ENVIRONMENTAL AUDITING

National Audit Office of P.R.China

In order to speed up the transformation of the mode of economic development, promote the implementation of China's policies and measures related to energy conservation and emission reduction, urge local governments to strengthen energy conservation and emission reduction, increase the special funds allocated for energy conservation and emission reduction and ensure more public investment in promoting energy conservation and emission reduction, the National Audit Office of China (hereinafter referred to as CNAO) has organized four audits of energy conservation and emission reduction in recent years. During the implementation of these audit projects, the auditors focused on the implementation of the energy conservation and utilization projects, new energy projects, renewable energy projects, pollution reduction projects and circular economy projects. This article focuses on CNAO’s idea and practice in organizing and implementing the audits of energy utilization projects, new energy projects and renewable energy projects.

I. Key audit points

(I) The implementation of industrial structure adjustment and optimization policies. Firstly, CNAO investigated how the policies of closing down outdated production facilities in steel, cement, paper and other industries were implemented and whether key industries accelerated the closing down of backward production facilities, and to examine selectively whether the equipments included in the annual plan for eliminating outdated production capacity are dismantled unrecoverably; Secondly we examined the practice to restrain new projects with "high pollution, high energy consumption and excess production capacity", and whether the departments of finance, taxation, or land support in violation of related regulations for projects with outdated production capacity and "high pollution, high energy consumption and excess production capacity".

(II) The implementation of key energy conservation projects. We conducted spot-checks of the application of energy-saving technology in key enterprises, the renovation of buildings to improve energy efficiency, and the promotion of energy-saving air conditioners and fuel-efficient cars, to examine whether there is any false data, suspension or even termination of the operation of energy conservation facilities.

(III) The progress of new energy and renewable energy projects. CNAO conducted a spot-check of renewable energy-powered building demonstration projects and the Golden Sun Program to examine whether the construction of the projects were behind schedule, in slow progress or with low performance caused by insufficient preparatory works such as the lace of scientific proof.

II. Audit of energy management contract (EMC) projects

Contract energy management is a cooperation mode that a energy-saving service provider shares the energy-saving benefits with its customer (an energy-consuming enterprise) by signing an energy-saving service contract with the customer. The energy-saving service provider supplies its customer with a complete set of energy-saving services, such as energy auditing, programme designing, project financing, equipment procurement, engineering construction, equipment installation, personnel training, calculation and guarantee of total energy savings. Its business model is to take back its investments as well as making profits from the benefits of the energy-saving transformation. The energy-saving service provider will end the contract after the investment is recovered and a reasonable profit is earned, and all the subsequent energy-saving benefits and energy-saving equipments will be owned by customers.

In recent years, the Chinese government has increased the support for the business model of contract energy management, and the National Development and Reform Commission (NDRC), Ministry of Finance and other ministries introduced relevant stimulus policies and incentives, which promoted the rapid and sound development of the energy-saving service industry with policy and funding support. The number of the energy-saving service companies engaged in contract energy management in our country have increased from 3 in 2000 to more than 400 up to now. In the declaration procedure of the incentive funds, the local governments of different levels will review and report the energy savings declared by the energy-saving service companies to the NDRC and the Ministry of Finance. These two ministries will allocate the financial subsidies to the relevant enterprises after they employ a third party to calculate and verify the energy savings.

Here, we would like to give a brief example of an audit of contract energy management projects in Province A where CNAO carried out energy-saving and emission reduction audit in 2012.

(I) Basic information

In the audit, the auditors checked the contract energy management project implemented by an energy-saving service company B in Province A for several customers. Statistics show that this company completed 15 contract energy management projects, including energy-saving boiler installation, high-efficiency motor installation, etc., and saved the energy of 22,000-ton coal equivalent, shared an energy-saving profit of 2.8 million yuan, and received subsidies of 1.6 million yuan.

(II) Audit plan

1. Taking into consideration of company B’s qualifications, competence of its technical team, and selected cases of its previous projects, we plan to evaluate the company's real technological capacity and its competitiveness of carrying out contract energy management project

2. By extending our survey to the benefited enterprises of company B’s energy-saving projects, we plan to inspect the operation of relevant technological transformation projects on the site, and to verify the true energy-saving volume and the resulting energy-saving benefits after transformation.

3. By extending our survey to the local government departments, we plan to review the company’s application for subsidies, to check whether there was fraud in the application process by giving false report of energy savings, and to ensure the local governments introduce stimulus policies to support energy-saving service companies in taxation and funding.

(III) Audit findings

1. Some energy-saving service companies collude with energy-consuming companies and make a false report on the energy-savings to defraud governments of subsidies.

2. Some energy-saving service companies do not have required qualifications and technical capacity, but were still undertaking contract energy-saving projects.

3. Some local public financial departments have not allocated the contract energy management incentive funds to energy-saving service companies in a timely manner, and some local governments did not introduce or implement the stimulus policies.

(IV) Audit recommendations.

1. Local governments should take back the defrauded public funds from related companies.

2. Local governmnets should step up supervision and inspection on energy-saving service companies to ensure the qualified energy-saving service companies have authentic and reliable technical capabilities.

3. Local governments and relevant departments should introduce contract energy management stimulus and supporting policies and ensure the implementation.

III. Audit of the Golden Sun Program 

In order to reduce the proportion of electricity generation from fossil fuels, promote clean and renewable energy development and utilization, and establish and improve China's photovoltaic industrial chain, the Ministry of Finance and other departments have organized and implemented since 2009 the Golden Sun Program to encourage qualified companies and individuals to use of roofs, facades and other locations for photovoltaic power generation. The photovoltaic projects under this program will be subsidized by public funds based on investment scales.

In the 2012 Energy Saving and Emission Reduction audit organized by CNAO, auditors put emphasis on the inspection of the Golden Sun Program implementation, and found that it was uneasy to connect photovoltaic power stations to power grid and the performance of the stations was poor.

(I) Basic information

Auditors spot-checked on a project under the Golden Sun Program in province C. The installed capacity of the project is 1000 kilowatt, the installation and commissioning work of the project have not been completed yet, and some completed project has been not yet combined to the grids for power generation.

(II) Audit plan

We plan to learn the implementation of the project and the amount of subsidies, and to analyze reasons behind the low progress and poor performance. We also plan to visit the project site and check its construction and operation, and to offer advices on solving problems and fully utilizing the funds.

(III) Audit findings

1. As the construction of local supporting facilities had not been finished yet, some photovoltaic power generation equipments could not be installed.

2. Some completed projects (units) could not be connected to the grids for power generation.

3. The operating losses of the photovoltaic enterprises completed and connected to grid discourage other photovoltaic enterprises from producing or operating.

(IV) Audit recommendations

1. The supporting facilities should be improved and the projects’ construction needs to be sped up.

2. The grid connection technology should be standardized to ensure the project and the funds give best performance.