China

CN-15:Financial Rewards for Energy-Saving Technical Retrofits

Policy Description

The Financial Rewards for Energy-Saving Technical Retrofits program “节能技术改造财政奖励” is a program of the Ministry of Finance (MOF) and the National Development and Reform Commission (NDRC) to reward enterprises for energy savings achieved through technical renovation projects. Energy savings from the qualified projects must be over 10,000 tons of coal equivalent (tce). Funds for the rewards are from the Central government’s budget.

Description

The Financial Rewards for Energy-Saving Technical Retrofits program “节能技术改造财政奖励” is a program of the Ministry of Finance (MOF) and the National Development and Reform Commission (NDRC) to reward enterprises for energy savings achieved through technical renovation projects. The program was first initiated in 2007 and during the 11th Five-Year Plan (FYP) energy savings from qualified projects must be over 10,000 tons of coal equivalent (tce) to qualify for the financial reward. Funds for the rewards are from the Central government’s budget.

This program supports activities under the Top-1000 and Top-10,000 Energy-Consuming Enterprises Programs, the Energy Efficiency Performance Standards and the Ten Key Projects.

During the 11th FYP, rewards were paid at a rate of 200 RMB per tce saved in the east region and 250 RMB per tce saved in the middle and west regions of China. From 2007 to 2010, projects needed to meet the following requirements for incentive qualification:

  • Eligible projects must be one of the five Ten Key Projects of the 11th Five Year Plan relevant to industry (*1);
  • Qualified projects must result in energy savings over 10,000 tce;
  • Projects must be approved by the local Economic and Trade Commission (ETC);
  • Enterprises must have comprehensive energy measurement, accounting and management systems.

The program has been continued in the 12th FYP. In June 2011, MOF and NDRC issued the Management Regulation of Fiscal Rewards for Energy-Saving Technical Retrofits [14].  Fiscal rewards have been increased to 240 RMB per tce saved in the east region and 300 RMB per tce saved in the middle and west regions. To be eligible for the rewards during the 12th FYP, projects need to meet the following requirements: 

  • Energy savings must be over 5,000 tce per year.
  • Company’s overall annual energy consumption before retrofitting must be more than 20,000 tce.  
  • Enterprise has been operating more than three years.
  • Enterprises must have comprehensive energy measurement, accounting and management systems.

NDRC also provided guidance on which projects are supported by MOF and NDRC in 2011 and listed specific projects for each of the five main areas: coal-fired industrial boilers (furnaces), waste heat and waste pressure utilization, oil conservation and substitution, motor system energy conservation, and energy system optimization [15]. For example, a waste heat generation project in the building materials sector can apply for rewards in 2011, but after 2013, projects related to pure-low temperature waste heat generation in the cement industry will no longer be supported.

The Financial Rewards on Energy-Saving Technical Retrofits programme is based on a two-step process:

  1. Initial payment where enterprises submit applications for energy conservation projects to the provinces for approval, which are then sent to NDRC and MOF after receiving provincial approval (or to the NDRC and MOF directly in the case of enterprises under direct administration of central authorities). After validation by NDRC and its validation bodies, MOF grants 60% of the incentives directly to the enterprises to carry out the program, and NDRC sends the lists of approved projects, with information on total investment and estimated energy savings, to local governments.
  2. Final payment occurs after validation groups verify the actual savings from the energy conservation projects (examination and verification reports are submitted to MOF for review). Local finance bureaus then grant or deduct the incentives from the surplus or deficit of actual energy savings.

During the 11th FYP, this program focused on implementation by the enterprises themselves. In 2010, the program was complemented by an ESCO (Energy Service Companies)-based financing program and in April 2010, the Central government released a policy notice on “Accelerating Energy Performance Contracting to Promote the Development of Energy Service Industry in China” (*2). The ESCO-based program aims at projects with energy savings between 100 - 10,000 tce in general, and between 500 - 10,000 tce in industry. Incentives are directed to ESCOs, who must advance more than 70% of the capital in the projects, and agree to share the energy savings with the clients. In October 2010 it was decided that the fiscal rewards will be provided to boiler/furnace retrofitting, waste heat and waste pressure utilization, motor system energy conservation, energy system optimization, green lighting, and energy conservation in buildings. This regulation further listed categories of projects that are not eligible for rewards, such as newly contracted projects, projects with the purpose of increasing production capacity, projects whose main facility shall be phased out, and projects on solar, wind, biomass and combined heat and power.  [13]

Policy Information Expand this section for information on the key features of the policy, such as its date of introduction, categorization, main objective(s) and linkages with other policies.

Policy Categorisation

Policy Instrument Type: Economic, Incentives & Subsidies

Position in the Pyramid

About Us

Participation: Voluntary

Period

Start Date: 2007

End Date: 2015

Policy Linkages

Supports Top-1000 Energy-Consuming Enterprises Program Effort Defining
Supports Industrial Energy Performance Standards Effort Defining
Supports Ten Key Projects Program Supporting Measure
Supports Energy and Carbon Intensity Targets of the 12th Five Year Plan Effort Defining
Supports Energy Intensity Target of the 11th Five Year Plan Effort Defining
Supports Top-10,000 Energy-Consuming Enterprises Program Effort Defining

Agencies Responsible

National Development and Reform Commission
Ministry of Finance

Primary Objective: Energy

Objective

Achieve energy savings through technical renovation projects.

Target Group

Coal-fired industrial boilers (furnaces), waste heat and waste pressure utilization, oil conservation and substitution, motor system energy conservation, and energy system optimization (*6)

Driver of energy consumption or emissions affected by policy: Energy efficiency; Energy savings; Fuel mix; Technology implementation rates; Institutional capacity

Implementation Information Expand this section for information on targets, monitoring, verification and enforcement regimes, and implementation requirements and tools.

Coverage

To be eligible for the rewards during the 12th FYP, projects need to meet the following requirements: - Energy savings must be over 5,000 tce per year. - Company’s overall annual energy consumption before retrofitting must be more than 20,000 tce. - Enterprise has been operating more than three years. - Enterprises must have comprehensive energy measurement, accounting and management systems. NDRC also provided guidance on which projects are supported by MOF and NDRC in 2011 and listed specific projects for each of the five main areas: - coal-fired industrial boilers (furnaces), - waste heat and waste pressure utilization, - oil conservation and substitution, - motor system energy conservation, and - energy system optimization [15].

Quantitative Target? no

Progress Monitored? yes

Verification Required? yes

Enforced? yes

Sanctions: Local finance bureaus can retrieve initial incentives paid if the savings are not realized

Requirements on the Target Group

  • Enterprises submit an application report (*5) for energy conservation projects to the provinces for approval, which are then sent to NDRC and MOF after receiving provincial approval (or to the NDRC and MOF directly in the case of enterprises under direct administration of central authorities) [1]
  • Energy saving must be validated by independent legal entities.

Support by Government

  • NDRC and MOF provide guidance for validation (issued in 2008)
  • Funding. After validation by the NDRC and its validation bodies, MOF grants 60% of the incentives directly to the enterprises (*8) to carry out the program, and NDRC sends the lists of approved projects, with information on total investment and estimated energy savings, to local governments
  • Incentives are also directed to ESCOs, who must advance more than 70% of the capital in projects, and agree to share the energy savings with the clients. Funding sources come from both the central government, and the local governments, where energy conservation projects take place. For every ton of coal equivalent that saved, the central government will provide 240 RMB/tce, and the provincial governments will put in no less than 60 RMB/tce [10]. The level of local incentives varies depending on local situations [11], but the central government has allocated a budget of 1.24 Billion RMB for 2010 [12].

 

Implementation Toolbox

To support the implementation of China's Financial Rewards for Energy-Saving Technical Retrofits, the following information and outreach measures are provided:

  • Guidance for validation and a criteria list for local governments
  • National standard for energy performance contracting (definitions, list of technical requirements, templates)
  • List of qualified ESCOs availabe at http://zfxxgk.ndrc.gov.cn/PublicItemView.aspx?ItemID={4e0e4318-e99f-40b8-bf0f-efb21c6c5e33}

Complexity of Implementation

Government

Projects need to be approved and energy savings need to be validated.

Target Group

Enterprises must go through a two-step procedure to obtain the rewards.

Impacts, Costs & Benefits Expand this section to find information on policy effectiveness and efficiency.

Impact Quantitative Estimate Qualitative Estimate
Estimated effect on energy consumption or emissions Expected to reach 20 Mtce (586 PJ) energy-savings between April 2007 – December 31, 2010; Effect is part of the effect estimated for Ten Key Projects and Top-1000 Program In 2007, 546 projects were approved; In 2008, more than 1200 applications for funding were accepted.
Estimated costs/benefits for industry Not Available Not Available
Estimated cost for government MOF initially provided 7 billion RMB (US$1 billion) funding Not Available
Other Benefits
General Benefits Significant energy savings and associated CO2 emissions reduction, improve competitiveness

References & Footnotes

References

[1] Yowargana, P. (2009). National Incentive for EC Technology Reform Projects. Presentation prepared for Lawrence Berkeley National Laboratory staff. Beijing: Azure International.

[2] Beijing Government Website (2008). Notice of Submitting Selected Energy Saving Verification Institutions, March 4, 2008. zhengwu.beijing.gov.cn/gzdt/gggs/P020080318535728616624.doc

[3] China Government Website (2007). Central Government Allocates 7 Billion RMB to Incentivize Energy-Saving Technical Retrofits in Enterprises. September 2, 2007. http://www1.www.gov.cn/zxft/ft106/content_938110.htm

[4] China Government Website (2008). Providing Fiscal Rewards to Technical Retrofits Projects that Have More Than 10,000 tce. July 8, 2008. http://www1.www.gov.cn/zxft/ft133/content_1038852.htm

[5] ://www1.www.gov.cn/zxft/ft133/content_1038852.htm [5] Ministry of Finance (MOF) (2007). Notice from Ministry of Finance and National Development and Reform Commission on Interim Management Measures on Fiscal Incentives for Energy Conservation Technological Renovations. [2007]#371. (财政部国家发展改革委关于印发《节能技术改造财政奖励资金管理暂行办法》的通知), August 10, 2007. http://www.mof.gov.cn/zhengwuxinxi/caizhengwengao/caizhengbuwengao2007/caizhengbuwengao200711/200805/t20080519_27902.html

[6] Ministry of Finance (MOF) (2010). Notice on Interim Management Regulations on Financial Rewards of Energy Performance Contracting Projects, June 3, 2010. http://jjs.mof.gov.cn/zhengwuxinxi/zhengcefagui/201006/t20100609_321884.html

[7] National Development and Reform Commission (NDRC), 2006. Notice on Implementations of the Ten Key Energy-Conservation Projects during the Eleventh Five-Year Plan. [2006]#1457. (关 于印发“十一五”十大重点节能工程实施意见的通知), July 25, 2006. http://www.sdpc.gov.cn/zcfb/zcfbtz/tz2006/t20060802_78934.htm

[8] National Development and Reform Commission (NDRC) (2008). The Progress of Ten Key Energy-Conservation Projects. March 28, 2008. http://zhs.ndrc.gov.cn/2007gmjj2008gmjj/2007gmjj/t20080328_201192.htm

[9] State Council (2010). Notice on Accelerating Energy Performance Contracting to Promote the Development of Energy Service Industry in China, April 2, 2010. http://www.gov.cn/zwgk/2010-04/06/content_1573706.htm

[10] MOF (2010). The Notice on Interim Management Regulations on Financial Rewards of Energy Performance Contracting Projects, June 3, 2010. http://jjs.mof.gov.cn/zhengwuxinxi/zhengcefagui/201006/t20100609_321884.html

[11] Xu, F. (2010). Study on Fiscal and Tax Policies of Energy Conservation. Proceedings of 2010 China Industrial Energy Efficiency Workshop, August 19-20, Xi’an, China.

[12] NDRC (2010). China 2010 White Paper on Climate Change. http://qhs.ndrc.gov.cn/gzdt/t20101126_382695.htm

[13] NDRC (2010). Supplemental Notice on Energy Performance Contracting Fiscal Reward. October 19, 2010. http://www.sdpc.gov.cn/zcfb/zcfbtz/2010tz/t20101022_376434.htm

[14] MOF, 2011. Management Regulation of Fiscal Rewards for Energy-Saving Technical Retrofits http://jjs.mof.gov.cn/zhengwuxinxi/zhengcefagui/201106/t20110623_566086.html

[15] NDRC, 2011. The Notice on Applying for 2011 Fiscal Rewards for Energy-Saving Technical Retrofits. http://www.ndrc.gov.cn/zcfb/zcfbtz/2011tz/t20110714_423366.htm

Footnotes

(*1) Coal-fired industrial boilers (furnaces), waste heat and waste pressure utilization, oil conservation and substitution, motor system energy conservation, and energy system optimization

(*2) During the first program, the rewards were 200-250 RMB/tce (for East or Center/West China, respectively) and now under the new program the rewards are 240 RMB/tce from Central government and at least 60 RMB/tce from local government.

(*3) In 2007, 546 projects were approved; In 2008, more than 1200 applications for funding were accepted

(*4) - Guidance for validation issued in 2008 by NDRC and MOF; - Established guidance for setting baselines and validation of energy saving measures • Provided a list of criteria for local governments to select 1-2 energy-saving validation bodies • Be independent legal entities; • Have the required instruments and equipment to undertake energy-saving verification; • Understand the process and method for verifying energy savings; • Have technical know-how and practical experience related to energy savings validation; • Have sound management systems to ensure data quality and reliability."

(*5) Application Report Preparation: Basic information of the enterprise and EC project; Description of energy management; Energy consumption before project ; Proposed EE technology; Energy saving measurement and monitoring methods; Signed by the legal representative; Other issues need to be clarified; Attachment: Project Feasibility Study; Project Approval Document; EIR Approval

(*6) 5 of the 10 projects under the Ten Key Projects are the projects that qualify for these rewards

(*7) Note that this is a particular type of subsidy, as it is not paid upfront, but on delivery of the savings and the subsidy level is defined per unit of energy saved (similar to e.g. CDM projects - be it in emissions) - similar to e.g. Some of the financial incentives in the Netherlands.

(*8) If the project saves exactly what it expected to save, then the remaining 40% is paid at the completion of the project. If it saves more, it receives a larger incentive payment and if it saves less, it receives a smaller incentive payment.