International Finance Corporation (IFC), the private sector arm of the World Bank Group, has signed an agreement to provide China’s Industrial Bank with risk-sharing coverage of Rmb200mn (US$25mn).
This will help Industrial Bank establish a loan portfolio of Rmb460mn (US$58mn) of energy efficiency equipment loans to small and mid-size energy users in China.
The risk coverage will be provided under IFC’s China Utility-Based Energy Efficiency Finance Program (CHUEE). The programme is expected to have a significant developmental impact in promoting energy efficiency, reducing pollution and greenhouse gas emissions, and expanding lending to small and medium enterprises in China.
The programme is also supported by grant funding from the Global Environmental Facility and Finland’s ministry of trade and industry.
“IFC’s energy efficiency programme in China provides a great opportunity to develop market-based solutions that address environmental issues,” says IFC executive vice-president Lars Thunell. “IFC is proud to partner with Industrial Bank and to help the Chinese government achieve a key policy objective – reducing energy consumption through energy efficiency and conservation measures.”
IFC’s programme brings together, for the first time, three key players – utility companies, suppliers of energy efficiency equipment, and commercial banks – to create a new financing model for the promotion of energy efficiency. Industrial Bank will provide commercial lending, while utility partners and equipment suppliers will act as marketing agents and service providers.
Overall, IFC’s programme will support over US$150mn in energy efficiency projects and equipment investment, which in turn are expected to achieve greenhouse gas reductions of about 5mn-10mn tons.
Industrial Bank’s President Li Renjie states: “Industrial Bank has been focusing on financial innovation. The new programme is a successful example of partnership to create a new financing model for energy efficiency. This model is a win for all of us, and Industrial Bank can use the market-based financing model to leverage IFC’s risk-sharing facility on a more scalable basis. It not only solves the problem of SME energy financing, but also supports China’s energy conservation business. It achieves both social and economic benefits.”
The new financing model is a result IFC’s energy efficiency experience in other countries and its experience in China’s financial sector. IFC found that utilities, such as gas or electricity distributors, can be effective agents for marketing and delivering energy efficiency projects. Utilities can act as a ‘one-stop shop ‘, offering advice on reducing energy consumption and pollution, and providing equipment, such as gas boilers and heating systems, to realize these improvements. At the same time, utilities can partner with commercial banks that provide loans for the equipment.