IFC loan to boost energy efficiency in China

London, 18 May: The International Finance Corporation (IFC) is to underwrite a novel lending facility for energy efficiency and fuel-switching projects in China, with the announcement of a risk-sharing deal with a local bank.

The IFC – the private sector arm of the World Bank – will guarantee RMB 200 million ($25 million) of RMB 460 million set aside by Industrial Bank to provide loans to help small and mid-sized energy users switch from coal to gas, and upgrade utility energy efficiency.

The programme brings together three groups - utility companies, suppliers of energy efficiency equipment, and commercial banks - the IFC says, create a new financing model to promote energy efficiency.

Industrial Bank will provide commercial lending to encourage energy users to switch from coal to less-polluting gas, while utility partners and equipment suppliers will act as marketing agents and service providers. The loans are, however, only available if the utilities commit to improving their energy efficiency, to the point that their gas supplies become competitive with coal.

The IFC says the programme will support more than $150 million in energy efficiency projects and equipment investment, which are expected to achieve greenhouse gas reductions of about 5 to 10 million tons.

"IFC's energy efficiency programme in China provides a great opportunity to develop market-based solutions that address environmental issues," said 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."

The risk coverage will be provided under the IFC's 'China Utility-Based Energy Efficiency Finance Program'. The programme is also supported by grant funding from the Global Environmental Facility and Finland's Ministry of Trade and Industry.