Research On Financial Risk Of EMC Projects Of Energy Service Company

The energy crisis caused by the oil embargo in the 1970 s raised international awareness of the necessity of developing energy-saving industry. As a result, energy conservation service companies began to grow. The implementation of Energy Management Contract(EMC)project is the core business of an energy conservation service company, thus EMC is of great significance.In the late 1990 s, as energy conservation service companies and EMC emerged in China,a growing number of energy-consuming units chose to cooperate with these companies to carry out energy-saving retrofit. This special business model brings not only great energy-saving benefits, but also risks to nergy conservation service companies, because the vast majority of risks, especially financial risks in EMC project are taken by them. Therefore,how to adapt to environmental changes and to minimize the financial risk of the project becomes a key and consequently, to study on the issue of financial risk before investing in EMC project appears extremely important and urgent.This paper firstly reviews the literatures at home and abroad and then introduces relevant theories that this text involves. Based on the project life-cycle theory, in chapter three, the process of EMC project is divided into four stages, namely financing, investment,construction and completion stages; then the contents and features of each stage are analyzed and financial risks of each stage and its influencing factors are concluded. In chapter four, a financial risk evaluation index system for the EMC project is built and the method of Analytic Hierarchy Process(AHP) is adopted to determine the weight of each index. The evaluation model based on the information entropy is applied to evaluate the financial risks objectively.As an example to put the financial risk evaluating model into practice, the case of GR Company's investment in the capacity-increasing and efficiency-rising project of Q power plant is studied. Finally, coping strategies on how to reduce the financial risk in EMC project are raised, for the government and for energy conservation service companies respectively.