|Project Rationale and Linkage to Country/Regional Strategy
PRC has become the world's largest energy consumer and is increasingly dependent on energy imports to meet its primary energy supply. Soaring energy use is both a driver and a consequence of PRC's remarkable economic growth. The primary energy demand in PRC exceeded 2,900 Mtce (million tons of coal equivalent) in 2009 to become the world's largest energy consumer. Recognizing the adverse implications of rising energy intensity on the economy, environment and energy security, the Eleventh Five-Year Plan, 2006-2010 for PRC, set a target to reduce the energy intensity of its economy by 20% between 2005 and 2010 which is reported to be successfully achieved. In 2009, the government also announced to reduce the carbon intensity by 40%-45% by 2020 compared to 2005 as part of PRC's contribution to mitigate the global GHG emissions. The Twelfth Five-Year Plan has set a target to improve the energy intensity of gross domestic product (GDP) by further 16% during 2011-2015.
Hebei is one of the largest energy consuming and sulfur dioxide emitting provinces in the PRC. With a population of 70 million (5.3% of the national total) and a land area of 187,700 square kilometers (2.0% of the national total), Hebei consumes more than 8.9% of PRC's national primary energy supply. Hebei's economy is dominated by energy-intensive heavy industries, such as iron and steel, cement and petrochemical industries; which contribute more than 50% of the provincial GDP. The total primary energy consumption and installed electricity capacity in Hebei are equal to over 280 Mtce and over 41 gigawatt, respectively, with coal contributing to 89% of primary energy supply and 92.7% of installed electricity capacity. In spite of recent improvements, energy intensity at 1.64 tce per CNY10,000 in 2009 in Hebei is 47% higher than the national average for PRC.
The emphasis on reducing the energy intensity by the Government of the PRC has prompted the Hebei provincial authorities to initiate several measures to improve industrial energy efficiency. In 2002, Hebei Province set up the Demand Side Management Center (DSMC) to promote electricity demand savings/management in small and medium industries with the objective of reducing the peak electricity demand as well as energy savings through efficiency improvements. The DSMC is responsible for knowledge dissemination on energy efficiency and DSM technologies and promotion of new technologies and products.
The HPG has identified large potential for energy efficiency improvements in medium and large industries especially through waste heat recovery in industrial processes installed prior to 2007. But the retrofitting of existing industrial processes is not prioritized by the plant managers due to several reasons: (i) increasing pressure to scale-up the production capacity to meet growing demand, (ii) possible interruption to production process, and (iii) reluctance of domestic banks to finance energy efficiency investments due to difficulty in taking security over the assets financed. The proposed project will be designed to address these barriers through a combination of low-cost financing, capacity building at the level of industrial plant managers, energy management companies and financiers, and policy and regulatory interventions to compel industries to improve energy efficiency.
The country partnership strategy, 2011-2015 for the PRC, which is under preparation, is likely to include the improvement to the efficiency of resource use especially energy and shifting PRC's growth trajectory to a low-carbon growth path as one of the priorities of Asian Development Bank's (ADB's) assistance to PRC. ADB's Energy Policy has identified energy efficiency as one of the three pillars of ADB's energy sector assistance. The Energy Policy has explicitly identified expanding ADB's assistance to industrial energy efficiency improvement through collaboration with industry associations, domestic banks and specialized agencies for promoting energy efficiency and energy service companies as a key strategy for shifting developing Asia to a low-carbon growth path.