China - Heat Reform and Building Energy Efficiency Project

China: Heat Reform and Building Energy Efficiency Project PROJECT BRIEF April 04, 2004 1. IDENTIFIERS Country: China Focal Area: Climate Change Operational Program: OP 5 Project Title: Heat Reform and Building Energy Efficiency Project Total Project Cost: US$ 1,097.0 million GEF Grant Estimate: US$ 18.0 million Requesting Agency: World Bank Executing Agency: Ministry of Construction (MOC) Project Duration: 7 years Eligibility: Country ratified UN Climate Change Convention: January 5, 1993 GEF Operational Focal Point endorsement: October 28, 2002. 2. SUMMARY The objective of the proposed project is to achieve sustained and growing increases in energy efficiency in residential buildings in China's cold and severe cold regions and in the heating systems which supply them. To achieve this will require step-by-step resolution at local levels of systemic problems in the development of more energy-efficient buildings, and the "commodification" of heat through reform of heat pricing and billing, introduction of heat metering and consumer controls, and heat system modernization. GEF financing would provide the core support for a program of World Bank-led international assistance to the Chinese, as they seek to accomplish market transformation in building energy efficiency and implement a major multiyear program of reforms and technical modernization in urban heating systems, from heat production boilers through transmission and distribution network to consumer radiators. The proposed project is a national-level project, including three components: (a) a large demonstration project in Tianjin Municipality, integrating development of modern, variable flow heat supply systems, construction of highly energy efficient residential buildings, and implementation of comprehensive heat billing and pricing reforms; (b) national-level coordination and policy support; and (c) phased-in heating system and building energy efficiency investments and reform activities in other northern Chinese cities, to be identified and developed as project preparation and implementation for the first two components proceed. The proposed GEF grant of US$18 million would partially defray certain incremental costs associated with achieving reductions of greenhouse gas (GHG) emissions, which cannot be achieved through other means or with other financing. Investments partially supported by GEF would have clear potential for further cost-effective application in China (e.g., without further subsidy), once current institutional, policy and market development barriers have been overcome. The proposed project will be complemented by and will be integrated with a closely-related new French GEF project with the city of Harbin. The French GEF project will help improve energy efficiency at the building level in that city, and this project will create the supportive policy framework and an efficient heat supply system. By adopting integrated programs to reform heat billing and pricing, improve the efficiency of heating systems and building energy efficiency, the 5-7 Chinese cities participating in the project are expected to reduce energy use for residential space heating by some 267,000 GWh between 1  2004 and 2024, and still improve heating service. Adding in major additional savings through replication in other cities as the national heat reform promoted by the country's leadership deepens, total energy savings associated with this Chinese program are estimated at about 3,629,000 GWh between 2004 and 2024. 3. COST AND FINANCING (MILLION US$) Estimated Total Project Cost (in US$ millions) Total Total 1,097 A. Tianjin Municipality Demonstration Component 435 B. National Level Coordination and Policy Support Component 2 C. Demonstration Projects and Heat Policy Reforms in Other Northern Cities 660 Component Indicative Financing Plan (in US$ millions) Total Total 1,097 Global Environment Facility 18 Government 6 Corporate Sources 1,073 Indicative Financing Plan by Component (in US$ millions ) Total Corporate Government GEF Total 1,097 1,073 6 18 Component A. Tianjin Municipality Demonstration Component 435 428 1 6 Component B. National Level Coordination and Policy Support Component 2 - 0 2 Component C. Demonstration Projects and Heat Policy Reforms in Other Northern Cities Component 660 645 5 10 4. ASSOCIATED FINANCING (US$) Associated Financing (in US dollars) Total IBRD Lending: Possible, if requested by Provincial governments Technial Assistance and Analytical and Advisory Support Total (as of March 31, 2004) 5,450,000 Asia Alternative Energy Program (ASTAE) 200,000 Energy Sector Management Assistance Programme (ESMAP) 500,000 French GEF 3,300,000 Finnish Government (Bank CTF) 200,000 Danish Government (Bank CTF) 150,000 World Bank (BB) 100,000