Financing Innovations in Industrial Water
By Navneet Chadha, Rong Chen, Zhenzhen Xu 11 February, 2014
With rising water tariffs, IFC's Chadha, Chen & Xu walks us through financing innovations in industrial water
China is facing a severe water scarcity crisis due to rapid urbanization and climate change impacts. Although China has 20 percent of the world’s population, it has only 7 percent of the freshwater resources. Availability of good quality freshwater is further limited by increasing environmental pollution of major river systems and lakes. To address the growing water supply-demand gap in China, International Finance Corporation (IFC), the private sector arm of the World Bank Group, is championing industrial water efficiency (WE) by developing and financing projects that save valuable freshwater.
Textile: the first target industry
The first industry targeted is China’s textile sector with annual exports of more than US$212 billion and nearly 50% of the global production. The project focuses on dyeing and printing (DAP) operations within the textile supply chain, which are water-and-energy intensive and have a significant environmental footprint. The Textile DAP sector alone uses nearly 8 billion tonnes of freshwater and 15 million tonnes coal equivalent per year and is in top three in terms of wastewater and chemical oxygen demand (COD) discharges among 39 industries in China.
The Textile DAP sector alone uses nearly 8bn tonnes of freshwater and 15mn tonnes coal equivalent p.a. …
… it is in top 3 in terms of wastewater and COD discharges among 39 industries in China
The IFC program is designed to help the private sector address water risks, cut production costs, and grow sustainably. However, motivating factory managers to invest in projects based on the promise of future savings is a formidable challenge given the underpriced water resources and weak regulatory enforcement.
… we are developing projects that not only save water but also energy & chemicals, where practicable…
… this recognizes the importance of managing the energy-water nexus
Water & energy efficiency is as much about changing mindsets as about modifying technology and hardware.
To address this barrier, we are developing projects that not only save water but also energy and chemicals, where practicable. This approach recognizes the importance of managing the energy-water nexus given that it takes water to generate energy and energy to transport water. For example, wastewater recycling can be a viable means of saving significant freshwater but energy-efficient pumps must be used to mitigate the impact of increased pumping costs.
As we quickly learnt, a capital project is not going to be implemented simply because it has a good business case because there is always competition for limited resources and funds. Water and energy efficiency is as much about changing mindsets as about modifying technology and hardware. This is especially challenging given that the IFC program is going beyond relatively simple, low-cost modifications to more advanced interventions.
Although such measures are more complex to develop and require capital investment, the higher water and energy savings will result in greater operating cost savings for the DAP mills and a better developmental impact outcome for IFC.
One year later…
Over the last year, IFC has engaged with well-known global brands including IKEA, Primark, Adidas, and Jones Group focused on the sustainability of their supply chain in China. We are also working with domestic companies to have a representative mix of the textile sector.
The results from the first year of implementation are encouraging with nearly 50 cost-effective projects developed with payback ranging from six months to less than five years.
IFC and its consultant teams have now completed investment-grade audits and feasibility studies at 19 facilities in four Chinese provinces. The results from the first year of implementation are encouraging with nearly 50 cost-effective projects developed with payback ranging from six months to less than five years. When fully implemented, this initial batch of demonstration projects will avoid significant freshwater and GHG emissions. A few DAP mills are already implementing modifications by self-financing projects while others are seeking external financing. The latter are being referred to Bank of Beijing, IFC’s first partner bank formally engaged in developing the nascent water-efficiency-financing market in China.
We present two case studies from IFC’s China Water Program, one for a small textile DAP mill and another for a large textile enterprise to illustrate the types of water-saving measures that can be implemented even under current market conditions if developed holistically to support a company’s business objectives. These could include a need to increase production efficiency, improve product quality, and/or manage environmental impacts.
Case Study One: Fabric Dyeing & Finishing Mill
This project for a knitted fabric dyeing mill in Guangdong Province provides a good example of simple and advanced measures that can save water and energy. Improvements identified are replicable at other small and medium enterprises (SMEs) that may be using outdated technology or older, inefficient equipment. The following interventions were developed after analyzing the baseline water and energy consumption and benchmarking with industry best practices:
- Improve energy and water metering systems;
- Recycle and reuse dyeing and finishing wastewater;
- Replace high liquor-ratio dyeing machines;
- Minimize leakage of water and steam;
- Recover heat from high-temperature wastewater; and
- Recover waste heat from setting machine.
This company is immediately planning to implement the top four measures, which will save more than 0.5 million m3 of freshwater and avoid 5,000 tonnes of Green House Gases (GHGs) annually. Investment required is about RMB 3 million for a payback of less than three years. IFC is currently helping the mill secure financing for the package of WE projects.
Case Study Two: Ramie Fabric Company
This project was for one of the largest Chinese producers of degummed ramie (hemp), which is used as a raw material for high-grade textile products. As part of its capacity expansion, this company in Hunan Province will replace the existing chemical-degumming process based on use of hazardous chemicals with bio-degumming. The alternative technology is based on enzymes, which uses milder conditions and thus saves chemicals, water, and energy. The company will also improve metering systems, implement condensed water recycling, and modify its wastewater treatment plant as part of the factory upgrades.
These interventions will not only increase the company’s revenues but save more than 6 million m3 of freshwater and avoid 30,000 tonnes of GHGs per year. Payback is less than four years and IFC is helping secure financing for RMB 30 million, a portion of the total financing needs. The expansion project also has concurrent social benefits because it will create several thousand additional jobs for local ramie farmers.
IFC is continuing to facilitate implementation of the demonstration projects developed so far while raising sector-level awareness. The water scarcity problem in China is much bigger than what a single institution can address, so we are reaching out to local government agencies, NGOs, financial institutions, and other interested stakeholders to help scale up our program and maximize impact. For example, we are in discussions with clean technology equipment and chemical vendors, who can serve as project aggregators by implementing similar projects in multiple mills.
“The water scarcity problem in China is much bigger than what a single institution can address, so we are reaching out…
We invite global brands and their suppliers to lead implementation of similar water-saving projects.”
Other activities include expanding in textile clusters in Zhejiang, Guangdong, and Fujian Provinces. Since water scarcity is best managed as a local issue, we plan to work with provincial or city level government agencies and our World Bank colleagues to develop water management policies that support longer term uptake of water efficiency initiatives. The recent announcement by NDRC to complete its water price reform by 2015 should help. IFC’s longer-term plans are to expand the program into other water-intensive sectors in China.
While we have shown that industrial water efficiency can make good business sense under certain situations, much more needs to be done to catalyze a sector-wide shift in China’s textile industry. We invite global brands and their suppliers to lead implementation of similar water-saving projects. There could be a competitive advantage for those who manage their business risks now in the face of rising water tariffs and decreasing water supplies.
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