The International Finance Corporation (IFC), a member of the World Bank Group, said Tuesday it would offer more help to small and medium-sized enterprises (SMEs) in supporting China's efforts to increase energy efficiency.

The statement was made by Dai Cunfeng, operations officer and team leader of the China Utility-Based Energy Efficiency Program (CHUEE) after IFC's Independent Evaluation Group (IEG) released an assessment report of the CHUEE's impacts on China's energy efficiency in Beijing.

Started in 2006, CHUEE was an integral part of IFC's efforts to focus on environmental sustainability and climate change when China's soaring demand for coal to generate electricity and a surge in cement production made it one of the world's largest emitters of carbon dioxide.

The program is aimed at stimulating energy efficiency investments in China through bank guarantees for energy efficiency loans and technical assistance to market players, including utilities, equipment vendors and energy service companies, to help implement energy efficiency projects.

As of June 2009, the 98 energy efficiency investments supported by the program have reduced greenhouse gas emissions by 14 million tonnes per year, slightly exceeding the target set at the beginning of the program.

The report said the program mainly covered heat and gas recovery power generation and the introduction of efficient production systems. The steel, chemical and cement industries are the largest beneficiaries.

The IEG attributed the success mainly to a favorable policy environment policy in China.

"The timing for the program was right, as the government was putting significant emphasis on promoting energy efficiency activities. And it has already put various policy measures in place," said the report.

However, some of the program's original targets were not met.

Most of the CHUEE's beneficiaries have been large companies, in contrast to the original plan to emphasize SMEs, according to the report.

"The original expectation was that 60 percent of the guaranteed loans would be small (about 200,000 U.S. dollars). In reality, the average loan size was 5.7 million dollars, and loans of 200,000 dollars or less constituted less than 10 percent of the actual portfolio," the IEG said.

Moving downmarket to SMEs remained a key challenge, as these companies had limited access to finance for energy efficiency projects, said the report.

"Actually, big enterprises already have adequate financing for energy efficiency as banks are much more willing to extend loans to them," said Dai.

The next step for the IFC's CHUEE program would be to set aside a fund of 200 million U.S. dollars specially for energy efficiency financing of SMEs, said Dai.

"CHUEE would also conduct more cooperation with smaller banks like city commercial banks, as a large share of their customers are SMEs," he said.

Currently, only three banks participated in the CHUEE program: the Industrial Bank, Bank of Beijing and Shanghai Pudong Development Bank. Negotiations between CHUEE and China Merchants Bank, and some city commercial banks were ongoing, Dai said.

"Another challenge for the program is to orient activity to the areas where additionality is potentially most significant," said the report.

The report urged the IFC to focus on areas where it could have a unique role in raising energy efficiency in China.

Despite the explosive growth of energy efficiency finance in China, the most important areas for reductions were not adequately addressed by market participants, said the report.

"The most significant emission cutting should come from industrial boiler retrofitting, followed by energy savings in residential housing and commercial buildings," the IEG report said, citing China's top economic planner, the National Development and Reform Commission.

However, banks so far had not provided financing in those areas. As energy users in these areas were often small and dispersed, access to finance and technical services was more challenging than that for the large enterprise energy users.

"More needs to be done and the IFC's goal over the next two years is to achieve a threefold expansion of its energy efficiency investments," Dai said.