Five-year plan energy targets facing shortfall in private investment

The amount of private money raised for each yuan spent by government fell by almost half between 2006 and 2011

Billions of yuan of state funds ploughed into energy efficiency projects have not triggered the level of private investment hoped for, according to a new report from China’s Tsinghua University.

The amount of private cash raised for each yuan of government investment in the sector fell by 45% between 2006 and 2011, from 4.2 yuan down to 2.3 yuan, says the research, raising questions about China’s ability to meet its energy goals.

“The current government-private financing model can’t attract enough private interest. We need to find more market-based financing tools,” says the report.

China made energy efficiency a top priority in the 12th Five-Year Plan, which covers the period from 2011 to 2015. It has pledged to make green industries central to the economy in order to tackle pollution and shift to a more sustainable growth model.

However, most Chinese companies working in the area are small-and medium-sized and struggle to attract private lenders who prefer, or are directed, to put their money in local government agencies and big companies.

In 2011, private corporate funding accounted for almost half of total investment in energy efficiency while government spending stood at 30%, according to Tsinghua. The Chinese government invested 416.2 billion yuan (US$64.4 billion) in the sector that year, more than any other country, it says.

Nicholas Stern, chair of London’s Grantham Research Institute on Climate Change and the Environment, told chinadialogue the government should introduce stronger regulations, including tougher rules on energy-saving buildings and emission reduction.

“China has tremendous opportunities in energy efficiency,” he said. “The regulations I describe for cars and buildings could force the creation of new ways of doing things.”

Stern said the next 15 years would be “absolutely critical” to China’s shift to a low-carbon economy. “Delay will be dangerous and costly,” he said.

China is struggling to meet the emission-reduction goal set out in the 12th Five-Year Plan. The government needs to slash the country’s energy intensity – the amount of power consumed per unit of GDP – by 3.8% in 2014 and 2015 to satisfy targets, a process the report says is “full of uncertainties”.

“Meeting the emission-reduction goals will not be as challenging as in the last two years of the 11th Five-Year plan, but the new urbanisation plan and industrial development are two big reasons that the future is uncertain,” it says.

Some private investors are optimistic. Liu Yangsheng, CEO of private equity firm HAO Capital, said that he was betting on the energy-efficiency sector. “Coal and oil consumption are going up. This is an alarming issue at the central level,” Liu said.

“For the next five years, I will basically focus everything on energy conservation and energy reduction, it is a low hanging fruit,” he added.

Victor Chu, chairman of the Hong Kong-based venture capital firm First Eastern Investment Group, which manages a US$200 million sustainable-investment fund, told chinadialogue that energy-efficiency investment was a “huge” opportunity.

Chu said he is putting his money in areas including wastewater treatment and smart meters.