Although China's LED lighting industry has a strong momentum of development, there are still problems in the industry such as the lack of core technologies, lack of innovation capacity, and disorderly market competition. The biggest reason for the thermal industry encountering the cold market is that LED lighting energy saving is not cheap, and high costs make many companies and individuals who have a demand for LED lighting stand in the way. Is there a model that can save energy and money? Can the contract energy management model (EMC) play a role in promoting the LED lighting industry?
Energy Man-agement Contracting (EMC) is a new energy-saving mechanism that emerged in developed countries in the 1970s. It is essentially an energy-saving investment method that uses reduced energy costs to cover the full cost of energy-saving projects. This model allows users to use future energy-saving benefits to upgrade plants and equipment, reduce current operating costs, and increase energy efficiency.
The EMC model is the first to combine LED lighting and contract energy management from the national “Ten Cities, Ten Thousand†pilot project. At that time, a city that only replaced part of streetlights would need to spend tens of millions of dollars. No government or municipal department was willing and able to put up so much money for experimentation. In this situation, the advantages of the EMC model are reflected. Under this model, professional energy-saving technology service companies are entrusted by customers (energy-saving owner companies), sign energy service contracts with customers, and carry out energy-saving projects with their own funds to provide customers with the necessary equipment, technology and funds for energy-saving transformation. Services, and gain by saving energy costs for customers. This method solves the problem of large investment and high risk of the demonstration project of LED street lamps, and also guarantees the maximization of the tripartite benefits of production, consumption, and finance, minimizes risks, and achieves a win-win situation of “government, enterprise, and publicâ€.
Since then, in the process of adopting the EMC model for LED lighting projects, the state and local governments at all levels have also taken active support and encouragement policies.
However, with the in-depth implementation of the “Ten Thousand Cities†project, many problems have also emerged: Some LED street lamp manufacturers have maliciously compressed the execution period of EMC projects in order to get the project, and eventually caused themselves to make ends meet. Good measures have been taken to make up for it; due to the lack of an independent third party to evaluate the energy savings of the project, users and energy conservation service companies have different opinions on energy efficiency; the user has breached the contract or failed to pay the energy service company according to the contract, resulting in difficulty for the energy saving service company. Energy-saving service companies providing services are difficult to apply for loan financing from banks and other financial institutions due to lack of fixed assets. These problems have caused many energy-saving service companies to face difficulties.
Vicious competition becomes the biggest obstacle Since 2009, the Global Environment Research Institute has begun to pay attention to the application of energy efficiency projects and conducted in-depth research on the LED lighting industry. According to investigations conducted by project officials of the Global Environment Institute, the factors affecting the development of LED lighting EMC projects are mainly in the market, industry, and service.
From the market perspective, the profits of LED lighting projects are not particularly high, which is the key to not being able to raise funds in a timely manner. In the LED lighting project with successful use of the EMC model, the internal rate of return of the project may not even reach 17%. This rate of return is also achieved in the EMC contract period of 5 years or more. Now, in order to get the project, some companies will advertise the contract period can be signed for 3 years or even shorter. The malicious competition in the form of price reduction and compression of the EMC implementation cycle causes project users to believe that LED lighting projects are highly rewarding and even profitable, which further depresses the profitability and even the living space of energy-saving service companies. This kind of industrial environment will certainly cause unreasonable EMC project failures, and it will also seriously affect the business and even the survival of formal energy-saving service companies.
From an industry perspective, most of the energy-saving service companies that currently carry out LED lighting projects in China are small and medium-sized enterprises, and they are mostly in a weak position in the market. In the early stage of communication with the owners, the qualifications of these companies were questioned, and the owners could not fully believe in their energy saving commitments. At the same time, during the implementation of the LED project, energy-saving companies must face a series of problems such as new technology and new product challenges, declining energy efficiency, owners’ breach of contract, and government electricity price adjustments.
From the service perspective, the market urgently needs energy-saving service companies that specialize in LED lighting projects. At present, the energy-saving service companies engaged in LED lighting projects are mainly divided into two categories: One is derived from the LED lighting product manufacturing companies. Since the LED products used in EMC projects are all produced by this company, they will be given to the outside world. This kind of "energy-saving service company is selling products," the understanding; another type of energy-saving service company is in the original energy-saving services, the content of adding LED lighting, due to the specificity of LED lighting, if the company is not based on the specific circumstances of the project to light source design, It has become a simple replacement of light bulbs and lamps, which may seriously affect the energy saving effect of the project, easily causing conflicts between the EMC project party and the user, and even causing the project to fail. It can be seen that the establishment of a professional, independent energy-saving service company engaged in LED lighting is imminent. Professional companies combining LED lighting and EMC organically can promote sound development in the industry.
The EMC model suffers from financing difficulties Overall, the key issue facing the LED lighting industry is financing. This requires finding an effective financing method and breaking the bottleneck faced by the LED lighting industry.
Shenzhen, the most concentrated industry in the LED industry, has set up industry associations with the aim of playing a bridge between the government and enterprises. At the same time, the LED Industry Federation took the lead in forming and establishing the LED industry membership guarantee company to facilitate corporate financing. In addition, there is also a financing model in which four or more companies voluntarily form a consortium, members of the consortium negotiate the amount of loans, jointly apply for loans from banks, and jointly provide guarantees for loans. Each member is jointly and severally liable for group loans. Responsible joint loan model. At present, these financing modes are all under exploration. “Under our current financial system, the most commonly used financing method is bank loans,†said Tian Haizheng, a project officer at the Global Environment Institute. Since LED lighting projects do not have high internal rate of return and unique technologies, it is difficult to obtain financing for individual projects based on individual projects. Therefore, bank loans have become the main route for financing energy-saving service companies engaged in LED lighting projects. However, many energy-saving service companies have a small amount of their own fixed assets. Products and equipment have to be handed over to users after the EMC contract ends, making it difficult to submit financing applications to banks through asset-backed securities.
Against this backdrop, the World Bank International Finance Corporation's China energy-saving and emission reduction financing project uses technical assistance and risk sharing in the form of cooperation with domestic Industrial Bank, Bank of Beijing, and Shanghai Pudong Development Bank, for all loans to the energy efficiency financing loan portfolio. IFC will bear some of the losses. In addition, IFC has also assisted commercial banks in establishing links with major market players in energy efficiency financing projects, assisted commercial banks in their inspection and review of energy efficiency loan projects, and promoted the long-term sustainable development of this project. "With the promotion of China's energy-saving financing projects, the banking industry has gained new understanding and support for energy efficiency projects and EMC projects. More and more banks are gradually launching this business," Tian Haizhen said.
However, among current financial products, many energy-saving service companies also finance as small and medium-sized enterprises rather than EMC projects, and loans are mostly short-term loans. For the sake of its own risk, even if it is a special EMC loan, the bank also requires that the investment recovery period for the implementation of energy-saving emission reduction projects be within 5 years (inclusive), and the rational recovery of investment in LED lighting projects using the EMC model. The cycle should be 6 years or more. Therefore, the cooperation between banks and LED industry institutions and industry associations to jointly develop financial products that suit the characteristics of LED lighting projects is the solution that the industry hopes to see.
Many ways to ease the pressure on financing If the bank loan is a traditional model to ease the pressure of financing, then the public-private partnership type of industrial finance model is a solution to the change from an administrative instrument to a market instrument. At present, the government provides energy conservation incentives to energy conservation service companies. Although this approach can mobilize the enthusiasm of energy conservation service companies, reduce the risk of projects and financing, and increase the profits of energy conservation projects, the company cannot award these incentives because of the uncertainty of incentive policies. Funds as a long-term income to make up for the project's low rate of return. Tian Haizhen said: “The government can try to convert administrative measures to market methods, use some energy-saving incentive funds, adopt a public-private partnership model, attract private equity funds, establish public-private partnerships, and provide financial products to EMC projects of energy-saving service companies. The award funds can only be used once, and the public-private partnership fund as a financial product can become a sustainable product that can be recycled. The audience of the product will also grow exponentially.†Guangdong Province has already started a similar model of practice. In 2009, the Guangdong Provincial Government invested 50 million yuan in guiding funds and 4.95 billion yuan in social funds to form a Guangdong Green Industry Investment Fund to provide direct investment and financing services for energy-saving emission reduction and new energy enterprise projects. The direction of the fund's previous investment was to promote the green lighting demonstration city project of the Guangdong Provincial Department of Science and Technology. Through the linkage of financial capital, it will increase investment in urban green lighting and promote the development of green lighting industry. Another type of public-private partnership is to use government incentive funds as a guarantee to make loans to banks. Funds from banks are used as private funds to develop energy-saving service industries. Due to its own characteristics, energy-saving service companies do not have enough fixed assets as collateral to apply for loans from banks. If the government can take out some of the funds as a loan guarantee and share the loan risk with the banks, the banks' enthusiasm for lending to energy-saving service companies will surely be mobilized, and the financing problems of energy-saving service companies can also be effectively resolved.
In June 2010, Beijing Environment Exchange and China Energy Conservation Association Energy Conservation Service Industry Committee jointly established a contract energy management investment and financing trading platform to transfer the future service revenue of energy-saving service companies to obtain working capital to launch new contract energy management projects. . At the same time, the contract energy management investment and financing trading platform has a complete evaluation system, which can issue evaluation opinions on the project and judge and price the project according to the evaluation opinions, so that investors can fully grasp the project information. In addition, through this platform, we can connect the energy-saving service industry with the financial industry and integrate related resources. We provide the largest support for energy-saving service companies on project and capital sources.
“In the research on the financing of LED lighting industry, we also found that using carbon trading to solve financing difficulties is also a new way.†Tian Haizhen said that in many industries and fields, carbon trading is used as a financing Effective ways to ease the difficulty of project financing and low profitability.
At present, the LED lighting industry has also seen the potential of the carbon trading market and began to try to intervene in carbon trading and carbon finance. If we estimate carbon prices in the current carbon market, subsidizing the LED street lamp project management party with carbon-equivalent money is equivalent to a cumulative subsidy of 350 to 560 yuan per lamp for 10 years. This figure is for energy-saving service companies engaged in LED lighting projects. It is very attractive. With this potential carbon gain, the difficulty of financing can also be alleviated. However, no successful LED lighting project with carbon financing has been developed. Therefore, a collaborative platform for government, industry associations, LED companies, and carbon consulting agencies has yet to be established.
Energy Man-agement Contracting (EMC) is a new energy-saving mechanism that emerged in developed countries in the 1970s. It is essentially an energy-saving investment method that uses reduced energy costs to cover the full cost of energy-saving projects. This model allows users to use future energy-saving benefits to upgrade plants and equipment, reduce current operating costs, and increase energy efficiency.
The EMC model is the first to combine LED lighting and contract energy management from the national “Ten Cities, Ten Thousand†pilot project. At that time, a city that only replaced part of streetlights would need to spend tens of millions of dollars. No government or municipal department was willing and able to put up so much money for experimentation. In this situation, the advantages of the EMC model are reflected. Under this model, professional energy-saving technology service companies are entrusted by customers (energy-saving owner companies), sign energy service contracts with customers, and carry out energy-saving projects with their own funds to provide customers with the necessary equipment, technology and funds for energy-saving transformation. Services, and gain by saving energy costs for customers. This method solves the problem of large investment and high risk of the demonstration project of LED street lamps, and also guarantees the maximization of the tripartite benefits of production, consumption, and finance, minimizes risks, and achieves a win-win situation of “government, enterprise, and publicâ€.
Since then, in the process of adopting the EMC model for LED lighting projects, the state and local governments at all levels have also taken active support and encouragement policies.
However, with the in-depth implementation of the “Ten Thousand Cities†project, many problems have also emerged: Some LED street lamp manufacturers have maliciously compressed the execution period of EMC projects in order to get the project, and eventually caused themselves to make ends meet. Good measures have been taken to make up for it; due to the lack of an independent third party to evaluate the energy savings of the project, users and energy conservation service companies have different opinions on energy efficiency; the user has breached the contract or failed to pay the energy service company according to the contract, resulting in difficulty for the energy saving service company. Energy-saving service companies providing services are difficult to apply for loan financing from banks and other financial institutions due to lack of fixed assets. These problems have caused many energy-saving service companies to face difficulties.
Vicious competition becomes the biggest obstacle Since 2009, the Global Environment Research Institute has begun to pay attention to the application of energy efficiency projects and conducted in-depth research on the LED lighting industry. According to investigations conducted by project officials of the Global Environment Institute, the factors affecting the development of LED lighting EMC projects are mainly in the market, industry, and service.
From the market perspective, the profits of LED lighting projects are not particularly high, which is the key to not being able to raise funds in a timely manner. In the LED lighting project with successful use of the EMC model, the internal rate of return of the project may not even reach 17%. This rate of return is also achieved in the EMC contract period of 5 years or more. Now, in order to get the project, some companies will advertise the contract period can be signed for 3 years or even shorter. The malicious competition in the form of price reduction and compression of the EMC implementation cycle causes project users to believe that LED lighting projects are highly rewarding and even profitable, which further depresses the profitability and even the living space of energy-saving service companies. This kind of industrial environment will certainly cause unreasonable EMC project failures, and it will also seriously affect the business and even the survival of formal energy-saving service companies.
From an industry perspective, most of the energy-saving service companies that currently carry out LED lighting projects in China are small and medium-sized enterprises, and they are mostly in a weak position in the market. In the early stage of communication with the owners, the qualifications of these companies were questioned, and the owners could not fully believe in their energy saving commitments. At the same time, during the implementation of the LED project, energy-saving companies must face a series of problems such as new technology and new product challenges, declining energy efficiency, owners’ breach of contract, and government electricity price adjustments.
From the service perspective, the market urgently needs energy-saving service companies that specialize in LED lighting projects. At present, the energy-saving service companies engaged in LED lighting projects are mainly divided into two categories: One is derived from the LED lighting product manufacturing companies. Since the LED products used in EMC projects are all produced by this company, they will be given to the outside world. This kind of "energy-saving service company is selling products," the understanding; another type of energy-saving service company is in the original energy-saving services, the content of adding LED lighting, due to the specificity of LED lighting, if the company is not based on the specific circumstances of the project to light source design, It has become a simple replacement of light bulbs and lamps, which may seriously affect the energy saving effect of the project, easily causing conflicts between the EMC project party and the user, and even causing the project to fail. It can be seen that the establishment of a professional, independent energy-saving service company engaged in LED lighting is imminent. Professional companies combining LED lighting and EMC organically can promote sound development in the industry.
The EMC model suffers from financing difficulties Overall, the key issue facing the LED lighting industry is financing. This requires finding an effective financing method and breaking the bottleneck faced by the LED lighting industry.
Shenzhen, the most concentrated industry in the LED industry, has set up industry associations with the aim of playing a bridge between the government and enterprises. At the same time, the LED Industry Federation took the lead in forming and establishing the LED industry membership guarantee company to facilitate corporate financing. In addition, there is also a financing model in which four or more companies voluntarily form a consortium, members of the consortium negotiate the amount of loans, jointly apply for loans from banks, and jointly provide guarantees for loans. Each member is jointly and severally liable for group loans. Responsible joint loan model. At present, these financing modes are all under exploration. “Under our current financial system, the most commonly used financing method is bank loans,†said Tian Haizheng, a project officer at the Global Environment Institute. Since LED lighting projects do not have high internal rate of return and unique technologies, it is difficult to obtain financing for individual projects based on individual projects. Therefore, bank loans have become the main route for financing energy-saving service companies engaged in LED lighting projects. However, many energy-saving service companies have a small amount of their own fixed assets. Products and equipment have to be handed over to users after the EMC contract ends, making it difficult to submit financing applications to banks through asset-backed securities.
Against this backdrop, the World Bank International Finance Corporation's China energy-saving and emission reduction financing project uses technical assistance and risk sharing in the form of cooperation with domestic Industrial Bank, Bank of Beijing, and Shanghai Pudong Development Bank, for all loans to the energy efficiency financing loan portfolio. IFC will bear some of the losses. In addition, IFC has also assisted commercial banks in establishing links with major market players in energy efficiency financing projects, assisted commercial banks in their inspection and review of energy efficiency loan projects, and promoted the long-term sustainable development of this project. "With the promotion of China's energy-saving financing projects, the banking industry has gained new understanding and support for energy efficiency projects and EMC projects. More and more banks are gradually launching this business," Tian Haizhen said.
However, among current financial products, many energy-saving service companies also finance as small and medium-sized enterprises rather than EMC projects, and loans are mostly short-term loans. For the sake of its own risk, even if it is a special EMC loan, the bank also requires that the investment recovery period for the implementation of energy-saving emission reduction projects be within 5 years (inclusive), and the rational recovery of investment in LED lighting projects using the EMC model. The cycle should be 6 years or more. Therefore, the cooperation between banks and LED industry institutions and industry associations to jointly develop financial products that suit the characteristics of LED lighting projects is the solution that the industry hopes to see.
Many ways to ease the pressure on financing If the bank loan is a traditional model to ease the pressure of financing, then the public-private partnership type of industrial finance model is a solution to the change from an administrative instrument to a market instrument. At present, the government provides energy conservation incentives to energy conservation service companies. Although this approach can mobilize the enthusiasm of energy conservation service companies, reduce the risk of projects and financing, and increase the profits of energy conservation projects, the company cannot award these incentives because of the uncertainty of incentive policies. Funds as a long-term income to make up for the project's low rate of return. Tian Haizhen said: “The government can try to convert administrative measures to market methods, use some energy-saving incentive funds, adopt a public-private partnership model, attract private equity funds, establish public-private partnerships, and provide financial products to EMC projects of energy-saving service companies. The award funds can only be used once, and the public-private partnership fund as a financial product can become a sustainable product that can be recycled. The audience of the product will also grow exponentially.†Guangdong Province has already started a similar model of practice. In 2009, the Guangdong Provincial Government invested 50 million yuan in guiding funds and 4.95 billion yuan in social funds to form a Guangdong Green Industry Investment Fund to provide direct investment and financing services for energy-saving emission reduction and new energy enterprise projects. The direction of the fund's previous investment was to promote the green lighting demonstration city project of the Guangdong Provincial Department of Science and Technology. Through the linkage of financial capital, it will increase investment in urban green lighting and promote the development of green lighting industry. Another type of public-private partnership is to use government incentive funds as a guarantee to make loans to banks. Funds from banks are used as private funds to develop energy-saving service industries. Due to its own characteristics, energy-saving service companies do not have enough fixed assets as collateral to apply for loans from banks. If the government can take out some of the funds as a loan guarantee and share the loan risk with the banks, the banks' enthusiasm for lending to energy-saving service companies will surely be mobilized, and the financing problems of energy-saving service companies can also be effectively resolved.
In June 2010, Beijing Environment Exchange and China Energy Conservation Association Energy Conservation Service Industry Committee jointly established a contract energy management investment and financing trading platform to transfer the future service revenue of energy-saving service companies to obtain working capital to launch new contract energy management projects. . At the same time, the contract energy management investment and financing trading platform has a complete evaluation system, which can issue evaluation opinions on the project and judge and price the project according to the evaluation opinions, so that investors can fully grasp the project information. In addition, through this platform, we can connect the energy-saving service industry with the financial industry and integrate related resources. We provide the largest support for energy-saving service companies on project and capital sources.
“In the research on the financing of LED lighting industry, we also found that using carbon trading to solve financing difficulties is also a new way.†Tian Haizhen said that in many industries and fields, carbon trading is used as a financing Effective ways to ease the difficulty of project financing and low profitability.
At present, the LED lighting industry has also seen the potential of the carbon trading market and began to try to intervene in carbon trading and carbon finance. If we estimate carbon prices in the current carbon market, subsidizing the LED street lamp project management party with carbon-equivalent money is equivalent to a cumulative subsidy of 350 to 560 yuan per lamp for 10 years. This figure is for energy-saving service companies engaged in LED lighting projects. It is very attractive. With this potential carbon gain, the difficulty of financing can also be alleviated. However, no successful LED lighting project with carbon financing has been developed. Therefore, a collaborative platform for government, industry associations, LED companies, and carbon consulting agencies has yet to be established.
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