investment in EE.
  • Government buy-in and market readiness are important factors in success of program: The timing of CHUEE coincided with the focus of the Chinese government on energy efficiency, which was outlined in the eleventh five year plan.
  • Aligning interests with the private sector is key.  Although generating EE financing opportunities is the immediate objective of the program, sustainability off EE financing efforts by the Chinese counterparts is of equal importance. It therefore helps to define an exit strategy for the development finance agency from the start.

Contact

Alex Ablaza (IFC)

Russell Sturm (IFC)

Calvin Xu ( former IFC)

Other Comments

The CHUEE program is regarded as a success in the China EE market. Many have tried to emulate this example since it was first implemented.