"""""""""""""""" Cities Climate Finance Leadership Alliance
Description

China is the world’s largest producer of municipal solid waste, generating about 215 million tons in 2017. This is expected to increase to 500 million tons per year by 2025 as the urban population continues to rise. Incineration is recognized as an effective method for waste treatment since it reduces waste volume by 90% and eliminates methane emissions. Waste-to-energy technologies recover energy from the incineration process to produce electricity and heat. By replacing fossil fuel combustion and avoiding methane, these technologies help avoid greenhouse gas emissions and mitigate climate change. To reduce the environmental impact of unhygienic waste disposal, ADB in 2009 approved a USD 100M long term loan to support, through PPP, the construction and operation of waste-to-energy projects in the People's Republic of China. The project aimed to: build, own and operate waste-to-energy plants with clean technologies; treat 8,000 tons of municipal solid waste daily to benefit an urban population of 16 million; and generate 800 gigawatt-hours of electricity by 2013. Incineration is recognized as an effective method for waste treatment since it reduces waste volume by 90% and eliminates methane emissions. Waste-to-energy technologies recover energy from the incineration process to produce electricity and heat. By replacing fossil fuel combustion and avoiding methane, these technologies help avoid greenhouse gas emissions and mitigate climate change. Based on the successful experience in China, ADB applied the same model for a waste to energy plant in Vietnam in 2017.

Location

Cities of Jinan, Suzhou, Zhenjiang, Pizhou, and Sanya, China

Region

East Asia and Pacific

Instrument

Competitive finance or concessional loan

Instrument category

International climate finance

Secondary instruments

Concessions build-operate-transfer (BOT) and design-build-operate (DBO) projects

Pooled procurement

Project size (range)

USD 100-200M

Project size (details)

ADB provided a USD 100M long term loan. Undisclosed amount invested by CEEEL.

Implementer

China Everbright Environmental Energy Limited (CEEEL)—in charge of building, operating, and maintaining waste-to-energy plants based on the concession agreements with the municipal governments — was the borrower and implementer

Year of financial closure

2009

Client

Government bodies at city and provincial level

Primary financer

Asian Development Bank (ADB)

Other co-financers

China Everbright Environmental Energy Limited (CEEEL)

Other contributors

Clean Energy Fund

Other transaction participants

N/A

Barriers addressed

Gaps in clean technology knowledge and misperceptions of actual technology risks to finance waste-to-energy projects: Clean technologies require higher initial capital expenditure, making the total investment requirement higher, while commercial banks are often unfamiliar with environment and health benefits that are difficult to quantify. The due diligence costs associated with waste-to-energy projects with clean technologies are high because of the need for technical evaluation regardless of the project size. Under PPP arrangements, municipal governments often require private sector partners to fund project equity in hard currency. However, the availability of long-term loans to finance project equity, in US dollar, in particular, is limited.

This model encouraged the private sector to invest in waste-to-energy projects with clean technologies. It mobilized available domestic funds, creating better awareness among commercial banks and willingness to finance more waste-to-energy efforts. The technical assistance that was implemented together with the loan helped China Everbright International Limited upgrade its operations and management process, and establish new municipal solid waste management and waste-to-energy standards. Many subsequent private sector projects have replicated this dual-assistance arrangement and applied the knowledge and technology improvements learned from this project.

Financing structure

China Everbright International Limited served as the project sponsor, while China Everbright Environmental Energy Limited (CEEEL) who was in charge of building, operating, and maintaining waste-to-energy plants based on the concession agreements with the municipal governments, was the borrower. The project featured an efficient private sector participation model in waste-to-energy projects through PPP for multiple projects in medium-sized municipalities. Located in different cities, these multiple waste-to-energy projects are often too small for banks to finance on a standalone basis. ADB structured a facility to support portfolio subprojects efficiently using a portfolio approach. Under this approach, the ADB loan was provided to a holding company and channelled to the waste-to-energy project companies. Technical assistance was granted by the Clean Energy Fund to support the reporting and environmental management of the waste-to-energy facilities.

Suitability for cities in low-and-middle income countries (detail)

Yes. The ADB has encouraged other cities in China to replicate the business model, and in 2017 it applied the same model for waste to energy plant development in Vietnam which means it is a model replicable for LMICs though currently it is being implemented in a SE Asian context.

Weblinks

Li, X. (2020) Mobilizing Private Capital and Know-How to Turn Waste into Energy. Development Asia.

References

[1] ADB. (2018) ADB, China Everbright International Facilitate Clean Waste-to-Energy PPP in Viet Nam. Asian Development Bank.

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