China’s new energy efficiency regulations will be a boost for startups

July 4, 2022

New regulations covering China’s building sector could open up opportunities for more energy efficiency innovations. The market is ripe for startups to take advantage and accelerate the country’s clean energy transition, writes Yi Luo, a Climate Fintech Program Associate at New Energy Nexus China.

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Skyline in Pudong Shanghai

China’s new General Code for Building Energy Efficiency and Renewable Energy Utilization (建筑节能与可再生能源利用通用规范) was formally implemented in April 2022, representing a big shift in the building and construction sector. It requires that all new, expanded and reconstructed buildings, as well as energy-saving renovations of existing buildings, be designed for energy efficiency. Data specifying the building’s energy consumption and carbon emission are also required.

Currently, there are no specific requirements for energy efficiency in the construction of new buildings, and instead only passive saving strategies like natural lighting and heat insulation are prioritized. Currently only energy efficiency disclosure is compulsory in China, but the industry is expected to evolve in the coming years with the expansion of the country’s energy efficiency regulations.

The new regulations introduced in April 2022 will impact the construction industry in three main ways.

Firstly, it covers the whole process of energy saving and renewable energy systems in newly constructed, existing, and reconstructing buildings. Conventional energy saving measures focus only on either material or construction process, but post-construction management will now receive more attention (source).

Secondly, the regulation enforces disclosure of energy consumption and carbon emissions. The Code specifies a comprehensive measurement and supervision standard, especially for buildings over 20,000m2.

Thirdly, there are more requirements for energy saving efficiency, compared to the 2016 energy efficiency code. The average energy saving efficiency in cold regions of the country will exceed 75%, 65% for other areas and 72% for public infrastructure (source, source).

Based on the “double-carbon” vision proposed by President Xi Jinping and the “Fourteenth Five-year Plan”, we estimate that the disclosure requirement is just a start, and compulsory application of energy saving strategies could come out within the next three years. In that time, we expect the industry to really take off.

How will China’s energy efficiency sector grow?

The value of the construction energy saving industry is estimated to reach around CNY 700 billion (USD 104 billion) in 2022 and the operation stage energy saving would be up to CNY 600 billion yuan (USD 89 billion) (source) (source).

Current energy saving solutions mainly cover the use of new energy, energy storage and batteries, and integrated central systems. As markets and technologies mature, the construction energy saving industry will evolve in some interesting ways.

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Yan’an East Road Interchange, Shanghai, China (source)

Here are several ways entrepreneurs can take advantage:

1. Cooperate with residential telecommunication companies

Giants in China like Meidi, Huawei, and Xiaomi are all quite proactive in IoT and intelligent home systems. Start-ups with technologies in this area could cooperate with these companies to offer a bundle service. The energy saving solution system could merge as a core part of the intelligent home system. In addition to higher efficiency, another financial benefit are savings on reconstruction and installation costs.

Home telecommunication companies can also help startups access the market. These giants have gathered sound reputation, so cooperation with them also provides a quality endorsement for start-ups.

2. Cooperate with property management companies

Property companies like Wanda also proposed the idea of “AI + intelligent buildings or neighborhoods” in 2021(source). Supporting a property management company which controls a large neighborhood could create more synergy and efficiency – a win-win deal for each side of the business.

3. GIS and regional geographic measurement projects

An integrated platform could also link to other research and measurement activities. It could further integrate with energy networks based on blockchains and other technology, to help regulate and control the energy industry on a regional or national level.

4. Adopt or cooperate with clean energy, energy storage, and virtual power plants

As these are all ways to save energy, that could work together to construct an energy-saving ecosystem (source).

Yi Luo is a Climate Fintech Program Associate at New Energy Nexus China

[1] According to ‘China Construction Energy Consumption and Carbon Emission Report (2021)’ (《中国建筑能耗与碳排放报告(2021)》), in 2019, the construction operation stage consumed 1.03 billion tce (21.2% of total national energy consumption) and emitted 2.13 billion ton of carbon dioxide (21.6% of total national carbon emission). It’s estimated that the energy consumption and carbon emission would reach 1.192 billion ton of coal equivalent (tce) and 2.368 billion ton. The industry could create a potential economic value of 480~600 billion yuan (taking the energy saving efficiency as 25% and the coal price of 1600~2000 yuan per ton).