ESCO will be the solution to the problems of small and medium-sized industrial boilers in China

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ESCO will be a solution to the problems associated with small and medium-sized industrial boilers in China. Wang Xinhua, Yu Zhufeng, Chen Guifeng, Clean Coal Technology Research Center of the Coal Industry. Abstract: This article analyzes the main problems of urban pollution in China, pointing out that industrial boilers and heating boilers are the primary sources of urban pollution; it is therefore urgent to address the issues related to these large numbers of small and medium-sized industrial boilers. The article introduces the business model of ESCO and its applications internationally, and based on an analysis of the current issues facing small and medium-sized industrial boilers in China, it explores the prospects for the application of ESCO in such boilers in that country. The conclusions indicate that ESCO can be used to address the efficiency and energy-saving issues of small and medium-sized industrial boilers in China, and it is recommended to conduct pilot projects and further promote its use domestically. Keywords: Energy service company; Contract energy management; Small and medium-sized industrial boilers. 1 Problems and background: China currently has approximately 500,000 small and medium-sized coal-fired industrial boilers, of which about 45% are used for domestic heating, while the remainder are primarily used in industrial applications. In 1999, 370 million tons of coal were consumed, accounting for about one-third of total coal consumption; it also constitutes an important source of air pollution and carbon dioxide emissions. **The Clean Energy Initiative, a key project under the Ministry of Science and Technology’s 10th Five-Year Plan, conducted surveys on energy and environmental conditions in 18 pilot cities across the country, including Beijing, Tianjin, Chongqing, and Taiyuan. The survey results show that coal is the main energy source for urban end-use, and most cities suffer from soot pollution, with the main pollutants being SO2, smoke dust, particulate matter, and NOx. A large number of industrial boilers (including heating boilers), power plant boilers, as well as the inefficient use of coal and low-quality coal in major industrial enterprises and households, are the main causes of pollution. Except for Zunyi and Nanchong, the main sources of SO2 emissions in other cities are industrial boilers (including heating boilers), power plant boilers, and key industrial enterprises; in some cities, the proportion of SO2 emissions from industrial boilers and power plant boilers can reach as high as 70%–82%. The main source of dust emissions in various cities is industrial boilers, which account for as much as 60%–80% in some cities. Industrial boilers (including heating boilers) are already the main source of urban pollution. The proportions of power station boilers, heating boilers, and industrial boilers in urban pollution across the 18 cities are shown in Table 1. The current problems with industrial boilers in our country include: (1) Coal quality issues: The fuel used in industrial boilers is mainly raw coal and bulk coal, with a very low proportion of washed coal. The coal quality characteristics and particle size of the fuel do not meet many of the requirements specified for boiler design. Users usually use whatever coal is available, which results in a shortage of coal and affects the efficiency of boilers, leading to increased emissions of pollutants and greenhouse gases. (2) Management issues: There is insufficient training regarding operational efficiency and pollution reduction; the average skill level of industrial boiler operators is low, which leads to poor management of boiler operations, low thermal efficiency, and increased pollution ； **There is insufficient multi-faceted management, supervision, and enforcement of industrial boilers, resulting in many policies remaining merely formalities. 440 (3) Other issues: At present, the research and development of industrial boilers remains fragmented and repetitive ； Industrial boilers have a small capacity per unit, and their structure and types are relatively limited ； The level of processing for combustion and auxiliary equipment remains low, with a low degree of automation ； Industrial policies lack sufficient constraints on the development of small boilers; there are no policy incentives to promote new technologies, and there are no mandatory restrictions on the production and use of obsolete products and boilers that cause severe pollution. ESCO is an energy-saving service provider that operates based on market mechanisms; by offering comprehensive energy-saving services, it improves energy efficiency and reduces pollutant emissions. Applying ESCO experience to the large number of industrial boilers in our country in order to address the problems associated with them is a beneficial attempt. Table 1 Proportion of power station boilers, heating boilers, and industrial boilers in urban pollution
Power station boilers Industrial boilers and heating boilers Urban areas Percentage of SO2 emissions % Percentage of particulate matter emissions % Percentage of SO2 emissions % Percentage of particulate matter emissions %
Nanchong 14.1 6.7 44.7 30.3 Qijiang 15.41 15.41 26.19 43.48 Liuzhou 18.35 1.37 55.12 67.42 Zunyi 16.16 6.38 16.23 68.74 Shenyang 14.36 13.61 54.49 82.14 Tianjin 41.8 27.4 43.7 51.2 Gongzhuling 15.1 38.24 27.15 22.57 Yinchuan 5.38 3.53 76.26 70.71 Beijing 44.2 19.0 49.11 52 Mudanjiang 66.9 37.08 22.9 54.51 Xi’an 40.67 17.36 42.56 17.66 Hohhot 27.57 11.99 53.08 45.15 Tongchuan 36.54 57.08 Lanzhou 52.98 20.26 26.49 45.21 Jinan 44.39 36.66 30.26 32.05 Urumqi 18.53 22.29 72.60 66.96 Taiyuan 43.3 24.7 47.35 59.7 Chongqing 2 ESCO financing and operation models An Energy Service Company (ESCO) is a rather special type of enterprise; its uniqueness lies in the fact that it does not merely sell products or technologies. Rather, it provides customers with comprehensive energy-saving services, that is, it implements energy-saving projects for them, with the ultimate goal of helping customers achieve energy savings. ESCOs enter into energy service contracts with customers who are willing to undertake energy-saving upgrades. They provide clients with a range of comprehensive services, including energy efficiency audits, design of energy-saving projects, procurement of raw materials and equipment, construction, training, operation and maintenance, as well as monitoring of energy savings. They generate profits and achieve further growth by sharing the energy-saving benefits resulting from the implementation of these projects with their clients. 441 ESCO generally provides comprehensive energy-saving services to customers through the following steps: (1) Energy audit. ESCO evaluates various energy-saving measures based on the specific circumstances of the client. It determines the current energy consumption of the enterprise, identifies the potential for energy savings, and predicts the amount of energy that can be saved through various available energy-saving measures. (2) Design of energy-saving renovation plan. Based on the results of the energy audit, ESCOs provide clients with comprehensive plans and recommendations for their energy systems on how to utilize established technologies to improve energy efficiency and reduce energy costs (such plans differ from simply replacing individual devices or promoting energy-saving products and technologies) ； If the client is interested in accepting the proposals and recommendations put forward by the ESCO, the ESCO will carry out project design for the client. (3) Negotiation and signing of energy management contracts. Based on energy audits and the design of renovation plans, ESCOs negotiate energy-saving service contracts with clients. Under normal circumstances, since the ESCO assumes most of the risks associated with the project, it reaps most of the benefits from the project during the contract period (usually around three years), while only a small portion of those benefits goes to the client ； Upon the expiration of the contract period, all benefits shall belong to the customer. Therefore, \"Contract Energy Management\" is a mechanism that benefits both ESCOs and customers – that is, a win-win mechanism. In some cases, if the customer refuses to sign an energy management contract, the ESCO will charge the customer fees for the energy audit and project design. (3) Procurement of raw materials and equipment. ESCO is responsible for the procurement of raw materials and equipment in accordance with the project design, and the costs are covered by EMC. (4) Construction. According to the contract, the construction of the project is the responsibility of the ESCO, which usually carries out the work itself or assigns it to other construction firms. The contract stipulates that the client must provide the necessary conditions and facilities for the ESCO’s construction work. (5) Operation, maintenance, and upkeep. After the installation and debugging of the equipment are completed, the trial operation phase begins. ESCO trains equipment operators for customers, is responsible for maintenance during the trial operation period, and covers the related costs. (6) Energy savings and performance guarantees. ESCO works together with the client to monitor and verify the energy-saving effects of the project during the contract period, in order to confirm the energy savings guarantee provided by the ESCO under the contract. (7) ESCO shares energy-saving benefits with customers. Since all the investments required for the project (including energy audits, design, procurement of raw materials and equipment, civil works, installation and commissioning of equipment, training, and system maintenance) are provided by the ESCO, the ESCO owns the entire project throughout its contractual period. The customer pays the ESCO for the project costs on a quarterly or annual basis, through sharing the energy-saving benefits. After all the fees specified in the contract have been paid, the ESCO hands over the project to the client, who then becomes the owner of the project. (8) Source of project funds. Abroad, the sources of funding for ESCOs can include: the ESCO’s own capital, bank commercial loans (foreign ESCOs enjoy a high credit rating with banks), **subsidized loans for energy conservation, installment payments allowed by equipment suppliers, power companies’ Demand Side Management (DSM) funds, and international capital (such as multilateral development banks) ； In China, the funding sources for ESCOs should also be the aforementioned possible channels. The aforementioned business model is known as “Contract Energy Management,” and the contractual relationship with the client is referred to as an “Energy Management Contract.” The business model of ESCOs reveals the following characteristics: ESCOs are commercial companies that aim to make profits, and they achieve this by carrying out energy-saving projects through the \"contract energy management\" mechanism ； ESCO is not about selling products, equipment, or technologies in the usual sense; rather, it involves selling an energy-saving project. Since ESCOs commit to and guarantee energy savings to their clients, in effect they assume the risks associated with energy-saving projects on behalf of those clients. The key to the success or failure of ESCO energy-saving projects lies in the analysis and management of project risks. It is evident that ESCOs are commercial entities for energy-saving services in a market economy, striving to survive and thrive in market competition, which is fundamentally different from the energy-saving service centers in our country that are currently under the jurisdiction of local authorities. 3 Applications of ESCOs The global energy crisis of the 1970s led to the emergence of Energy Service Companies (ESCOs) in Canada. In 1980, Mr. Fortin assumed the role of president and, together with Hydro-Quebec, founded Econoler company, introducing a new approach to ESCO operations for the first time. In 1983, North American Energy Services Company (NAESCO) was established in the United States. After 1984, companies were set up in Europe as well, in countries such as Belgium, France, the Netherlands, Spain, Portugal, and the United Kingdom. Starting in 1986, efforts were made to expand the business into Asia. The number of ESCOs in Canada increased from 5 in 1991 to 30 in 1997. Although the ESCO model has been successful in developed countries, it has not fared well in developing countries, and China has also failed in its attempts to implement this model. The main reason for this is that property owners lack sufficient awareness of energy conservation ； There is a lack of appropriate energy-saving equipment locally ； There is a lack of specialized technical support locally to evaluate specific energy-saving solutions ； The local financial system cannot provide sufficient repayment guarantees for the banking sector, so it is unable to encourage banks to invest in energy-saving projects ； Lack of necessary economic and technical data ； The tariff system and local energy policies reduce the profitability of energy-saving projects. An important aspect of this is the lack of policy incentives and benefits. 4 The application prospects of ESCOs in small and medium-sized industrial boilers in China: China has around 500,000 such boilers, which consume over 300 million tons of coal each year; they are a significant source of air pollution and greenhouse gas emissions. Low energy utilization efficiency has been a long-standing issue with small and medium-sized boilers. Research shows that improving the efficiency of small and medium-sized industrial boilers by 1% can generate hundreds of billions in direct economic benefits. The energy-saving potential of small and medium-sized industrial boilers is widely recognized; however, due to certain institutional and market barriers that have not yet been overcome, as well as the small-scale and scattered nature of these boilers, their energy-saving effects are not yet evident. For individual small boiler users, especially when coal prices are relatively low and pollution regulations are not strict, there is little incentive to improve efficiency. Furthermore, in the past, the focus was placed on one-time technical upgrades, which led to failure due to the lack of sustainable mechanisms. The skills and experience of boiler operators are crucial for maintaining the good performance of boilers, yet being a boiler operator is not considered a profession in China. They lack professional skills and hardly communicate with each other. Most domestic heating boilers employ seasonal workers with little oversight. To improve the actual efficiency of small and medium-sized industrial boilers in the country and maintain it at a fairly high level, it is necessary to take improvement measures to overcome the obstacles existing in mechanisms and the market. If the importance of energy conservation can be emphasized in energy policies through measures such as fuel prices, and if there is a stronger enforcement of environmental laws and regulations as well as charging systems, along with improved monitoring of pollution emissions, then boiler users will be properly guided to adopt the energy-saving services provided by ESCO companies. Energy Service Companies (ESCs) are able to build up gradually, maintain technological advancements, establish professional frameworks, and turn the use and maintenance of boilers into a professional commercial activity. 443 With appropriate policy support and economic incentives, and considering the energy-saving experiences of more developed market economies as well as China’s actual conditions, the ESCO mechanism can also be suitable for China. The existing energy-saving organizations in China, along with potential investors, can take advantage of China’s specific circumstances to implement energy-saving projects through the EPC and ESCO mechanisms, thereby achieving profits and growth. 5 Conclusions (1) Industrial boilers are already the main source of urban pollution and greenhouse gas emissions in China, and low energy utilization efficiency has been a persistent problem with small and medium-sized boilers. (2) SCO is a commercial entity for energy-saving services in a market economy, striving to survive and develop through market competition, and is capable of providing reliable and viable energy-saving services. (3) International experience and China’s national conditions show that ESCO can be used to address the efficiency and energy-saving issues of small and medium-sized industrial boilers in China; it is recommended to carry out pilot projects and further promote its use domestically. References: Research Group on Development Paths for Efficient and Clean Coal Combustion in Small and Medium-Sized Boilers, Study on Strategies for Efficient Combustion and Pollution Control in Small and Medium-Sized Industrial Boilers, Energy Advisory Project of the Chinese Academy of Engineering, October 2001. Bob Bailey, Bay Gluckman; translated by Cai Xuedi, “THE EMPRESS” Program: Achieving Sustainable Energy Savings through Improved Management, Industry and Environment, 2001, Vol. (23):3, pp. 12–15. Bernard Jamet; translated by Liu Yunqing, Investments by Energy Service Companies (ESCOs) in Central and Eastern Europe, Industry and Environment, 2001, Vol. (23):3, pp. 31–33. Xu Xuancai, New Approaches and Applications of ESCOs, Building Science, 1997, Vol. 4, p. 61. [Author’s Profile] Wang Xinhua, male, graduated in 2001 from the School of Materials and Metallurgy at Northeastern University with a master’s degree in Thermal Energy Engineering. He is currently working at the Clean Coal Engineering Technology Research Center of the coal industry, where he engages in research on industrial boilers as well as issues related to energy and the environment.