A new era for energy

efficiency in the Philippines

What you should know about the new
Energy Efficiency and Conservation Law
and EE financing opportunities

Alexander Ablaza
29 November 2019
44th IIEE Annual National Convention

All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2)
PE2’s 4-point approach toward a long-term
transformation of the EE market www.pe2.org

EE
ESCOs
Tech/Services
Establish EE Enable EE
Enforce EE Establish a
alliance and Law and
Bridge Public-Private
build sector Fiscal
Policies Collaboration
capacities Incentives
NPOs /
EE Finance
Implementors

PE2 has a 14-year history, with its predecessor Energy Service Company Association of the
Philippines (ESCOPhil) established in May 2005 with the guidance and oversight of the
Department of Energy. EE Policy Reform Agenda Strengthening the ESCO Industry

•Combined push for the swift passage of the EE •Training of trainors and PE2 personnel related
PE2 was officially reorganized in April 2016 as a non-market, non-state, non-profit Bill and fiscal incentives to performance contracting, IGAs, M&V and
organization to embrace the needs of various EE market stakeholders through the following •Combined push for immediate enforcement of preparing investment-grade projects –
membership categories: bridge policies certification of CEMs, CMVPs
• Regular A – Accredited energy service companies (ESCOs) •Combined push for enabled Government •Preparation of Investment-Grade Projects
• Regular B – EE technology/solutions/service providers, professional/legal services, procurement, budgeting and multi-year •Drafting and Adoption of Industry-Standard
contractors, EPCs, utilities contracting of ESCO services and PPP Performance Contracting Templates
transactions for EE projects in the public •Preparation of a Business Plan for the
• Regular C – Financial institutions, equity providers, leasing cos, guarantee cos, fund sector Establishment, Seed Funding, Operation and
managers •Co-establish a public-private-civil society Replenishment of an ESCO Guarantee Fund or
• Associate D – Non-profit, non-market, non-state civil society organizations, industry collaborative platform that would sustain the Insurance Facility
associations/chambers, foreign-assisted projects, academe and research institutes long-term EE market transformation efforts
• Associate E – Large organizations or enterprises which have mainstreamed EE in their
core activities
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All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2)
With the recent passage of RA 11285, the
Philippines finally rejoins the many jurisdictions
around the world with an Energy Efficiency law
and incentive framework in place

Dispatching energy efficiency (EE) as the “first fuel”

Energy markets need to gradually move toward integral resource planning

Several EE
policy
measures
incorporate
fiscal, tax-
based
Source: Enerdata
incentives
• Asian countries tend
to employ more tax
reductions than tax
credits

• Reduction on VAT
and on import tax on
EE equipment is
widely used in
developing countries
Source: ACEEE, 2016
All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2)

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No-brainer multitude of EE co-benefits

Source: IEA

Source: Pembina Institute All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2)
Source: A. Ablaza, July 2017 5
All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2)
A 4-decade journey of the EE&C Act

1990:
1980:
HB29056,
BP73 EnerCon HB32655 &
Act effective HB32781 filed
for 5 years in 8th Congress

The EE&C policy evolved in the last 4 decades:

• EE emerged as a stronger intervention than EC
• EE&C is mainstreamed as a “way of life.”
• ESCO and third-party investors are incentivized.

1985:
2019:
BP872
extends RA11285 is passed
EnerCon Act from SB1531 &
by 5 years HB8629 of 17th
Congress

29 years of voluntary energy efficiency market through constant

refiling and push for an EE&C bill. In most cases, EE&C bill was
neither an administration measure nor certified urgent.
Source: A. Ablaza, 2019
Republic Act No. 11285
Energy Efficiency and Conservation Act

Energy Designated
Government Certification Incentives Other Features
Performance Establishments

Demand-side
Minimum Energy Type 1: 0.5-4.0 Management (DOE,
Certified EE&C million kWh/yr ERC, PEZA)
DOE is lead agency Performance and Fiscal Incentives
Officer
Labeling

Waste Management
Type 2: > 4.0 million
kWh/yr
NGAs, GOCCs, GFIs DOE Examination,
Certified Energy Non-fiscal DOE-EUMB
and LGUs have new Testing and
Manager Incentives Strengthening
roles Verification
Reporting of Other
Establishments: 0.1-
Prohibited Acts, DOE
0.5 mln kWh/yr
Measures, Penalties,
Inter-Agency EE&C Energy Performance Fines and Liability
Energy Service
Committee, GEMP of Transport Concessional
Company (ESCO) DOE Visitorial Appropriations, IRR,
and Govt EE Vehicles and Finance
Certification Powers Codes, Guidelines,
Projects Buildings
JCEC Oversight

Source: A. Ablaza, 2019

 • DOE is the lead agency
• BOI, CCC, COA, CHED, DBM,
DepEd, DOF, DENR, DILG,
DPWH, DOST, DTI, DOTr, GCG,
GFIs, IC, NEDA, NCC, PSA and
TESDA have respective roles
• Local Government Units (LGUs)
• Inter-Agency EE&C Committee
• Government Energy
Management Program (GEMP)
• Government Energy Efficiency
Roles of Government Projects – expanded
Source: A. Ablaza, 2019
procurement
Source: A. Ablaza, 2019

Certification for Professional
Competency and Accreditation
for Professional Services
Source: A. Ablaza, 2019
• Certified Energy
Conservation Officers –
CECO certification led by
TESDA in coordination
with DOE
• Certified Energy Managers
– CEM certification led by
CHED in coordination with
DOE
• Certification of Energy
Service Companies (ESCO)
by DOE
 Energy Performance
Standards and Labeling
Requirements
• Minimum Energy Performance (MEP)
for the commercial, industrial, and
transport sectors
• Energy Labeling for Products and
Equipment
• Energy Product, Device, and
Equipment Examination, Testing, and
Verification
• Fuel Economy Performance for
Transport Vehicles
• Energy Performance for Buildings

Source: A. Ablaza, 2019

 • Type 1: 0.5-4.0 million kWh/yr consumption
• Type 2: > 4.0 million kWh/yr consumption
• Obligations include:
– Energy management system
– EE&C programs
– Annual EE&C targets and plans
– Energy records
– Improve average SEC
– Annual ECCR submission to DOE
– Mandatory energy audit every 3 years
Designated – Employ CECO (Type 1) or CEM (Type 2)
• Energy consumption reporting of other
Establishments establishments – 0.1-0.5 million kWh/yr
• DOE Visitorial Rights
Source: A. Ablaza, 2019
 • Fiscal Incentives
– EE to be included in BOI’s investment
priorities plan for a minimum of 10 years
(extendable). E.O. 226 grants income tax
holiday and duty-free importation
– EE projects are exempt from Article 32(1) of
E.O. 226. (EE projects can avail of incentives
regardless of ownership structure by
nationality.)
• Non-fiscal Incentives
– Awards and recognition
– Technical assistance for development of EE
technologies
Incentives • Concessional financial packages
Source: A. Ablaza, 2019
 • Demand-side Management (DOE, ERC, PEZA)
• Waste Management Collection, Recycling and Disposal
• DOE-EUMB Strengthening
– Alternative Fuels and Energy Technology Division
– Energy Efficiency and Conservation Program Management and Technology
Promotion Division
– Energy Efficiency and Conservation Public Sector Management Division
– Energy Efficiency and Conservation Performance Regulation and Enforcement
Division
• Prohibited Acts, Explanation, Recommendation, Disclosure and Order
• Penalties and Fines
– P 10,000 to P 1 million
Other • Criminal Liability of Responsible Officers and Employees
– 1-5 year imprisonment, or fines ranging from P 100,000 to P 100 million or
Features twice the avoided cost of non-compliance, whichever is higher
• Appropriations, IRR, Codes, Guidelines, JCEC (fka JCPC) Oversight
Source: A. Ablaza, 2019
Next Steps – Types 1/2 Designated Establishments
• Set up Energy Management System
• Appoint a CECO / CEM
• Gather historical and baseline energy data, including SEC
• Select an energy service company (ESCO) or energy auditor to
perform an energy audit
• Build up an EE&C program and set SEC reduction targets
• Participate in DOE-led IRR consultations for commercial,
industrial and transport sectors

All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2)
14
 Download the full text of the
EE&C Act from pe2.org

Downloadable, searchable text

https://www.pe2.org/republic-
act-11285-energy-efficiency-and-
conservation-act

Signed PDF version

https://www.pe2.org/sites/defau
lt/files/ra-11285-enercon-act.pdf

Source: A. Ablaza, 2019

Philippines’ EE capital requirements, 2017-2040

Business-as-usual EE capital to
be mobilized through:
• Self-financed
• Debt-financed
Business-as- • Lease-financed
usual PHP 4 • Other on-balance-sheet*
trillion
modalities
Off-balance sheet* EE capital
flows through:
• ESCO performance Off-balance sheet capital
contracts PHP 8 trillion * Balance sheet of host or end-user of EE project

• PPP transactions Source: A. Ablaza, PE2, 2019

• Government, large-scale
retrofit programs
• Other off-balance-sheet*
modalities

All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2)
Energy Efficiency Financing and
Investment Modalities

Off-balance
Special Market
Self-financed Debt-financed Sheet
Channels
Investments

Utility-led DSM and Govt

ESCO performance Programs
contracting
EE loans

LGU subsidies (eg PACE)

Using own capital or
operating budgets to
PPP / BOT
procure EE
technologies Funds: EE, ESCO, Private
Equity

EE leasing
Portfolio investments Guarantees (EE
Performance and
Customer Credit)

All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2) 17
Self-financed EE projects
• On-balance sheet procurement.
• Typically, 100% of EE project cost is funded by end-user or facility owner.
• End-user or facility owner is the legal and “accounting” owner of the EE equipment assets from beginning. Applies to
all energy end-use sectors: residential, commercial, industrial, transport, government.
• End-user enjoys 100% of savings or avoided energy purchases immediately. In isolated cases wherein the EE technology
solutions provider is an ESCO, the ESCO can issue an energy savings performance guarantee to the purchasing end-user.

Site Equipment and Services (Optional:

Energy Savings Performance Guarantee)
End-User
EE Technology Solutions Building, Facility, Household,
Provider Fleet
Payment for Direct Purchase

Barrier: EE for end-users is a non-core activity, and therefore a low-priority expenditure for it to be using available cash
budgets.

All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2) 18
Debt- and lease-financed EE projects

• On-balance sheet procurement.
• 70-80% of EE project cost is
typically financed by a bank or
leasing company.
• For EE equipment leases, the leasing company remains the legal owner of the EE
equipment assets through lease term. For both EE loans and leases, the borrower or
lessee (end-user or ESCO) becomes “accounting” owner from the beginning.
• Applies to all energy end-use sectors: residential, commercial, industrial, transport,
government.
• Credit cards are popular ways of financing smaller, non-ESCO EE.

Financial Financial • So far, EE loans/leases

Institution Institution are available from a
Bank or Leasing Co. Bank or Leasing Co. limited subset of
pioneer FIs (BPI, BDO,

Project Capital
Loan or Lease
Loan or Lease

Loan or Lease
Loan or Lease

Agreement
Agreement

Repayments
Repayments
DBP, LandBank)

Site Equipment & Services Site Equipment & Services

ESCO End-User ESCO End-User
Technology Building, Facility, Technology Building, Facility,
Solutions Provider End-User Equity (Project Household, Fleet Solutions Provider Monthly Energy (Savings) Household, Fleet
Cost outside Loan or Lease) Based Payments

Guaranteed Savings Model (End-User is borrower or lessee) Shared Savings Model (ESCO is borrower or lessee)

Barriers: Most ESCOs, MSMEs and households are not creditworthy enough to gain sufficient access to EE loan and leasing facilities.
Many end-users (including C&I corporates) prefer not to use available credit/ leasing lines for non-core activities like EE projects.
All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2) 19
Third Party Investor (Project Company) provides capital
through ESCO
• Off-balance sheet procurement. • The Project Company remains the legal and “accounting” owner of the EE
• In most cases, up to 100% of EE project equipment assets through contract term.
cost is financed by a third party investor • Rationale: Over 98% of ESCOs in developing Asia have no adequate access to
through a special purpose Project bank financing to grow their portfolio of performance contracts. Over 66% of
Company. EE capital through 2017-2040 in the Philippines will have to flow through this
model.

• Applies to larger energy end-use 3rd Party Investor • The Project Company reaps a significant
sectors: commercial, industrial, Equity Provider as majority of the monetized energy and
(transport) and government Project Co. maintenance savings or sells 100% of
energy output to end-user to enable
medium-term risk mitigation.

Site Equipment and Services

ESCO End-User
Technology Commercial or
Solutions Provider Site Access, Coordination and Industrial Facility
Counterparty Resources

Barriers: Third party investors find it difficult to capitalize EE projects unless after-tax returns are made commercially attractive (i.e.
IRRs in upper teens) by a whole suite of fiscal incentives. Government procurement and PPP policies and guidelines will be needed
to enable private investments in public sector EE projects.
All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2) 20
Special market channels of EE finance

Special Market • Utility-led demand-side management, where utilities can finance EE

Channels projects of its customers, was slowly being enabled until EPIRA came into
effect in 2001.
• In developed economies, LGUs can link property-based assessments with
Utility-led DSM and Govt rebates of EE improvements.
Programs
• In other markets such as Thailand, EE revolving funds were created out of
new oil levy to finance EE projects through bank on-lending and ESCOs.
LGU subsidies (eg PACE) • Private equity funds flow capital to cleantech businesses, but more
toward technology manufacturing (instead of end-user applications).
Funds: EE, ESCO, Private • Guarantee funds and risk-sharing facilities have been established to de-
Equity risk bank lending toward EE projects. Also, specialized guarantee facilities
enable less creditworthy ESCOs to back their energy savings (or
Guarantees (EE production) performance guarantees to third party investors and end-
Performance and Customer users.
Credit)

All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2) 21
Using energy savings to pay ESCOs and other third
party investors
• Energy (and other OPEX) savings can be used to finance EE projects implemented by ESCOs and third party project companies under
shared savings performance contracts.
• Example: ESCO project reduces annual electricity bill from P 10 M to P 7.5 M. Out of 25% savings, P 2 M can be used to pay ESCO or
project company. Remaining savings, which normally escalate due to rise in energy tariff, are to be enjoyed by end-user.
Energy (and Other) Costs and Savings, Pesos

Annual Savings shared with End-User > P 0.5 M

Annual Savings
of End-User

> P 2.5 M
Annual Energy
Annual Payment to ESCO from Savings P 2.0 M
Costs before EE

P 10.0 M

Annual Energy Costs after EE P 7. 5 M

Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12+

Before Contract During Term of ESCO Performance Contract After Contract

All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2) 22
EE measures
• Retrofits: HVAC/cooling, refrigeration, heating, ventilation, lighting, motor, drives, pumps
• Smart controls, building management systems, smart/micro grids
• Building envelope solutions
• Waste heat recovery, combined heat & power, co/tri/polygeneration
• Self-use renewables (e.g. solar PV, solar thermal, biomass/biogas power, waste-to-energy, wind,
etc.)
• Transport efficiency improvements, fuel switching
• District energy (cooling, heating) and energy storage systems
• Process efficiency improvements (e.g. boilers, kilns, presses, molding, assembly/process lines,
etc.)
• Replacing or upgrading ancillary systems or utilities (e.g. chilled water, compressed air, steam,
etc.)
• Other EE interventions that could displace business-as-usual energy utilization with measurable
and verifiable results
All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2) 23
Thank You

Alexander Ablaza
Co-Chair, Asia-Pacific ESCO Industry Alliance (APEIA)
President, Philippine Energy Efficiency Alliance Inc (PE2)
19th floor, Philippine AXA Life Centre
Sen. Gil Puyat Avenue corner Tindalo Street
1200 Makati City, Metro Manila, Philippines
Tel +63 2 (8)759 6680 loc 231
aablaza@live.com
secretariat@pe2.org

www.pe2.org

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