The Challenge of Low-Carbon Development - World Bank Internet ...

estimates but still substantial. Note that these are unverifiedex ante estimates.The introduction of ESCOs had significantdirect effects in China and spurreddevelopment of an energy managementindustry.The project also spurred the development of an EMC industry.As pilots, the EMCs immediately encountered aregulatory obstacle: Should they be regulated as financialinstitutions, leasing companies, or sales outlets? The Bankand the government worked to address the ambiguities, facilitatingentry of other EMCs. This is a good example ofhow pilot projects can reduce the costs of followers.In addition, the EMCs participated in training programsand opened their doors to would-be domestic and foreigninvestors. GEF funding was crucial in motivating this opennessto dissemination. In part because of these efforts andin part to an ASTAE training program, an industry associationof EMCs was formed and grew to at least 400 membercompanies by 2007, with a core of 40–50 practicing energyperformance contracting.However, the ESCO prescription required adaptation inChina, and it has limits. First, the Chinese ESCOs did notwrite contracts based on measured savings, a practice thatrequires a high degree of reliance on contract enforcementand on sophisticated measurement of outcomes (box 3.1).The three original EMCs have largely relied on agreed exante estimates of energy savings, or they simply becameequipment leasing companies. Few of the emerging EMCstake a systemic approach to improving process efficiency,but rely instead on promoting specific kinds of energyefficiency equipment. Second, there are limits to the abilityof ESCOs to provide financing. The original EMCs hadthe advantage of substantial capital at concessional terms.The new ones are generally small and even more creditconstrainedthan their clients.Chinese ESCOs adopted a basic model ofoperation akin to equipment leasing.In Hungary, the OTP Schools Project (OTP being the Hungarianbank involved) supports Caminus, an ESCO thatwon an umbrella contract for school heating and lightingupgrades. The umbrella contract is a noteworthy policyinnovation, because it drastically reduced the transactioncosts for small municipalities (they do not have to organizeindividual tenders) and engages economies of scale for thewinning ESCO. Caminus finances all the investments exceptfor the 20–25 percent paid from European Union grantsand is therefore taking the credit risk for municipalities.However, the scope of work does not include insulation,which means that potential cost and CO 2savings may beuntapped.Prescription: Technical assistanceIn Central Europe (Commercializing Energy EfficiencyFinance Program) and Russia (Sustainable Energy FinanceProgram), IFC used donor funding to hire a largein-house team that provided free services to local banks;there is a move now to increase cost recovery. Banks thatIEG interviewed confirmed that they benefited significantlyfrom the technical assistance program, especially trainingon technologies and appraisal of energy efficiency projects.It is difficult to assess whether the services provided werecost-effective. (In some cases, projects are unable to trackprecisely the use of technical assistance resources.) Somebanks have decided to build on and consolidate this learningby creating dedicated in-house units for energy efficiencyprojects. Staff cuts as a result of the financial crisisthreaten the sustainability of these changes but may aid indiffusion of knowledge through the industry if staff are rehiredelsewhere.Banks benefited from IFC technicalassistance.Prescription: Information disseminationThe China Energy Conservation Project also sponsored aninformation center, developing energy efficiency case studyexamples and technical guidelines and building outreachnetworks. An internal evaluation found that 6.2 percent ofa random sample of 10,000 enterprises attributed energy efficiencyinvestment to the information center’s influence.The claimed impact was 27 million tons of coal equivalentof energy and 71 million tons of CO 2. These are extraordinarynumbers, dwarfing the Energy Management CompanyAssociation’s direct impact. Likely, other factors wereat work, including policy pressure for energy efficiencyimprovements. However, even if overestimated by a factorof 10, these impacts would represent a good return on the$10 million invested in the centers.OutcomesEconomic returns, energy savings, and emissionsreductions. Impacts have varied substantially acrossprojects. As noted, the Energy Conservation Project inChina racked up high economic and carbon returns atthe subproject and project level. For CHUEE, which hasbeen analyzed in more depth, subproject and project levelreturns diverge. By June 2009, the guarantee programhad supported $512 million in loans for $936 million inprojects, associated with a claimed GHG reduction of14 million tons. However, as noted earlier, CHUEE mayEnergy Efficiency | 37