Chongqing Paiwei Energy Co., Ltd. (“Paiwei”) is a high-tech company specialized in providing comprehensive energy saving services, and it is also one of the major energy management companies (“EMCs”) supported by Chongqing municipal government. Paiwei focuses its business on electricity saving projects for factories and utility companies. With sound track records of many successful projects for large companies in high and low voltage electricity saving, Paiwei owns lots of engineering and managerial expertise in this field.
In October 2007, Paiwei received a 5-year 12-million RMB (USD 1.6 million) energy efficiency loan from Industrial Bank’s Chongqing Branch to support its energy performance contracting (EPC) business, under which it will implement electricity saving projects for three power plants affiliated to Chongqing Coal Group Company. Emissions reduction of these three projects is estimated at 12,000 tons of CO2 every year, a level equivalent to the total emissions of 20,000 taxies running for a year.
The three projects follow the typical EMC operation procedures. They started with energy audits, and then energy saving project proposals and client’s signing off the letters of intent. Based on the initial agreements, Paiwei studied and monitored energy consumptions in these power plants, and determined the engineering designs. It will install energy efficiency equipment to replace outdated devices, and monitor the post-installation energy consumption status based on which Paiwei and its clients will share the benefits of these projects within an agreed time period. Details of Paiwei’s three projects supported by this loan are shown as follows:
EPC is a new market-based mechanism to improve energy efficiency. The success of this model in some parts of China is facilitating the rapid development of energy saving companies in this country. The core of an EPC business is that a professional EMC provides its end-users with a complete set of energy services, including project finance, and that it allows an end-user to enjoy the benefits of an energy saving project without any upfront cost. After the EPC contract expires, the ownership and all the benefits of the project will be transferred to the end-user free of charge.
The three projects generate good financial returns and environmental impact. However, due to their small size and scattered locations, they are unable to find a place in local government’s top agenda or attract enough interest from financial institutions. Individually, none of these energy saving projects could attract external finance. Being a professional EMC, Paiwei bundles together small projects, standardizes the implementation and energy saving benefits sharing arrangement in the energy performance contracts. Using its share of the energy saving benefits stipulated in these contracts as the primary source for loan repayment, Paiwei managed to obtain project finance for these scattered yet sound projects in a “wholesale” fashion. It is also a convincing and inspiring example that the disbursing bank, supported by IFC CHUEE team, has learned to make lending decision. The decision was made based on the investigation of the borrower’s quality, feasibility study and risk assessment of these projects, and most importantly, their predicted future cash flows, i.e. the portion of energy saving benefits that Paiwei is entitled.
