China’s Green Building market has more than doubled every year since 2005, but remains only a fraction of its potential size. Numerous challenges impede growth, yet companies with a nuanced understanding of this complex, rapidly growing market can position themselves to become future industry leaders.
Given the pace and scale of urbanization, China needs to improve building efficiency to meet energy and environmental goals. Green buildings can play a substantial role: if all of China’s existing buildings were green, it would mean energy savings equal to half of the total electricity generated in China in 2007. Although the economics of green building are favorable in China, builders are reluctant to pursue green building projects due to misaligned incentives between developers, owners and tenants. Though enforcement may be improving for building energy codes, it lags in other areas. Despite these and many other challenges there are still attractive opportunities for foreign and domestic companies.
The China Greentech Initiative developed three in-depth Opportunity Assessments for the Green Building sector in 2010:
- Expanding the Building Energy Efficiency Retrofit Market through ESCOs
The market for building energy efficiency retrofits is expanding rapidly, as are government efficiency targets for existing buildings, yet current policies are insufficient, subsidies are still small, and ESCO solutions vary widely by market segment.
Energy Services Companies (ESCOs) provide energy efficiency solutions to customers on a risk-reward basis over a specified payback period and have great potential to improve energy efficiency, but their near-term potential in China is unclear. Over the last five years the building energy efficiency retrofit market has experienced a 40% compound annual growth rate as government policies support growth. The most important policies affecting ESCOs are targets for urban heating in northern China and energy management of large public buildings; however, progress is uneven and subsidies for ESCOs are too small to make a meaningful difference.
- Accelerating Green Building Materials Adoption through Supply Chain Practices
Incomplete industry standards and metrics, poor enforcement of regulations, and supply chain practices that ignore the environment define China’s fledgling green building materials supply chain.
Despite rising green building demand in China, green building materials currently represent only 5% of the total market. Building code enforcement is uneven, giving developers little incentive to source legitimate green building materials. Building materials suppliers may certify materials with authorities without necessarily complying with requirements. Nevertheless, environmental criteria in sourcing and value-chain partnerships offer opportunities for stakeholders to move the entire market forward.
- Rapidly Improving Market for Sustainable Indoor Environment Solutions
Indoor air quality (IAQ), thermal efficiency and energy efficiency solutions have considerable potential in the Sustainable Indoor Environment (SIE) market.
SIE, which affects human health and productivity as well as the environment, is influenced by a number of factors, including IAQ, thermal efficiency and energy efficiency. SIE solutions such as air purification, floor heating and energy efficient lighting technologies, represent markets that are relatively well-developed or are improving quickly. China’s interior fit-out market, for example, reached RMB 1.85 trillion (US$ 285 billion) in 2009, consisting of 180,000 companies with a total of 14 million employees. A major challenge for SIE is weak enforcement of existing standards. Other issues include lack of motivation, design process difficulties, lack of reliable products and services, and low market awareness. Better enforcement and integrated solutions are needed for the SIE market to develop further.