New Investment Opportunities

Input in energy conservation and emission reduction will be a stable source of investment promoting economic growth By Lan Xinzhen

New Investment Opportunities

Input in energy conservation and emission reduction will be a stable source of investment promoting economic growth By Lan Xinzhen

xu Yu

No steaming hot “white vapor” will come out of the cooling towers in any factories in Laiyang, Shandong Province, in two years’ time. This is not because these factories will stop production, but because the “white vapor” will be recycled to become heat and transfer to the heating pipes of nearby buildings.

The “reusing surplus heat” project is now under construction by Zhejiang Dun’an Artificial Environment Co. Ltd. (Dun’an Environment). On June 25, Duan’an Environment signed an engineering contract with the municipal government of Laiyang, according to which the city will utilize industrial surplus heat and waste heat, as well as waste heat in urban sewage, to meet the demand of heating for both urban households and industrial use. With a planned investment of 500 million yuan ($78.86 million), the project is expected to complete in July 2014.

Listed in Shenzhen, Dun’an Environment is a professional manufacturer of refrigeration autocontrol components, electric refrigeration central air conditioners and terminal equipment. But in the first half of this year, engineering projects utilizing industrial surplus heat became its major source of income. According to its announcement, in the first half of this year, the company received four orders for industrial surplus heat utilization projects, with a total contract amount of 3 billion yuan ($473.19 million), an equivalent of 60 percent of the company’s sales revenue in 2011.

Since the second half of 2011, Dun’an Environment has been engaged in construction of energy conservation and emission reduction projects, supplying central heating for urban residents and industrial purpose by utilizing industrial surplus heat and waste heat, as well as waste heat in urban sewage. The company plans to earn an aggregate of 13 billion yuan ($2.05 billion) by 2015 from construction of energy conservation and emission reduction projects.

According to Dun’an Environment, the Chinese Government’s policies and measures of saving energy and reducing emissions offer a bright future for the company.

On August 21, the State Council issued the 12th Five-Year Plan on Energy Saving and Emission Reduction, which says the country will actively utilize industrial surplus heat as the major source for urban heating.

“According to our investigation, during the 12th Five-Year Plan (2011-15) period, projects of reusing industrial surplus heat will save 90-100 million tons of coal equivalent, offering a market of 300 billion yuan ($47.32 billion),” said Zhou Fuqiu, Director of the Center for Energy Systems of the Energy Research Institute of the National Development and Reform Commission (NDRC).

Dun’an Environment, in its effort to support the country’s energy conservation and emission reduction policy, will make use of its advantages in technology research and development, as well as its excellence in system integration, to provide general contracting services of energy conservation, including planning, designing, investment, construction, operation, management and service.

Five-year targets

According to the 12th Five-Year Plan on Energy Saving and Emission Reduction, by 2015, the energy consumption per 10,000 yuan ($1,577.29) of GDP will drop by 16 percent from the 2010 levels, and emissions of major pollutants will drop by 8-10 percent.

The plan also sets detailed targets for different types of industries. For example, for industrial enterprises with annual sales revenue of more than 5 million yuan ($788,644), the energy consumption to produce 10,000 yuan of added value should drop by 21 percent.

In north China, 400 million square meters of buildings will be upgraded for higher standards of energy conservation in heating supply.

Xie Zhenhua, Vice Minister of the NDRC, said China has been concentrating on energy conservation and emission reduction. To realize this goal, China is slowing down its economic growth, eliminating dilapidated production capacity and developing emerging industries so as to transform the economic growth pattern and readjust the structure of economic growth. However, adjustment of the industrial structure is making slow progress, with the proportion of the tertiary industry in the total GDP remaining low and that of the heavy industry in the total industrial added value rising from 68.1 percent to 70.9 percent. With industries featuring high energy consumption and high emissions growing too rapidly, the energy conservation target has not yet been met.

In the meantime, China’s energy utilization efficiency is still low. China’s GDP accounts for 8.6 percent of the world’s total, but its energy consumption takes up 19.3 percent of the global total. China’s energy consumption per 10,000 yuan of GDP is more than twice the world’s average. In 2010 the energy consumption of China’s iron and steel, building materials and chemical industries was 10-20 percent higher than the international advanced level.

Xie said if China did not adopt effective measures during the 12th Five-Year Plan period, the Chinese economy would face more restrictions from resources and the environment.

In China, with the accelerated urbanization and industrialization process, as well as consumption structure upgrading, energy demand is growing rapidly, and economic and social development is increasingly restricted by domestic resources and environment. To prevent a bottleneck in economic development and enhance the capability of sustainable development, China must vigorously boost efforts in energy conservation and emission reduction.

The international competition involved in energy security and climate change has become increasingly fierce. Trade protectionism has risen again, and some developed countries plan to collect carbon tariffs. On the other hand, with the emergence of a green economy and low-carbon technologies, many developed countries are expanding their input in supporting innovation in energy conservation and emission reduction, new energy and lowcarbon technologies, which helps intensify competition for future advantages.

“To improve its future economic competitiveness and build up an image of a responsible big power in the international effort to cope with climate change, China must vigorously strengthen its endeavor in saving energy and reducing emissions and realize development in a green and low-carbon way,” Xie said.

In China, people’s awareness of energy conservation and emission reduction has improved, readjustment of industrial structures has advanced and the capability of scientific innovation has increased. All these have offered favorable conditions to make advances in energy conservation and emission reduction.

The 12th Five-Year Plan on Energy Saving and Emission Reduction imposes strict requirements on energy conservation and emission reduction. According to the plan, related government departments should stop all unapproved high energy consumption and high emission projects under construction, and financial institutions are prohibited from granting loans to such projects. To those unapproved projects that have been completed, production should be stopped, financial institutions should not grant working capital loans to such projects, and water and power supplies should be stopped. The country will strictly control exports of products with high energy consumption, high emissions and high resource consumption. During the 12th Five-Year Plan period, China will eliminate the production capacity of 20 million kw of small thermal power, 48 million tons of iron smelting, 370 million tons of cement production, 42 million tons of coke production and 15 million tons of paper-making.

The plan also illustrates the government’s effort to promote development of strategic emerging industries such as energy conservation and environment protection, new-generation information technology, biological technology, high-end equipment manufacturing, new energy, new materials and new-energy vehicles. By 2015, the added value completed by strategic emerging industries will account for 8 percent of the country’s GDP.

Sun Lijian, Vice Dean of the School of Economics of Fudan University, said behind strict provisions is the government’s hope to combine stabilizing economic growth with economic restructuring, and to promote economic restructuring and transformation of the growth pattern when stabilizing economic growth.

A 2.4-trillion-yuan market

Laiyang’s industrial surplus heat reutilization project is only one part of China’s energy conservation and emission reduction program. In the 12th Five-Year Plan on Energy Saving and Emission Reduction, the Chinese Government has proposed 10 key projects, including energysaving transformation of boilers, electric engineering systems, buildings, transportation and green illumination, construction of urban domestic sewage works, prevention and treatment of water pollution in key river basins, desulfurization and denitrification transformation of emissions from power, iron and steel, building materials and auto industries, and prevention and treatment of pollution from livestock breeding, as well as projects that support circular economy development.

NEW ENERGY: a worker inspects equipment at a coal-based energy zero-emission technology system lab affiliated to ENN Group in Langfang, Hebei Province. Established in 1989, the group offers total solutions for clean energy

The plan says the government will promote the use of high-efficiency and energy-saving home appliances, automobiles, electromotors and illumination products via subsidy grants. During the 12th Five-Year Plan period, 300 million tons of coal equivalent of energy will be saved, while emissions of 4.2 million tons of chemical oxygen demand, 2.77 million tons of sulfur dioxide, 400,000 million tons of ammoniacal nitrogen and 3.58 million tons of nitrogen oxides will be reduced.

According to an estimate by the NDRC, during the five years, the investment in energy conservation and emission reduction projects will total 2.4 trillion yuan ($378.55 billion), of which the investment in key energy conservation projects is 1 trillion yuan ($157.73 billion), that in key pollution and emission reduction projects is 800 billion yuan ($126.18 billion) and that in key circular economy projects is 600 billion yuan ($94.64 billion).

The NDRC said investment needed for projects of energy conservation, the circular economy, prevention and treatment of pollution in key waters as well as desulfurization and denitrification will include capitals raised by enterprises, loans from financial institutions and government funds. Investment in urban sewage works and supporting facilities will mainly come from local governments, and the Central Government will give support to some key projects.

According to a research report by Guodu Securities Co. Ltd., in one or two years, China’s investment in key energy conservation and emission reduction projects will boom, with enterprises favored by the market falling into the following several types.

First, enterprises for energy-saving transformation of boilers. The Guodu research report estimates the total investment in energy-saving transformation of boilers will reach 400 billion yuan ($63.09 billion). Besides, during the 12th Five-Year Plan period, the newly increased power generation capacity with surplus heat from high energyconsuming industries such as iron and steel, non-ferrous metals, building materials and chemical will be 20 million kw, saving energy of 57 million tons of coal equivalent. By 2015, the total output value of China’s energy-saving service industry will reach 300 billion yuan ($47.32 billion).

Second, leading enterprises for sewage reclamation and sludge decontamination treatment. By 2015, about 85 percent of China’s urban domestic sewage will be disposed of and 160,000 km of supporting pipelines will be built with a daily disposal capacity of 42 million tons. Besides, 26 million tons of daily sewage disposal capacity will be transformed, and 27 million tons of daily water reclamation capacity will be newly added.

China’s construction of supporting pipelines for sewage disposal is unable to meet current needs, and the sewage reclamation level is low. To reach the goal set by the plan, the country needs an investment of 430 billion yuan ($67.82 billion) in sewage disposal and reclamation facilities construction.

“Enterprises with technologies of deep disposal of sewage are likely to benefit the most,” said the Guodu report.

Third, resource-recycling enterprises with “recycling channels,” “technologies and equipment” and “processing scale.” In the 12th Five-Year Plan period, China will carry out projects of comprehensive resource utilization, demonstration of waste materials and reclamation of kitchen waste. By 2015, there will be a resource-reclamation capacity of 25 million tons. According to the Guodu report, leading resource-recycling enterprises with “complete recycling networks, advanced technologies and equipment, standard management and large disposal scale” will attract more investment and benefit from the policy.

Strict supervision

According to NDRC figures, in 2011 China set the target of reducing energy consumption per 10,000 yuan of GDP by 3.5 percent from 2010, but in fact, the energy consumption was reduced by only 2.01 percent and the total emissions of ammoniacal nitrogen even rose by 5.73 percent.

In 2011, the first year for the plan, the achievements in energy conservation and emission reduction were unsatisfactory, increasing the pressure on the following four years. “If the target in 2012 cannot be accomplished, the target of energy conservation and emission reduction in the 12th Five-Year Plan period is likely to fail. Therefore China faces a severe situation and heavy tasks in saving energy and reducing emissions,” Xie said.

The Central Government is fully aware of the problems in achieving energy conservation and emission reduction. The 12th Five-Year Plan on Energy Saving and Emission Reduction says some local governments, not fully aware of the urgency and arduousness of energy conservation and emission reduction, go after economic growth alone and put inadequate stress on economic restructuring and transformation of the economic growth pattern. They cannot properly balance the relationship between economic development and energy conservation and emission reduction, fail in implementing energy conservation and emission reduction policies and exercise ineffective supervision and inspection.

The policy mechanism is not perfect, particularly the price, taxation and finance policies that are conducive to saving energy and reducing emissions. The market-oriented incentive mechanism is not sound and there is inadequate impetus for innovation. Without complete energy-conservation and emissionreduction standards, calculation of energy consumption and emissions of pollutants still lags behind in the country.

Xie said to ensure accomplishment of the target set by the 12th Five-Year Plan on Energy Saving and Emission Reduction, the Central Government requires various ministries and local governments to add energy-conservation and emission-reduction requirements when they formulate development strategies, special plans, and industrial, taxation, financial, price and land policies. Related departments should improve laws, regulations and standards on energy conservation and environment protection, and various local governments should use a market-oriented mechanism on energy conservation and emission reduction.

According to Xie, the NDRC has formulated detailed targets of energy conservation and emission reduction for different local governments. The NDRC and the Ministry of Environment Protection will strengthen support, guidance and assessment on the implementation of the plan, and the assessment results will be announced to the public and subject to social supervision.

Xie said the assessment results will be an important part for the Central Government’s comprehensive assessment of provincial-level officials. For regions that are rated as a “fail,”no high-energy consumption projects will be approved, and for regions that reach the standard, new high-energy consumption projects will be approved conditionally to ensure the energy conservation target will be met.