China Offers Chance to Cash in on Green Energy

On Nov. 9, China's government announced the start of the "China CDM Funds," which it said would be a nonprofit state-owned fund. The major source of the funds is revenue collected from CDM projects as regulated in the October 2005 measures.

Xie Xuren, China's finance minister, said in a news conference that the fund would cooperate with other countries and organizations to strengthen China's capabilities in the climate change sector and provide services and support for related system building.

On Jan. 23, the National Business Daily reported that China's first carbon trade exchange could be set up in Beijing soon. Xiong Yan, president of Beijing Property Right Exchange, said that "China, as an important supplier in the global carbon market, hasn't built any trading exchanges so far. And the domestic price is almost half of the secondary market's. We are making a lot of efforts now to become a first carbon trading exchange center in China."

If the goal is realized, the profit margin for CER buyers will be squeezed.

Strategy, Challenges for Developers

Tricorona's Beijing portfolio has a heavy hydro emphasis in water-rich Hunan and Yunnan [provinces of China]. Meanwhile, China's steel and cement industries offer potential for projects in waste heat recovery. Tricorona's largest registered project in this category is in Handan Iron & Steel in Hebei province, recovering heat from steel furnaces.

The Handan project, Odenbro said, provides an example of a strategy that has worked well. "We found this particular project through a consultant," Odenbro explained. "They did much of the groundwork and much of the development of the project." He gave credit for the company's performance last year to its heavy reliance on consultants in the early stages. "Different carbon buyers operate different business models," Odenbro noted.

While consultants provide "economies of scale," he said, some can cause headaches. "They call themselves consultants but they are more like brokers," Odenbro said. "They want to develop the project but they don't really have what it takes." Thanks to Tricorona's in-house technical team, this isn't a serious problem, Odenbro said. Having established an early foothold through extensive use of consultants, the company now places greater emphasis on reaching clients directly. "We do increase amounts of business development origination ourselves now," he said. "We have our own guys traveling around and seeing potential owners."

Jiang's Renaissance Carbon Investment has developed a close partnership with a Beijing government-backed organization -- Beijing Zhongzi Guo Yan Investment Consulting Center. "We are a one-door service provider for project owners," Jiang said.

Gao, director of the Beijing Zhongzi Guo Yan Investment Consulting Center, is an experienced project director who has been working within the NDRC for more than a decade. He is now committed to CDM projects. "The CDM projects have a very good market in China due to the reason that some enterprises have to invest in emission reduction projects anyway, voluntarily or requested by the government, so we provide new and more incentives for factory owners. It suits well with the purpose of CDM projects, which is to improve the revenue of developing countries and at the same time to reduce emissions."

As to the challenge of developing projects, Gao said some owners were more keen to focus on how much money they would get than to focus on how much effort they should put into project details. "The biggest risk for us is the auditing and approval risk. Once you have spent a lot of time and effort on developing one project, it will be a huge loss not only in labor but also in opportunities if it didn't get approved by [the Designated Operational Entity] in the end."