South-East Asian Energy Efficiency Market Feasibility Report

Presentation to UNEP / SEAN-CC May 4, 2011 Park Lane Hotel - Jakarta
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Energy Efficiency
‘negative cost’ option for carbon mitigation
Saving Money as well as the Environment Money lying on the floor?!! Where?

**Source: McKinsey

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Key Results of Report 4. Indonesia Energy Efficiency market highlights 6. Objectives of Market Feasibility Report 3.Agenda 1. Barriers to Energy Efficiency adoption 5. Energy Efficiency and its benefits 2. Conclusions 3 .

facilities.Energy Efficiency Energy Efficiency (EE) is defined as: Lower consumption of energy (energy input per unit of delivered output or service) Resulting from economic investments (in energy generation. and infrastructure) 4 . buildings. delivery and end-use equipment.

EE and its benefits (1/2) EE improves Energy Security (& bridges power deficit) EE can reduce SEA region’s energy bill by US$1. Indonesia’s energy bill by at least US$278m annually Annual Savings in Energy Bills (in US$ mil) 350 300 250 317 278 247 196 193 214 200 150 100 50 0 Malaysia Indonesia Thailand Singapore Vietnam Philippines *ReEx estimates 5 .34b*.

IEA 2009 6 .EE and its benefits (2/2) EE reduces CO2 emissions EE expected to contribute 57% of projected reduction in CO2 emissions by 2030*** ***Source: World Energy Outlook.

Automotive. Malls. Cooling. Air and Marine transport. 7 . fuel and transmission technologies in Road. Pharmaceuticals. Heating and Cooling systems in production facilities of industry sectors like Semi-con. heating and cooling systems apart from more rational and frugal usage practices TRANSPORTATION SECTOR: EE potential in engine. Rail. F&B etc.Sources of EE All primary and secondary energy consumers present EE potential INDUSTRIAL SECTOR: EE Potential in Production Processes. Data Centers and Educational institutions RESIDENTIAL SECTOR: EE Potential in lighting. COMMERCIAL SECTOR: EE Potential in Heating. Lighting systems in Private and Government Offices. Hotels. Hospitals.

knowledge and technology transfer 8 .Market Feasibility Report Assessment of South-East Asian (SEA) Energy Efficiency market by ReEx Capital Asia to: Improve informational transparency in SEA Energy Efficiency market Identify areas of improvement at different levels: Regulation. Investment friendliness and Supply-side capacity Stimulate interest of local & foreign investors and other stakeholders in the market Enhance capital.

Indonesia. Malaysia.Methodology 6 South-East Asian Countries assessed: Singapore. Philippines. Thailand and Vietnam Methodology adopted in the Market Feasibility Report IDENTIFY BEST INVESTMENT DESTINATIONS REGULATORY FRAMEWORK ASSESSMENT ESCO SECTOR ASSESSMENT IDENTIFY KEY STAKEHOLDERS 9 .

12 Malaysia Indonesia Thailand Singapore Vietnam Philippines 1. For Commercial sector.10 0.S Department of Energy.6 0.6 1.Key Results (1/4) Investment Potential related to size of economy.79 0.85 Singapore Philippine s Indonesia Thailand Malaysia Size of Economy (in bil US$) 800 600 400 200 0 Indonesia Thailand 312 219 215 189 695 101 *Economy size in GDP. based on Singapore NEA database] Investment Potential.8 0.2 1 0.4 0.2 0 1. inefficiency of dominant industries and category of commercial buildings (office/hotel) [Investment potential & Paybacks for industrial sector based on database of assessments conducted by U.4 1. GDP estimates for 2010 Malaysia Singapore Philippines Vietnam Vietnam 10 .in million US$ Investment Potential v/s Size of Economy* Investment Potential (in bil US$) 1.39 1.44 1. Source: Global Finance Magazine.

tax and other incentives. wasteful habits of guests. large scale lighting.4 7.5 12.8 6.5 3. dominance of energy inefficient industries and buildings like hotels reduce pay-back periods Energy Tariffs as of May ‘10 (US cents) 15 10 13.4 1 0 Indonesia Malaysia Thailand Singapore Philippines Vietnam 11 .Key Results (2/4) Market-based electricity tariffs.5 Malaysia Thailand Singapore Philippines Vietnam [Case in point: Hotels tend to be inefficient. hot water requirements.8 5.2 5 0 Indonesia 6.7 5. cooling] Payback period (in years) 7 6 5 4 3 2 5 3.7 4.9 6. 24* 7 operation.

followed by Philippines & Malaysia [Result implies that the regulation in these countries is most conducive for international and domestic investors: Tax waivers/ subsidies/ other incentives/ some financing/ low(er) red-tape] 12 .Key Results (3/4) ESCO Sector maturity critical for market development and penetration Most developed in Singapore and Thailand [Result implies that ESCOs in these countries are in best position to implement large scale EE projects if investments start flowing and demand increase substantially] Regulatory Environment is the ultimate determinant of best investment destination Favorable locations: Singapore and Thailand .

Philippines Indonesia. Philippines Indonesia. Vietnam Singapore. Thailand Malaysia.Key Results (4/4) OVERALL RANKINGS Investment Potential RANK Payback Period ESCO sector Regulatory capacity framework Overall Ranking 1 2 3 4 5 6 Malaysia Indonesia Thailand Singapore Vietnam Philippines Singapore Philippines Vietnam Indonesia Thailand Malaysia Thailand Singapore Malaysia. Vietnam Singapore Thailand Philippines Malaysia Indonesia Vietnam 13 .

Soft Loans  Grant schemes in Singapore to defray costs.Regional best practices REGULATION  ENCON Act created large EE market in Thailand: Only policy mandating EE implementation in both factories and buildings  Market-driven tariffs in Singapore and Philippines enhance ROI. Import duties waivers in Philippines and Thailand  Technical Assistance and capacity building grant scheme in Thailand and Vietnam.Build awareness about EE and help kickstart EE activity in end-users facilities  Dedicated. create interest and incentivize adoption: EASe. GRANTS AND OTHER PROGRAMS  Tax-allowances and Depreciation schemes for EEPs in Thailand. creates focus and fast-tracks decision making 14 . Energy Audit grants in Singapore. financing schemes in Thailand overcome a critical financing barrier: EE Revolving Fund. ESCO Fund. Thailand and Vietnam.Single nodal agency cuts red-tape. Malaysia and Singapore. No distortion of project economics FINANCING  Govt. exclusive multi-agency committee (E2PO) to promote EE in Singapore. GREET and DfE INCENTIVES.

Key Barriers (1/4) Key Barriers inhibiting large-scale adoption of EE Lack of Awareness Limited ESCO sector capacity KEY BARRIERS Limited access to Financing Subsidized energy tariffs 15 .

case-studies and guides  Leads to low awareness and high perceived risk by Financiers and end-users 16 . policy makers and financial institutions  EE Projects perceived as either unimportant or high-risk by energy consumers  Even though they add to ROI and increase competitiveness  Fewer incentives for EE compared to other industry sectors  Even though carbon reduction and energy security are key policy goals  Lack of well-documented information.Key Barriers (2/4) Lack of Awareness among energy consumers.

Key Barriers (3/4) Subsidized Energy Tariffs  Distort economics of EE projects and diminish profitability   Also increase wasteful practices leading to higher consumption Demonstrated by longer paybacks in subsidized countries  Investment will flow to countries without subsidies Limited capacity of Energy Services Companies (ESCO) sector  Lack of innovative services: Energy Performance Contracting. Shared Savings to overcome energy consumers’ perceived risks   Limited capacity to offer financing options. performance guarantees Limited capacity to offer comprehensive solutions beyond HVAC and lighting retrofits 17 .

Awaiting financing incentive to adopt EE ESCOs have weak balance sheets and are unable to offer financing through internal resources without Financial Institution (FI) support EE not an interest area for FIs.STALEMATE IN THE EE MARKET • • • 18 . Lack project assessment capability Result.Key Barriers (4/4) Limited access to commercial financing mechanisms  Stalemate in EE market because of lack of private sector financing • End-users reluctant to finance EE projects through corporate debt or internal cash.

Indonesia EE market (1/3) Largest economy in the region with second-largest EE market.4 billion (conservative number) . Subsidized electricity tariffs depress dollar value of savings . 58% 62.Up to US$9. 22% Industrial Commercial Industrial 216. 42% 808.7 billion if industrial co-generation is considered . 78% Commercial 19 .Investment potential of about US$1.Average annual savings potential of about US$280 million (Average payback period of 5 years) Investment potential Annual Savings potential in mil US$ in mil US$ 578.

in million US$ 900 800 700 600 500 400 300 200 100 0 Industrial Commercial 62 216 Annual savings potential 808 . by sector. extremely quick pay-back expectations of industrial end-users etc.3 years) BUT…. steady revenues etc.Indonesia EE market (2/3) Shorter paybacks in industrial sector (3..Commercial sector EE projects relatively easier to implement.] 20 578 Investment potential . Investment v/s Savings.7 years) compared to commercial sector (9. [Industrial projects riskier because of cyclical nature of output and production.] [Commercial buildings have more predictable energy consumption patterns. potential costs of operational disruption too high vis-àvis risk.

Food. & M/C Fertilizer. Cement & Non-metallic . Beverages & Tobacco.Payback periods ranging from 1.5-7 years In million US$ 300 250 200 150 113 100 50 0 Food. Rubber & Chem. Textiles & Leather Cement & Non-Mettalix Top sub-sectors in Buildings: Hotels. Textiles & Leather. Fertilizer & Rubber. Retail Malls and Offices - Payback periods ranging from 7-15+ years In million US$ 271 226 400 350 300 Investment potential 45 63 50 365 250 200 150 100 50 0 Offices Retail Malls Hotels 57 5 9 48 156 Investment Potential Annual Savings 46 66 9 9 Annual Savings 21 . Bev & Tob Transport Equip.Indonesia EE market (3/3) Top sub-sectors in Industry: . Transport Equipment.

Projected average paybacks of 5 years (all 6 countries) Comparable to conventional asset classes Market-based electricity tariffs and EE friendly policies crucial for market development .5 year payback in Singapore vs 5-year payback in Indonesia .Make transition to a low-carbon economy more profitable for all Win-Win situation for Governments and Private sector 22 .7 billion market opportunity in six countries in SE Asia Largely untapped because of various barriers Conclusions (1/2) .Conclusions (1/2) EE presents an exciting opportunity for Investors.US$6. ESCOs. Equipment suppliers and Financial Institutions .Increase profitability of EE investments 3.

Conclusions (2/2) Urgent need for Market Awareness and Capacity Building .Necessary to overcome situation of market-failure Everyday of inaction represents an opportunity loss . third-party financing. credit enhancement.Take advantage of low-cost option for carbon abatement EE can contribute 57% of reduction targets with attractive returns Innovative Financing mechanisms required . loan guarantees 23 .Such as revolving loans.

com Mobile: +65 9625 4770 Tel: +65 6818 9710 frederic.crampe@reexasia.reexasia.Contact us Frédéric Crampé ReEx Capital Asia Pte Ltd 16 Collyer Quay – Hitachi Tower #20 Singapore 049318 www.com 24 .

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