Financing the Growth of Energy Efficiency Service Industry in Shanghai

In 2002, the government of Shanghai has identified the development of a local energy efficiency service industry as a critical tool to improve the energy efficiency of Shanghai economy and reach its sustainable development goal for the city. It has sought technical assistance from the Lawrence Berkeley National Laboratory through existing collaborations on energy efficiency. In September 2003, several government agencies (such as the Shanghai Economic Commission) and LBNL jointly sponsored an international conference to present experiences of energy service industrial development in other countries (Lin et al, 2004).

In order to better understand key barriers to the development of energy efficiency service industry, a series of interviews was held with relevant stakeholders in Shanghai in August 2004, including those representing energy management companies (EMCs), banks, insurance companies, and government officials. These interviews identified several problems that have hindered the development of an energy efficiency service industry in Shanghai. One major problem is the lack of a viable financing system that can service all of the available energy efficiency projects. This paper will summarize the problem of project financing, show how that problem is similar to the problems faced by the ESCO industry in the United States (US) in the late 1980s, and describe the way the US ESCO project finance system evolved. The authors hope that some of these experiences from the US may be useful to the Shanghai regional government in its effort to spur the development of a local energy efficiency service industry.