LOW-CARBON PIONEERS: Representatives of SMEs in China's clean-energy and energy efficiency sectors came to the annual New Ventures China forum seeking potential investment and professional consulting, as well as business partners (COURTESY OF NEW VENTURE CHINA)

China will soon announce a plan to dedicate 5 trillion yuan ($738 billion) over the course of a decade to developing cleaner sources of energy, in part to honor its commitments to effectively slashing emissions and increasing dependence on renewable energy. How will Chinese enterprises react to the enormous opportunities the plan will offer? The annual forum for New Ventures China, a non-profit matchmaking program for enterprises and investors to promote sustainable development in China, offered a sample of the efforts small Chinese businesses are making in the clean energy and energy efficiency sectors.

The forum, themed "Roadmap to Clean Energy, Answers from SMEs," kicked off in Beijing on September 2. At the forum, representatives of small and medium-sized enterprises (SMEs), venture capitalists, private investors, investment banks and consulting firms, as well as government think tanks, addressed the business potential of clean energy.

"The 2007 statistics of the International Energy Agency said China could save electricity equal to the Three Gorges Dam's annual power output by 2020 if the country could adopt stricter energy consumption standards for refrigerators and air conditioners," said Terry Han, Manager of Project Maturation of Downstream with Shell China. "The Chinese Government has to encourage innovation and the constant application of new technologies in order to fulfill its targets of enery saving and emission reductions."

While five SMEs from Beijing, Shanghai and Yangzhou of Jiangsu Province demonstrated their technical and market expertise in clean energy and energy efficiency, consulting experts from the appraisal panel helped identify their investment values and diagnose their problems.

The five enterprises were all leaders of emerging niche businesses, such as energy saving home appliances, energy efficient air-compressing systems, geothermal power utilization, wind and solar hybrid energy, and the industrialization of hydrogen-powered fuel cells.

"Many SMEs have technologies and wonderful ideas for business development, but as pioneers of China's green industry, they usually face challenges such as financing difficulties, nascent and incomplete industrial chains and a lack of professional talent, " said Ye Weijia, Director of the Institute for Environment and Development (IED).

Seeking money and aid

Four of the five enterprises want to expand production, carry out further research and development activities, and build sales channels through fundraising.

Yangzhou Jinding Electronics Co. Ltd, for example, is devoted to cutting the standby energy consumption of home appliances to zero with intelligent power management technologies applied to electrical outlets.

Air conditioners in China consume as much as 3 billion kilowatt-hours each year while standing by. This is equal to the annual power output of a medium-sized hydropower plant. The average Chinese household spends more than 60 yuan ($8.80) each year on standby energy consumption bills, said Yuan Longlu, Chairman of Jinding Electronics.

While cutting energy consumption, the intelligent electrical outlets should extend the longevity of and cut maintenance fees for home appliances, and reduce fire occurrences —40 percent of fires nationwide were caused by home appliances in standby, Yuan said.

Jinding must raise 80 million yuan ($12 million) to expand production, buy equipment, reengineer management and beef up marketing efforts in the next three years, so as to lift its annual revenue from its current 32 million yuan ($4.7 million) to 100 million yuan ($14.7 million), Yuan said.

But Jinding needs to determine how to display the energy saving efficiency of its outlets without a third-party certification, as most third-party testing agencies in China have yet to improve the independence and authority of their services, said Dai Cunfeng, Program Manager of the International Finance Corp's China Utility-based Energy Efficiency Finance Program.

Dai advised the company to decide on an effective sales model as soon as possible in order to increase the net profit margin. Jinding is currently shifting focus on seeking cooperation with home furnishings companies, from getting the product on shelves of supermarkets, and looking to selling energy-saving solutions to outlet producers some day. In addition, to please investors, Jinding must maintain its competitive advantage and build up its technological barriers, making it tougher for competitors to replicate its products, Dai said.

Compared with Jinding, Beijing's ECOSO Co. Ltd., a startup company providing comprehensive energy-saving solutions for the air-compressing system, enjoys much higher technological barriers. At present, it has no competitor in China, due, in part, to the authority of its founder.

Cai Maolin, who obtained his Ph.D. in Tokyo with his award-winning thesis, "Energy Consumption Assessment of Pneumatic Actuating Systems, Including Compressor," is considered the best researcher in this area in China and Japan.

He became the youngest Ph.D. instructor at Beihang University in 2006 and founded ECOSO in March 2009, based on research he conducted in Japan.

The company has grown rapidly and is expected to reap 10 million yuan ($1.5 million) this year -- and quadruple that next year. This is up from about 1 million yuan ($146,000) last year.

" The team at New Venture China has offered us constructive advice in deciding a business model, building up the management team, and fundraising and accounting planning, and has helped us transform from a pure tech company into a platform of comprehensive services," said Cai.

"ECOSO helps clients improve efficiency of both energy supply and utilization, with solutions covering the whole air-compressing system, such as energy efficiency diagnosis, technical scheme design, and hardware alteration craft," Cai said.

ECOSO hopes to raise 15 to 20 million yuan ($2.2 million-3 million) from its first round of fundraising. Two-thirds of that sum will be used to build sales channels and one-third to beef up R&D investments and expand production, Cai said.

Shanghai's Panye New Energy Co. Ltd. was the only of the five SMEs completed its first round of fundraising. Its representatives came looking for more than just investment and consulting.

"We are looking for partners to promote the large-scale production of fuel cells, because high production costs and an incomplete industrial chain have prevented wide application of fuel cells in China," said Shi Tao, Assistant to the General Manager of Panye.

Panye was the only Chinese company that succeeded in marketing hydrogen-powered fuel cells, but the company must still slash costs in order to conduct full-scale production.

The other two SMEs are Shanghai Ghrepower Green Energy Co. Ltd. and Jiangsu Simpson New Energy Co. Ltd. Shanghai Ghrepower is a manufacturer of small and medium-sized wind turbines and has already exported its products to Europe, South America, ASEAN countries and Africa. Simpson introduced the technology of energy-efficient central air conditioning from the United States in February 1995 to promote ground-source heat technique in China.

Background: New Ventures China

New Ventures China (NVC) is a regional program of New Ventures Global initiated by the World Resource Institute (WRI) in 1999.

NVC is devoted to increasing the capacity of and investment in small and medium-sized enterprises that incorporate social and environmental benefits. By engaging companies operating in sectors such as energy conservation, emission reduction, and low-carbon economic development, the program explores possibility of a sustainable economy in China.

Since NVC was launched in 2003, more than 400 SMEs have participated in the program's capacity building workshops and have taken advantages of the program's investor matchmaking opportunities. To date, 60 enterprises have been selected for the NVC portfolio and more than 20 enterprises have leveraged more than $150 million in investment.