Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (GEF-TF054687) ON A GLOBAL ENVIRONMENT FACILITY (GEF) GRANT

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (GEF-TF054687) ON A GLOBAL ENVIRONMENT FACILITY (GEF) GRANT IN THE AMOUNT OF US$18 MILLION TO THE PEOPLE S REPUBLIC OF CHINA FOR A Report No: ICR HEAT REFORM AND BUILDING ENERGY EFFICIENCY PROJECT April 24, 2014 China and Mongolia Sustainable Development Unit (EASCS) Sustainable Development Department East Asia and Pacific Region (EAP)

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3 CURRENCY EQUIVALENTS (Exchange Rate Effective 07/01/2013) Currency Unit = Renminbi (RMB) RMB 1.00 = US$ 6.15 US$ 1.00 = RMB 0.16 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AAA BEE BLS CBB CPS DH ECA FFEM FSR GEF GJ GOC HMO HRBEE ICR IP ISR IT kg ce LPMO M&E MOC MOF MOHURD MOU MS MTR MU NDRC NPMO PAD Analytical and Advisory Activities Building Energy Efficiency Building Level Substation Consumption-based Billing Country Partnership Strategy District Heating Europe and Central Asia Fonds Français pour l Environnement Mondial Feasibility Study Report Global Environment Facility Gigajoules Government of China Heat Management Office Heat Reform and Building Energy Efficiency Implementation Completion and Results Report Implementation Progress Implementation Status and Results Report Information Technology kilogram of coal equivalent Local Project Management Office Monitoring and Evaluation Ministry of Construction (renamed MOHURD) Ministry of Finance Ministry of Housing and Urban-Rural Development Memorandum of Understanding Moderately Satisfactory Mid-Term Review Moderately Unsatisfactory National Development and Reform Commission National Project Management Office Project Appraisal Document iii

4 PDO PMO RMB S TA TCE TF TRV TTL UNFCCC WBG Project Development Objectives Project Management Office Renminbi Satisfactory Technical Assistance Ton Coal Equivalent Trust Fund Thermostatic Radiator Valve Task Team Leader United Nations Framework Convention on Climate Change World Bank Group Vice President: Axel van Trotsenburg Country Director: Klaus Rohland Sector Manager: Charles Feinstein Project Team Leader: Emmanuel Py ICR Team Leader: Emmanuel Py iv

5 PEOPLE S REPUBLIC OF CHINA HEAT REFORM AND BUILDING ENERGY EFFICIENCY PROJECT CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1. Project Costs and Financing Annex 2. Outputs by Component Annex 3. Economic and Financial Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5. Beneficiary Survey Results Annex 6. Stakeholder Workshop Report and Results Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Annex 9. List of Supporting Documents Annex 10. Outcome Indicators MAP v

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7 A. Basic Information Country: China Project Name: Heat Reform and Building Energy Efficiency Project Project ID: P L/C/TF Number(s): TF ICR Date: 04/24/2014 ICR Type: Core ICR Lending Instrument: SIL Borrower: Original Total Commitment: Revised Amount: USD 17.41M Environmental Category: B PEOPLE'S REPUBLIC OF CHINA USD 18.00M Disbursed Amount: USD 17.41M Global Focal Area: C Implementing Agencies: -Ministry of Housing and Urban-Rural Development (overall project coordination and implementation of the national level component) -Tianjin Municipality (Tianjin component) -Municipalities of Tangshan, Chengde, Datong, Wuzhong, Dalian, and Urumqi (other cities component). Cofinanciers and Other External Partners: None B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 02/06/2003 Effectiveness: None 09/23/2005 Appraisal: 01/19/2005 Restructuring(s): None 12/22/ /21/2012 Approval: 03/17/2005 Mid-term Review: None 09/15/2008 Closing: 12/31/ /31/2013 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Global Environment Outcome: Bank Performance: Borrower Performance: Moderately Satisfactory Moderate Moderately Satisfactory Moderately Satisfactory vii

8 C.2 Detailed Ratings of Bank and Borrower Performance Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Moderately Satisfactory Quality of Supervision: Moderately Satisfactory Implementing Agency/Agencies: Moderately Satisfactory Overall Bank Performance: Moderately Satisfactory Overall Borrower Performance: Moderately Satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project No at any time (Yes/No): Problem Project at any time (Yes/No): GEO rating before Closing/Inactive status: Yes Moderately Satisfactory Quality at Entry (QEA): Quality of Supervision (QSA): None None Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration Energy efficiency in Heat and Power Housing construction Sub-national government administration Theme Code (as % of total Bank financing) Climate change Municipal governance and institution building E. Bank Staff Positions At ICR At Approval Vice President: Axel van Trotsenburg Jemal-ud-din Kassum Country Director: Klaus Rohland David R. Dollar Sector Manager: Charles M. Feinstein Junhui Wu Project Team Leader: Emmanuel Py Robert P. Taylor ICR Team Leader: ICR Primary Author: Emmanuel Py Emmanuel Py viii

9 F. Results Framework Analysis Global Environment Objectives (GEO - from Project Appraisal Document, page 4) and Key Indicators(as approved) The objective of the project is to achieve substantial, sustained and growing increases in energy efficiency in urban residential buildings and central heating systems in China s cold climate regions. Revised Global Environment Objectives (as approved by original approving authority) and Key Indicators and reasons/justifications Not applicable. (a) GEO Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values 1 Actual Value Achieved at Completion or Target Years Indicator 1 : Cumulative coal savings capacity achieved: 660,000 TCE/year Value quantitative or 0 660,000 TCE/year 660, million TCE/year TCE/year 2 Qualitative) Date achieved 12/31/ /31/ /31/ /31/2013 Comments (incl. % Achieved achievement) Indicator 2 : Percent of cumulative new residential stock billed on heat consumption basis: 50% Value quantitative or Qualitative) 0% 50% 50% 40% Date achieved 12/31/ /31/ /31/ /31/2013 Comments (incl. % Not achieved achievement) Indicator 3 : Percent of current-year new housing completion compliant with BEE standard: 80% Value quantitative or Qualitative) 40% 80% 80% 98.7% Date achieved 12/31/ /31/ /31/ /31/2013 Comments (incl. % Achieved achievement) 1 Extension of the grant closing date to October 31, 2013 (from originally December 31, 2011). The target values at closing remained unchanged. 2 Estimated coal savings comparing the actual coal consumption for heating of the 7 project cities during the Heating Season with an estimated/projected business-as-usual scenario for these cities in the PAD for the same Heating Season (see PAD s baseline scenario for these cities, page 26). ix

10 (b) Intermediate Outcome Indicator(s) Indicator Indicator 1 : Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Component 1 (Tianjin): Percent of cumulative new housing stock billed on heat consumption basis Value (quantitative or Qualitative) 0% 60% 60% 31% Date achieved 12/31/ /31/ /31/ /31/2013 Comments (incl. % Not achieved achievement) Indicator 2 : Component 1 (Tianjin): Percent of current-year new housing completion compliant with BEE standard Value (quantitative or Qualitative) 50% 89% 89% 100% Date achieved 12/31/ /31/ /31/ /31/2013 Comments (incl. % Achieved achievement) Indicator 3 : Component 2 (national level): Number of cities which will have implemented consumption-based billing 3 Value (quantitative or Qualitative) Date achieved 12/31/ /31/ /31/ /31/2013 Comments (incl. % Achieved achievement) Indicator 4 : Component 2 (national level): Number of cities which will have integrated building energy code compliance into regular construction supervision Value (quantitative or Qualitative) Date achieved 12/31/ /31/ /31/ /31/2013 Comments (incl. % Achieved achievement) 3 To be understood as Number of cities which will have implemented consumption-based billing with at least 10,000 m2 of pilot areas. This is substantially less than the number of cities that have issued a municipal two-part tariff policy for CBB. x

11 Indicator 5 : Component 2 (national level): Number of specialists/officials trained through national seminars or workshops Value (quantitative or Qualitative) NA Date achieved 12/31/ /31/ /31/ /31/2013 Comments (incl. % achievement) Achieved. More than 2000 specialists/officials were trained in China through the HRBEE Project during the 8 years of implementation. Indicator 6 : Component 3 (other cities): Percent of cumulative new housing stock billed on heat consumption basis Value (quantitative or Qualitative) 0 50% 50% 51% Date achieved 12/31/ /31/ /31/ /31/2013 Comments (incl. % Achieved achievement) Indicator 7 : Component 3 (other cities): Percent of current-year new housing completion compliant with BEE standard Value (quantitative or Qualitative) 35% 75% 75% 95.1% Date achieved 12/31/ /31/ /31/ /31/2013 Comments (incl. % Achieved achievement) G. Ratings of Project Performance in ISRs No. Date ISR Archived GEO IP Actual Disbursements (USD millions) 1 06/20/2005 Satisfactory Satisfactory /19/2005 Satisfactory Satisfactory /19/2006 Satisfactory Satisfactory /09/2008 Satisfactory Satisfactory /14/2009 Moderately Satisfactory Moderately Satisfactory 4.95 Moderately 6 06/28/2010 Moderately Satisfactory Unsatisfactory 5.54 Moderately 7 02/12/2011 Moderately Satisfactory Unsatisfactory /11/2012 Satisfactory Satisfactory /31/2012 Satisfactory Satisfactory /22/2013 Moderately Satisfactory Moderately Satisfactory /24/2013 Moderately Satisfactory Moderately Satisfactory xi

12 H. Restructuring (if any) Restructuring Date(s) ISR Ratings at Board Restructuring Approved GEO Change GEO IP Amount Disbursed at Restructuring in USD millions 12/22/2011 MS MU /21/2012 S S Reason for Restructuring & Key Changes Made To extend the grant closing date to December 31, 2012, reallocate grant proceeds across categories, increase the percentage of expenditures for certain categories from 91% to 100%, and amend one procurement provision. To extend the grant closing date to October 31, I. Disbursement Profile (Calendar Year) xii

13 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. The year preceding the start of project preparation (2002), China consumed about 1.5 billion TCE of primary commercial energy, second to the U.S. in the world. Even with large improvement of the economy s energy efficiency, China s energy demand was then expected to double in the next twenty years. Much of this future growth in energy demand would be met by coal, which accounted for two thirds of primary commercial energy consumption in China. This prospect had very significant global as well as local environmental ramifications, since coal is not only the most carbon intensive but also the most polluting fossil fuel. Improving end-use energy efficiency was among the most economic short to medium-term options to mitigate the global and local environmental impacts of burning coal. 2. Few end-use sectors then represented a more compelling and urgent case of the abundant opportunities for and the critical role of energy efficiency than the urban space heating sector in the cold and severe cold regions of Northern China, covering roughly half of China s population. Centralized heating, predominantly coal-fired systems, had expanded rapidly, and then served about two thirds of urban households. The central heating sector had no mechanisms for consumers to respond to energy service costs, and heating systems were based on Soviet fixed-flow technologies that did not allow consumers to control their heating. Heat metering was basically inexistent, and billing was based on a flat per square meter tariff. Moreover, many employers paid the heat bills of their employees, representing one of the last vestiges of the old-style welfare system. 3. China s urban residential building stock was then expected to more than double in the next twenty years. China had issued its first mandatory national building energy efficiency (BEE) standard for new residential buildings in the cold and severe cold regions in This design standard (referred to as the 50% BEE standard ) required new buildings to achieve a combined 50% improvement in energy efficiency over buildings constructed on standard designs of the early 1980s. However, it had been difficult to implement the regulation. 4. As a result, the heating energy use per unit floor area of Chinese residential buildings was at least double that in similar climates in Western Europe and North America, and the potential for energy savings was huge. For this reason, in July 2003, eight central government ministries and commissions jointly issued the Heat Reform Guidelines calling for each of the 16 Northern provinces/autonomous regions to implement the Heat Reform in several pilot municipalities. The principles of these Guidelines were the commercialization of urban heating, the promotion of technical innovation in the heating sector, and the improvement of building energy efficiency. 5. The Project was to contribute to the deployment of the reform in the city of Tianjin and in 4-6 other Northern cities through the two-handed approach and to support the Ministry of Housing and Urban-Rural Development (MOHURD) for the relevant national-level policy development work. The two-handed approach referred to: On one hand, the creation of a market mechanism through the heat reform and heat system modernization so consumers pay for actual heat consumption (by passing responsibility of payment to households from employers, establishing metering consumption and introducing consumption-based billing), and to enable consumers to control how much heat they consume (by using manual or thermostatic valves to control indoor temperature and by adopting demand-driven variable-flow heating systems). On the other hand, major improvements in the thermal integrity of urban residential buildings to reduce building heat losses substantially, requiring widespread adoption of more energy- 1

14 efficient designs, new or improved materials and components, as well as adjustments in construction practices. 6. The Project was a central part of the Bank-led international assistance program to MOHURD for its heat reform and building energy efficiency (HRBEE) efforts. This program had been underway for several years with some studies already completed before the start of preparation. 1.2 Global Environment Objectives (GEO) and Key Indicators 7. The project development objective (PDO and GEO) was to achieve substantial, sustained and growing increases in energy efficiency in urban residential buildings and central heating systems in China s cold climate regions. 8. This was to be done through: (i) the improvement of the energy efficiency of residential buildings; (ii) the implementation of reform on heat pricing and billing; and (iii) the modernization of heat supply systems for residential buildings. 9. The key performance indicators for the project were at project completion: Annual coal savings capacity achieved by the implementation of the heat reform and building energy efficiency programs in the project cities; Percentage of cumulative new residential floor area (built since 2004) in the project cities subject to heat metering and consumption-based billing; and Percentage of current-year new residential housing completion compliant with the ongoing BEE standard. 1.3 Revised GEO (as approved by original approving authority) and Key Indicators, and reasons/justification 10. The PDO and the key indicators were not revised during implementation. The grant closing date was extended to October 31, 2013 (from originally December 31, 2011), and the target values at closing remained unchanged. 1.4 Main Beneficiaries 11. The main beneficiaries of the project identified in the PAD were: The local and global environment through substantial improvement in energy efficiency. The Ministry of Housing and Urban-Rural Development (MOHURD) for the relevant national policy development work for the Heat Reform. The city of Tianjin and 4-6 other Northern cities to be identified during implementation for the project s support to the deployment of the Heat Reform. The heating and housing development companies in those cities that would receive up to one third of the incremental cost of the energy efficiency measures implemented. The people who would live in the residential communities supported by the project in those cities for a more efficient and comfortable approach to indoor heating and for the anticipated reduced cost of their heat bills. Other Northern Chinese cities that would learn about the experiences of Tianjin and the other 4-6 Northern cities and would be invited to participate to the project supported workshops and study tours. 1.5 Original Components (as approved) 12. The project had three components. 2

15 13. Tianjin Municipality Component: demonstration of the two-handed approach in Tianjin Municipality. This component sought to provide the project s first operational demonstration that the greatest energy efficiency gains and cost savings in residential space heating could be achieved through an integrated effort (the two-handed approach) that simultaneously addressed the thermal integrity of buildings, the operational efficiency of heat supply systems, the provision of means for heat control by consumers, and the implementation of heat metering, cost-based heat pricing and consumption-based heat billing. 14. National Policy Support and Project Management Component: support for the Ministry of Housing and Urban-Rural Development (MOHURD) 4 for national policy development and project implementation. This component provided the vehicle to support the critical role of the central government to provide policy direction to localities, to bring the best national and international expertise to bear on issues surrounding the implementation of the reform and the development of new technical approaches, to coordinate and guide the implementation of local project activities, to undertake central project management and monitoring functions, and to disseminate successful ideas and results outside participating cities. 15. Other Northern Cities Component: replication of the two-handed approach in 4-6 other Northern cities. This component was to promote simultaneous development of both heating sector reforms and building energy efficiency improvements in 4-6 additional Northern Chinese municipalities, achieving broader impact. With emerging results from the Tianjin Component, and national-level support, comprehensive development of HRBEE measures would be rolled out in these additional cities. 1.6 Revised Components 16. The project components were not revised. A significant change was the cancellation of the Xindu Garden subproject (total incremental cost of US$ 8.7 million, and proposed GEF cofinancing of US$ 2.6 million) from the Project. The proposed GEF cofinancing was instead spent on similar subprojects in Tianjin (Huaxiajindian, Diliutianyuan, and Taida & Jinhong). There were two reasons for this cancellation: (a) the real estate market was changing rapidly in Tianjin, and the developer wanted to move fast to sell the apartments as soon as possible, without the administrative constraints of the GEF cofinancing; (b) the agreements (in building energy efficiency, inspections, and heat supply systems) reached with the developer were not implemented. 1.7 Other significant changes 17. Two level-two restructurings were approved by the Country Director: In December 2011: to extend the grant closing date to December 31, 2012, reallocate grant proceeds across categories, increase the percentage of expenditures for certain categories from 91% to 100%, and amend one procurement provision. The disbursement rate of the grant was then 43% and the original grant closing date (December 31, 2011) was extended one more year to advance project activities, with the possibility of extending again up to one more year if specific time-bound conditions on the implementation progress in year 2012 could be met. In December 2012: to extend the grant closing date to October 31, During the first extension period (year 2012), the project had met the time-bound conditions set for a second 4 Originally the Ministry of Construction (MOC), but renamed Ministry of Housing and Urban-Rural Development (MOHURD) during implementation. 3

16 extension of the grant closing date. The disbursement rate of the grant was then 55%. The extension was necessary to execute at least 35% of the grant amount during the last ten months. 18. In July 2013, a four-month grace period was granted by the Country Director to process final disbursements until February 28, The final disbursement rate of the grant was 96.7%. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 19. Quality at entry was satisfactory. This was the first Bank s project focusing exclusively on the residential heating sector in China. It was an important next step in the Bank s support to the Government of China (GOC) for its heat reform and building energy efficiency efforts. The HRBEE s design was informed by two AAA studies, which had already been completed prior to project preparation. Lessons learned were taken into account during project preparation from previous Bank-financed projects in the residential heating sector in Europe and Central Asia (ECA) and from energy conservation projects in China. The project also complemented other donor efforts which focused on building retrofits. 20. The project design was well thought out. The project properly set as a priority and focused sharply on new construction, as a rapidly urbanizing Northern China continued its torrid pace of residential building construction. The design allowed the project to develop a model integrated city HRBEE program in Tianjin, which was at the forefront of heat reform and building energy efficiency in China, and follow up with adaptations by other Northern cities so as to establish the applicability of the two-handed approach in the cold climate regions of China. The introduction of new technologies and policy innovations through pilots is a successful model used in many projects in China. The HRBEE s flexible learning by doing approach with simultaneous knowledge sharing and parallel replication activities in multiple cities was facilitated by a national coordination and policy support component. 21. The central government was committed but cautious, allowing heating reforms in particular to be implemented gradually according to local conditions. The MOHURD s challenge was to identify cities in addition to Tianjin that would volunteer to pilot the heat reform, the benefits of which had not yet been tested in China. Two risks were identified at appraisal: (a) that the heat reform might be reversed or its scope might be significantly reduced (assessed as moderate ); and (b) that the demonstration projects might be slow to develop due to lower capacity of the implementing agencies (assessed as substantial ). Mitigation measures included: strengthening channels of support between levels of government; and working with cities that had integrated the HRBEE agenda in their strategic development plans. Given the substantial risks in slow uptake identified at entry, the project could have had a more modest disbursement schedule. 2.2 Implementation 22. Project implementation was characterized by a slow progress and therefore initially low disbursement levels. In December 2010, after five-and-a-half years in implementation, the disbursement rate was only 30%. This was mainly caused by a long time to build up a pipeline of subprojects and technical assistance (TA) activities in other project cities. The first implementation agreements with other project cities were signed after two-and-a-half years in implementation. This slow progress for selecting other project cities was due to the following reasons mentioned below. 4

17 23. A mandatory city commitment to the heat reform. To be eligible for the grant, cities had to commit to the heat reform and prepare an action plan for the implementation of the HRBEE program. This was a high standard to access GEF funds for many cities. According to MOHURD, project cities were among the first to pilot the consumption-based billing reform at the national level. Tianjin was the very first and the Tianjin results only came during the heating season. Cities needed some form of evidence to follow the reform and seek project support, which explains the time taken to sign the municipal sub-grant agreements. 24. A slow uptake of the heat reform. The implementation of the heat reform was a local level agenda that depended on the mayor s commitment. MOHURD had few levers or incentives to offer mayors, who perceived implementation of heat reform not among their top priorities to improve energy efficiency in their cities. They were not familiar with the two-part heat tariff promoted by MOHURD, which raised perceived concerns over affordability (from increased heating bills due to inefficient housing) or loss of revenues for heating companies (from decreased energy use for heating by households). International experience suggests that the district heating sector is one of the toughest municipal services to be reformed because it is considered a vital service in cold climate regions, and in China this is no exception. External factors also impeded the progress of the heat reform, such as: the negative impact of the global financial crisis in 2008 (causing a difficult financial environment for heating companies), high coal prices in 2008 with local pressures to keep heat prices low, and MOC/MOHURD s restructuring in At the time of the Mid-Term Review in September 2008, the work on the building energy efficiency part of the project had been much faster than the progress on the heat reform, and the Bank and NPMO assessed that the slow implementation of consumption-based billing (CBB) was the main obstacle to the full achievement of the PDO. Consequently, they decided to focus new HRBEE activities as much as possible on the implementation of CBB, in particular the national TA and the training / dissemination program. 25. Uneven interest of real estate companies. The hot real estate market reduced interest from developers to take time to optimize building energy efficiency designs. The incremental cost coverage by the grant (up to one third of the incremental cost of the energy efficiency measures) was a helpful incentive. It was small relative to the size of the investment and not a major factor in decision to participate the most important incentive was association with a national pilot project, which could be used as a marketing tool. But timing mattered. The project engaged developers usually when site plans were already approved and construction designs underway. While suggestions on improved building energy efficiency codes had been accepted by developers, it took time to gain that understanding. Some developers did not want to wait. Three subprojects in Tianjin were dropped from the GEF Project, two after appraisal and one during preparation. As noted earlier, even with slow uptake, advanced building energy efficiency codes and their enforcement achieved earlier successes, partly due to Tianjin s successes and because new standards were applied to new construction. The project focused more attention on heat reform after the Mid-Term Review. 26. Management capacity issues at NPMO until July The project was designed very NPMO dependent, since NPMO was responsible for the national component and for identifying and supporting the other cities component. In the beginning of the project, NPMO was supported with national technical experts on an as needed basis. However, the depth of engagement required on building energy efficiency and consumption-based billing overwhelmed NPMO s capacity. Given the small amounts of grants (except in Tianjin), local project management units were staffed with temporary staff and needed greater support from NPMO than originally envisioned. The Bank team identified this issue consistently but it took time for MOHURD to absorb the point that there was a need for NPMO (and its director) to have a deep understanding of the heat reform, gathering and disseminating early lessons learned, an ability to effectively engage and dialogue with potential pilot 5

18 cities/developers, and put in place and manage effective systems and procedures to appraise potential new subprojects and TA activities. The Project Leading Group appointed a senior NPMO s technical advisor with substantial experience in the heating sector as the third project director in July With this and other changes, the grant s disbursement rate started to improve after his appointment and greater support and attention from the Leading Group. In addition, as results from studies and demonstrations became known, MOHURD used HRBEE materials for important working level conferences attended by local government leadership, a key channel for disseminating results. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 27. M&E design. The M&E program was designed on a set of ten indicators including three outcome indicators and seven results indicators covering the three components. NMPO was responsible for developing and implementing, with the support of project cities, the M&E system for the entire project, including collecting project performance information and reporting on the impact and results of the project. 28. M&E implementation. Implementation of the M&E system focused on regular reporting on the outcome and results indicators, as well as feedback on issues and their resolution. In addition, after the completion of each subproject, an M&E report on its performance had to be prepared by external consultants for NPMO s review. Data was reported annually by NPMO in the project monitoring report. Some variability was noted due to difficulties with obtaining consistent data from cities. During the ICR Mission in October 2013, the final data was gathered from the project cities and was double-checked. The quality and reliability of the data used in the ICR is consistent with agreed methodologies. 29. M&E utilization. Strengthening of the existing M&E systems and capacity in project cities and sustainability of the M&E arrangements beyond the operation s implementation period were key reasons for supporting the deployment of municipal pilot heat consumption monitoring platforms in five project cities (Tianjin, Chengde, Tangshan, Wuzhong, and Datong) to gather operation data from heat sources, primary networks, substations, and sometimes as well from apartment-level heat meters. Selected data is accessible online and real-time by city heat management offices and could later be accessible by MOHURD. 2.4 Safeguard and Fiduciary Compliance 30. The project was a Category B. It actually financed TA activities and subprojects consisting of: incremental building energy efficiency improvements (such as energy efficient doors, windows, and insulation material), internal heating systems (mostly apartment-level heat meters and TRV), small building level substations, and heat consumption monitoring platforms (which are metering and IT systems). 31. Environmental and Social Safeguards. The environmental impacts of the project were overwhelmingly positive in terms of reduced emissions as shown in Annex 3. Due-diligence reporting was required on environmental and social impacts from project heating and housing development company beneficiaries as part of subproject proposals according to two separate environmental and social impact frameworks developed by the Bank. They were appraised by NPMO, and reviewed by the Bank, and provided evidence that all national and local laws and regulations had been followed. No environmental and social safeguards issues were detected by the Bank during the eight years of supervision, and no land acquisition and resettlement was required for the implementation of the project s energy-efficiency investments. 6

19 32. Procurement. Procurement was compliant with Bank rules. There were no procurement issues. For the Lugang BEE subproject in Tangshan, the HRBEE national experts (advising NPMO) discovered that some of the windows installed by the real-estate developer did not meet the energy efficiency requirements of the FSR and the corresponding buildings (part of Lugang Phases II and III) were dropped from the subproject scope. 33. Financial Management. Project financial management met acceptable standards. Project funds were used for their intended purposes. Annual audit reports were submitted to the Bank on time, and no significant issues were identified. Financial management supervision and selected postreviews of project accounts, documents, and internal control procedures confirmed that management of project funds was sound. 2.5 Post-completion Operation/Next Phase 34. Physical assets. The project basically financed three types of investment subprojects: (a) building energy efficiency improvements and internal heating systems; (b) building level substations (BLS); and (c) heat consumption monitoring platforms. Building energy efficiency improvements and internal heating systems are owned by tenants, but city DH companies are responsible for maintaining apartment-level heat meters. The BLS and the platforms are owned by city DH companies and they are in charge of maintaining them (see table in Annex 2). 35. Means of sustaining reforms and institutional capacity. Ten years after the issuance of the Heat Reform Guidelines, the Heat Reform still has a modest but accelerating penetration rate in Northern China. The project promoted key aspects of the Government s plan including: (1) making households responsible for the heating bill; (2) introducing consumption based billing; (3) promoting energy efficient buildings and technologies. On the first, MOHURD reports that households are now largely responsible for the heating bill, which was an early reform started but not completed prior to the project. On the second, consumption based billing for district heating has moved from the 2003 guideline to a clear measure to promote energy savings and energy efficiency improvement in the 12 th Five-Year Plan for Energy Development ( ) and it is an explicit measure to promote clean energy in the State Council s 2013 Air Pollution Prevention and Control Action Plan 5, as urban air quality is now a top government priority. By 2013, MOHURD estimated that the consumptionbased billing area was 805 million m 2 (about the equivalent of Sweden s entire building stock or the residential building stock in the Netherlands 6 ) compared to a total heated building stock of about 8 billion m 2 in Northern China (and compared to 1 million m 2 at the start of the project). On the third, the 65% BEE standard, which was the advanced building energy efficiency standard promoted through the HRBEE has become mandatory for new construction in China s cold climate regions in August The Government is continually studying and improving standards with new emphasis on green buildings. 36. Next phase / follow-up operation. The HRBEE directly helped to identify two follow on operations and one regulatory technical assistance AAA: (1) Urumqi District Heating Project (IBRD $100 million, approved in May 2011) supporting district heating modernization, including accounting and billing preparations for consumption based billing of the city s largest district heating company. Urumqi was one of the HRBEE cities (HRBEE supported an analysis of billing and accounting systems of the largest district heating company in Urumqi whose recommendations were incorporated into downstream institutional strengthening under the loan); (2) the Urban Scale Building Energy Efficiency and Renewable Energy Project (GEF $12 million, approved in April 5 State Council of the PRC, September 10, 2013, Guofa [2013] Buildings Performance Institute Europe, Europe s Buildings under the Microscope,

20 2013) with MOHURD supporting changes to statutory urban planning requirements, distributed generation policy studies, and green building pilots to promote building energy efficiency and renewable energy applications nationally; and (3) Enhancing the Institutional Model for District Heating Regulation AAA (completed in 2012 with MOHURD which used HRBEE for supporting studies), recommending additional regulatory measures that would help advance sector reforms. 37. The project s outcomes were also taken into account in the preparation of the Urban China: Toward Efficient, Inclusive, and Sustainable Urbanization (Conference Edition, March 2014) which defines inter alia an agenda for greener urbanization. In addition, the project informed the development of a business line on low carbon cities. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Rating: Satisfactory 38. The project s objectives and design remain fully consistent with the country s priorities in terms of energy conservation, climate change mitigation, and pollution reduction in urban areas. China is still highly dependent on fossil fuels, with coal accounting for 69 percent of primary energy consumption, and for most of China s heating systems. The 12 th Five-Year Plan ( ) aims to reduce carbon intensity by 17 percent, and to contribute to the overarching goal of reducing the economy s carbon intensity by percent during 2005 to As noted earlier, the 12 th Five Year Plan for Energy Development and the Air Pollution Prevention and Control Action Plan (State Council, 2013) clearly identify the heat reform as a measure to promote energy efficiency and reduce air pollution. While the project did have a slow uptake, in the end, the project s design and implementation is relevant and contributed to reinforcing building energy efficiency and heating sector reforms as important measures to achieve the Government s above mentioned objectives. 39. The project s objectives and design remain consistent with the Country Partnership Strategy (CPS, FY ) with China. The CPS has supporting greener growth as one of its three strategic themes and shifting to a sustainable energy path as one of the supporting pillars. It is also aligned with the WBG engagement in the energy sector 7, designed to help client countries secure the affordable, reliable, and sustainable energy supply needed to end extreme poverty and promote shared prosperity. The project s objectives and design remain consistent with the Climate Change focal area of the GEF Trust Fund, which is to help developing countries and economies in transition contribute to the overall objective of UNFCCC. 3.2 Achievement of Project Development Objectives Rating: Moderately Satisfactory 40. The project s achievement of its PDO/GEO is rated Moderately Satisfactory based on the following assessment. The cumulative coal savings capacity of 2.6 million tce/year achieved by HRBEE project cities greatly exceeded the target value of 660,000 tce/year (Indicator 1) mainly due to the better than expected outcome for building design compliance with the 65 percent standard, achieving a 98.7% compliance rate compared to the 80% target value (Indicator 3), and the participation of seven cities in the project compared with six cities originally planned at the start of the project. However, critically, the cumulative new residential stock with consumption based billing missed the target value of 50% (Indicator 2), achieving 40% by the end of the project. 7 See WBG Energy Sector Directions Paper, July

21 41. The project had a significant contribution to the preparation of the national 65% residential BEE standard that was made mandatory by MOHURD 8 for new construction in China s cold climate regions in August 2010, during the project implementation period. Compared to the national 50% BEE standard, the national 65% BEE standard reduced design building heating energy consumption by 30%. This raised the floor for minimum building energy efficiency code requirements that municipalities could exceed but not reduce for new construction. Therefore, local pilots were an important entry point for building the case for national application. Tianjin adopted the 65% standard in 2004 through its dialogue with the Bank during preparation and made it mandatory in The first Tianjin 65% BEE standard was issued in 2004 (DB ) and was implemented in Tianjin was the first Chinese city to include heat metering in the 65% BEE standard. Beijing also issued its 65% BEE standard in 2004 (DBJ ) which was implemented in 2005, but contrary to Tianjin, it did not include heat metering as a mandatory requirement. The national 65% residential BEE standard made mandatory by MOHURD for new construction in China s cold climate regions in August 2010 includes heat metering as a mandatory requirement. 42. The HRBEE helped to promote early adoption and collected important early implementation experience. The Huaxiajindian and Diliutianyuan subprojects in Tianjin supported by the project were the first residential building communities in China to implement the 65% BEE standard. Code compliance at the design stage, used for the purpose of HRBEE performance indicators, was an essential first step. Building a system to enforce strengthened standards was also needed. The HRBEE helped to pilot through Tianjin the integration of systematic building energy efficiency code inspection procedures with the existing construction quality inspection system and strengthening the supervision capacity for building energy efficiency code compliance. Tianjin accumulated a unique body of knowledge and practical technical experience on the effective implementation of the 65% BEE standard, which through the project s design fed directly into MOHURD s policies and was disseminated to other cities by the project s sponsored workshops and studies (2160 people were trained in BEE and CBB by the end of the project). 43. The HRBEE also provided tailored support to project cities, depending on their need and stage of BEE code development. In Chengde, the project supported enforcement improvements after adoption of the 65% standard. In Tangshan and Urumqi the project supported demonstration of the standard which led to its adoption as a mandatory standard (in 2008 and 2009 respectively). 44. As compared with the target value of 30 cities (Indicator 4), the 132 medium-size cities in China s cold climate regions integrated building energy code compliance into regular construction supervision by the end of the project. In July 2008, the State Council issued the Civil Building Energy Efficiency Management Regulations to regulate this process and it is supervised annually by MOHURD in the 132 cities through a random check. The process is documented and has two elements: (1) energy inspection is part of the routine building construction supervision conducted by construction supervision companies (third party hired by the developer), meaning that there is a compliance check list/form which the supervision companies have to fill out; and (2) the municipal government oversight agency (construction quality supervision office) signs off on the checklist as part of the final building completion review. The client noted that the project had a direct influence on the issuance of these regulations Design standard for energy efficiency of residential buildings in severe cold and cold zone, MOHURD, August 1, 2010, JGJ This 65% standard was updated in 2007 (DB ) with support from the GEF project and the updated standard became mandatory in Before 2008, NPMO organized two national-level heat metering reform seminars (in 2007 and 2008) and five national-level training programs. In addition, Huaxiajindian and Diliutianyuan were completed in They were 9

22 45. However, despite an eight year implementation period, the project fell qualitatively short of its targets for promoting billing based on heat consumption across the country. Nationally, while consumption based billing objectives are now firmly in official plans and heat pricing reform is accelerating, they had a slow uptake during most of the project implementation period. MOHURD reports that while 116 out of 132 northern Chinese cities have adopted the two-part heat tariff, only 33 cities have at least 10,000 m2 of CBB pilot areas (See Indicator 3). The eight pilot subprojects 11 demonstrated that CBB, when combined with demand driven heating supply systems required by the project, could be implemented in the Chinese context and that it could save energy. Eight pilot subprojects required variable flow heating supply that enabled systems to respond far more efficiently to building energy needs than traditional (used widely at the start of the project) constant flow systems. This demand driven operating mode was especially important with the introduction of end-use controls (e.g. thermostats) required under building energy efficiency codes and anticipated changes in consumer behavior from consumption based billing. Without consumption based billing, the incentive for end user energy efficiency was weak and the modern heating supply systems are likely to not have reached their full potential. 46. In total, the demonstration subprojects represented 4.13 million m 2 of floor area billed according to heat consumption. While the replication of this experience had a slow uptake, the 50% target of cumulative new housing stock with CBB in other cities (Indicator 6) was met (51%). However, Tianjin, despite being a pioneer in CBB, did not achieve its target of 60% (actual, 31%), which corresponds to 46 million m 2 (the HRBEE subprojects in Tianjin represented 5.5% of this share). Tianjin s relative underachievement of the target (since it is the first city in China in terms of actual CBB area) can be explained by the following factors: (a) its large size and fast growth rate 12 made the achievement of the target more challenging than for the six other project cities; (b) Tianjin is a provincial level city (like Beijing and Shanghai) and MOHURD has no direct authority over it since they rank at the same level in the national/ party hierarchical system; and (c) being a very large and provincial level city makes effective coordination between departments more difficult for the deployment of a challenging reform, like the heat reform. 47. The slow progress of the heat reform at the national level was caused by several factors, the main two being: The successful deployment of the reform in several cities in the same province does not necessarily translate in its overall implementation at the provincial level. The role of provincial-level functions in district heating sector reform and development would gain to be enhanced, as recommended by the HRBEE Heat Regulation Report. The reform is facing resistance from district heating companies at the municipal level which are rarely keen to promote consumption-based billing since it means reduced revenues for them. 48. Nevertheless, the project has helped strengthen regulatory and institutional capacity at the national and local levels. The National Component supported the promulgation of several key studies (see Annex 2). Under the Other Cities Component, five cities carried out heat price studies to establish the local two-part heat tariff for CBB. Wuzhong and Datong which joined the project at a later stage did it on their own based on the national guidelines that emanated originally from the the first residential building communities implementing the 65% BEE standard (with household heat metering) in China. Most activities supported by the HRBEE were pioneer in China in terms of BEE and CBB work and strengthened the case for clause 18 (Chapter 2) of the Civil Building Energy Efficiency Management Regulations which states that newly constructed residential buildings should install heat meters (NPMO statement, April 2014). 11 Six with the 65% BEE standard, one with the 75% BEE standard, and one with the 50% BEE standard. 12 Tianjin s residential floor area has increased by 150% in 8 years compared to 62% for the six other project cities. 10