Innovation and energy productivity bring out profit
It has been demonstrated that for business innovation, setting economy-wide targets for boosting the share of renewables as a share of total energy source is a vital platform. Chinese companies are ranking tops in solar power, rechargeable batteries for mobile phones and electric cars in the global market.
Today’s new frontier is energy efficiency. Chinese business, encouraged by the government’s aim of raising the energy efficiency of the economy overall by 20 percent by 2010, has a major opportunity to carve out significant global business in energy efficiency products and services.
When China has set a substantive policy framework designed to promote energy efficiency, research by the McKinsey Global Institute (MGI), McKinsey & Co’s economics research arm, indicates that China could capture an even greater prize through an economy-wide effort to boost energy productivity-the level of output achieved from the energy consumed.
MGI expects China’s energy demand to grow at 4.2 percent annually to 2020, almost twice as much as from 74 quadrillion British thermal units (QBTUs) in 2005 to 138 QBTUs in 2020. However, this energy demand growth could be cut by nearly 60 percent to an annual rate of 2.4 percent.
Abatement of energy demand on this scale would pay rich dividends in terms of reducing fuel imports, locking in lower energy demand for the long term, and thereby lessening China’s vulnerability to future energy shocks and enhancing the country’s aspiration of sustainable development. These benefits are all the more worth seizing given the current global economic depression and the uncertain outlook for the world economy.
It is a crucial step to introduce public policies that incentive and reward energy efficiency but there is an enormous opportunity for those Chinese companies-State-owned, partially State-owned and private- that find ways to innovate –and expand the opportunities beyond those already on the scene today.
Because of China’s low labor costs, the commercial opportunity is much more attractive. This means that the price tag for investing in energy productivity is about 35 percent lower than it would be in advanced economies. Additionally, China is rapidly building new capital stock, which gives companies the opportunity to install higher energy efficiency at the beginning, rather than retrofitting, which costs much more.
The first priority for China’s companies is to raise their own standards of energy efficiency to lessen the competitive disadvantage posed by today’s volatile energy prices. In the case of State-owned enterprises and other nonmarket institutions, including energy productivity in performance evaluations is a strategy that we are already seeing in China. Businesses can not only save significantly on their energy bills; they can also build on innovation in energy-efficient solutions in their home markets to rank top position in the global market for green products and services before this market matures.
China’s Premier Wen Jiabao has estimated that as much as 2.1 trillion yuan will be spent by 2012 on energy efficiency products. Already today, China produces 1.7 billion compact fluorescent light bulbs a year, 70 percent of the global total, and numerous companies in China are leading nest-generation LED lighting and rechargeable polymer lithium-ion battery cells for use not only in electric vehicles but also in a variety of consumer electronics.
Seven priority areas for business have been identified by MGI. The first category is building technology products, which consists of space-heating, ventilation, and air-conditioning equipment, windows, doors, elevators and escalators, and building insulation, as well as building and end-product components such as heat exchangers and solar-control glass.
When old equipment is due for replacement, it is a key priority particularly to improve the energy efficiency of building-technology products. Given the fact that half of Chinese will have new-built home in 2020, boosting energy efficiency is an emergent challenge–and a lucrative business opportunity with potential.
The second priority is increasing the energy efficiency of electrical devices and other household equipment. What is achievable has already been seen in the case of refrigerators.
Although China is the largest refrigerator market in the world, but the average efficiency of these appliances was relatively low in the 1990s. In collaboration with the US Environmental Protection Agency and with financing assistance from the Global Environment Facility, China established the China Energy-Efficient Refrigerator Project. The results have been astonishing.
There were 256 models of domestically manufactured energy-efficient refrigerators on the market that met the energy efficiency requirement of grade 1 of the national standard for refrigerator energy consumption, superior to the European grade a standard.
Yearly production of energy-efficient refrigerators increased from 1 million in 1999 to more than 14 million in 2005. At the same time, production of super efficient refrigerators, which are at least 60 percent more efficient than the energy efficiency standard, increased from 400 units to more than 3 million.
For buyers of cars, trucks, trains, or aircrafts – and therefore for original equipment manufacturers, fuel efficiency is an increasingly important priority.
A major commercial opportunity is for companies which innovate new, higher-efficiency technology in transportation. In China, for example, the Beijing-based Charge board Electric Vehicle Co Ltd was the first company to develop an energy-efficient braking retrofit for diesel buses that reduced fuel consumption by 30 percent. The company is now promoting the technology jointly with the Beijing Bus Co.
The innovations of transparency-creating products that help educate energy users about the impact of their choices and behavior on their energy consumption and therefore encourage the more conscious use of energy. Transparency-creating products have advanced electricity metering and smart grids as the prime example.
For example, Guangzhou Keii Electro Optics Technology Co Ltd specialized in manufacturing infrared camera systems and their software programming, which can be applied in energy surveys of buildings and in industry to detect heat loss and therefore promote more energy-efficient production.
Another promising area is customized solutions applicable to complex systems integrating numerous products like large heating, air-conditioning, lighting, refrigeration, and ventilation systems. We typically find large integrated systems installed in large premises, such as residential complexes, office and commercial buildings, industrial production facilities or – especially for outdoor lighting – entire campus of cities.
End users are allowed to run these systems with minimum energy consumption by optimized overall system design together with smart management and control technology. Zhuhai Huisheng Energy Technology Development manufactures and manages integrated energy conservation systems for commercial properties like offices and hotels and is currently moving into hospitals and schools; the company saw its revenues got an increase by over 300 percent last year alone.
Backing energy service companies (ESCOs), which operates and maintain installations such as district heating systems, supply energy, engage in facilities management, and specialize in energy management, including energy audits and consulting.
Although the World Bank helped established three pilot ESCOs in China in the late 1990s, there still lacks financial backing to ensure the industry’s growth. At last, for banks, institutional investors, and even utilities, overcoming the capital constraints that act as a hurdle to energy efficiency investments are attractive business propositions.
At a time of global economic depression and volatile energy prices, the arguments for seizing the initiative on energy efficiency is becoming more and more forcing. The prospect for China’s companies of becoming global players in expanding new markets in energy efficiency products and services is promising, with China’s policy makers creating the right incentives.
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China is one of the world’s great growth markets and is likely to be for many years to come. Foreign companies often face difficulties in assessing Chinese market demand and enacting effective strategies because of the language barriers, culture differences, and high expense.
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It seems all the Chinese companies have the same models at different prices like they don’t actually make them.