REPORT OF THE ENERGY EFFICIENCY INITIATIVE Draft for Circulation to the Board of Directors

29 March 2006

ii ABBREVIATIONS ADB CDM CER CFL CO2 CSP DFID DMC DSM EBRD EDD EE EEI EEPP ESCO ESDD ETS EU GHG IEA IFC IPCC IPP MDG OECD PRC PV SME Asian Development Bank Clean Development Mechanism certified emissions reduction compact fluorescent lamp carbon dioxide Country Strategy Programs Department for International Development, United Kingdom developing member country demand side management European Bank for Reconstruction and Development environmental due diligence energy efficiency ADBs Energy Efficiency Initiative energy efficiency power plant energy services company Environment and Social Development Department European Trading System European Union greenhouse gas International Energy Agency International Finance Corporation Intergovernmental Panel on Climate Change independent power producer Millennium Development Goal Organization for Economic Cooperation and Development Peoples Republic of China photovoltaic small and medium-sized enterprise

WEIGHTS AND MEASURES GW EJ MW Mtoe ppm T gigawatts (1 billion watts) exajoule (1018 joules) megawatts (1 million watts) million tons of oil equivalent parts per million tons

NOTE In this report, "$" refers to US dollars

This report was prepared by A. Terway, East and Central Asia Department, S. Gupta, Southeast Asia Department; P. Perera and D. Bui, Mekong Department; and, S. Tumiwa, South Asia Department.

iii CONTENTS I. INTRODUCTION A. Energy Efficiency Initiative Mandate B. Report Objectives and Phasing of EEI RATIONALE A. Energy Use in Asia-Pacific B. Strategic Challenges to Asia-Pacifics Energy Future 1. Climate Change 2. Energy Supply C. Energy Efficiency Benefits D. Experience & Lessons Learned 1. ADB-Funded and -Managed Interventions 2. Experience of other MDBs and Donors 3. Experience in Industrialized Countries OVERVIEW OF ASIAN EE MARKET A. Energy Efficiency Market Segments 1. Non-Lending Projects 2. Lending Projects B. Energy Efficiency Market Characteristics C. EE Market Size and Investment Demand D. Methods for Measuring and Establishing Targets for EE EENERGY EFFICIENCY INITIATIVE INVESTMENT AND ACTION PLAN A. ADB Role B. ADB Strengths and Weaknesses C. Selecting and Designing Priority EE Investments D. General Principles of Preparing the Investment Plan E. Phase II Agenda CONCLUSION 1 1 1 3 3 4 4 5 6 10 10 11 11 12 12 12 13 17 18 19 20 20 20 22 23 25 28

II.

III.

IV.

V.

APPENDIXES 1. Glossary 2. Energy Efficiency Initiative Design and Monitoring Framework 3. Summary of Climate Change Issues 4. Summary of Country Energy and Greenhouse Gas Emissions Data, Energy Efficiency Market Assessments and Policies 5. Description of Common Energy Efficiency and Renewable Energy Technologies 6. Energy Efficiency Market Size Estimates for Selected Countries and Sectors 7. Asia-Pacific Energy Efficiency Fund Concept 8. Energy Efficiency Investment Concepts and Examples 9. Standard Energy Efficiency Market Research Agenda

I. A.

INTRODUCTION

Energy Efficiency Initiative Mandate

1. Energy use in the developing member countries (DMCs) of the Asian Development Bank (ADB) is rapidly increasing to support the economic growth necessary for raising the living standards of large populations, and is dominated by fossil fuels. The current energy path, which focuses on expanding fossil fuel supplies, is neither environmentally nor economically sustainable. Increasing the efficiency of energy use (energy efficiency [EE]), to wring more service value from each primary energy unit consumed, has large environmental and economic benefits. EE is essential to reduce global emissions of greenhouse gases (GHGs), ease growth in fossil energy demand and the upward pressure on energy prices, and improve energy security. Investments in energy using and energy supply infrastructure have a long life. Significant investments in energy efficient technologies in the rapidly growing economies are required to prevent being locked into an energy-intensive capital stock in the future. 2. EE is defined as economic investments in energy generation, delivery and end-use equipment, facilities, buildings, and infrastructure that deliver higher useful energy outputs or services (e.g., lighting, heating, refrigeration, pumped water). EE results in (i) lower consumption of energy, measured as energy input per unit of delivered output or service, and (ii) reduced emissions of GHGs. This definition covers many diverse and distinct market segments, both on the supply-side and use-side, all targeting the creation of a low-carbon sustainable energy future. Market segments include: supply-side efficiency in generation, transmission and distribution; grid-connected and off-grid renewable energy (RE); industrial EE, including changes in production technology; building end-use efficiency in commercial, governmental, and residential sectors; municipal infrastructure (street lighting, water, waste and sewage); transport efficiency, including urban mass transit; bio-fuel use to substitute for fossil fuels; irrigation (e.g., efficient pumps, foot valves and piping); and equipment/appliance standards. A glossary of terms is given in Appendix 1.1 3. ADB has implemented several lending and non-lending assistance programs for EE in the past, but more action is required (refer paras. 28, 29, and 30). ADB seeks an approach, with an associated investment and action plan, to assist its DMCs in achieving significant measurable change in their energy patterns and securing a low-carbon sustainable energy future. To this end, ADB launched the Energy Efficiency Initiative (EEI) on 29 July 2005 and established a steering committee and task force to prepare the EEI report.2 The EEI design and monitoring framework is provided in Appendix 2. B. Report Objectives and Phasing of the Energy Efficiency Initiative

4. EEI will require three phases of implementation due to the depth and breadth of the sustainable energy challenges. A wide consensus on the approach has been reached during Phase I. This EEI report reflects the completion of Phase I and provides a framework for initial actions and continued learning. The phasing of the EEI is given in Figure 1.
1

The task force recommends that the steering committee change the name from Energy Efficiency Initiative (EEI) to Clean Energy Initiative (CEI), as this term appropriately covers the comprehensive scope of the effort. Further, the July 2005 G8+5 Gleneagles Summit has adopted the term and mandated that international financial institutions (IFIs) develop a clean energy investment framework. See Energy Efficiency Initiative Establishment of Steering Committee and Task Force, ADB memo, and attached note, from RSDD Director General, 29 July 2005. Consultants J. Maclean and A. Herrera assisted the task force.

Figure 1: Three Phases of Implementation of the Energy Efficiency Initiative

5.

This EEI report provides the following: (i) (ii) The rationale for ADB to expand its EE investments. An initial analysis of the EE market and priorities for interventions, specifically in areas that are suitable to ADBs role and strengths, and have replication and scale-up potential. An outline of the Phase II activities that will lead to preparation of the EE investment and action plan.

(iii)

6. The agenda for Phase II activities is presented in Section IV. Creating a sustainable energy economy is a long-term strategic challenge. As a means to this end, EEI defines a cohesive approach for ADB to expand its EE investments, with an indicative annual lending target of $1 billion between 2008 and 2010. The medium-term investment and action plan, to be developed in Phase II, will refine and break down this investment target using bottom-up analyses of key EE sectors in the high energy consuming DMCs. It will also define the operational plans to implement replicable EE investments and proven development models in the period from 2008 to 2010. As we enter the decade 20102019, when the DMCs are projected to have even higher energy consumption, ADB will have the appropriate tools and instruments to scale up EE investment commensurate with the challenge.

II.

RATIONALE

7. Measures are needed to first slow the growth of worldwide GHG emissions, then stop and reverse them. This will require a shift from the present industrial economy that is dominated by fossil fuels; more attention needs to be immediately given to types of investment covered by the wider definition of EE as given in para. 2. EE will slow the growth of GHG emissions without sacrificing economic gains or living standards. Improving supply and energy use efficiencies will directly lower the cost of energy services, and thereby create financial savings. At the same time, lower fossil fuel use and an increased share of RE will create additional environmental and economic benefits in terms of (i) lower GHG emissions, (ii) reduction in other pollutants and improvements in local air quality, (iii) reduced upward pressure of international fuel prices, and (iv) diversification of energy sources through EE investments contributing to energy security. EE can achieve success on multiple fronts and needs to be strategically targeted at the national, enterprise and household levels. The efforts to promote EE have to be radically scaled up to be commensurate with its technical and economic potential. A. Energy Use in Asia-Pacific

8. The rationale for EEI, and the justification for increasing EE projects, is based on an analysis of current energy use patterns in Asia-Pacific, and what would happen if business-asusual patterns continue in the future. Prominent features of energy use in the region include the following: (i) Rapid growth and larger share of world energy use. Total primary energy supply (TPES) for Asia-Pacific was 2,655 million tons of oil equivalent (Mtoe) in 2003, representing 25% of the worlds total energy supply. In 1973, Asia-Pacifics TPES was 804 Mtoe, only 13.3% of the world total. Between 1973 and 2003, Asian energy consumption rose 230%, compared to an average worldwide increase of 75% during the same period, reflecting Asia-Pacifics dramatic economic growth. 3 High projected growth in energy use. Asia-Pacifics growth in energy use has outpaced the rest of the world, a trend that is expected to continue. From 2003 to 2030, it is estimated that Asia-Pacific energy use will increase 89% to 5,016 Mtoe, and will account for an estimated 30% of world consumption. Manufacturing and urban migration. Asia-Pacifics increasing energy use is driven in part by strong regional growth in manufacturing (frequently shifted from industrialized countries) and rural-to-urban migration. These trends, while longestablished, are expected to continue. Further, urban populations tend to adopt higher-energy lifestyles, reinforcing the energy use growth trends.

(ii)

(iii)

International Energy Agency (IEA). 2005. Key World Energy Statistics. The IEA definition of total primary energy supply (TPES) includes estimates for non-commercial subsistence biomass energy use. Since a large part of the rural Asian population continues to use biomass energy, it results in an underestimation of the share attributable to fossil fuels compared to other statistical methods, which define TPES solely as commercial energy. IEA definition of Asia-Pacific does not include Japan and South Korea.

4 (iv) Supply mix dominated by coal and oil. TPES in Asia-Pacific, as in the rest of the world, is dominated by fossil fuels: coal accounts for 41% of TPES, while oil and natural gas account for 25% and 7% of TPES, respectively. Growing share of worldwide GHG emission. The dominance of fossil fuels in the region has increased Asia-Pacifics share of worldwide GHG emissions from 8.7% in 1973 to 24.4% in 2003. The regions share is expected to continue to increase to 28% by 2010 and 30.4% by 2030. Relatively low efficiency in energy use. Most countries remain inefficient in their use of energy resources across most major industries. These inefficiencies are a major burden on the regions economies, particularly due to high levels of fuel imports.4 Relatively low per capita energy consumption. Energy use per capita per year in Asia-Pacific, excluding the Peoples Republic of China (PRC), is 0.61 Mtoe. Energy use per capita per year is 1.10 Mtoe in PRC, 4.67 Mtoe for members of the Organization for Economic Cooperation and Development (OECD), and the world average is 1.69 Mtoe. Energy use per capita must increase to meet the legitimate aspirations of the people to improve their lives; based on the current trend, Asia-Pacifics per capita energy consumption by 2030 would only be about a third of the OECD countries. Limited access to energy services. Across Asia-Pacific, approximately 1.7 billion people rely on traditional biomass fuels for cooking. Such fuels have negative health and environmental impacts. Further, 1 billion people, primarily in South Asia, lack access to electricity, 5 which constrains their prospects for development, education, and livelihoods. Providing access to energy services is essential to reduce poverty and meet the United Nations Millennium Development Goals (MDGs). Large need for energy investment. The International Energy Agency (IEA) has estimated the worldwide need for investments in energy capital infrastructure of approximately $16 trillion through 2030. Given that Asia-Pacific accounts for nearly 30% of world TPES in that period, it can be assumed that the region may require energy capital infrastructure investments of $4 trillion$5 trillion during the next 25 years. It is critical that these enormous and long-lived investments in energy capital should be undertaken using the most efficient available technologies and sustainable energy supply and use systems.

(v)

(vi)

(vii)

(viii)

(ix)

B.

Strategic Challenges to Asia-Pacifics Energy Future 1. Climate Change

9. Asia-Pacific, like the rest of the world, faces interlinked strategic energy challenges to address both climate change and a secure, reliable, and economic energy supply. There is global recognition that carbon dioxide (CO2) concentrations are higher in the atmosphere as a
4

Energy use in Asia per unit of GDP when corrected for purchasing power parity (PPP) is similar to OECD countries, but this is not the case for delivered goods or services, i.e., energy used per unit of output measured in physical terms, e.g., tons of steel. International Energy Agency. 2004. World Energy Outlook 2004, 348-349.

5 result of anthropogenic or human-induced activities. This has increased the greenhouse effect and average temperatures. While present-day weather models are not accurate in determining the pace of global warming and its resultant changes in local weather, there is specific evidence related to certain phenomena, such as the shrinking of the Artic ice cap, disturbances in the Gulf Stream, and increasing storm intensity and frequency.6 More seriously, there may be a tipping effect caused by positive feedback within certain systems which could cause the pace of warming to accelerate. While a complete summary background of climate change science is provided in Appendix 3, it is important to note a few key numbers: (i) (ii) Pre-industrial levels of atmospheric CO2 were approximately 260 parts per million (ppm), determined through analysis of ancient air trapped in ice cores. Direct measurements of present-day atmospheric CO2 concentrations show that levels are over 385 ppm and rising fast: by 4 ppm in 2004 alone. By 2050, they are expected to exceed 500 ppm. Unless a range of emissions reduction measures are implemented now and sustained through the next several decades, atmospheric CO2 concentrations could reach as high as 650 ppm by 2100.7

10. It will not be possible to reduce anthropogenic emissions of CO2 to pre-industrialization levels as population increases and more complex economic activities take place. Carbon sequestration and potential energy-related applications are being studied to address this problem. For example, in Canada, CO2 from power generation is being pushed into oil wells, which prevents its release into the atmosphere and increases oil production. 11. There is little doubt that climate change will have significant economic impacts through its effect on crop patterns, fisheries, human health, storm damage, loss of bio-diversity, and loss of ecosystem services. Rising sea levels could destabilize communities on islands and in lowlying river deltas and coastal areas. Such impacts will impose significant costs in damages, response, and adaptation. The costs of undertaking emissions reductions through EE must be weighed against the costs of taking no action; both will clearly have a global dimension. 2. Energy Supply

12. Sound and sustainable macroeconomic performance requires reliable energy supplies. Many DMCs, such as India, Indonesia, PRC and Philippines, suffer from energy and power shortages, which can cause industrial shutdowns, lost production and revenue, lower productivity, and other problems. 13. The challenge of securing reliable supplies can be illustrated by the case of oil, which provides approximately one-third of commercial energy and nearly all transport fuel. Recent increases in world oil price, from $25/barrel in 2003 to $50$70/barrel in 2005, may mark a fundamental long-term change in the oil supply and demand balance. DMC economies are dependent on oil and the short-term demand is highly inelastic; therefore, the small tightening in
6

[G]lobal climate change is likely to bring changes in climate variability and extreme events as wellFeatures of projected changes in extreme weather and climate events in the 21st century include more frequent heat waves, less frequent cold spells (barring so-called singular events), greater intensity of heavy rainfall events, more frequent mid-continental summer drought, greater intensity of tropical cyclones, and more intense El Nio-Southern Oscillation (ENSO) events. Quoted from Intergovernmental Panel on Climate Change. 2001. Climate Change 2001: Impacts, Adaptation & Vulnerability. Available: http://www.grida.no/climate/ipcc_tar/wg2/061.htm#1434. Stabilization of CO2 concentrations at 550 ppm, roughly twice pre-industrial levels, by 2050, is becoming a recognized target for world action. See: Pew Center on Global Climate Change. 2005. International Climate Efforts Beyond 2012: Report of the Climate Dialogue at Poncantico. November.

6 supplies has had a relatively large impact on the clearing price. Oil demand, particularly from the PRC and India, is growing; the lack of domestic reserves is causing their share of oil imports to grow and higher world oil prices. While the higher clearing price will enable the recovery of more oil to meet the growing Asia-Pacific demand, recovery will require better and costlier technologies. Some seasonality and cyclical behavior of commodity prices is normal, but the average oil price is less likely to move downwards over the long term. 14. The volatility and upward movement in oil prices has resulted in growing energy security concerns for all oil importing countries, including the industrialized ones. More efforts are being made to develop renewable and new alternate energy sources, which are considered to be domestic resources and as such, become more attractive as oil prices increase. One example of this is the research into using hydrogen as an automotive fuel. EE projects become financially attractive when fuel prices increase and payback periods become shorter. C. Energy Efficiency Benefits

15. The impacts of improving EE in Asia-Pacific will be a lower growth rate of CO2 emissions, increased energy services, and improved energy security. The slowdown in CO2 emissions will contribute to reduce the adverse impact of climate change and promote sustainable economic growth. Improvements in EE would result in. Such impacts merit equal support from developed and developing countries. The rationale for EE must be firmly established to sustain political will and long-term investment focus at the required scale. EE investments can be justified and pursued to the extent of their economic merits. This is known as the no regrets strategy, which means that making EE investments that are economically viable now, irrespective of their longterm environmental benefits, can later create no regrets if predicted climate change impacts do not occur. The following benefits may be derived from EE projects. 16. Source of Energy. EE has a large technical and economic potential, at a scale that can contribute substantially to meeting future demands for energy services. The economy does not need energy per se, but rather energy services: i.e., transport, heating, cooling, drive power, refrigeration, pumping, lighting, etc. EE means delivering the services with less primary energy. Technological development already does this; over the years the energy intensity in industrialized countries has substantially improved. The IEA has argued that EE needs to be viewed like other energy sources; it estimates that without the energy savings in the 25-year period from 1973 to 1998, energy consumption in OECD countries would have been almost 50% higher, which makes the contribution of EE greater than that of oil and coal. Further, EE can be exploited faster, cheaper, and with employment that generates domestic economic growth and investment.

7 Figure 2: Energy Gains from Energy Efficiency, OECD countries 197319988

160 140 120 100 80 60 40
Exajoules

Hypothetical Energy Use without Savings Additional Energy Use without Intensity Declines = Energy Savings

49 %

Actual Energy Use

20 0
19 76 19 86 19 80 19 74 19 84 19 90 19 78 19 88
19 94 19 96 19 98

19 82

17. Capital Stock Turnover Rates. Each investment in infrastructure for energy supply and energy-using equipment locks in the pattern of primary energy use for many years. Infrastructure for energy-intensive industries such as steel, cement, aluminum, and power generation and transmission, lasts from 20 to 40 years. It follows that EE investments would also have a long-lived and large cumulative impact. 18. Macroeconomic Benefits. EE, including RE, reduces fossil fuel consumption, thereby lowering fossil fuel imports (saving foreign currency) and trade deficits, reducing vulnerability to oil price volatility, and improving overall international competitiveness (in the face of high energy prices). Employment and domestic job growth are also associated with EE. Market-wide declines in fossil fuel demand can create a downward pressure on international fuel prices, or diminish upward price trends, resulting in lower or more stable prices to the benefit of the regions economies, which are generally net fossil fuel consumers. 19. Air Pollution and Health. When linked to a reduction in coal use in urban areas, EE reduces urban air pollution and generates quantifiable public health benefits. Use of RE by rural households, such as solar photovoltaic (PV) for lighting instead of kerosene lamps and substituting biogas for coal or wood in cooking, can reduce indoor air pollution and also create health benefits. 20. Microeconomic Enterprise Benefits. EE results in microeconomic benefits to energy users at the enterprise level. Many EE projects have compelling economics, with savings of 20%40% of energy use in a given application and simple payback periods in the range of 23 years. Yet these investments have remained largely undeveloped due to various market and institutional barriers. By reducing energy use per unit of output or service delivered, enterprises save money, reduce maintenance costs, increase productivity, and improve product quality (EE often involves upgrading technology).
8

Bradley, Richard. 2005 Energy Efficiency: an IEA Perspective. Paper presented at EEI Consultative Workshop, ADB, Manila, 22 November.

19 92

21. Achieving MDGs. EE and RE contribute to reducing poverty and meeting MDGs because they are often the least-cost means for extending energy services in rural and off-grid communities that have a large number of households lacking connectivity. Access to energy services improves living standards, increases productivity, offers livelihoods and opportunities for starting small enterprises, improves access to better education and health services, and brings information technologies and e-governance to remote communities. Empirical evidence from pilot projects is available but methods are needed to scale up these activities. Making rural regions economically viable can stem the rural-to-urban migration, and allow the rural population to enjoy a high quality of life with overall lower levels of primary resource consumption, which is a key to long-term sustainability.9 22. Policy Interventions and Public Investments. EE cannot be driven by market forces alone. Public policies and incentives are needed to overcome market barriers and accelerate the deployment of new EE technologies. Transparency in the terms for sale of grid-connected RE is a common example of public policy. At times, incentives will be in the form of tax breaks and redirecting subsidies for energy use. Public-funded non-lending support will be essential in (i) bringing greater awareness, (ii) designing proper analytical tools, (iii) establishing and enforcing standards, (iv) monitoring and testing appliances and equipment, and (v) building capacity to implement EE. Since the current high energy use patterns are creating large negative externalities (environmental and macroeconomic), public investments will be necessary to jump-start the EE program. This will be simpler in economies where state-owned enterprises (SOEs) are dominant, and the government agencies themselves are major energy consumers (e.g., defense, administration, municipal services).10 23. Private Sector Investments. The business community, including numerous multinational corporations, has announced programs to address climate change, and manage and reduce GHG emissions and related liabilities.11 Some companies have already cut over 5% of their energy use below 1990 levels in spite of significant business expansion.12 In 2004, an estimated $30 billion was invested worldwide in RE projects (excluding large hydropower) and equipment.13 Financial services companies are responding with both investments and programs to address climate change. Insurance companies, long aware of the increased residual risks of claims related to stronger and more damaging storms caused by climate change, are preparing investments and policy strategies.

A June 2005 article titled Sustainable, Efficient Electricity Service for One Billion People, by Fulkerson, Levine, Sinton, and Gupta argues that new technologies that would need to be developed to extend services to one billion people in remote regions will accelerate commercialization, and so also benefit people in industrialized countries. 10 While the use of public funds to implement EE projects for end users may distort the market, the environmental and economic costs resulting from beneficiaries delaying EE projects are considered as lost opportunities. While regulatory measures including legislation could help in such cases, poor enforcement significantly blunts its effect. Most countries lack credible EE implementation even when laws, notifications, and national programs are in place. 11 Business Week. 2005. Special Report: Battling Global Warming. Business Gets Serious About Emissions 12 December. Available: http://www.businessweek.com/go/carbon. Toyota, BP, Alcoa, GE, ABB, and Noble Trading are just a few of the companies implementing EE in their own facilities, profitably cutting costs and emissions simultaneously. 12 Business Week. 2005. Special Report: Battling Global Warming. The race against climate change. 12 December. Available: http://www.businessweek.com/go/carbon. DuPont has cut energy use 7% below 1990 levels while increasing production 30% and reportedly saving a net $2 billion. For further examples, see http://www.pewclimate.org/companies_leading_the_way_belc/. 13 Renewable Energy Policy Network for the 21st Century (REN21). 2005. Renewables 2005 Global Status Report,. Washington DC: Worldwatch Institute.

9 24. International Community Policies and Actions. The G8+5 Gleneagles Summit in July 2005 gave the clean energy and climate change agenda new momentum. Following the summits joint communiqu, the World Bank (WB) has led consultations among the international financial institutions (IFIs) to prepare an investment framework for clean energy and development. The working draft report recently circulated by WB proposes to accelerate investment so that DMCs can meet energy demands for growth and poverty alleviation in an environmentally sustainable manner. Phase I of WBs initiative (to be completed by April 2006) will provide the detailed proposals for the financing facilities; Phase II (in 2 years) will be comprised of country program support and global level research, particularly into adaptation. Similarly, a six-country Asia-Pacific Partnership on Clean Development and Climate announced its program during its inaugural minister-level meeting in January 2006. IFIs and bilateral donors have been providing considerable resources to lower barriers to sustainable energy investment. Special funds, such as the Global Environment Facility (GEF), have been established, although there are limitations on the use of these funds based on grant criteria and allocation formulas. 25. IEA is carrying out extensive technical studies and has multiple special programs on EE and RE; it is providing guidance on strategy, rationale, and policies based on long-term energy projections and technology choices. Clean energy is a high priority for several donors, including the French Agency for Environment and Energy Management (ADEME); Germanys KfW Banking Group and GTZ; the UK Department for International Development (DFID); the Swedish International Development Cooperation Agency (SIDA); and Dutch, Danish, Japanese and Canadian development agencies, all of which have active programs, some with ADB.14 26. The Kyoto Protocol came into force on 16 February 2005 and includes the Clean Development Mechanism (CDM). Under the CDM, qualified clean energy projects in developing countries can have their GHG emissions reductions registered as certified emissions reduction (CER) units. CERs can then be sold to buyers in developed countries as a means to meet their emissions reduction commitment under the Kyoto Protocol. ADB is gaining significant experience in the nascent field of CDM funding mechanisms; the large potential indicates a need for intensive pursuit. It should be noted that the value of CERs relative to capital costs of EE investments are large for a few types of projects, such as methane capture and destruction of hydroflurocarbons. For most projects, however, it is only about 5%, which represents a small portion of the financing plan. Payment for CERs is typically at delivery, i.e., during a projects operations, and hence does not contribute directly to the financing plan. ADB can help EE project developers better define emissions reductions and capture the consequent monetary value associated with the projects.15 27. EE Policies of DMCs. DMCs recognize the urgency and rationale for significant improvement and investment in EE. Several countries have adopted aggressive policies, e.g., the PRCs goal by 2020 is to increase GDP to four times 2000 levels, while only doubling energy use. 16 India has adopted a comprehensive EE policy and defined methods such as
14 15

The current wide support for EE is conducive for raising donor funds. A Carbon Market Initiative (CMI) proposal is currently being developed. It proposes creating a special fund to enable ADB to provide up-front payments for future CER deliveries, which will contribute directly to project financing plans and overcome certain delivery and performance risks. The CMI will continue, to assist sellers and ADB staff with preparing the CDM/CER components of mainstream investment projects. There is also the need and opportunity for a mechanism to monetize non-CDM carbon credits and develop the access of DMC projects to second tier carbon markets such as the European Trading System (ETS). In 2005, ADB also developed the Fuxin Coal Bed Methane Project in the Peoples Republic of China as a CDM Project and assisted the project developer with the sales of the project CERs. 16 Zhaoguang, Hu. 2005. Opportunities for Energy Efficiency in China. Paper presented at ADB EE Consultative Workshop, ADB, Manila, 22 November.

10 mandatory audit programs for expanding EE in energy-intensive industries, government buildings/facilities, and utility demand management programs. Further discussion of EE policies in select countries is provided in Appendix 4. DMCs have strongly requested assistance to improve their EE policies and programs and make them operational.17 Existing DMC policies and targets provide a clear focus for ADB support. These targets, where adopted, can provide the entry point and framework for designing ADB interventions; they will have investment, technical assistance (TA) and capacity building needs, with which ADB can assist. In several DMCs, energy prices are subsidized at below-market levels. Such subsidies discourage investment in efficient energy use and increase waste. Through program lending and TA, ADB can help set energy prices at market levels. In some cases, subsidies can be restructured as EE investments in targeted energy-use sectors, thereby mitigating the impact of tariff increases. D. Experience and Lessons Learned 1. ADB-Funded and -Managed Interventions

28. ADB has made several investments in EE, including (i) $150 million credit line for Industrial Development Bank of India that was used for large industrial EE projects (1995); (ii) $100 million credit line to India Renewable Energy Development Agency (IREDA) used primarily for industrial biomass cogeneration, waste heat recovery and wind energy projects (1997); and, (iii) equity fund investments in FondElec Global/Asia Clean Energy (FEGACE) Fund and China Environment Fund (2003). ADB successfully developed the CDM transaction related to the coal mine methane capture project in Fuxin, PRC; emission reduction credits from another two ADBfunded projects in the PRC were sold directly by the project. Numerous EE investments have been made in small hydropower projects and for power transmission and distribution system upgrades, which were components of mainstream power sector loans. Urban environment improvement and energy projects in Kyrgyz Republic, Mongolia, and PRC, include EE in heat distribution and gas supply. These supply-side projects were generally rated as satisfactory or partly satisfactory, except for the loan through a financial intermediary. 29. ADB has made a limited number of interventions on the energy use-side; these were implemented in the 1990s mainly with the objective of improving the environment through use of cleaner production technologies. Of the 11 such loans that were extended to industrial SOEs, 9 were rated successful and 2 partially successful upon completion. Project Performance Evaluation Reports (PPERs) have been circulated for two projects; in one, the PPER and the Project Completion Report (PCR) ratings are the same, while in the other, the PPER rating is one step lower than the PCR rating. No industrial SOE project was evaluated as unsatisfactory. This suggests a low risk of unsatisfactory project performance; in fact the environmental objectives have always been achieved. Continued and enhanced support for regulation to improve use-side efficiency is essential for reducing GHG emissions. In markets where such policies and regulations exist but are not effective, further interventions will be required. To suitably address the concern related to market distortion, it would be possible to design interventions for SOEs using the non-sovereign public sector financing facility (under ADBs Innovation and Efficiency Initiative) that enables the use of market-based lending terms. 30. ADB has actively promoted EE, clean energy, and RE in the region through its TA and capacity building programs. Most recently, an interdepartmental program was established on Renewable Energy, Energy Efficiency and Climate Change (REACH). One of its key roles is to administer the following funds: (i) the Netherlands Cooperation Fund on Promotion of
17

Expressed by the PRC during the EEI Consultative Workshop, 22 November 2005.

11 Renewable Energy, Energy Efficiency, and Greenhouse Gas Abatement (PREGA) to promote investments in DMCs; (ii) the Canadian Cooperation Fund on Greenhouse Gas Abatement, Adaptation, and Carbon Sequestration, which aims to help and engage ADB's DMCs at the programming and policy level in managing and abating climate change to reduce the growth of GHG emissions; (iii) the Danish Cooperation Fund on Renewable Energy and Energy Efficiency in Rural Areas, which helps ADB promote environmental sustainability; and (iv) the Finnish Technical Assistance Grant Fund to support environmental protection and development of RE. These funds have been used to finance projects focused on advocacy, training, and capacity building and have also supported numerous EE project pre-feasibility studies, identifying costeffective investments, for example, in bagasse and rice husk cogeneration, agricultural and livestock waste biogas, and industrial efficiency. 31. Overall, ADBs level of investment in sustainable energy has so far been below both the potential and the need. Advocacy and training programs are useful, but success needs to be measured in terms of investments made, energy saved or produced, and emissions reduced. The current challenges call for ADB to increase its sustainable energy investing as a thematic area, through both targeted special EE projects and deeper incorporation of EE components within mainstream investments. 2. Experience of Other Multilateral Development Banks and Donors

32. Other multilateral development banks (MDBs), notably WB, International Finance Corporation (IFC), and European Bank for Reconstruction and Development (EBRD), have undertaken many clean energy programs and investments, often with support from GEF. These include: financial institution credit lines and partial credit guarantees; investments in energy services companies (ESCOs), 18 including ESCOs backed by multinational companies and utilities; ESCO development programs; programs organizing EE project procurements for public sector end-users; market transformation programs in selected countries for specific technologies, such as compact fluorescent lamps (CFLs) and PV systems; and demand side management programs for gas, heat, and electric utilities. A range of TA programs have been developed, including training, capacity building, and industrial EE benchmarking. Renewed efforts to catalogue and learn from this experience are underway, such as the Renewable Energy and Energy Efficiency Partnership (REEEP), funded by DFID and several other donors.19 IFC and EBRD are implementing several interventions in Eastern Europe to assist end users with EE investments, with funds made available through local financial intermediaries. Further research can be conducted on those programs of specific interest to ADB. 3. Experience in Industrialized Countries

33. Since the first oil shock in 19731974, EE has played a significant role in meeting the energy service needs of industrialized countries through policies, standards, and investments. These efforts lagged in the 1990s; OECDs average EE has been adversely affected largely by the United States failure to improve vehicle fuel economy standards. A key lesson is that EE can and must be viewed as a major source of energy to meet growing demand and it must be pursued through different methods. The EE industry has established successful investment models in multiple sectors, including industry, commercial, and governmental. For example,
18

An ESCO is a company that specializes in reducing its clients energy consumption. The ESCO services include energy audits, developing packages for energy saving measures, installing and operating EE measures, arranging financing, staff capacity building, measuring, verifying and guaranteeing energy savings. ESCOs often work through an energy performance contract or shared savings agreement. 19 See http://www.reeep.org for more information.

12 public buildings and facilities have been an important end-user sector for the ESCO industry, because they represent stable loads with generally creditworthy customers. It is also evident that ESCOs have been more successful when they were sponsored by vendors and utilities with the requisite technical and institutional capacity.20 Pooled bond programs, where a single bond issue by a state government funds a series of EE investments by political subdivisions and local governments within its jurisdiction have been successful in many cases, aggregating demand and mobilizing financing for many small projects. There are many examples of successful utilitybased energy use-side programs, where utilities assist customers in developing and financing EE projects. Further, programs where utilities make standard offer contracts for purchasing power from qualified distributed and RE plants have resulted in the development of the independent power industry and large investments. Through ADBs policy dialogue with DMCs, these and other successful experiences in industrialized countries could be adapted to DMC conditions, thereby promoting evolution of EE and power markets with a concomitant increase in EE investment demand and creation of substantial economic benefits. 34. The overall conclusion from these experiences is that much more needs to be done to establish EE, and public investment is required and justified to jump start the process. Markets alone will not accomplish the clean energy transition. While many successful investment models exist and can be drawn upon, further innovations are needed to create replicable investment methods and aggregated approaches at the scale required to achieve sustainable energy development. The solutions must be crafted for various market segments and will require combinations of public investment, commercial investment, and use of donor funds, and must be promoted thematically in a sustained way.

III. A.

OVERVIEW OF ASIA-PACIFIC ENERGY EFFICIENCY MARKET

Energy Efficiency Market Segments 1. Non-Lending Projects

35. Eventually, EE will need market-based incentives. Without such incentives, market actors are likely to take advantage of subsidies and grant-funded support and then return to business-as-usual when the support is withdrawn. It is preferable to use the initial support funds to establish the market-based incentives, which is the non-investment side of the EE market. These would include: (i) appropriate formulation of government policies including allowing tax rebates, enacting legislation, establishing efficiency standards, mandating RE share, and promoting labeling of consumer products; (ii) creating independent testing facilities and systems for the monitoring and evaluation of EE improvements; (iii) establishing enforcement agencies that do not add to administrative costs yet still yield committed results; and (iv) running public information campaigns and other mass media programs for energy users to access required information conveniently and in a timely manner. 36. The non-lending projects require resources and international expertise. They would have to be scaled up to enable implementation of a critical mass of large EE projects that would ensure that the barriers have been sufficiently lowered. If carried out effectively they would mainstream a series of EE measures that fall in the category of good housekeeping. These are
20

Industrial energy users see a threat in allowing ESCOs to work on production lines because there may be an incentive to share knowledge with a competing industrial firm; all gains in EE will then be negated by the loss of market to the competitor. Vendors and utilities are common to the competing firms so they pose a lower threat.

13 simple things that require energy users to change their behavior and often save only small amounts of energy, but the aggregate energy savings becomes significant when everyone follows such practices. Some common examples are shutting water faucets, switching off lights and appliances when not in use, setting thermostats correctly, reducing the opening of refrigerator doors, improving driving habits to consume less gasoline, and keeping heat exchange surfaces clean. 2. Lending Projects

37. EE lending projects are categorized according to supply-side efficiency, energy use-side efficiency and RE. Examples of these are discussed below. a. Supply-Side Efficiency

38. Energy Conversion. Energy conversion is often very inefficient: a steam turbine in a power plant rejects over 60% of the heat in the fuel; a hydropower plant spills water without generating electricity if the grid demand is low; and internal combustion engines waste energy in friction and exhaust gas. Such low efficiencies leave considerable room for the industry to aggressively pursue research to develop more efficient energy conversion technologies. Considerable efficiency improvement in coal-based power generation is now possible by producing high parameter steam in ultra super critical boilers (over 45% plant efficiency). In this case an integrated gasification combined cycle (IGCC) plant first gasifies the coal and then generates power using combined cycle, which not only increases the plant efficiency to over 50%, but opens possibilities for carbon sequestration in the future. Such efforts, however, are mostly driven by entrepreneurial capacities and require a longer time to develop. Public financing is sometimes given to direct research in certain emerging technologies (e.g., hydrogen-based fuel cells), but indirect support is commonly made through greater attention to tertiary education that helps hone the technological excellence to innovate and improve equipment design. A free market and protection of intellectual property rights also promote innovation. Further, in countries where power generation companies are state owned, the governments can direct the development of emerging technologies by creating a market of high efficiency power plants, (e.g., the PRC and India could mandate and provide other support so that after 2010, the state-owned generation companies would stop procuring sub-critical boilers).21 Another example of a simple EE project is fuel substitution and greater use of the combined cycle gas turbines (CCGTs). Use of natural gas releases less CO2 per unit of heat, and CCGTs are more efficient because they recover waste heat.22 As such, projects to expand natural gas supply are also EE projects. 39. Combined Heat and Power. Supply-side EE will involve adoption of proven, state-ofthe-art technologies for power generation and machines that have higher operating efficiencies. Very often, utilities seek to implement new projects that use older technologies because of the higher comfort level in dealing with known equipment. This attitude needs to change. Technology transfer should be mainstreamed in all energy applications and necessary training support should be included in project design to address risks of operating errors. In some cases the change is very simple: a greater use of combined heat and power plants (CHPs) in colder
21

Greater use of advanced power generation technologies like integrated gasification combined cycle (IGCC) face market and policy barriers in developed countries as well. Typically, after the US and EU adopt advanced technologies like IGCC on a wide scale, DMCs can be expected to follow. This may change because Asia-Pacific has now become the larger market for coal-based power generation. Further analysis of IGCC technology is warranted in Phase II. 22 Modern CCGTs are 50% more efficient than steam turbine power plants that are widely used.

14 regions, where the consumers need for heat energy can be equally met through a centralized district heating system. A CHP uses the heat rejected by the steam turbine in a conventional power plant. Although the technology is well established, the use of CHPs has been inhibited by (i) requirements that separate organizations must deliver electricity and heat services, and (ii) an inability to determine a suitable way to share the benefit from the waste heat utilization, because affordability of heat tariffs becomes an issue when fuel and other costs are apportioned in the ratio of the two outputs. 40. Energy Transportation and Transfer. Following energy conversion in a power plant, losses are also incurred in the delivery of electricity. As less than 40% of the primary energy used by the power plant is available at the output, further transmission and distribution (T&D) losses seem excessive. A T&D system is designed for a particular consumer demand in the supply area; it usually has some surplus capacity to meet the demand growths over 35 years. Under these conditions, the T&D losses should remain under 8%. Insufficient funds for timely expansion result in overloads, poor service quality, and higher T&D losses. 23 This is the case in most DMCs, where technical losses tend to be around 20% or higher. While insufficient supply of other commodities means new demand cannot be met, electricity behaves differently: it is possible for T&D systems to meet much higher demand than the designed capacity because all demand is not coincidental. At the same time, electricity incurs much higher losses during the peak demand periods (approximately 8 hours a day for 120 days a year). Industrialized countries understand the importance of a good T&D system and considerable investments are regularly made to increase capacity and limit losses. Considerable technological improvements have also been made to improve the service to consumers. As a result, T&D is a significant EE market segment requiring the adoption of commercially available advanced technologies. Investments made to reduce T&D losses will easily be recovered through the increased revenue.24 Similarly, the losses in district heat, natural gas, and town gas distribution systems should also be minimized. Very often, good housekeeping and proper maintenance regimes can generate savings. Older district heat supply systems that were based on constant heat supply should be replaced by variable heat supply systems. 41. Another important supply-side intervention is the production, capture and use of coal bed methane. Considerable quantities of methane trapped in deep underground coal mines can be released during mining operations, which is a serious safety hazard and detrimental to global warming (methanes GHG impact is 21 times more potent than CO2). Improved drilling technologies and engines now allow recovery and use of methane. As Asia-Pacific is the largest coal producing region, a large EE opportunity exists in this area. b. Energy Use-Side Efficiency

42. Improvements in energy use-side efficiency are required across all sectors: commercial, industrial, governmental, agricultural, residential, and transport. The technical and economic potential exists to save 20%40% of energy use, with cost-effective investments in a broad range of applications, such as in motors (which use about 50% of the power), heating and air
23

In addition to energy waste, problems in transmission and distribution (T&D) directly affect the quality of electricity services: if the quality is poor (frequent and long duration outages, voltage fluctuations, delays in upgrading existing connections and extending new connections), consumers assign a low value to the service and resist tariff increases. This creates a vicious cycle: low tariffs lead to insufficient revenue and inadequate investments in T&D, which in turn causes higher losses and poorer quality of service. 24 Many new digital technologies are applied in power distribution management. Smart grids include advanced meters, sensors, controls, two-way communications systems, power quality management, management of loads and distributed generation facilities.

15 conditioning, controls, water supply, lighting, and efficient combustion systems. Appendix 5 provides a list of common EE projects and their benefits. Reducing energy use creates a compounded efficiency increase throughout the energy value chain. This is evident in the case of electricity where overall network and system inefficiencies, from production to end-use, reduce 100 units of input energy to only 9.5 units of actual energy service at the point of end use.25 As such, a small increase in energy use-side efficiency will reverse the compounding losses.26 Retrofit and new EE typically can be self-financing from cost savings; there are several EE examples with payback periods of less than 3 years.27 43. In general, enterprises have the need to cut energy costs, often urgent in the face of high energy prices. In the case of fuels, market-based pricing sends this signal. In the case of electricity, while promoting efficient use of electricity can be a legitimate objective of tariff setting, the price signal often gets dampened because the tariff structure needs to be simple. A common practice has been the use of a time-of-day tariff, 28 but since it is usually limited to large consumers, its effectiveness is diluted by their higher purchasing power. 44. In the case of large energy-intensive industries such as steel, cement, smelters, chemicals, fertilizers, and petrochemicals, new production technologies for higher productivity and product quality also have lower energy use. Since greenfield projects must use newer production technologies to be competitive in the global market, a decision to retrofit EE measures is not always positive or timely. Considering that old production facilities also have very long life periods, EE retrofits can yield considerable benefits. The energy intensity of several key industries is given in Appendix 4. Some measures have common applications within particular industries, e.g., waste heat recovery in cement, power generation from blast furnace gas in steel manufacture, dry quenching for coke ovens, biomass cogeneration in wood products and sugar, and variable speed drives and controls and process controls in many industries. 45. The building EE market can be categorized into commercial, institutional and public, multi- and single-household residential sectors, and further into retrofit versus new construction. This is a predominantly private sector market with widely dispersed ownership; however, governments and agencies with direct funding (e.g., defense) also have considerable building assets. The government buildings sector provides a good opportunity to mainstream building EE
25 26

Lovins, Amory. 2005. More Profit with Less Carbon. Scientific American, September. It is necessary to differentiate energy conservation from EE. The former is based on human behavior, e.g., switching off air conditioning during peak summer demand periods, or otherwise doing without the service, which becomes a hurdle in getting wide acceptance for energy conservation. EE has to be understood as doing more with less energy, without sacrificing service. When all take a little care, the same service will be available with use of less primary energy. Load shifting or peak shaving is a technique when consumers are encouraged to shift demand to off-peak demand night hours. The economic benefit of this is clear as the supply-side capacity needed to meet peak power demand will be lower. Changing the timing of energy use could involve energy storage, which will increase losses, e.g., heat sinks that are supplied power during night hours will lose some heat before the heat is consumed during the evening peak-demand hours. Such measures will not be included as EE. 27 While rational economic behavior suggests that such high return opportunities should get captured in a free market, this is not happening, particularly in DMCs. DMC markets have many distortions, which make other factors more important for managements; e.g., a plant manager normally maximizes production to increase market share (new markets are being created at a very high rate in DMCs) so disregards opportunity to lower cost; or all firms do not have sufficient human resources to identify and avail of EE opportunities. Further, banks easily identify with assets that create capacity, but often lack the capacity to appraise benefits from life time costs. Firms with weak management structures lack strategic vision and pursue quick returns and so heavily discount savings from EE. 28 Time-of-day tariffs promote efficient use of the capital stock by reducing peak loads and/or shifting loads from peak to off-peak hours. EE may also be higher when the peak power is generated with less EE or more carbon-intensive sources (e.g., open cycle gas turbine).

16 as governments can take the lead to implement EE and directly benefit from the savings. At the same time, this will help establish EE services for the construction industry that can be transferred to other building sectors. TA programs can promote adoption of the best available eco-building design methods and materials in new construction. Particular technologies of note include: cogeneration and tri-generation for building applications, district heating and cooling systems, lighting, energy management controls, and variable speed drive motor systems for fans and pumps. 46. EE for vehicles also has huge potential and it is important to capture these opportunities because transport accounts for about one-third of the primary energy used in Asia-Pacific. Common ways to address high energy use in transport include improved road conditions; proper fleet maintenance; implementation of mass transit systems for urban areas; promoting rail, sea, and river water movement of goods; and town planning that reduces distances for commuters. A simpler way to promote transport sector EE is the use of highly efficient light emitting diode traffic lights, (since the numbers and operating hours are very large, total impact on energy use is substantial). Major automobile manufacturers have increased research into fuel efficient and hybrid vehicles. Countries are also mixing bio-fuel, natural gas, and hydrogen with gasoline to lower gasoline use, which also helps reduce GHG emissions.29 c. Renewable Energy

47. RE has been the obvious and visible target for reducing carbon intensity.30 Hydropower plants have a long history; since they do not use fossil fuels, their contribution to climate change would depend on the extent of submergence of forests. The costs of many RE technologies are declining with new research and greater economies of scale in production. Some RE technologies have already become competitive with conventional energy at the retail and wholesale levels under good conditions, 31 e.g., on-shore wind, biomass cogeneration, geothermal and small hydropower, and domestic solar water heating. A closer examination of RE equipment costs shows that the intrinsic value of the components is not high: often these machines do not use high speeds, pressure or temperature; the materials used are not rare or otherwise costly; and engineering complexities are less. This suggests that technology constitutes a large part of the equipment costs, which will be substantially lowered through mass production, as was seen in the information and communication industry over the past two decades. Another factor could be influencing the equipment costs: manufacturers may be treating these as niche markets because these often attract large subsidies. The cost factors require further examination to determine ways to correct the incentives for lowering the price of equipment and making these technologies affordable for DMC consumers. The larger DMC markets, in turn, will enable mass production that will lower costs for consumers in all countries. 48. The grid-connected RE market requires supporting policies, principally for feed-in tariffs and power purchase agreement terms. RE is also being promoted through production targets and utility portfolio standards, investment subsidies, tax breaks and various incentives. At the
29

Regional and Sustainable Development Department (RSDD) is preparing a separate paper on EE in transport expected to be available by July 2006. The EEI and the EE in transport study will then be consolidated in Phase II. 30 Renewable energy includes: solar, wind, small hydropower, biomass, biogas and bio-fuels, waves and tides, and geothermal energy sources. Nuclear energy is not included, as per ADB policy: [ADB is not] involved in nuclear power development based on concerns related to transfer of nuclear technology, procurement limitations, proliferation risks, and environmental and safety aspects. Refer to ADB. 2000. Energy 2000, Review of the Energy Policy of the Asian Development Bank, Manila, p. 6. 31 Renewable Energy Policy Network for the 21st Century (REN21). 2005. Renewables 2005 Global Status Report. Washington DC: Worldwatch Institute. See Appendix 5 for summary of energy production costs of RE technologies.

17 municipal level, RE policies and ordinances have been employed at times, e.g., mandating use of solar domestic hot water systems, or supporting roof-top PV systems. Another policy instrument is the taxation of carbon use, or at least the removal of hidden subsidies. While the merits of carbon taxes cannot be disputed, Asia-Pacific EE cannot be based on this policy for two reasons: (i) even developed countries lack a consensus regarding imposition of a carbon tax, and (ii) coal provides a cheap and often local fuel for the rapid industrialization in AsiaPacific, so increasing the coal price will directly affect industrial production and employment, both of which can make it difficult to fight poverty. 49. The grid-connected RE projects come in various sizes. Some can be developed as stand-alone projects (e.g., 100 MW wind power project or 50 MW small hydropower project); others will require a portfolio approach to mainstream their development and implementation. RE, especially small hydropower, PV, biomass, and biogas, provides a range of energy services including lighting, cooking, refrigeration, irrigation, water supply and purification, communications, crop drying, agro-industries, and small enterprise, in off-grid and rural communities. The RE-based rural energy service, therefore, has a critical role in fighting poverty and meeting MDGs (there is a high incidence of rural poverty in Asia-Pacific), which increases its developmental impact. It provides economic alternatives to grid extension in many regions. The challenge will not be from the technology side, but rather in finding sponsors, village-level institutions, programs, and models that aggregate sufficiently large investment opportunities. Target sponsors and institutions include equipment manufacturers, vendors, rural ESCOs, and government-sponsored programs (e.g., China Township Electrification Program). Asia-Pacific countries with explicit mandates for renewable energy in rural electrification programs include Bangladesh, India, Indonesia, Nepal, PRC, Philippines, Sri Lanka, Thailand and Viet Nam. B. Energy Efficiency Market Characteristics

50. The EE market presents several distinct challenges for investment, particularly for ADB. Key EE market characteristics, and their implications for ADB investment and action plans, are summarized as follows. 51. Some EE projects may be sufficiently large (estimated cost more than $50 million) to be financed singularly, e.g., large grid-connected RE, or large industrial and utility power plant retrofit programs. These would be owned by large enterprises that may already have access to local banks and generally possess the managerial and technical capacity to implement the project. In such cases, ADB can create a value for its intervention in two ways: (i) if better technology is available in the international markets, the use of international competitive bidding will enable technology transfer at competitive costs; and, (ii) designing suitable instruments in partnership with local banks, which can use assistance to appraise the project, particularly the EE benefits. Often it becomes difficult to assess whether enterprises use the funds for EE or for capacity addition, the latter being purely commercial in nature. This differentiation is viewed to be academic and one that could discourage EE project selection. As long as the EE benefits are estimated to be above an acceptable rate, the benefits to the enterprise from capacity addition are not important, as it will only reduce the financial risks of the investment. The concern over market distortion when public funds are used is also considered insignificant because the environmental and economic costs of forgoing the EE could be much higher than the impact of distortion created by the public finance. 52. In most EE markets there will be a large number of relatively small projects. Therefore, ADB assistance should be possible using several approaches: (i) aggregation strategies (e.g., sector loan, multitranche financing facility); (ii) investment through financial intermediaries

18 specifically targeted towards EE; and, (iii) use of various strategies to manage transaction costs. Energy use and EE opportunities are pervasive and dispersed. Economic EE projects (up to 3 year simple payback period) can be developed readily and widely using proven technologies, however, there is a large gap between economic/technical potential and commercial realization. Use of the above approaches can unlock this large potential. It will be particularly important to keep the transaction costs low, which should be possible by shifting the attention from stringent appraisal procedures to effective monitoring and evaluation processes during project implementation and operation. The latter will ensure that the project outcomes include the promised EE benefits. 53. Feedback from DMCs has shown that financing is necessary to overcome high first cost barriers, and EE growth has been constrained by a lack of adapted financing. EE market sectors are diverse and their size and credit characteristics vary significantly. Effective lending programs must be designed to adapt accordingly, sector by sector. Since deferment of the frontend investment costs is the basic nature of banking, it is clearly the financial sectors responsibility to design suitable instruments, instead of merely offering standard services that do not fit EE. 54. The availability of finance can drive the development of projects, but it is not sufficient to mainstream EE. TA efforts should be directed towards educating energy users to prepare them to buy EE and ESCO services, building the capacities of the ESCO industry, and developing tools for local financial institutions to appraise proposals. EE programs must reach into the project development cycle. Financing strategies should be integrated with EE marketing and development strategies. Financial markets in many DMCs have adequate liquidity so ADBs development role should be to mobilize available domestic funds in effective instruments and investment programs, and, in some cases, to provide long-term funds. C. Energy Efficiency Market Size and Investment Demand

55. The EEI Task Force made a top-down estimate of the EE market size for DMCs based on certain assumptions about technical and economic potential that are considered reasonably conservative. Assuming that 15% of current energy consumption can be saved with investments having an average payback period of 3 years, the total market size for supply and energy useside efficiency improvements is about $140 billion or $14 billion annually for 10 years. This estimate effectively treats the EE market primarily as a retrofit market, and does not attribute the gradual technological improvement in capital stock to the EE market. 56. Similarly, assuming that at least 4% of current energy consumption can be substituted with new RE sources produced with investments having an average payback period of 8 years, the total market size for RE investments is over $100 billion or $10 billion annually for 10 years. By comparison, in 2004 worldwide investments in RE were estimated to be over $30 billion32, and growing fast. Even assuming zero growth, a 10-year investment in RE would be over $300 billion. This puts the $100 billion estimate for Asia-Pacific at 33% of the world total, which is in line with Asia-Pacifics 25-30% share of world energy use.

32

Renewable Energy Policy Network for the 21st Century (). 2005., Renewables 2005 Global Status Report. Washington DC: Worldwatch Institute.

19 57. The total EE market size (adding efficiency improvements and RE) for DMCs is easily over $24 billion per year.33 The technical and economic potential does not equate directly to effective investment demand. A bottom-up calculation, going sector-by-sector and country-bycountry, will be more useful operationally and will be performed in Phase II by the Regional Departments for their respective countries.34 For now, the general conclusion is that the EE market is a large field of opportunity, consisting of a range of market segments, and a combination of TA, market development tools, policies, and incentives will be needed to turn EEs technical and economic potential into well-prepared investments. ADB can play a catalytic role in mobilizing public and commercial investments in this field. An indicative target for ADB to expand its EE investments to $1 billion annually by 2008 has been proposed; in Phase II, the means for achieving this goal, broken down by country and market segment, will be defined. D. Methods for Measuring and Establishing Targets for Energy Efficiency

58. EEI will define the indicators for targeting and measuring change in DMC energy patterns in Phase II. More work is needed to determine suitable methods for measuring EE in countries and specific sectors. Some key factors include: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) Energy intensity (total energy consumption in energy units per unit of GDP). Adjustment of energy intensity for GDP measured in terms of purchasing power parity. Energy/GDP growth elasticity measurement. Energy consumption per unit of product for specific industries.35 EE of main types of end-use equipment, e.g., boilers, air conditioners. Energy consumption per unit of building area in key types of buildings. Carbon intensity of the economy and/or specific industries, e.g., power system. Comparisons with industrialized country benchmarks. Percentage of population with access to electricity.

59. In Phase II, through deeper analysis of DMC policies and domestic consultations, the Regional Departments will: (i) indicate country/sector specific targets for reducing energy intensity, (ii) determine the investment and action plan required to achieve the measurable changes, and (iii) clarify ADBs role in contributing to and mobilizing this investment. 60. In implementing EE investments, ADB will incorporate measurement and verification (M&V) methods to confirm post-implementation results. Such methods have been developed in energy performance contracting, utility demand-side management, and GHG emission reduction programs, such as the Kyoto Protocols Joint Implementation and CDM methodologies. M&V expertise will be tapped to assure that ADB-supported projects generate verified energy savings and emissions reductions.

33

Modifying assumptions within a reasonable range of values in this calculation results in market sizes as high as $30 billion per year. The methodology and assumptions underlying these calculations of gross market size are included in Appendix 6. 34 The EEI Task Force is compiling estimates for various market segments in particular countries and reviewing the methodologies underlying these calculations. This work is summarized in Appendix 6. 35 This is a useful measure, using physical units and avoiding problems associated with GDP accounting and purchasing power parity corrections. This measure can be applied to power generation as well as to heavy industry. Industries need to be ranked and prioritized according to energy intensity and share in the economy. Direct comparison of aggregate numbers is not correct, however, because of different underlying manufacturing approaches, e.g., steel can be produced by starting with iron ore or starting with scrap, and the two processes will require very different amounts of energy.

20

IV.

ENERGY EFFICIENCY INITIATIVE INVESTMENT AND ACTION PLAN

61. The core objective of EEI is to greatly expand ADBs investments in clean energy projects. Section II summarized the rationale for ADB to increase its clean energy investing. Section III described the market and the field of action. ADBs definition of EE is broad and diverse and includes many potential market segments and investment areas. ADB must also define how to increase its clean energy investments. It is necessary to identify specific market segments that (i) have a high priority for intervention, (ii) are suitable to ADBs role and strengths, and (iii) have replication and scale-up potential. The specific choices of EE market segments and investments will be made by each Regional Department, following the additional country-by-country research and consultation that will be conducted during Phase II. The medium-term investment and action plan will be prepared in Phase II on this basis. For now, this Section lays out an approach to identifying the investments based on analysis to date. It begins with a brief assessment of ADBs strengths, weaknesses, and appropriate roles. General criteria for selecting and designing EE investments are also presented, followed by suggested general principles for preparing the investment and action plan. Finally, the agenda for Phase II is presented along with its proposed organization and needs for support and resources. A. ADB Role

62. Asia-Pacific has vital, growing economies; therefore, ADB has a unique opportunity to effect change. ADB has been a major investor in DMCs energy sectors. It has a responsibility to act and use its unique combination of tools to address the public, regional, and global interests. ADBs influence will result from its ability to (i) mobilize public and commercial investment in this area, and (ii) introduce and demonstrate effective new investment models to promote EE and make energy development sustainable in Asia-Pacific. ADBs specific role in EE will be determined through consultation with DMC governments and other stakeholders. 63. For private sector EE investments, ADBs role will be based on the development impact it can achieve through financing commercial sustainable energy projects and companies, directly and through intermediaries. Through the use of ADBs cofinancing operations and use of new lending modalities under the Innovative and Efficiency Initiative, EE investments can be supported through guarantees, syndications, reinsurance, and coinsurance. ADB can take a proactive role to define effective investment strategies and seek and recruit quality sponsors and investees in this market. B. ADB Strengths and Weaknesses

64. ADBs comparative advantage is derived from various factors, including its knowledge of DMCs and their energy sectors, existing and historic relationships with governments and prospective executing agencies, and its financial strengths as evidenced by the high ratings accorded to its debt instruments. Other ADB advantages include its abilities to (i) act regionally; (ii) innovate and introduce new investment modalities that can organize and facilitate EE investment market; (iii) provide and mobilize public and private sector investments and structure public-private partnerships; (iv) mobilize donor funds; and (v) combine investment with technical assistance and capacity building programs. A successful EE investment program will require the combination of ADBs environmental, energy, and financial knowledge and skills. ADB is uniquely positioned in Asia-Pacific to bring these three strengths together and lead assistance to DMCs in this field.

21 65. A review also reveals certain internal ADB weaknesses and barriers to expanding its EE investments. These are indicated in the Table 1, along with possible responses. Table 1. Energy Efficiency Barriers and Possible Solutions Barrier: Gaps in understanding the role and potential of EE to meet Asia-Pacific energy challenges Perception that public investment in EE is not justified or distorts markets ADB loans were often unattractive for local financial institutions given the high liquidity in middle income countries Public sector loans take over 18 months to prepare Possible Solutions: Establishment of EEI

EEI research and outputs Use of guarantees, local currency loans, and multitranche financing facility to lower commitment fees Develop templates, detailed project screening mechanisms, and standardized agreements for replicable finance instruments; make greater use of sub-sovereign loans using approved structures, and private sector investments Make EE a priority, expand EE as thematic area, seek additional resources Seek aggregation strategies, work with partners/investees who can aggregate market; work with parties who have large energy demands and manage multiple facilities; work with utilities as energy users and aggregators of customer demand Incorporate clean energy considerations early in CSP processes; establish general agreements with DMC governments on sustainable energy priorities, providing effective pre-approvals and platform for qualified clean energy investments Consider creating an EE category that qualifies for streamlined approvals, i.e., environmental category C treatment Use guarantees, risk sharing, and credit enhancement instruments to mobilize local liquidity; use local currency lending Use more sub- and non-sovereign loans and local currency loan instruments; use broader range of private sector instruments Consult with GEF and DMCs on priority programs; explore using alternative approaches to use GEF funds; mobilize soft funds from other sources

Lack of internal incentives and staff resources to promote EE EE projects are too small, not conducive to ADB lending

Rigidity of the 3-year country strategy process (CSP) encumbers investment priority decisions

Safeguards preparation

slow

down

project

Strong liquidity in DMCs

Limited appetite for sovereign guaranteed foreign currency loans ADB has not made good use of GEF funds for energy projects

22 C. Selecting and Designing Priority Energy Efficiency Investments

66. The Regional Departments must proceed selectively to choose EE sectors and design investment modalities for initial interventions. Ideas for ADBs approach to selecting and designing criteria include the following: (i) Be demand-driven and client oriented, and respond to the needs of DMC governments. In many cases, DMC governments have an established policy for expanded EE investments; these represent a good starting point where ADB can assist DMCs to achieve their stated goals. It is best to choose initial markets where the policy, regulatory, and institutional setting is ready and conducive. ADBs readiness to develop new and innovative modalities (and instruments, if necessary) is expected to encourage DMCs in identifying EE projects. Target investments with compelling economics that are needed in the marketplace. Three aspects will be particularly important for EE projects: the rationale for public sector involvement, the selection of the least-cost alternative, and assurance that the economic benefits outweigh the costs. The economics of specific EE investments will be assessed in Phase II. Seek investment models that have replication and scale-up potential, i.e., financial products that can be rolled out in EE markets and therefore represent large capital demand. Leverage existing strong ADB relationships, e.g., sub-sovereign and municipal governments, utilities, financial institutions and national development banks, to create EE investment partnerships and programs. Work with sponsors who are motivated and capable of meeting ADB credit and due diligence criteria. ADB must be proactive in the search for sponsors. ADB must bring value-added tools to the sponsors, not just funds. Develop EE investment models based on complete analysis of all project functions and risks. Where this analysis identifies a gap, such as a role no one is prepared to play, a cost no party is prepared to incur, a risk that no party will accept, or a mismatch between cost and benefits for projects that have strong but unevenly distributed economics and incentives, seek to fill this gap with targeted financial support, credit enhancement, TA, and facilitative matchmaking, using donor-supported TA funds. ADB can play a catalytic role in financial engineering, however, its assistance need not include underwriting commercial risk for private sector participation. Harmonize EE investment models with existing ADB policies and sound banking principles. Build on comparative advantages. Build internal capacities product-byproduct for implementation by the Regional Departments (including Private Sector Operations Department [PSOD]). Explore possible intersections with innovative pilot financing instruments being developed with the Innovation and Efficiency Initiative (IEI), e.g., use of multitranche financing facilities, subsovereign and municipal enterprise public sector loans, and local currency lending instruments.

(ii)

(iii)

(iv)

(v)

(vi)

23 67. An initial list of indicative examples of EE investments targeting specific EE markets that meet these criteria and appear to have significant scale up and replication potential is provided in Appendix 8. D. General Principles of Preparing the Investment and Action Plan

68. ADBs EE investment and action plan will be developed by the Regional Departments and needs to include the following elements. (i) Portfolio of investment instruments and actions. The diversity of the EE market inherently results in a portfolio of investment instruments, both public and private, targeting distinct specific markets. Regional Departments need to search for those investment models which are scalable and replicable, have strong economics, meet a demand in the market, and are suited to ADBs role and strengths; indicative examples are provided in Appendix 8. The use of templates is encouraged for implementing the large number of medium and small size projects. EE investments already made by ADB or currently being prepared include power plant upgrades, small hydropower, power distribution system loss reduction upgrades, and equity funds. Develop immediate opportunities and test investment models. There are already potential EE projects in the ADB pipeline; the Phase II work will include the identification and development of a selected best set of these immediate opportunities, to test promising investment models and learn from them. Two-pronged approach. EE can be developed as distinct separate new investments, and it can be incorporated more deeply and systematically into mainstream ADB investments. The EE investment and action plan shall address both. It should encourage staff to do more EE projects without adding barriers and imposing extra requirements and procedures to conventional supply and capacity addition projects. Regional Departments will be instructed to assess and seek potential EE investment programs within the context of developing each Country Strategy Program (CSP). Respond to DMC governments. ADB public sector investment must respond to DMC government priorities. Regional Departments will need to assimilate the policy and target announcements of DMCs and work with domestic experts and other stakeholders to raise the visibility of EE and create a demand for EE projects and, in turn, ADB interventions. Combine investment with policy action, TAs, and public information campaigns. ADB must use all its tools in combination with investment. A key role for ADB is to help organize and facilitate EE markets. ADBs value will be in pioneering investment models that are replicable and scalable, as much or more than in providing funding alone. The strategy within each Regional Department must include identification of DMC TA needs that ADB can support. Further, opportunities to coordinate and work with other development partners, e.g., GEF, WB, United Nations Environment Program (UNEP) and United Nations Development Program (UNDP), should be sought.

(ii)

(iii)

(iv)

(v)

24 (vi) Information sharing on EE investment best practices. ADB can also shape DMC demand for EE through sharing information and advance preparation of concepts based on international best practices. ADBs consultations will be aided if ADB can propose a framework and menu of EE tools and investment models for consideration by the government counterparts. Regional Departments can sponsor feasibility studies of economic and technical potential for EE in specific target sectors to gain the information needed to persuade decision makers of the justification for public investment and policies. Proactively seek quality sponsors. A limiting factor in making investments is the frequent lack of or need to find quality sponsors/investees. As such, part of the approach should be a search for such sponsors. For example, PSOD is proposing a new $100 million Renewable Energy and GHG Abatement Investment Fund which would invest in several project and corporate equity funds around the region. Near- and long-term strategy required. Addressing climate change is no simple task. Achievement of a sustainable energy transition depends on both near-term and long-term strategy and actions. 36 While significant uncertainties exist about how a low-carbon future can develop, much is known about where to start. There are many proven EE technologies available now. The strategy must take both a long-term view with a plan for a sustained investment campaign with scaled up targets and immediate actions to pioneer investment models.

(vii)

(viii)

69. Regional Funds. Three types of regional EE funds have been proposed by different departments of ADB: (i) a Carbon Market Initiative (CMI), proposed by the Regional and Sustainable Development Department (RSDD), Special Initiative Group, as a new instrument to enhance project financing (footnote 15); (ii) a Regional Renewable Energy and GHG Abatement Equity Investment Fund (the Investment Fund) proposed by PSOD (Appendix 8); and, (iii) a bank-wide Asia-Pacific Fund for Energy Efficiency (APFEE), which would be a vehicle to mobilize donor resources to blend with ADBs clean energy investments. APFEE would: (i) provide grant resources for non-lending interventions, (ii) provide guarantees to leverage domestic funds from local banks for EE projects, and (iii) extend grant and concessional financing to expedite EE technology transfer.37 Further elaboration of the concept is given in Appendix 7. The three fund proposals are summarized in Table 2. It is important to note that the funds are complementary and serve distinct purposes and investment needs. Further development of APFEE would occur in Phase II, and would include consultation with departments and staff responsible for the development of the other two fund concepts.

36

In recognition of this, the Pew Center on Global Climate Change, a leading nongovernmental organization (NGO) sponsored in part by multinational businesses that are taking action on climate change, has adopted the 10/50 solution, referring to the need to initiate policies, investments and research within this decade (10) but also sustain policies and promote research and development and deployment of new technologies over the next halfcentury (50), targeting stabilization of atmospheric CO2 concentration of 500 ppm. 37 The grant or concessional fund is needed to expedite technology transfer, unlike a subsidy that would help meet operational costs.

25 Table 2: Summary of Proposed ADB Clean Energy Funds

Fund Name Regional Renewable Energy and GHG Abatement Equity Investment Fund Purpose Provide and mobilize equity investments for RE and EE companies and projects Main Investment Modalities Equity investment in a series of sub-funds, which, in turn, will make equity investments in EE and RE projects and companies Proposed Amount $100 million from ADB; maximum investment of 25% in each sub-Fund; related TA facility would help prepare investments and build capacities of investee companies $150-200 million

Carbon Initiative

Market

Provide financing for qualified EE, RE and GHG abatement projects; support preparation of projects for investment

Purchase CERs and other GHG emissions reduction units generated by qualified projects; the CMI fund could pay up-front for CER deliveries over time, bridging certain delivery and performance risks, so the carbon sale can play a greater role in project finance plans; provide TA support

Asia-Pacific Fund for Energy Efficiency

Support and facilitate Partial credit guarantees; $25 million from ADB; up investments in EE projects below-market loans and to $500 million total fund through risk mitigation, subordinated loans; TA size increasing access to EE grants technology and capacity building CER= Certified Emission Reductions, CMI=Carbon Market Initiative, EE=Energy Efficiency, GHG=Greenhouse Gas, RE=Renewable Energy, TA=Technical Assistance

E.

Phase II Agenda

70. Phase II activities will be carried out by the Regional Departments and EEI task force. The following activities will be carried out by each Regional Department (including PSOD): (i) Conduct further research on their countries EE markets, policies and specific investment market segments. A suggested market research terms of reference is given in Appendix 9. Research includes compilation of feasibility studies of sample/representative projects to confirm which EE investments offer the strongest economics. Consult with DMC governments. Priority will be placed on those governments that already have adopted EE and RE policy frameworks and targets. Consult with other EE market stakeholders in target countries, including private sector actors such as energy users, industrial associations, commercial financial institutions, EE companies and ESCOs, project developers, equipment manufacturers, and vendors. Complete selection of priority target EE market segments and define appropriate ADB investment instruments to reach these sectors. Prepare near- and mediumterm EE investment pipeline reports on a quarterly basis. Conduct initial

(ii)

(iii)

(iv)

26 assessments of investment risks and issues for each prospective investment, with plans for further due diligence. Regional Departments will first analyze each country strategy for conformity and then develop their respective pipelines and recommendations. Recommend worthy prospective investments for immediate action, and prepare associated investment development plans for them. (v) Refine the ADB EE investment target for the near- and medium-terms. Provide breakdowns of this target by selected market segments and ADB instruments. Provide justification for plausibility of these targets based on the bottom-up market analysis. RSDD will then aggregate the targets of Regional Departments into ADB targets. Complete research on experiences with various types of TA programs which can complement ADB EE investments, and make preparations to implement such programs. Prepare a report summarizing the Regional Departments EE investment and action plan to achieve its targets for the 20072010 timeframe, addressing action plan, staffing, organization, budget, sources of funding, schedule, and deadlines. Implement plans during Phase III.

(vi)

(vii)

(viii)

71. The Regional Departments should complete their draft Phase II regional EE investment and action plan by 31 December 2006. RSDD will compile the plans of the Regional Departments into a coherent ADB-wide plan. 72. The following activities will be carried out by the EEI Task Force, and on its dissolution, by RSDD and the Energy Community of Practices: (i) Conduct consultations with bilateral and multilateral donors to determine their priorities, activities and experiences. These consultations will be aided if ADB can make specific exploratory proposals for donor consideration. Develop a coordinated institutional strategy for raising and using donor funds for EEI activities and specific EE projects, including test use of GEF funds. Support, learn from, and coordinate with the continued development of specific EE investments already underway at ADB. Seek to turn these into replicable and scalable financial products that ADB can offer as part of its portfolio. Develop suitable templates in consultation with the non-regional departments to streamline the project preparation procedures for the large number of medium and small size projects. Continue to compile information on all ADB sustainable energy activities. Continue coordination with the Regional Departments involved in EE transactions. Review methods for incorporating sustainable energy into mainstream lending practices and procedures, reviewing each step in the normal investment cycle, through consultations with ADB staff. Catalogue creative ideas, but avoid creating new prescriptive requirements. Develop this subject within the Energy Community of Practices.

(ii)

(iii)

27 (iv) Continue to compile information on international best practices in sustainable energy investing, including activities of other MDBs and international development agencies. Continue strong ADB participation in the IFI forum on creating a Clean Energy and Development Investment Framework. Make this information available to the Regional Departments. Evaluate opportunities for regional cooperation and initiatives promoting EE, including specific region-wide investment programs (such as the bagasse cogeneration regional initiative concept described briefly in Appendix 8), and regional cooperation through information sharing and capacity building, (for example, a regional accreditation program for energy managers). ADB is uniquely positioned to play a vital role in regional cooperation processes. Organize and conduct a second EEI consultation workshop with a larger group of DMCs. This second workshop is proposed for June 2006, after which this EEI report can be formally published. It would seek further views of EE experts from DMCs and industrialized countries, and from government officials in finance and planning ministries, building on the results of the first consultative workshop held in November 2005. This second workshop would facilitate DMC consultations and inputs for the Regional Departments as they begin their EE investment planning work. The Task Force may consider holding annual events to develop the demand and wide support for EE investments. The subsequent annual EE events may be held in DMCs by rotation. This will promote sharing of successful experiences and bring together the planners, financers, decision makers, and the EE industry (ESCOs, equipment manufacturers, consultants). These events should be differentiated from the commercial conferences being organized in Asia-Pacific, by focusing on mainstreaming EE in Asia-Pacific. Coordinate with respective groups during the preparation of ADB Medium Term Strategy II and the Energy Policy Review in 2006, and define how the EEI rationale and investment and action plan can be effectively incorporated. Further develop the rationale and concept for APFEE; define its investment purposes; determine best methods for achieving these purposes; and separate out the various functions for effective management of the funds.

(v)

(vi)

(vii)

(viii)

(ix)

73. It is proposed that the EEI Task Force continue its work through completion of Phase II and then be dissolved. Thereafter, RSDD and the Energy Community of Practices will be the knowledge resources for Regional Departments in implementing Phase II, compiling the Phase II report, and coordinating and supporting the implementation of EE interventions during Phase III (20082010). 74. Human Resource Needs. Energy and infrastructure division staff in Regional Departments will prepare the EE investment and action plan for their respective regions. To do so will require additional staff time and consulting resources. This should be addressed in two ways: (i) by filling existing energy and infrastructure-related vacancies in Regional Departments and RSDD with staff having an understanding of EE activities, and (ii) allocating international consultancy resources equivalent to 23 person-years in each Regional Department, including PSOD, from now through end 2007. This temporary resource augmentation will facilitate the

28 preparation of the investment and action plan, and not commit ADB to the high resource levels needed during the preparatory period. A total of 15 person-years of international consulting services, funded by ADB or through various trust funds, would be used by Regional Departments and RSDD to implement the Phase II activities, and to prepare the investment and action plans in 2006-2007. At this stage, new staff positions will not be required; the EE projects will initially be identified with the help of consultants to allow flexibility. 75. This EEI Report represents the completion of Phase I and aims to firmly establish the rationale for expanded and sustained ADB action and EE investment, define the general principles of the EEI investment and action plan, and provide priorities and a framework for next steps. The operational details will be prepared in Phase II (now through December 2007) and implemented in Phase III (20072010). Immediate EE investment opportunities will be pursued even during Phase II. The Management has reviewed the draft EEI report and endorsed the rationale and the proposed phasing of activities. RSDD is seeking assistance from donors to finance the consulting services needed by the RDs and RSDD to implement the Phase II activities.

V.

CONCLUSION

76. The EEI Report provides a strong rationale for greatly expanding ADBs EE investments. While some EE operations already exist in ADBs portfolio, such projects need to be highlighted, emphasized, and given a high priority. EE investments should be assessed in the context of CSP formulation, and developed as a specific category. The Management has endorsed this report and advised that the Phase II activities outlined in the report should commence. The EE investment and action plan developed in Phase II will be submitted for Management approval.

29
GLOSSARY

Appendix 1

Alternative Fuels

"Non-conventional" transportation fuels that are gaseous (liquefied petroleum gas [LPG, mostly propane], compressed natural gas [CNG] etc.) or derived from biomass materials (ethanol, methanol, bio-diesel). Alterations in the environment due to the presence or activities of humans. The fibrous material remaining after the extraction of juice from sugarcane, which contains sufficient combustibles to be a low grade fuel. A combustible gas created by the anaerobic decomposition of organic material, composed primarily of methane, carbon dioxide, and hydrogen sulfide. Plant materials and animal waste converted to liquid or gaseous fuels such as ethanol, methanol, methane, and hydrogen. A colorless and odorless noncombustible gas with the formula CO2 that is present in the atmosphere. It is formed by the combustion (oxidation) of carbon contained in fossil and biomass fuels, by respiration (a slow combustion in animals and plants), and by the gradual oxidation of organic matter in the soil. Atmospheric CO2 is depleted naturally, as plants consume CO2 during photosynthesis and it is also dissolved in the oceans. The difference in formation and consumption rates determines the change in atmospheric CO2 concentration. A tax-based approach to reduce CO2 emissions by making users pay for the externalities. The tax is based on the carbon content of fossil fuels.

Anthropogenic

Bagasse

Biogas

Biomass Fuel

Carbon Dioxide

Carbon Taxes

Certified Emission A unit of greenhouse gas reduction generated in non-Annex I countries Reductions (CERs) and certified under the Kyoto Protocol for Clean Development Mechanisms (CDM). Clean Development One of three market mechanisms established under the Kyoto Mechanisms (CDM) Protocol. The CDM assists Annex I countries in meeting their greenhouse gas emissions reduction commitments. It enables industrialized countries to buy credits for emission reductions achieved through lower-cost options available in the non-Annex I countries; in return, the developing countries receive a market-determined price for the credits that improves the viability and sustainability of their projects. Climate Change A term used to describe the short- and long-term effects on the Earth's climate that mainly result from human activities, such as the release of ozone depleting substances, fossil fuel combustion, deforestation, decomposition, and burning vegetation. Production of heat energy and electricity from the same fuel in the same facility. A typical cogeneration facility produces electricity and steam for

Cogeneration

30

Appendix 1

industrial process use. When the heat is distributed to urban consumers, it is also called a combined heat and power plant (CHP). In agriculturebased industries, like palm oil production, rice or sugar mills, the agricultural wastes can be recycled to produce heat energy and even electricity. Such facilities are also called cogeneration plants, since they produce energy along with their main product. Combined-Cycle Power Plant A power plant that uses two thermodynamic cycles to achieve higher overall energy conversion efficiency. For example, the energy from gas or oil combustion propels a turbine to generate electricity, and then the waste heat from the gas turbine is used to generate steam in a boiler to operate a steam turbine that generates additional electricity. To forego or reduce energy usage to save natural energy resources and limit peak electricity demand in order to ultimately reduce the capacity requirements for plant and equipment. Fossil fuels such as coal, oil and natural gas, that can be used to power engines, for cooking and heating, or to produce electricity, which is a more versatile form of energy for carrying out industrial processes and running appliances.

Conservation

Conventional Fuel

Conversion Efficiency The amount of energy produced in a final form (e.g. electricity) as a percentage of the amount of energy consumed in another form (e.g. coal). Demand-Side The process of managing the consumption of energy, generally to Management (DSM) optimize available and planned generation resources. DSM programs encourage customers to use electricity differently. They can include a range of measures, including shifting demand from the peak demand periods to low demand periods when supply capacity may be idling. District Heating A heating system in which hot water and/or steam is piped from a central boiler plant or a combined heat and power plant, to buildings and industries for space heating and industrial processes.

Economic Efficiency The optimal production and consumption of goods and services, which generally occurs when the prices of products and services reflect their marginal costs. It is best to think of economic efficiency gains as actions that promote an increase in overall net value, which includes, but is not limited to, cost reductions. Energy Efficiency Under the First Law of Thermodynamics, efficiency is the ratio of energy output to energy input, and cannot exceed 100%. Efficiency under the Second Law of Thermodynamics is determined by the ratio of the theoretical minimum energy that is required to accomplish a task relative to the energy actually consumed to accomplish the task. Generally, the measured efficiency as defined by the First Law will be higher than that defined by the Second Law.

31

Appendix 1

Elasticity of Demand The ratio of the percentage change in the quantity of a good or service demanded to the percentage change in the price. Electric Utility A corporation, agency, authority or other legal entity that owns and/or operates facilities for the generation, transmission, distribution or sale of electricity primarily for use by the public. It generally has a mandate to provide the service and its tariffs are regulated.

Emissions Reduction Emissions reductions generated by projects in Annex I countries via Joint Unit (ERU) Implementation that can be traded to help meet commitments under the Kyoto Protocol. Energy Audit A survey to determine the actual energy used compared to equipment specifications or the needed energy to accomplish a process. The measure of the instantaneous energy efficiency of room air conditioners; a high ratio (e.g., 10) denotes a more efficient machine. The amount of energy used in producing a given level of output or activity. A company that specializes in undertaking energy efficiency measures under a contractual arrangement in which it shares the value of energy savings with its clients. The increase in average global temperatures due to the greenhouse effect. The heating effect due to the trapping of long wave radiation emitted from the Earths surface by greenhouse gases in the atmosphere. Those gases, such as water vapor, CO2, tropospheric ozone, methane, some fluorocarbons, and low level ozone, that are transparent to solar radiation, but opaque to long wave radiation, and which contribute to the greenhouse effect. The production of energy using two different types of technologies, at least one of which is non-fossil fuel based; e.g., a wind turbine and a solar photovoltaic array combined to meet a power demand. The Kyoto Protocol creates three market-based mechanisms that have the potential to help countries reduce the cost of meeting their emissions reduction targets. These mechanisms are (i) Joint Implementation (Article 6), (ii) the Clean Development Mechanism (Article 12), and (iii) Emissions Trading (Article 17). An international agreement adopted on 11 December 1997 in Kyoto, Japan. It sets binding emission targets for developed countries that would reduce their emissions an average of 5.2% below 1990 levels. It entered into force on 16 February 2005.

Energy Efficiency Ratio (EER) Energy Intensity

Energy Service Company (ESCO)

Global Warming

Greenhouse Effect

Greenhouse Gases

Hybrid System

Kyoto Mechanisms

Kyoto Protocol

32
Measurement & Verification

Appendix 1

Measurement and verification of energy savings for a given energy efficiency project are based on agreed upon engineering calculation methods, which usually include a baseline energy use. One of the six greenhouse gases to be curbed under the Kyoto Protocol. Atmospheric CH4 is produced by natural processes, but there are also substantial emissions from human activities such as landfills, livestock and livestock wastes, natural gas and petroleum systems, coal mines, rice fields, and wastewater treatment. CH4 has a relatively short atmospheric lifetime of approximately 10 years, but its 100-year global warming potential is currently estimated to be approximately 21 times that of CO2. Energy derived from resources that are regenerative or for all practical purposes cannot be depleted. Types of renewable energy resources include moving water (hydro, tidal and wave power), thermal gradients in ocean water, biomass, geothermal energy, solar energy, and wind energy. Municipal solid waste is also considered to be a renewable energy resource. Opportunities to remove atmospheric CO2, either through biological processes (e.g., plants and trees), or by storing CO2 in underground reservoirs. Electricity prices that vary depending on the time periods in which the energy is consumed. A higher price is charged during high demand periods in consideration of the higher cost incurred; it requires special consumer meters but provides an incentive to curb energy use when supply gets constrained. A technology that uses refuse to generate electricity. In mass burn plants, untreated waste is burned to produce steam, which is used to drive a steam turbine generator. In refuse-derived fuel plants, refuse is pretreated, partially to enhance its energy content prior to burning.

Methane (CH4)

Renewable Energy

Sequestration

Time-of-Use Tariffs

Waste-to-Energy

33

Appendix 2

ENERGY EFFICIENCY INITIATIVE DESIGN AND MONITORING FRAMEWORK

Design Summary Impact Decreased rate of climate change through increased use of sustainable energy forms. Proliferation of clean energy projects. United Nations Framework Convention on Climate Change (UNFCCC) reports. Developing member country (DMC) energy data and national reports. Performance Targets/Indicators Data Sources/Reporting Mechanisms Assumptions and Risks Assumptions Continued international collaboration to address climate change. International resources for clean energy are available. Political will of DMCs to adopt clean energy alternatives.

Outcome Reduced emissions of greenhouse gases (GHGs). Decreased energy intensity by industry, commercial buildings, municipalities, agriculture, and transport sectors. Increased ADB lending operations to promote the use of clean energy. Increased use of non-polluting clean energy sources. Better provision of energy services needed for economic growth and improving peoples lives and living standards in Asia- Pacific Decrease in the annual growth rate of GHG emissions by DMCs. Lowered energy input per unit of output. Performance data on specific clean energy investments; reporting requirements will be incorporated into investment structure and agreements. DMC energy data, as collected by relevant national and international agencies.

Assumptions Economically viable clean energy investments can be identified and developed. Project sponsors can be motivated and investment demand can be developed. DMC governments will adopt strong supportive policies and targets for clean energy investments. Capacities can be mobilized to deliver and implement the investment programs. Donors will provide the necessary supportive funds. Risks Clean energy markets not yet ready and economies not sufficiently strong to motivate investment. Interest cannot be sustained and will be overwhelmed by investment momentum of conventional energy systems. Clean energy investments are marginalized solutions.

Amount of ADB lending and nonlending products promoting the use of clean energy. Larger share of renewable energy (RE) in the energy mix. Increased access to clean energy.

34
Design Summary Outputs Greatly increase volume of ADB and DMC clean energy investments. Develop new public and private sector financial instruments for making clean energy investments that are replicable and scalable. Develop and adopt new operational policies and guidelines within ADB to facilitate greater financing of clean energy by ADB. Increase in ADB staff and their capacity to originate EE investments. Indicative target of $1 billion per year by 2008. Two to three new instruments adapted to the specific finance needs of clean energy market segments. ADB operations and investment portfolio data. ADB policies and guidelines. ADB human resources. National reports Performance Targets/Indicators Data Sources/Reporting Mechanisms

Appendix 2

Assumptions and Risks Assumptions Sufficient volume of investment demand exists; strategies for aggregating many small projects can be developed. Motivated investment sponsors can be identified and are willing to make investments. Effective investment projects/programs that are sufficiently creditworthy for ADB investment are developed. Necessary concessional and public investments are raised to complement commercial financing. Staff resources and skills are mobilized to meet targets DMC governments will adopt strong supportive policies and targets for clean energy investments. Risks Investment sponsors cannot be identified or motivated; sponsors are not sufficiently creditworthy for ADB investment. Macro-economic factors inhibit investment.

New operational policies and guidelines to address ADB internal challenges that hamper a larger program on clean energy. Increased number of staff with expertise on clean energy. Staff can increase EE projects and meet targets for investment volume. New policies in DMCs to promote clean energy. Increase in number of financial institutions providing financing for clean energy projects.

Improved capacities of key market actors in DMCs to develop, implement and finance clean energy investments.

Activities with Milestones Phase I: (August 2005 through February 2006) 1.1 Convene Energy Efficiency Initiative (EEI) Task Force (TF); conduct research on climate change issues, clean energy financing and markets, etc. 1.2 Organize EEI Consultative Workshop; commission country market studies by DMC experts; conduct Workshop (November 2005).

Inputs Phase I: Part time effort of EEI steering committee and five- member task force Small-Scale Technical Assistance of $150,000 for consultation workshop.

35
Design Summary Data Sources/Reporting Mechanisms 1.3 Conduct internal ADB consultations; develop strategy; draft EEI Report; circulate for comments; finalize Report and brief Management; obtain mandate for Phase II (February 2006). Performance Targets/Indicators

Appendix 2

Assumptions and Risks Eight person months of international staff consultant and domestic research assistant. Phase II: Part time effort of fivemember EEI TF. Quarterly review by the eight-member EEI steering committee. $500,000 for Consultation Workshops & DMC experts. 5 person years of international consulting.

Phase II: (March 2006 through December 2007) 2.1 Regional Departments convene working groups to prepare their EE investment and action plan; conduct market research and DMC/stakeholder consultations, including investment identification. 2.2 Regional Sustainable Development Department (RSDD) and EEI TF continue coordinating work and research. 2.3 Prepare and conduct second DMC Consultative Workshop (June 2006). 2.4 Initial project pipelines prepared; development work commenced on specific select priority EE investments with immediate potential (June 2006). 2.5 Draft EE investment plan and action plan prepared by Regional Departments (December 2006) 2.6 Final EE investment strategy (Phase II Report) completed, with support from RSDD and including proposals for donor funding (February 2007). 2.7 EE investment strategy considered and incorporated into ADB Energy Policy Review and ADB Medium Term Strategy. 2.8 Begin to develop potential pipeline of projects and begin processing loans (ongoing.) 2.9 Continued ADB involvement in development of coordinated international financial institution clean energy investment framework (ongoing). Phase III: (20072010) 3.1 Donor fund raising work (2007). 3.2 Development of potential pipeline of projects and processing of loans (ongoing).

Phase III: Resource needs to be defined in Phase II Report.

36
SUMMARY OF CLIMATE CHANGE ISSUES A.

Appendix 3

The Greenhouse Effect, Greenhouse Gases, and Changes in the Atmosphere

1. Life on Earth depends on the atmospheric greenhouse effect, which keeps our planets surface temperature in the range that sustains life. The greenhouse effect can be readily understood: park a car in the sun with the windows closed, even on a cold day, and return to find the interior warmed. The windows let solar radiation into the car, but a portion of this radiation gets trapped inside, causing warming. Certain greenhouse gases (GHGs) in the Earths atmosphere act like the windows of the car trapping part of the incoming solar radiation. In the absence of the greenhouse effect, average temperatures on Earth would be 33 degrees Celsius (C) lower. 2. GHGs are those gases that have the heat-trapping effect in the atmosphere. Carbon dioxide (CO2) is the principal GHG, accounting for approximately 75% of the greenhouse effect. Anthropogenic emissions of CO2, result mainly from fossil fuel combustion and activities such as deforestation and land-use change, which reduce carbon uptake by plants, forests and soils and release the carbon held in these to the atmosphere. Such emissions are measurably changing the composition of the atmosphere and increasing the existing greenhouse effect. Other important GHGs include methane (CH4), which has 21 times the effect of CO2; nitrous oxide (N2O); hydrofluorocarbons (HFCs); perfluorocarbons (PFCs); and sulfur hexafluoride (SF6). 3. Atmospheric concentrations of GHGs can be directly measured. In 1954, scientists began constant measurements on Mauna Loa, a 4,000+ meter volcanic mountain in Hawaii in the middle of the Pacific Ocean, where the air is well-mixed and far from pollution sources. Atmospheric composition of GHGs over geologic time can also be measured through an analysis of air bubbles trapped in ancient ice. Such analysis has shown that the pre-industrial levels of atmospheric CO2 were approximately 260 parts per million (ppm). Today, atmospheric CO2 concentrations are over 385 ppm and rising fast: by 4 ppm in 2004 alone. By 2050, they are expected to exceed 500 ppm, and continue on a trajectory to reach as high as 650 ppm by 2100 if current trends are not reversed. This radical increase is occurring with tremendous speed and changing the climate balance. B. Relationships between Climate and Greenhouse Gas Concentrations

4. Scientists have calculated that the present increase in GHG concentrations is resulting in surface warming equal to approximately two watts per square meter. Small forces, maintained long enough, can cause large climate change.1 5. Our most accurate knowledge of the relationship between climate and GHG concentrations comes from empirical data on the Earths history. Over the past few million years, the Earths climate has oscillated between ice ages and warm interglacial periods. These natural millennial changes are associated with slow variations in the Earths orbit, which alter the seasonal and geographic distribution of solar insulation. This affects the uptake and release of CO2 and CH4 by plants, soil, and the oceans, which in turn affects temperatures and the rates of ice formation and melting. 6. Over the last 400,000 years, Antarctic ice escaped melting. By analyzing water (H2O) isotopes in the snow layers, scientists can calculate the temperature at which the snow was
1

Hansen, James. 2004. Defusing the Global Warming Time Bomb. Scientific American. March.

37

Appendix 3

formed and with it, create a record of the Earths temperature. Changes in atmospheric concentrations of CO2 and CH4, the principal GHGs, are nearly synchronous with temperature change, preceding them by 500 to 1,000 years. By analyzing this historical record, scientists can estimate the impact on climate of a given level of change in atmospheric GHGs.. These calculations have also been confirmed by computer models. 7. The data and climate models both predict that the doubling of atmospheric CO2 concentrations from pre-industrial levels will lead to global average surface temperature increases of 3.6C with an uncertainty of +/- 50%. In other words, by 2100, the surface temperature will warm 1.45.8oC, relative to 1990 levels.2 For comparison, the difference in present-day average temperature and that of the most recent ice age is about 5C3. Relatively small changes in global average temperatures can have large effects on overall climate balances. 8. These estimates have been confirmed by the Intergovernmental Panel on Climate Change (IPCC), the worlds foremost scientific body studying climate change and seeking scientific consensus on the subject. The IPCC was established in 1988 by the World Meteorological Organization and the United Nations Environment Program. The IPCC is responsible for providing the scientific and technical foundation for the United Nations Framework Convention on Climate Change (UNFCCC), primarily through the publication of periodic assessment reports; its "Third Assessment Report" was published in 2001 and a Fourth Assessment Report is forthcoming in 2007. C. Climate Change Impacts

9. Many factors, such as the role of clouds, ocean currents, temperature lags, aerosols and particulates, affect and create complexities and uncertainties in our understanding of the climate system.5 In general, however, the scientific community has reached a strong consensus regarding the science of global climate change with respect to the following:. (i) Average and regional warming. Temperatures at the Earths surface increased by an estimated 0.6oC over the course of the 20th century. According to United States National Aeronautics and Space Administration scientists, 2005 was the warmest year since the late 1800s; and 1998, 2002, 2003, and 2004 followed as

Intergovernmental Panel on Climate Change. 2001. Third Assessment Report, Climate Change 2001: Impacts, Adaptation and Vulnerability. (Cambridge University Press). Available: http://www.grida.no/climate/ipcc_tar/wg2/pdf/wg2TARspm.pdf 3 Lord May of Oxford, President of the Royal Society of Science, UK. Quoted in Steve Connor, 2005. Impacts of Climate Change. Independent (UK). 29 November. 5 For example, warming increases evaporation and cloud cover. This in turn increases atmospheric reflectivity and reduces the absorption of solar energy, which should actually reduce the warming effect. In another example of complexity, the ocean depths contain huge quantities of cold water; wind and tides slowly mix the ocean to great depths; but because of the thermal inertia of this ocean water, it should take several decades for the ocean temperatures to fully respond to warming.. 7 US National Aeronautics and Space Administration. 2006. 2005 Warmest Year in Over a Century. 24 January. Available: http://www.nasa.gov/vision/earth/environment/2005_warmest.html.

38

Appendix 3

the next four warmest years.7 Average temperature masks regional and local impacts. Temperature changes in higher latitudes have been even greater. Additionally, the frequency of extreme degree days where temperatures exceed 48oC is increasing in many regions, resulting in unprecedented heat waves in places such as Bangladesh, India, and Pakistan. (ii) Changing patterns of precipitation. Warmer temperatures mean more evaporation, which results in more water vapor in the atmosphere and a greater percentage of rainfalls in intense precipitation events. This in turn causes, floods in some places and drought in others, and disrupts agriculture. More intense and frequent storm events. More energy in the atmosphere and oceans creates more intense storm events. For example, the 2005 Caribbean hurricane season was the worst on record in both frequency and intensity. Glacier and Arctic ice melting. Glaciers are melting worldwide, causing disruption of mountain communities. At some point, the melting will change river hydrological patterns to the detriment of ecosystems, fish health, and water supply. In September 2005, satellite measurements of ice in the Arctic Ocean showed that significant melting had occurred and that the ocean may be relatively ice-free within several decades, affecting that ecosystem dramatically. Land-based ice, such as on Greenland and Antarctica, is melting faster. While glaciers grow slowly by accretion, they can disintegrate much more rapidly; such acceleration is now being observed. Measurements taken in 2005 showed that the Kangerdlugssuaq glacier, which drains about 4% of Greenland's massive ice sheet, is moving into the sea three times faster than it was one decade ago. Species migration. As temperatures change, species of all kinds migrate to new zones. This introduces new organisms, predators, and diseases into areas; disrupts ecosystems; and becomes a factor in human health, as illustrated by the spreading of malaria. Many ecosystems cannot adapt to the rapid pace of climate change, which is affecting their prospects and diminishing their overall habitat and health. Sea level rise. Tide gauge data show that the global average sea level rose between 0.1 and 0.2 meters during the 20th century. This increase is attributed primarily to the thermal expansion of oceans, a trend that is likely to continue. More dramatic sea-level rises in the future will be due to land-based ice melt. If Greenlands ice sheet completely melted, sea levels around the world would rise by about seven meters. In November 2005, American scientists revealed that sea levels are now rising by about two millimeters a year. A one-meter rise would be catastrophic for many low-lying areas and small island states. Ocean warming and acidification. Ocean warming is affecting the health of ocean ecosystems, such as fisheries and coral reefs. It is also changing the chemistry of the oceans: roughly one-third of CO2 emissions are absorbed by the oceans, where the gas produces carbonic acid, which is corrosive to shells. Ocean water today is somewhat alkaline, with a pH level of 8.1, about 0.1 lower than at the start of the Industrial Revolution two centuries ago. Depending on the rate of GHG emissions, the pH level of ocean water near the surface is expected to drop to between 7.7 and 7.9 by 2100, lower than at any time in the last

(iii)

(iv)

(v)

(vi)

(vii)

39

Appendix 3

420,000 years, according to a 2005 report by the United Kingdoms Royal Society of Science.8 Lower pH levels can adversely affect shell and coral formation and the health of plankton, the basis of the ocean food chain. (viii) Shifting of the Atlantic Oceans Gulf Stream. The introduction of additional fresh water into the North Atlantic Ocean from added rainfall and the melting of Greenlands ice sheet could reduce the northward penetration of warm tropical Gulf Stream waters, causing significantly colder winters in Northern Europe. Runaway greenhouse effects. Concern exists that we soon face threshold effects where positive feedback loops in the environment will accelerate warming. As an example,, thawing permafrost in the upper northern latitudes releases methane as it decomposes; ocean acidification results in decreased plankton growth reducing carbon sequestration in the oceans; and melting Arctic ice increases warming as the bare ocean absorbs more heat than reflective ice.

(ix)

D.

Economic Consequences of Climate Change

10. Climate change will have significant negative economic impacts through drought, floods, fires, changes in precipitation patterns, effects on crops and fisheries, spreading disease, storm damage, loss of bio-diversity, reduced ecosystem health, and loss of ecosystem services. Rising sea levels could destabilize whole regions in low-lying areas. 11. The economic impacts of climate change will impose significant costs in damages, response and adaptation. Costs of damage and adaptation to climate change are the subjects of current research. Left unaddressed, climate change will impose large costs on society. As such, the costs of undertaking emissions reductions must be weighed against the costs of taking no action. Delaying action could substantially increase the long-term costs of addressing climate change. Developing countries are more vulnerable to these impacts due to geography and their lower adaptive capacities. E. Response of the International Community

12. Necessity of International Response. Climate change is inherently a global challenge that calls for a global response. GHG emissions have the same impact on the atmosphere whether they originate in Washington, London, or Beijing. Consequently, action by one country to reduce emissions will do little to slow global warming unless other countries act as well. Emissions from industrialized countries have contributed significantly to the build-up of GHGs. An effective strategy will ultimately require commitments and action by all major emitting countries. 13. United Nations Framework Convention on Climate Change. The international response to climate change was launched in 1992, at the Earth Summit in Rio de Janeiro, with the signing of the United Nations Framework Convention on Climate Change (UNFCCC). The UNFCCC established the long-term objective of stabilizing GHG concentrations in the atmosphere "at a level that would prevent dangerous anthropogenic interference with the climate system." It also set a voluntary goal of reducing emissions from developed countries to 1990 levels by 2000, a goal that most countries did not meet.

Chang, Kenneth. 2005. British Scientists Say Carbon Dioxide turning Oceans Acidic. The New York Times. 1 July.

40

Appendix 3

14. Kyoto Protocol. Recognizing that stronger action was needed, countries negotiated the 1997 Kyoto Protocol, which sets binding targets for developed countries to reduce emissions 5.2% below 1990 levels by 2012. The Protocol entered into force on 16 February 2005, which made its emissions targets legally binding commitments for those industrialized countries that ratified it (the United States and Australia have not ratified it). The Kyoto Protocol allows emitters to achieve their targets by reducing their own emissions and by trading emissions allowances and emissions reduction units (ERUs) or certified emissions reductions (CERs). This market-based system is intended to allow a given system-wide level of emissions reductions to be achieved in a least-cost manner. An option in the Kyoto Protocol allows a group of countries to meet their targets jointly by aggregating their total emissions; member states of the European Union are utilizing this option and have established the European Trading System (ETS). The Clean Development Mechanism (CDM) allows industrialized countries with binding emissions caps to purchase CER credits from GHG abatement projects in developing countries. The CDM is intended to promote sustainable energy development in developing countries. This market is still quite young but its growth has accelerated now that the Protocol has become operational. 15. Post-Kyoto. Scientists estimate that a sustainable level of GHG emissions is between 30 to 50% of current world emissions. Thus, achievement of the Kyoto goals is only the beginning of a long process. Attention is now turning to strengthening the international framework for the years following the Kyoto Protocol's initial commitment period of 20082012. The overriding challenge is to forge an agreement that (i) includes all major emitting countries, both developed and developing, and (ii) begins significant long-term reductions in global emissions. In November 2005, at the United Nations climate conference in Montreal, nations agreed to start shaping a second stage to the Kyoto Protocol to replace the first emissions reduction period, which ends in 2012. Many strategies are being studied, including carbon sequestration; greatly improved energy efficiency, including in vehicles; large expansions in the use of renewable energy (RE); and possible expanded use of nuclear power. An excellent resource with recent expert thinking outlining options and recommendations for advancing the international climate change effort post-2012 can be found at: http://www.pewclimate.org/globalwarming-in-depth/all_reports/climate_dialogue_at_pocantico/index.cfm.

41

Appendix 4

SUMMARY OF COUNTRY-LEVEL ENERGY AND GREENHOUSE GAS EMISSIONS DATA, ENERGY EFFICIENCY MARKET ASSESSMENTS AND POLICIES A. Country Energy and Greenhouse Gas Emissions Data

1. On 2223 November 2005, an Energy Efficiency Initiative Consultation Workshop (Consultation Workshop) was held at the headquarters of the Asian Development Bank (ADB) in Manila, Philippines. Prominent experts and practitioners in energy efficiency (EE) from selected developing member countries (DMCs) and industrialized countries presented country-specific analyses on EE potential across various major sectors. The participants also presented applicable policies and strategies, economic and fiscal impacts, and lessons learned from the experience of EE improvements and commercialization in their respective countries. Five DMCs were selected to attend based on their level of energy consumption: India, Indonesia, Peoples Republic of China (PRC), Philippines and Thailand. 2. This Appendix provides an overview of the total primary energy supply (TPES), total final energy consumption, and carbon dioxide (CO2) emissions of the five DMCs in comparison with the whole of Asia, Organization for Economic Cooperation and Development (OECD) and World. It also briefly discusses DMCs EE policies, measures and targets. 3. The TPES for Asia, including the PRC, amounted to 2,650 million tons of oil equivalent (Mtoe) in 2003, representing 25% of world TPES, as shown in Table A4.1. A general indication of EE performance is given by the primary energy intensity, which measures how much energy is required by each country or region to generate one unit of gross domestic product (GDP). This figure is usually expressed in tons of oil equivalent (toe) per thousand dollars. Its value reflects the nature of the economic activity of the country (the economic structure) and the structure of the energy mix, as well as the technical energy efficiency. India, Indonesia, and PRC have primary energy intensities ranging between 0.9 and 1.05 while the corresponding values for OECD and World are lower, at 0.20 and 0.32, respectively. 4. GDP and value-added data for all regions are converted at purchasing power parities (PPP) to reflect differences in general price levels. Using PPP instead of exchange rates increases the value of output in regions with a low cost of living and therefore decreases their energy intensities. The use of PPP in measuring energy intensities greatly improves the comparability between regions with different levels of economic development, as it narrows the gap that exists between regions when comparing exchange rates. The five DMCs have TPES/GDP (PPP) ranging from 0.13 to 0.24 toe as compared to the whole Asian region and OECD, both of which have 0.19, and World, which has a value of 0.21, as shown in Table A4.1. 5. In Asia, coal, oil and natural gas comprise a majority of the primary energy supply as shown in Table A4.2. Coal accounts for about 41% of the total primary energy supply, while oil and natural gas account for 25% and 7%, respectively. Another significant source of energy comes from combustible renewables and wastes. Wastes are comprised of (i) biomass and animal products (wood, vegetation waste, ethanol, animal materials/wastes, and sulphite lyes), (ii) municipal waste (waste produced by the residential, commercial and public service sectors that is collected by local authorities for disposal in a central location for the production of heat and/or power), and (iii) industrial waste.

42
Table A4.1: Comparison of Total Primary Energy Supply (2003)
People's Indonesia Republic of Philippines China 161.55 0.75 0.96 0.24 249.96 214.67 167.72 681.63 1,426.00 1.10 0.92 0.23 1,381.00 1,295.00 1,550.00 6,265.00 42.12 0.52 0.49 0.13 22.50 81.50 85.30 332.71 Asia excl. PRC 1,224.00 0.61 0.72 0.19 1,084.00 2,018.00 1,697.00 6,371.00

Appendix 4

Countries TPES (Mtoe) TPES/Population (toe/capita) TPES/GDP (toe/000 2000$) TPES/GDP (PPP) (toe/000 2000$ PPP) Energy Production (Mtoe) Population (million) GDP (billion 2000$) GDP (PPP) (billion 2000$)

India 553.39 0.52 1.02 0.19 455.29 1,064.40 543.70 2,907.78

Thailand 88.76 1.43 0.63 0.20 48.25 62.01 141.15 444.94

OECD

World

5,395.00 10,579.00 4.67 0.20 0.19 1.69 0.32 0.21

3,802.00 10,709.00 1,154.00 6,268.00

26,792.00 33,391.00 28,465.00 49,315.00

Mtoe=million tons of oil equivalent, PPP=purchasing power parity, TPES=Total Primary Energy Supply Source: International Energy Agency. 2005. Key World Energy Statistics,

Table A4.2: Comparison of Share of Total Primary Energy Supply (2002)

People's Republic of Philippines Thailand China 707,184 227,912 13,506 31,853 6,548 24,766 217,441 1,229,210 4,925 13,496 2,727 1,426 605 8,805 10,025 42,009 8,987 43,860 (5,962) 21,902 643 13,692 83,122 Asia excl. PRC 271,706 355,719 7,108 142,451 15,814 14,190 14,443 362,292 1,183,723

Countries Coal Crude Oil Petroleum Products Gas Nuclear Hydro Geothermal, Solar, etc. Combustible Renewables & Wastes TOTAL

India 178,195 122,049 (3,525) 22,572 5,053 5,513 212 208,120 538,189

Indonesia 17,955 50,851 5,253 32,994 855 5,363 42,815 156,086

OECD 1,096,355 2,130,261 36,037 1,171,340 593,135 105,822 32,379 178,410 5,343,739

World 2,401,749 3,770,361 (201,643) 2,173,206 693,843 223,670 50,259 1,117,696 10,229,141

Ktoe= Thousand tons of oil equivalent Source: International Energy Agency. 2005. Key World Energy Statistics,

6. The industry, transportation and residential sectors of selected DMCs are the major consumers of energy, consuming from 87% to 94% of the total final consumption as seen in Table A4.3. This also holds true for Asia excluding PRC, OECD, and World.

43

Appendix 4

Table A4.3: Comparison of Share of Total Final Energy Consumption (2002)

People's Indonesia Republic of Philippines China 31,163 23,688 1,918 4,181 52,460 760 114,170 326,670 80,476 34,094 30,241 305,216 11,504 24,543 812,744 7,674 9,113 474 2,104 5,591 746 240 25,942 Asia excl. PRC 256,597 139,493

Countries Industry Transportation Agriculture Commercial & Public Services Residential Non-Specified Non-Energy Use TOTAL

India 103,462 34,243 7,364 5,316 220,740 2,155 9,984 383,264

Thailand 21,969 18,868 3,060 2,725 8,827 36 916 56,401

OECD 1,105,499 1,241,972 67,239

World 2,242,127 1,837,031

440,520

435,818 700,089 16,677

2,814,415

15,813 852,423

124,657 3,691,951

201,400 7,094,973

Ktoe= Thousand tons of oil equivalent Source: International Energy Agency. 2005. Key World Energy Statistics,

7. Levels of CO2 emissions vary significantly between selected DMCs as seen in Table A4.4. The per capita CO2 emissions in Asia are in the range of 0.8 to 3.0 tons CO2 as compared to OECD, which is 11.08 tons CO2. The carbon intensity with PPP ranged from 0.2 to 0.6, which is comparable with values in Asia, OECD, and World. Table A4.4: Comparison of CO2 Emissions (2003)
People's Indonesia Republic of China 318.08 1.48 1.90 3,760.00 2.90 2.43

Countries CO2 Emissions (Mt of CO2) CO2/Population (t CO2/capita) CO2/GDP (kg CO2/2000$)

India 1,049.72 0.99 1.93

Philippines 70.49 0.86 0.83

Thailand

Asia

World

OECD

188.39 2,342.00 24,983.00 12,794.00 3.04 1.33 1.16 1.38 3.99 0.75 0.51 11.08 0.48 0.45

CO2/GDP (PPP) (kg CO2/2000$ PPP) 0.36 0.47 0.60 0.21 0.42 0.37 CO2= carbon dioxide, Mt= million tons, PPP=purchasing power parity, t CO2 =tons of carbon dioxide
Source: International Energy Agency. 2005. Key World Energy Statistics,

B.

Energy Efficiency Policies and Measures

8. All EE policies and measures involve a cost for the taxpayer. As a general rule, EE policies and measures are economically sound if the macroeconomic benefits of increased EE due to these policies and measures outweigh the overall cost for the taxpayers. The policies and measures become more attractive and effective as the difference between the benefit and the cost increases. 9. The EE policies and measures of selected DMCs are summarized in Table A4.5. There are two main factors related to the institutional aspects of EE policies and their implementation: the presence of public EE agencies that sustain national efforts to improve EE; and the

44

Appendix 4

institutionalization of EE measures, through laws or a national program approved by the government. Table A4.5: Energy Efficiency Policies and Measures of Selected DMCs
EE Policies and Measures Institutions and Programs National institutions/ agencies involved in EE National EE Programs Regulations Energy Conservation Law Efficiency Standards and Labels for Household Electric Appliances Refrigerators Washing Machines Air Conditioners Thermal EE Standard for New Buildings Dwellings Buildings Mandatory Consumption Reporting Mandatory Energy Managers Mandatory Energy Saving Plan Mandatory Maintenance Fiscal and Economic Measures Tax Reduction Accelerated Depreciation Investment Subsidies Soft Loans EE Funds ESCOs Information and Voluntary Agreements Audits Dwelling Building Industrial India Indonesia PRC Philippines Thailand

L M M

M M

L, M L, M

V S I Yes

M M

M No No No

Yes

I I, S, H H

F, PS F, PS

F, PS F, PS

M, PS PS

EE=Energy Efficiency, ESCOs=Energy Service Companies, F=Free for the consumers, H=Household, I= Industry, L=Mandatory labels, M= Mandatory efficiency standards, P=Under preparation, PS=Partly Subsidized, S= Services, Source: World Energy Council, 2004.

10. An EE agency may be defined as a body with strong technical skills, dedicated to implementing national EE policies. EE agencies have the mission and capabilities to (i) design, implement and evaluate programs and measures; (ii) contract a range of stakeholders, such as companies, local authorities, or nongovernmental agencies (NGOs); and (iii) ensure coordination with higher or lower levels of authorities (international, national, regional and local). All selected DMCs have national institutions or agencies involved in EE and they are all implementing national EE programs. In some countries, such as India and Thailand, energy conservation laws were promulgated to ensure continuity of public efforts and better coordination of the various actions and measures taken. 11. Efficiency standards and labels for household electric appliances have been introduced to reduce energy consumption, particularly in the residential sector. In developing countries, the

45

Appendix 4

growth in domestic electricity consumption is expected to be high, given the rapid increase in ownership levels of domestic appliances, particularly in urban households. Despite the efforts that have been made, there are still significant EE differences between appliances sold in developing countries and in industrialized countries, which suggests a substantial technical potential for energy savings. Labeling programs are designed to modify the selection criteria of consumers by drawing their attention to the energy consumption of household appliances; labels provide information to compare the energy consumption of different appliances. The aim of performance standards is to improve the EE of new appliances either by imposing a minimum EE rating to remove the least efficient products from the market (Minimum Energy Performance Standards [MEPS]), or by requiring sales weighted average EE improvements. Experience has shown that labeling programs and performance standards are effective policy instruments, which enable authorities to benefit from low-cost energy savings, consumers to spend less on electricity, and manufacturers to improve their products and become more competitive against imported and less efficient local products. 12. Energy labels for household appliances such as refrigerators, washing machines and air conditioners are mandatory in some countries, including PRC, Philippines and Thailand. 13. Fiscal and economic measures such as tax reduction, accelerated depreciation, investment subsidies, or soft loans issued through EE funds or energy service companies (ESCOs) are also offered to industries, households, and the services sector in order to encourage the implementation of EE projects. 14. Information and voluntary agreements are also part of national programs to increase awareness of the benefits of EE. The most common activity is an energy audit, which is a detailed survey of energy use in an industrial firm, transport company, or building. It is conducted by an energy expert and provides technical and financial information to consumers about what actions can be taken to reduce their energy bills and at what costs. The auditor develops a suggested list of improvements that can be made, including reduction of consumption, shifts to other fuels, and selection of tariff (e.g., load management). Energy audits are usually totally or partially funded by public agencies or utilities, as is the case in Indonesia and the Philippines. Energy audits are mandatory in countries where energy conservation laws exist. C. Energy Efficiency Policy Targets

15. Most countries with official national EE programs have concrete targets in terms of energy or CO2 savings. These programs may be purely devoted to EE or combined with national programs for greenhouse gas (GHG) emissions reduction or promotion of RE. Some EE policy targets of selected DMCs are described in Table A4.6.

46

Appendix 4

Table A4.6: Energy Efficiency Policy Targets of Selected Developing Member Countries
Country
th

Energy Efficiency Policy Targets The 10 Five-Year Plan of India proposes benchmarking the hydrocarbon sector against the rest of the world. It also suggests demand side management specifically in the transport sector. The target for energy savings is 95,000 million units, which is 13% of the estimated demand. The enactment of the Energy Conservation Act of 2001 focuses on the enormous potential for reducing energy consumption by adopting EE measures in various sectors of the economy, including (i) Indian industry program for energy conservation; (ii) demand side management; (iii) standards and labeling program; (iv) energy efficiency (EE) in buildings and establishments; (v) energy conservation building codes; (vi) professional certification and accreditation; (vii) manuals and codes; (viii) EE policy research program; (ix) EE and conservation in school education; and (x) delivery mechanisms for EE services. Voluntary energy saving target of Rupees 4 billion per year by industry. The Government of Indonesia plans to have more than 75,000 megawatts (MW) of installed capacity by the year 2020 when the population is expected to reach 350 million people with a per capita electricity consumption of about 800 kilowatt-hours (KWh). The Indonesian energy plan for 2003 to 2020, stipulates a number of targets, including (i) (ii) increased business roles that lead towards a market mechanism to raise added values and deliver larger contributions to the national economy; achievement of a 90% electrification ratio by 2020 with increased investments to implement power plants, transmission and distribution grids, which are capital intensive activities; increased share of renewable energy (RE), excluding large hydropower, to at least 5% by 2020; development of energy infrastructures maximizing public access to energy and exploitation of energy for export; increased strategic partnerships between domestic and international energy industries in discovering domestic and foreign sources of energy; a 1% per year reduction in energy intensity; and increased utilization of local contents and increased roles of national human resources in the energy industry that would result in a reduced dependency on foreign sources of energy.

India

Indonesia

(iii) (iv) (v) (vi) (vii)

47

Appendix 4

Country

Energy Efficiency Policy Targets Energy consumption per RMB 10,000 GDP (constant price in 1990) is expected to drop from 2.68 tons of coal equivalent (tce) in 2002 to 2.25 tce by 2010, with an annual average energy conservation rate of 2.2%. The energy conservation capacity is expected to reach 9 400 million tce. Energy consumption per RMB 10,000 GDP is expected to drop to 1.54 tce in 2020, with an annual average energy conservation rate of 3%. The energy conservation capacity is expected to reach 1.4 billion tce, 111% of the total planned increased energy production of 1.26 billion tce during the same period, with a corresponding reduction of 21 million tons of sulfur dioxide. By 2020, Chinas products are expected to reach or approach advanced international levels. For example, coal consumption of power supply is expected to decrease from 377 gram coal equivalent/kilowatt hours (gce/kWh) in 2005 to 320 gce/kWh in 2020. The Philippine Energy Plan (PEP) 2005 Update calls for the development of the country's indigenous energy resources and promotion of clean technologies to sustain an efficient energy supply and demand chain that will lead to increased self-reliance and provide a much-needed boost to the country's economy. An energy self-sufficiency target of 60% was set for 2010, which includes (i) (ii) increasing indigenous oil and gas reserves by 20% through the renewal of exploration and production efforts in existing sedimentary basins; developing RE resources to maximize geothermal, hydropower, biomass, solar, wind and ocean energy sources by instituting favorable policies and incentive packages for industry participants; increasing the use of alternative fuels such as natural gas, coconut methyl ester (CME), ethanol, and autogas; forging strategic alliances with other countries to increase participation in energy endeavors that include technology and information exchange, trade and investment facilitation and agreements on various energy issues such as energy security, pricing and sector reforms; and promoting a strong EE and conservation program aimed towards annual savings and deferred construction of power generating facilities.

Peoples Republic of China

Philippines

(iii) (iv)

(v)

RE development is being emphasized. In 2004, the total installed RE generating capacity in the country amounted to 5,363 MW, using geothermal and hydropower sources. By 2014, a high scenario projects the cumulative RE-based capacity to almost double to 10,061 MW. Thailands goal is to reduce energy elasticity from the current 1.4:1 to 1:1 by the year 2007. The main target is to increase the share of RE from 0.5% of the commercial primary energy, or 265 thousand tons of oil equivalent (ktoe) in 2002 to 8% of the commercial primary energy, or 6,540 ktoe, by the year 2011. This shall be achieved through (i) enforcement of the Renewable Portfolio Standard (RPS) for new power plants that 4% of their generation capacity must be generated by RE such as solar, wind or biomass; (ii) incentives to encourage the purchase of RE power, such as tax credits, privileges, and subsidies from the Energy Conservation Promotion Fund; (iii) support of research and development into high potential RE; and (iv) Local community participation and partnership in RE-fueled power plants.

Thailand

Source: 2005. Papers Presented at Energy Efficiency Initiative Consultation Workshop, ADB, Manila. 22-23 November.

One ton of coal equivalent is equal to 0.7 ton of oil equivalent.

48

Appendix 4

D.

Specific Energy Consumption of Selected Developing Countries

16. A comparison of energy consumption in some high energy use industries in selected DMCs is given in Table A4.7. Table A4.7: Energy Consumption in Industry
People's Indonesia Republic of Philippines China 2,520 3,349 22,963 5,310 45,985 375 g/kWh 2.266 3.367 2.072 1.531 2,913 3,500 10,434 Asia excl. China

Countries Steel (MJ/ton) Cement (MJ/ton) Pulp and Paper (MJ/ton) Power (Coal) Carbon Intensity (tons/TWh)

India 39,740 8,368 46,569

Thailand 2,940 525 3,472 390-560 g/kWh 1.703

OECD

World

1.983

1.641

1.378

MJ=Megajoules, TWh=Terawatt-hour Source: 2005. Papers Presented at Energy Efficiency Initiative Consultation Workshop, ADB, Manila. 22-23 November.

49
DESCRIPTION OF COMMON ENERGY EFFICIENCY AND RENEWABLE ENERGY TECHNOLOGIES

Appendix 5

Table A5.1: Energy Efficiency Measures

Summary of Measure Air Conditioning Replace burnt compressor motors with more efficient motors Replace inefficient compressors Instructions Potential Savings % 0.1%0.5% Reliability/ Ease of Retrofit Foolproof Routine Foolproof Very challenging Failure proneb Difficult to retrofit Reliable Difficult to retrofit Cost/Pay Back Period 2.2 times rewinding costa <1 year to several years Cost premium of higher efficiency compressor varies widely <1 year to many years About $25,000 for 400-ton chiller About $35,000 for 600-ton chiller Several years or longer In new facilities, optimizing chiller size will not cost anything extra In retrofits, $300$1,000/ton of capacity from design, auxiliary equipment and installation In new facilities, pay back period will be short; for retrofits it would be several to many years Cost of local cooling units range from $50 to $150 per m2 of air conditioned space. In new construction, the local unit will reduce the capacity requirement of the central chiller plant, partly offsetting the cost <I year to several years Varies widely depending on length of interconnection, starting from tens of thousands of dollars; but if it provides an alternative to new chillers, could provide net savings Several years or longer

A.1

A.2

A.3

A.4

Install variable-speed compressor drives in centrifugal chillers (compressors) Install chillers and auxiliary of appropriate size to avoid inefficient low load operation

Enables replacement of refrigerant, better efficiency at part loads, change in type of compressor (reciprocating to screw, centrifugal, or scroll type) Centrifugal chillers are most efficient at full load, but efficiency suffers seriously at low loads

About 2%

About 3%

5%10%

A.5

Install local cooling units to enable shutting down of larger central chiller plants during low load periods If facility has several chillers, provide cross connections that allow shutting down of inefficient chillers

5%30%

Failure proneb Difficult to retrofit

A.6

5%20%

Failure proneb Difficult to retrofit

50
Potential Savings % Provides cost savings but no energy savings. The cost saving depends on the tariff policy of the utility Reliability/ Ease of Retrofit Unknown reliability, needs skilled maintenance Challenging and difficult to retrofit

Appendix 5

Summary of Measure A.7 Install cooling thermal storage

Instructions It is not strictly energy conservation as storage involves losses, but it allows shifting of electricity demand to offpeak periods, thus would lead to lower generation capacity for the utility Ice storage technology is fairly developed and leads to higher refrigeration efficiency because of the lower night time condensing temperatures Electric and steam heaters are virtually 100% efficient, but losses occur in bringing the electricity or steam to the heater Fuel-fired water heaters increase efficiency by minimizing the standby losses and recovering the latent heat from flue gas Direct-contact fuel-fired water heaters are most efficient The water heater is an energy storage device, and may be turned off when the facility demand is above a preset level Includes two aspects, (i) a group of several pumps in parallel to adopt to changes in water flow requirement, and (ii) different groups of pumps that match different pressure requirements

Cost/Pay Back Period The additional cost of an ice storage system for ice harvester system and ice slurry evaporators would be from $800 to $1,500 per ton of capacity (a larger size would have lower per ton cost) Several years

B.1

Service Water System Install water heaters that have lowest energy cost and highest efficiency

10%40% of water heating energy

Reliable Difficult

B.2

Control water heating to reduce demand charges Use multiple pressurizing pumps for service water

B.3

Depends on the demand change 40%80% of water pumping energy 40%80% of water pumping energy Saves only recirculation pump energy, which is small

Failure proneb Difficult to retrofit Foolproof Routine

Typical residential-size water heaters cost several hundred dollars. Cost premium of more efficient heaters ranges from 30% to 150% depending on features Direct-contact water heaters typically cost $15,000 for a unit of 1 million BTUH (or 293 kWh, or 251 million cal) to $75,000 for a 25 million BTUH (2,326 kWh or 6,300 million cal) Several years Several thousand dollars for demand controller Several years Several thousand dollars and up <1 year to several years

B.4

Install gravity tank or pressurized storage tanks Design hot water recirculation Recirculation is done using small pipes that draw water from each area of use and return it to the water heater

Foolproof Difficult to retrofit Fool proof Routine

$10,000 and up Several years or longer

B.5

Several hundred to several thousand dollars Several years

51
Potential Savings % 10%70% of air handling system operating cost 70% of unnecessary operation for such spaces Reliability/ Ease of Retrofit Reliable Routine

Appendix 5

Summary of Measure Air Handling Units Install time clocks and optimum-start controllers to adapt starting times to weather conditions In spaces with irregular use (meeting rooms, library) install personnel sensor to control air handling equipment Lamps and Fixtures Replace incandescent lamps with screw-in fluorescent lamps

Instructions

Cost/Pay Back Period

C.1

The air handling unit is the largest energy user in large buildings central air conditioning systems as it has to be restarted ahead of time after night or weekend shutdowns

Several hundred dollars Several months to several years

C.2

Reliable Routine

Sensors cost less than $100 each, connection to air handling system may cost several hundred to several thousand dollars

D.1

D.2

Replace incandescent lamps with tungsten halogen lamps Use photocontrols to control exterior lighting and interior lighting when sunlight is also available Use personnel sensor switching where the light is needed when people are present

Screw-in fluorescent lamps cannot be substituted in the following common conditions: too small fixture, high light output, dimming, frequent switching, and instant light Fluorescent lamps also cause problems related to power factor, noise, and harmonic distortion Halogen lamps are less efficient than fluorescent lamps, but their advantage is in color rendering, tighter focusing, and lower cost

50%70% of lighting energy

Reliable Difficult or routine, depending on application

Good screw-in fluorescent lamp assemblies cost $15 to $30 and replacement tubes cost $5 Screw-in fluorescent lamps last 10,000 hours, 10 times longer than incandescent lamps <1 year to several years Several hundred dollars or more 1 year

30%40%

Reliable Routine

D.3

10%70%

Reliable Routine

Typical photocontrol costs less than $10 <1 year

D.4

20%70%

Reliable Routine

Wall mounted infrared sensors cost $15 $50 each; ceiling mounted cost $100 $200 each <1 year to several years

52
Potential Savings % 2%15% for three phase motors; up to 30% for smaller one phase motors Reliability/ Ease of Retrofit Reliable Routine

Appendix 5

Summary of Measure Induction Motors Install motors with the highest economical efficiency

Instructions

Cost/Pay Back Period

E.1

E.2

Install variable speed drives

Features of a high-efficiency motor are: wire with lower resistance, improved design of rotor electrical circuit, higher permeability of magnetic circuits of stator and rotor, thinner steel laminations, improved shape of steel stator core, smaller gap between stator and rotor, improved design of cooling, and bearings with lower friction The cost of electricity used by a motor in a year is usually more than its cost, so energy saving is very beneficial Several options are available: dc, multispeed ac motors (change in windings/poles), two-speed, multiplemotor, variable frequency drive (VFD) that have three types- variable-voltage input (VVI), current source input (CSI), and pulse-width modulation (PWM)

Cost premium of an high-efficiency motor is 15%30% <1 year

Efficiency is greater than 90%, for PWM it is as high as 93% to 97%c

Price of VFDs range from $50$200 per kW, for small VFDs it ranges from $100 $400 per kW

a b

New motors cost twice as much as rewinding; high-efficiency motor is about 20% higher cost than average motor. Needs skilled maintenance, vulnerable to poor operating practices, fails invisibly. c A normal efficient induction motor will have over 90% efficiency only when size is larger than 20 horsepower, and above 93% when size is higher than 50 horsepower. Source: Wulfinghoff, Donald R. 1999. Energy Efficiency Manual. (USA: Energy Institute Press).

Table A5.2: Energy Saving Potential of Fluorescent Lamps

Incandescent Watts Lumens 25 230 40 460 60 890 60 890 75 1,200 75 1,200 Watts 9 11 15 17 20 23 Fluorescent Lumens 400 600 900 950 1,200 1,550 Type Bare lamp Bare lamp Bare lamp With diffuser Bare lamp Bare lamp Watt Reduction % 64 72 75 72 73 69

53

Appendix 5

Table A5.3: Status of Renewable Energy TechnologiesCharacteristics and Cost

Typical Energy Costs (US cents/kWh) 34 47

Technology Power Generation Large hydro Small hydro

Typical Characteristics

Cost Trends and Potential For Cost Reduction

Plant size: 1018,000 MW Plant size: 110 MW Turbine size: 13 MW Blade diameter: 60100 m Turbine size: 1.55 MW Blade diameter: 70125 m Plant size: 120 MW Plant size: 1100 MW Type: binary, single-flash, doubleflash, or natural steam Cell type and efficiency: singlecrystal: 17%, polycrystalline: 15%, thin film: 1012% Peak capacity: 25 kW Plant size: 1100 MW Type: tower, dish, trough Plant size: 120 MW Size: 25 m2 Type: evacuated tube/flat-plate Service: hot water, space heating Plant capacity: 1100 MW Type: binary, single- and doubleflash, natural steam, heat pumps

On-shore wind

46

Off-shore wind Biomass power Geothermal power

610 512 47

Solar photovoltaic (PV) (module)

Rooftop solar PV Solar thermal power (CSP) Power Generation Biomass heat Solar hot water/heating Geothermal heat

2040 1218 (trough) 16 225

Stable Stable Costs have declined by 12-18% with each doubling of global capacity. Costs are now half those of 1990. Turbine size has increased from 600-800 kW a decade ago. Future reductions from site optimization, improved blade/generator design, and electronics. Market still small. Future cost reductions due to market maturity and technology improvement. Stable Costs have declined since the 1970s. Costs for exploiting currently economic resources could decline with improved exploration technology, cheaper drilling techniques, and better heat extraction. Costs have declined by 20% for each doubling of installed capacity, or by about 5% per year. Costs rose in 2004 due to market factors. Future cost reductions due to materials, design, process, efficiency, and scale. Continuing declines due to lower solar PV module costs and improvements in inverters and balance-of-system components. Costs have fallen from about 44 cents/kWh for the first plants in the 1980s. Future reductions due to scale and technology. Stable Costs stable or moderately lower due to economies of scale, new materials, larger collectors, and quality improvements. See geothermal power, above

0.55

54

Appendix 5

Technology Biofuels

Typical Characteristics

Typical Energy Costs (US cents/kWh)

Cost Trends and Potential For Cost Reduction

Ethanol

Feedstocks: sugar cane, sugar beets, corn, or wheat (and cellulose in the future)

2530 cents/liter gasoline equivalent

Biodiesel

Feedstocks: soy, rapeseed, mustard seed, or waste vegetable oils

4080 cents/liter diesel equivalent 510 720 2040

Declining costs in Brazil due to production efficiencies, now 2530 cents/equivalent-liter (sugar), but stable in the United States at 4050 cents (corn). Other feedstocks higher, up to 90 cents. Cost reductions for ethanol from cellulose are projected, from 53 cents today to 27 cents post-2010; modest drops for other feedstocks. Costs could decline to 3570 cents/liter diesel equivalent post2010 for rapeseed and soy, and remain about 25 cents (currently) for biodiesel from waste oil. Stable Stable to moderately declining with efficiency improvements Stable to moderately declining with efficiency improvements Stable to moderately declining with economies of construction and service infrastructure Excellent potential for cost reduction with further technology development Moderately declining with technology advances Moderately declining with technology advances Declining with reductions in solar and wind component costs Declining with reductions in solar components costs

Rural (off-grid) Energy Mini-hydro Plant capacity: 1001,000 kW Micro-hydro Plant capacity: 1100 kW Pico-hydro Plant capacity: 0.11 kW Biogas digester Biomass gasifier Small wind turbine Household wind turbine Village-scale minigrid Solar home system Digester size: 68 m3 Size: 205,000 kW Turbine size: 3100 kW Turbine size: 0.11 kW System size: 101,000 kW Options: battery back-up or diesel System size: 20100 W

812 1530 2040 25100 4060

KWh=Kilowatt-hour, m=meter, MW=megawatt, PV=Photovoltaic Note: All costs are economic costs, exclusive of subsidies and other policy incentives. Typical energy costs are under best conditions, including system design, siting, and resource availability. Some conditions can yield even lower costs, e.g., down to 2 cents/kWh for geothermal and large hydro and 3 cents/kWh for biomass power. Less-optimal conditions can yield costs substantially higher than the typical costs shown. Typical solar PV grid-connected costs are for 2,500 kWh/m2 per year, typical for most developing countries. Costs increase to 3050 cents/kWh for 1,500 kWh/m2 sites (i.e., Southern Europe) and to 5080 cents for 2 1,000 kWh/m sites (i.e., UK). Source: Renewable Energy Policy Network for the 21st Century (REN21). 2005. Renewables 2005 Global Status Report. Washington DC: Worldwatch Institute.

55
ENERGY EFFICIENCY MARKET SIZE ESTIMATES FOR SELECTED COUNTRIES AND SECTORS 1. The energy efficiency (EE) market presents several distinct challenges for investment. This Appendix describes the potential EE markets in selected developing member countries (DMCs) of the Asian Development Bank (ADB), namely, India, Indonesia, Peoples Republic of China (PRC), Philippines and Thailand. It presents some estimates on the potential energy savings and equivalent investments required, broken down into market segments. The EE market segments are categorized according to (i) supply side efficiency, (ii) end-use efficiency, (iii) renewable energy (RE), and (iv) others including transport, methane capture and re-use and manufacture of energy efficient equipment. Key EE areas will be identified. 2. Most of the information contained in this Appendix comes from the Country Reports prepared by the EE experts10 for the Energy Efficiency Initiative (EEI) Project of ADB and presented during the EEI Consultative Workshop held on 2223 November 2005 at ADB Headquarters in Manila. A. Supply Side Efficiency

3. In most developing countries in Asia, energy is supplied through inefficient energy conversion methods such as conventional coal-fired steam turbine power plants, which have a thermal efficiency ranging from 30 to 33%. In India, the widespread need for electric power generation has created a corresponding requirement for a cheap and readily available commercial fuel for generating electricity at a low cost. Due to its vast reserves, coal was the first commercial fuel used in early thermal power stations and it still contributes 60% of the total installed capacity. Likewise, in the PRC, the total capacity of thermal power is 325 gigawatts (GW), with an average conversion efficiency of around 33%. In 2004, the PRCs total installed capacity reached 440.7 GW, with electricity generation of 2,185 terawatt-hours (TWh), which was a 14.8% increase from the total amount generated in 2003. The power generation mix in the PRC is still dominated by thermal generation, which provides 1,807 TWh, or 82.7%, of total electricity generation. Hydro-electric and nuclear generation lag behind, contributing only 328 TWh or 15%, and 50 TWh or 0.3%, respectively, to total generation. The average amount of coal used in thermal power plants in 2004 was 375 gram coal equivalent/kilowatt hours (gce/kWh). 4. Energy savings can be achieved by upgrading energy conversion technologies in power plants. The thermal efficiency of coal power plants in India could be improved substantially from 30.5% to about 42%, if the best available technology were to be used. This alone could reduce coal requirements by 114 metric tons of oil equivalent (Mtoe) of coal to 274 metric tons of coal. As such, a very high priority should be given to developing or upgrading coal-based plants with higher efficiency. 5. In the PRC, the efficiency of small thermal units with a capacity under 50 megawatts (MW) and an aggregated capacity of 20 GW is only about 25%. In order to affect energy savings, the government plans to close 5 GW of the small units, leaving about 15 GW in
10

Mr. V. Raghuraman, Senior Adviser (Energy), Confederation of Indian Industry, New Delhi, India; Mr. Totok Sulistiyanto, Energy Consultant, PT Narama Mandiri, Jakarta, Indonesia; Mr. Zhaoguang Hu, Chief Economist, State Power Economic Research Center, Beijing, PRC; Ms. Alice B. Herrera, President, Energy Management Association of the Philippines, Manila, Philippines; and Mr. Weerawat Chantanakome, Executive Director, ASEAN Center for Energy, Jakarta, Indonesia.

56

Appendix 6

operation. If the remaining small thermal power plants adopted cogeneration technology, their efficiency would increase to 6070%. Hence, great investment opportunities exist. 6. Improvements in the power grids, particularly in the distribution grids, in the PRC also present great opportunities. The line losses for the grids are around 7.55%. The market is great and the risk is very low. 7. In the Philippines, several programs are being undertaken to promote EE in the power sector. While reductions in greenhouse gases (GHGs) can be achieved through the increased use of RE in the power generation mix, several EE programs can also be tapped, including heat rate improvements, reduction in system losses, and the adoption of demand side management for utilities. The cumulative potential savings in the power sector could reach up to 9.38 million barrels of fuel oil equivalent (MMBFOE)11 in 2014 when these energy savings programs have been implemented. 8. A summary of the supply-side EE improvements that can be implemented is provided in Table A6.1. Table A6.1: Supply-Side EE Improvements
India Peoples Republic of China Philippines

Improvement of thermal efficiency of coal-fired power plants from 30.5% to 40%.

Improvement of thermal efficiency of coal-fired power plants. In 2004, the average coal used in thermal power plants was 375gce/kWh. Adoption of cogeneration technology in small thermal plants, which will increase efficiency to 6070%. Improvements in the power grids, particularly in the distribution grids.

Heat rate improvements, reduction in system losses and the adoption of demand side management for utilities. The cumulative potential savings could reach 9.38 MMBFOE in 2014.

Source: 2005. Papers Presented at Energy Efficiency Initiative Consultation Workshop, ADB, Manila. 22-23 November.

B.

End Use Efficiency

9. Energy use-side efficiency improvements are commonly implemented in all sectors: industrial, commercial, governmental, agricultural, residential, and transport. In the selected DMCs, significant potential energy savings exist in the industrial and commercial sectors. 1. Industrial Sector

10. Attention has been focused on EE improvements for the industrial sector because the sector is responsible for a large percentage of the total gross domestic product (GDP) in
11

One barrel of fuel oil equivalent (BFOE) is equal to 0.1444 ton of oil equivalent (TOE).

57

Appendix 6

developing countries. In Indonesia, the industrial sector contributes about 33.2% of the total GDP, while in the Philippines, it contributes about 31.86%. In the industrial structure of the PRC, the tertiary industries with low energy intensity, such as banking and insurance, wholesale and retail trade and catering services, and social services, contribute only 33% of the PRCs GDP. The secondary industries of mining and quarrying, manufacturing, and construction contribute 43% of GDP. The energy-intensive heavy industry occupies a large proportion of the secondary industry and this sector is characterized by extensive expansion with high consumption, mass waste, and heavy pollution. 11. The industrial sector is one of the biggest consumers of energy and is, therefore, a logical candidate for EE improvements. There is a technical and economic potential to save 20 40% of energy use, with cost-effective investments, in a broad range of applications. Table A6.2 briefly describes the energy saving potentials in the selected DMCs. Table A6.2: Energy Saving Potentials in the Industrial Sector
Countries India Energy Saving Potentials in the Industrial Sector It has been estimated that the total energy savings in the industrial sector will reach 49,056 GWh (7,000 MW) broken down into generic EE projects (23,827 GWh or 3,400 MW) and process-specific EE projects (25,229 GWh or 3,600 MW). Generic end-uses refer to applications that are similar across a wide range of facilities such as pumps and fans, boilers including alternative fuel usage, turbines, lighting, heat recovery, automation, load optimization, and compressors. Process-related end-uses refer to specific processes or technologies in facilities that are proprietary in nature and required to produce specific outputs. Potential energy savings in industry can be conservatively estimated at 20%. Energy savings can be achieved by changing the industrial structure through adjusting the secondary and tertiary industries as well as heavy and light industries. The energy savings potential from adjusting the industrial structure will be 0.0313 kWh/RMB in the next 5 to 10 years. The GDP will be at least 19,217.2 billion RMB in 2010. If 20% of the potential is considered, about 0.00626 kWh/ RMB can be saved. Hence, electricity saving could be 60 TWh in 2010. The cumulative saving is estimated to be 265 TWh in the next five years.

Indonesia

Adopting technical improvements of equipment and processes in the PRC would result in a significant energy savings potential of 30% to 40% of the total electricity consumption. In 2004, total electricity consumption was 2,176 TWh with 74% consumed in industry, 12% in residential, 11% in commercial and 3% in agriculture. The majority of industrial equipment, such as motors, pumps, fans, etc., have low efficiency. Hence, there is a significant gap of specific electricity consumption as compared with international advanced electricity used in the products. The potential energy savings from industry alone is between 483 and 644 TWh per year. An economic potential of less than 15% can be assumed, which makes the potential energy savings from industry approximately 70 TWh. It is estimated that cumulative energy savings as a result of technical improvements will be approximately 360 TWh in 2010. Potential energy savings from the industrial sector will reach 41.9 MMBFOE, which could be Philippines realized through the implementation of (i) energy audit/recognition programs, (ii) performance certification of fans and blowers, and (iii) labeling of electric motors. The results of a scenario analysis indicate that Thailands industrial sector has an achievable Thailand potential for energy savings of about 1,893.9 GWh/year considering a conservative scenario, and an energy savings of about 5,502.70 GWh/year for an optimistic scenario. EE=Energy Efficiency, GDP=Gross Domestic Product, GWh=gigawatt hours, MMBFOE=million barrels of oil equivalent, MW=megawatt, TWh=terawatt hours Source: 2005. Papers Presented at Energy Efficiency Initiative Consultation Workshop, ADB, Manila. 22-23 November.

Peoples Republic of China

58

Appendix 6

12. The industrial sector consists of numerous industrial establishments ranging from small to large industries. More often, the large energy-intensive industries are targeted for EE improvements. Table A6.3 identifies the energy-intensive industries that have a significant potential for energy savings in selected DMCs. Table A6.3 Energy Intensive Industries with Potential Energy Savings
India Indonesia PRC Philippines Thailand

Cement Iron and Steel Pulp and Paper Petrochemicals Chemicals Fertilizer Textiles Food Processing Mining
Source: 2005. Papers Presented at Energy Efficiency Initiative Consultation Workshop, ADB, Manila. 22-23 November

2.

Commercial Sector

13. The commercial sector includes a diverse range of buildings and complexes. The market segment includes both relatively large individual facilities and groupings of facilities with similar energy usage patterns that are significant enough to attract investment in EE projects. In India, the commercial sector is comprised of a considerable number of hospitals and office buildings owned by the government. In Indonesia, it includes hotels, shopping facilities, office buildings, hospitals, and government buildings, which consume approximately 20% of all electricity sold. Table A6.4 shows the potential energy savings, investments required, and EE improvements that can be implemented.

59

Appendix 6

Table A6.4: Energy Savings Potential and Energy Efficiency Improvements in the Commercial Sector
Countries India Energy Savings Potential 4,439 GWh, or equivalent to 1,935 MW. The municipal sector accounts for 84% of this potential. Indonesia This sector is growing rapidly in Jakarta and in other parts of the country. PRC Up to 50 million tce and about 29 TWh of electricity. Philippines Up to 3.20 MMBFOE by 2014. 127 GWh/year (conservative scenario) or 522 GWh/year (optimistic scenario). EE improvements are needed in airconditioning and lighting systems, which account for 70-85% of total electricity consumption. Implementation of projects for Building Energy Conservation, Green Lighting, and Government Agency Energy Conservation. Fuel and electricity conservation in government buildings, replacement of chillers, and lighting retrofits. Improvements in air conditioning and lighting systems through replacing chillers and ballast, lighting retrofits, and using voltage regulators. Energy Efficiency Improvements

Thailand

EE=Energy Efficiency, GWh=gigawatt hours, MMBFOE=million barrels of oil equivalent, MW=megawatt, tce=tons of coal equivalent, TWh=terawatt hours Source: 2005. Papers Presented at Energy Efficiency Initiative Consultation Workshop, ADB, Manila. 22-23 November

C.

Renewable Energy

14. Renewable energy (RE) has been the obvious and visible target for reducing carbon intensity. In Indonesia, the progress and success of RE sources has been mixed. The barriers include a lack of (i) technology, (ii) accessibility to RE resources, and (iii) funds. Indonesia requires either support from international financial institutions or bilateral technical cooperation. For economic reasons, small hydropower, biomass, geothermal, solar, and wind energy have larger potentials for investment. Energy from the ocean, such as wave energy, ocean thermal energy conversion (OTEC), and tapered channel have not been utilized. 15. In the Philippines, the government is emphasizing the development of RE. As of 2004, the total installed RE generating capacity was 5,363 MW, contributed by geothermal and hydropower only. A high scenario projects a cumulative RE-based capacity of 10,100 MW by 2014, which nearly doubles the existing capacity and means an additional capacity of 4,700 MW needs to be commissioned in 10 years. D. 16. Estimated EE Investments The estimated EE investments required by selected DMCs are indicated in Table A6.5.

60

Appendix 6

Table A6.5: EE Investments Requirements in Selected Developing Countries.

Country India EE Investment Requirements

$3.16 billion (includes only industrial and commercial sectors) $6.5 billion (change in industrial structure) Peoples Republic of China $21 billion (peak load shifting) $2.81 billion Philippines (EE and conservation programs) $698 million (conservative estimate for industrial Thailand and commercial sector) $1,525 million (optimistic scenario Source: 2005. Papers Presented at Energy Efficiency Initiative Consultation Workshop, ADB, Manila. 22-23 November

E.

Gross Calculation of Energy Efficiency Market Size in Asia and Main Assumptions

17. In addition to the country-level analyses provided by the EE experts, ADBs EEI Task Force prepared a top-down gross estimate of the EE market size for Asia-Pacific based on certain assumptions, believed to be reasonably conservative, about the technical and economic potential. This Appendix describes the calculation and underlying assumptions. 18. The total regional expenditure for energy was calculated using readily available International Energy Agency (IEA) data. The regional total primary energy supply (TPES) was 2,655 million tons of oil equivalent (Mtoe) in 2003. The cost of this energy equals approximately $313 billion, based on an average cost of the various forms of energy in the regions energy supply mix. This total annual energy cost represents approximately 9.6% of the regions GDP. 19. The EE investment market size was broken down into (i) EE, or economic investments that would save energy while supporting the continued delivery of necessary levels of energy services, and (ii) RE, which substitutes energy from renewable sources for energy currently provided by fossil fuel sources. 20. To calculate the EE market, (Table A6.6), it was assumed that 15% of current energy use could be reduced (again, while maintaining the current level of delivered energy services) with economic EE investments that would have, on average, a simple payback period (SPP, or ratio of capital costs to annual energy cost savings) of 3 years. This SPP value is commonly used by commercial energy users as a threshold for determining what level of EE investments to make. Additionally, savings of 15% to 30% of energy use in a range of applications, such as motors, pumping, space heating, etc., are commonly available. Higher levels of savings in energy use can be achieved technically, but not always economically. Using these assumptions, the total investment required to achieve this level of efficiency gains would be $140 billion. Assuming these investments were made over a 10-year investment program, the annual investment required would be $14 billion. This estimate is very static, and does not account for the growing level of energy demand, or inflation in investment and other prices over time; rather, it is intended to provide a reasonable order of the magnitude of the investment market size.

61

Appendix 6

21. To size the RE market, it was assumed that renewables can provide economic substitutes for 4% of existing energy sources with investments that have an average SPP (in this case, the value of the RE net of all plant operating costs in ratio to total capital costs) of 8 years. The 8-year SPP value was chosen to reflect the facts that RE sources are capital intensive and have a long useful life, of over 20 years typically, thereby justifying investments with longer payback periods. Of course, specific RE projects will have varying economics, but this simplified approach was used to estimate the market investment size (only the order of magnitude). The 4% value is also conservatively low, and is on the low end of the range of targets being set in several countries for RE as a share of primary energy sources. With these assumptions, the total investment required is $100 billion or $10 billion annually over 10 years. In sum, the total EE market (EE and RE) would be $240 billion. This calculation is conservative in that it does not account for future growth in energy needs. Table A6.6: Gross Calculation of EE Market Size in Asia Item Asian + China TPES One toe equals Asian + China TPES, annual Asian + China TPES, daily Value 2,655 6.84 18,163,862,069 49,764,006 Notes Mtoe, 2003 bbls, IEA conversion value bbls of oil equivalent bbls of oil equivalent

1 2 3 4

5 Value of one barrel equivalent 6 Total cost, Asia TPES 7 GDP Asia region 8 Energy costs as % GDP

assumed average, based on $17.25 mix $313,326,620,690 very gross estimate $3,247 billion US$ 9.65% typical estimate, probably low years, again typical = #6 x #9 = #10 x #9 years, assumed = #12 / #13 assumed economic potential for RE substitution years, assumed = #15 x #6 = #16 x #17 years = #18 / #19 = #14 + #20

9 10 11 12 13 14

Savings potential With average simple pay back of Value of savings Investment required Term of investment program Annual investment, EE

15% 3 $46,998,993,103 $140,996,979,310 10 $14,099,697,931

15 16 17 18 19 20 21

Renewable substitutes, % TPES With average simple pay back of Value of new renewable energy Investment required Term of investment program Annual investment in renewable Total investment per year

4.00% 8 $12,533,064,828 $100,264,518,621 10 $10,026,451,862 $24,126,149,793

Bbls=Barrels, EE=Energy efficiency, IEA=International Energy Agency, Mtoe=Million tons of oil equivalent, RE=Renewable energy, toe=tons of oil equivalent, TPES=Total primary energy supply, Source: 2005. Papers Presented at Energy Efficiency Initiative Consultation Workshop, ADB, Manila. 22-23 November

62
ASIA-PACIFIC FUND FOR ENERGY EFFICIENCY CONCEPT A. Background

Appendix 7

1. The Asian Development Bank (ADB) is considering the establishment of an Asia-Pacific Fund for Energy Efficiency (APFEE). Its objective will be to reduce energy intensity in the developing countries in Asia-Pacific. This region has rapidly become the largest fossil fuel user; therefore, the reduction in energy intensity is essential to reduce global emissions of greenhouse gases (GHGs), ease growth in energy demand and the upward pressure on energy prices, and improve energy security.12 2. Several factors contribute to inefficient use of energy, including the fact that the existing capital stocks use old technologies; end users and credit institutions lack awareness about efficient processes; the high discount rate used during periods of rapid economic growth tends to ignore the cost savings beyond the first few years; the high transactional cost for transferring efficient technologies; and ineffective or counterproductive government policies and incentives. B. Rationale for the Asia-Pacific Fund for Energy Efficiency

3. Considerable donor support, largely in the form of technical assistance (TA), has been extended to ADBs developing member countries (DMCs) for promoting renewable energy (RE) and energy efficiency (EE). While special funds are also currently available to assist with project implementation, there are an insufficient number of such projects under development. The outcome will be positive only when the rate of efficiency improvement significantly exceeds the rate of growth of energy use. Since Asia-Pacific economies are rapidly increasing their energy use, a major paradigm shift is necessary to accelerate the implementation of EE projects. EE has to be viewed as more from less, making it a preferred economic and environmental practice, irrespective of energy prices or energy security issues; its benefits are global and as such, it needs to be supported by all countries. 4. Thus far, EE has had limited penetration in developing economies. This can only be corrected through committing at the highest level to implement EE projects, easing technology transfer, and minimizing transactional costs. Credit support for EE projects has to be on the basis of savings as opposed to assets and revenues, which is different from the conventional basis for financial due diligence. 5. EE projects are often small and distributed across a large number of end users. ADBs existing processes and products would involve a high transactional cost for such applications. To overcome the limitations and accelerate implementation of EE projects, ADB proposes to establish APFEE, which will support projects that result in carbon-based energy savings, in other words, projects with higher energy savings than country targets. C. Composition and Scope of the Asia-Pacific Fund for Energy Efficiency

6. ADB proposes to contribute $25 million for the establishment of the $500 million APFEE, which will be disbursed in a 3-year period from 2008 to 2010. ADB will invite contributions from the non-borrowing members of ADB, with a minimum contribution of $25 million from a donor. The challenge will be to design a suitable management system, with an extremely low
12

Improving energy efficiency (EE) is crucial because carbon is the primary source of most forms of commercial energy; therefore, the focus of attention will be on all aspects of energy production, supply and end-use.

63

Appendix 7

transaction cost for loan approval balanced by a strong and effective mechanism for the monitoring and evaluation of results during project implementation and operation (the actual period of energy saving). 7. APFEE will have the following three main functions: (i) Mitigating risk. APFEE will underwrite risks of EE projects to improve access to capital. ADBs guarantee will allow EE project developers to borrow from local banks. Better appreciation of EE issues and sound monitoring and evaluation mechanisms will allow ADB to take on this type of risk guarantee. Such guarantee will be in conjunction with other types of ADB support for the project. The collateral for such guarantee will be the energy savings, which may or may not require a sovereign counter-guarantee. The allocation for such operations is expected to be about 50% of APFEE, signifying the importance of the catalytic role of ADB. Increasing access to technology. For innovative and demonstrative EE technologies, APFEE will provide concessional loans to lower capital cost and make such projects financially viable. Options include subordinated loans and zero- or low-interest loans (reflecting pay-back period) for EE projects, EE equipment production, and start-up energy service companies (ESCOs).13 The allocation for such operations is expected to be about 35%. Building capacity. APFEE will provide grant assistance for non-lending measures, such as developing the knowledge base and incentive mechanisms, advocacy, institutional capacity building, project preparation, and establishment of the monitoring and evaluation mechanism. The allocation for such operations is expected to be about 15%.

(ii)

(iii)

8. APFEE donors will benefit through the control of energy intensive growth in developing Asia-Pacific, which has direct impacts on world energy markets. Donors will also be able to target additional assistance towards mitigation of climate change. Further, donors will have the right of first refusal to credits from carbon emission reductions (CERs) generated from the EE projects supported by APFEE; the CERs will be available at market determined prices. 9. ADB will give special attention to identifying and developing projects that qualify for APFEE. A two-pronged approach is proposed, one for small-sized, widely distributed EE projects, which are expected to be numerous; and a different approach for a small number of high-impact large interventions that will help establish EE technologies for the next decade, i.e., 20102019. ADB will target 10% penetration of EE technologies in a given market, after which the intervention is likely to propagate in a self-sustaining manner.

13

There are arguments opposing concessional lending to commercial enterprises, particularly in industry. It has become essential to review the present approach and allow concessional lending for EE because the market has not given the desired result and technology transfer cannot be speeded up with business-as-usual. To limit the distortion of concessional funding, however, there will be a sun set policy that will allow lending for 3 years only, or until the affordability issue is overcome, whichever is earlier.

64
ENERGY EFFICIENCY INVESTMENT CONCEPTS AND EXAMPLES

Appendix 8

1. The following are examples of potential energy efficiency (EE) investments identified by the Asian Development Bank (ADB), which illustrate the type of projects that can be developed and replicated pursuant to the Energy Efficiency Initiative (EEI). These have the potential to meet the investment design and selection criteria outlined in Section IV. These examples are indicative and have not been fully researched. They would be further explored in Phase II. They also correspond to developing member country (DMC) priorities and opportunities identified through EEI research and consultations to date. Several concepts are presented: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) The Peoples Republic of China (PRC), Provincial Energy Efficiency Power Plant (EEPP) Investment Program. The PRC, Electric Utility Power Plant Rehabilitation and Modernization Investment Program. The PRC, Industrial State-Owned Enterprise (SOE) EE Project Lending Program. India, Commercial Bank Partial Credit Guarantee (PCG) for Industrial EE Project Loans. Regional Renewable Energy and Greenhouse Gas (GHG) Abatement Equity Investment Fund. India, State Sustainable Energy Development Funds. The PRC, Energy Service Company (ESCO) Project Finance Fund. Sub-Sovereign Pooled Bond Fund programs for EE in Municipal Infrastructure. Bagasse Cogeneration, Regional Initiative.

2. These examples include both public sector and private sector investments. Replication potential and related technical assistance needs are briefly identified. A. The Peoples Republic of China, Provincial Energy Efficiency Power Plant Investment Program 3. In the PRC, a provincial electricity board is developing a pilot 300 megawatt (MW) demand side management (DSM) program that has been named an energy efficiency power plant (EEPP). It consists of a portfolio of EE measures implemented on the customer side of the meter, primarily with industry, which, in aggregate, will have key characteristics of capacity, energy, and impact on system load shape comparable to a 300 MW conventional power plant. The total investment program is estimated at $142 million. The EEPP is estimated to cost less than one-half of an equivalent new power station and can be implemented faster, in about two years. Efficiency measures will be chosen that have a high coincidence with peak demand and a capacity factor similar to a new power plant. In the industrialized provinces, 70% of all power is consumed in industry, and over 60% of industrial power use is in motor systems. As such, efficient motors, with proper controls and variable speed drives that efficiently match the motor drive power with the precise momentary demands of the given application will make up a large component of the program. Lighting, cooling, and appliances in commercial and residential applications will also be developed. 4. This project concept is presently being further developed by ADB advisory technical assistance (TA). It could result in an ADB public sector investment in a provincial electric utility; a sub-sovereign loan structure could also be considered, subject to credit approval; or the first program could be financed by ADB with a sovereign guarantee, and, later, subsequent similar loans could be made on a sub-sovereign basis.

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5. The provincial utility will benefit in the form of avoided/lower new generation, transmission, and distribution investments. End-users will benefit through cost savings. A recent pre-feasibility study14 looked at the potential for a sustained effort, beyond the pilot, and estimated that a coastal province could achieve 42,373 gigawatt hours (GWh) and 15,335 MW in cumulative annual electricity savings by implementing a 10-year portfolio of eight demandside initiatives investing in EE improvements throughout the provinces industrial, commercial/institutional, and residential markets. Total electric energy savings represent the generation output (in GWh) equivalent to 24 new coal-fired plants.15 These efficiency resources would contribute 11% toward the provincial projected growth in electricity energy requirements and 24% to peak demand growth. The weighted average life-cycle cost of saved electricity from the initiatives to the provincial utility is RMB 0.12/kilowatt hours (KWh).. This compares to the cost of new power supply in the range of RMB 0.35/KWh to RMB 0.45/KWh. In addition to the costs incurred by the utility, the recommended programs include some payments by consumers. Adding these costs to the utilitys costs raises the life-cycle cost of saved electricity from the initiatives slightly. The full cost to the provincial economy has a weighted average of RMB 0.13 /KWh), according to the estimates. More work on the regulatory framework, delivery mechanisms, financing plan and other matters needs to be performed to implement the pilot. 6. This type of investment program is well-suited for ADB public sector investment and has replication potential throughout the PRC, if not the region. ADB has a number of existing relationships with electric distribution utilities that could be project sponsors. Utilities can be effective marketing agents and facilitators in helping their customers identify, develop and finance EE end-use investments. Successful models exist in several countries, some in AsiaPacific. Many utilities in the region face shortages of capacity. EE investments can offer least cost options to meet growing demand. In some cases, when procuring new power supply projects, utilities have conducted integrated resource procurements where demand-side resources are procured in conjunction with supply-side resources. This can be an innovative method to implement DSM programs with new power supply procurements. Electric utility DSM programs are being implemented by electric utilities in Viet Nam and Indonesia. The PRC, also, is considering implementing system benefit charges on a pilot basis, which would create a stable source of revenue for distribution utilities to pursue DSM programs.16 7. The International Finance Corporation (IFC) is presently developing a similar program with gas distribution utilities in the PRC, which will provide project development, implementation and financing programs to energy users to implement EE and gas-using projects. The gas utility will benefit from increased gas loads and sales. In the IFC case, the EE projects will be financed by local banks supported by a partial credit guarantee from IFC. In the EEPP case, the provincial utility would finance the EE investments. Hybrid programs are possible, combining public sector investment with the utility and private sector investment, which supports costsharing by the end-user participants.

14

15 16

Optimal Energy Inc. and State Grid Corporation DSM Instruction Center. 2005. DSM Strategic Plan for Jiangsu Province: Economic, Electric and Environmental Returns from an End-use Efficiency Investment Portfolio in the Jiangsu Power Sector. 11 February. A coal plant with capacity at 300 MW and a 70% capacity factor is equivalent to 52 coal-fired plants. Zhaoguang, Hu. 2005. Opportunities for Energy Efficiency in China. Paper presented at ADB EEi Consultative Workshop, ADB, Manila, 22 November.

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B. The Peoples Republic of China, Electric Utility Power Plant Rehabilitation and Modernization Investment Program 8. The PRCs State Power Economic Research Center has identified 20 GW of small (less than 50 MW) old coal power stations and estimates that 5 GW should be decommissioned. It would be economic to rehabilitate and upgrade the remaining 10 to 15 GW to include cogeneration. These projects have the potential for large efficiency gains and are a government priority. 9. This rehabilitation project could be a public sector investment and has large potential for replication around the region, not only for thermal plants, but also for small hydropower plants. For example, an ADB public sector investment currently under preparation (IND 31324) to Indias Power Finance Corporation includes funding for the renovation and modernization of several small hydropower plants as well as the rehabilitation of existing transmission and distribution systems, which, among other goals, will reduce system losses. C. The Peoples Republic of China, Industrial State-Owned Enterprise Energy Efficiency Project Lending Program 10. The PRCs Medium and Long Term Energy Conservation Plan (January 2005), issued by the National Development and Reform Commission (NDRC) identifies EE investment in energy-intensive state-owned enterprises (SOEs), such as iron and steel, cement, petrochemicals, aluminum, pulp and paper, as a national priority. Compared with the industrial country averages, energy use per unit of production in the PRC is 21% higher in steel, 45% higher in cement, and 31% higher in ethylene. Priority investments identified by the NDRC include (i) waste heat recovery power generation in the cement industry, (ii) power generation from blast furnace gas in the steel industry, (iii) bio-mass cogeneration in the pulp and paper industries, and (iv) motor/drive system efficiency investments in all the above. Typical individual project sizes will be $10 million to $20 million. Many EE measures have common applications within particular industries. Industry-wide applications could be designed to promote common technical solutions, and thereby reduce transaction costs. NDRC agencies responsible for EE have begun developing a pipeline of projects. 11. An ADB public sector investment program could be designed to address these investment needs. The loans could be coupled with technical assistance programs to help develop projects and, also, potentially, some government capital subsidies. There is a potential application for a multitranche financing facility, as the investment program would consist of a series of subprojects, each taking considerable time to develop, and/or sub-sovereign loans direct to the SOEs themselves, subject to credit approval. Alternatively, loan funds could be lent to commercial banks or China Development Bank for on-lending to the SOEs. The commercial banks would then bear the credit exposure. This approach would also encourage greater commercial bank EE lending experiences. ADB must analyze whether this method can offer a competitive cost of funds to borrowers. Longer loan tenors facilitated by ADB funding could provide an important developmental benefit to both banks and borrowers. Similar investment opportunities exist with SOEs across the region. D. India, Commercial Bank Partial Credit Guarantee for Energy Efficiency Project Loans 12. Partial credit guarantees (PCGs) can be offered to local commercial banks to support their lending in target EE sectors. The PCGs would mobilize liquidity in local financial institutions

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Appendix 8

(FIs) by sharing in the credit risk of EE sub-loans the banks would make with its own resources. This structure would build off the recent experience of ADBs Private Sector Operations Department (PSOD) with a similar small- and medium- enterprise (SME) PCG program in Pakistan (the first guarantee facility agreement with Standard Chartered Bank is due to close early 2006). The PCG helps overcome credit risk barriers and expand access to lending to SMEs, industries, and energy service companies (ESCOs). In India, for example, a large potential for industrial EE has been identified (Appendix 6). ADBs South Asia Department (SARD) and PSOD have prepared a study of Indias EE market and recommended industrial EE measures.17 This study was undertaken in collaboration with Indias Bureau of Energy Efficiency (BEE), which develops, integrates and promotes EE policy in India. 13. This would be a private sector investment. Credit risk barriers are a common problem and the PCG instruments could have broad application. For example, Thailand has also expressed strong interest in a PCG program.18 Thailand has an existing Energy Conservation Fund (ECF), with balances of $500 million accrued from oil levies; some ECF funds are being onlent to commercial banks at below market rates for lending to EE projects. A PCG, coupled with bank training on EE finance, and possibly also other TA to help develop EE projects, could expand this program. 14. A PCG program can also be coupled with ESCO development programs. For example, improving government buildings in India is one priority of the BEE Action Plan. In industrialized countries, the governmental/institutional end-user market has been important for developing the ESCO industry. A program to prepare procurements of ESCO services for government building EE projects, combined with access to loan financing for the projects and business development services for ESCOs, could jump-start the India ESCO business. 15. ADB has experience with PCGs, for example, PSOD has recently provided a PCG to Standard Chartered Bank to support lending to SMEs. PCGs have been used by World Bank (WB) and IFC for EE finance programs in several countries.19 These programs are appropriate to financial markets that have capable FIs, sufficient medium-to-long term funds available at reasonable interest rates, but where lending is not occurring due to credit risk barriers, conservative credit practices, and a lack of EE lending experience. These programs have deployed a variety of PCG structures including: pari passu guarantees, subordinated recovery guarantees, first loss and portfolio guarantees, and liquidity guarantees. These programs have been supported by WBs Global Environment Facility (GEF) grants, which have been used for first loss guarantee reserves, program operations, and TA. In IFC programs, IFC has been the guarantor and entered guarantee facility agreements directly with participating FIs. In WB programs, WB selects a local FI (typically a national development bank or other state-owned guarantee company), which can act as guarantor using, in part, GEF resources. E. Regional Renewable Energy and Greenhouse Gas Abatement Equity Investment Fund 16. A $100 million Regional Renewable Energy (RE) and Greenhouse Gas (GHG) Abatement Equity Investment Fund has been proposed by PSOD. It would invest in several sustainable energy investment funds around the region, managed by professional fund managers, which, in turn, would invest corporate and project equity in sustainable energy
17 18

ADB. 2005. Technical Assistance study, IND 3885. Available via V. John, PSOD. Manila. Expressed during the EEI Consultative Workshop, 22 November 2005. 19 Countries include Hungary, Poland, Croatia, Czech Republic, Slovakia, Philippines and China.

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companies and projects. A Request for Proposals (RFP) process may be issued to procure multiple fund managers. A parallel TA facility is proposed with funding via the United Nations Environment Program (UNEP) and others that would assist the fund managers in preparing investments and building the capacity of investee companies. This concept builds on PSOD experience with FondElec Global/Asia Clean Energy (FEGACE) Fund, Tsinghua and other equity funds that invest in sustainable energy companies and projects. A TA is being prepared (January 2006) to further develop this concept. F. India, State Sustainable Energy Development Funds

17. ADB has made a loan to Indias Renewable Energy Development Authority. It may be worthwhile for ADB to consider a similar line of credit directly to the states. Some Indian states have RE development agencies, such as the Punjab Renewable Energy Development Agency and the Maharashtra Energy Development Agency. Such entities could be sponsors and borrowers of sub-sovereign public sector loans. They would onlend their funds as debt and project finance to qualified EE projects, using various financial structures. Local currency loans could be considered. G. The Peoples Republic of China, Energy Service Company Project Finance Fund

18. ESCOs are a growing industry in the PRC, where they are known as energy management companies (EMCs), supported in part by WB and PRC government development programs and other market trends. Many ESCOs have been formed in the PRC, but are constrained for lack of equity and project finance. This opportunity is being addressed by the Noble Group; a substantial Hong Kong listed company with approximately $4 billion in market capitalization and $12 billion annual turnover. Noble has partnered with United States ESCO finance company, Energy Performance Services (EPS), to form a new company to finance EMC projects in the PRC by purchasing project assets and revenue streams. In addition to the pipeline of projects being developed by the PRCs EMCs, Noble may generate project deal flow from its existing trade relationships with multiple Chinese industries which are good targets for EE investment. Noble has approached ADB (PSOD) about investment. Possible ADB tools being considered are: (i) equity investment in the new Noble EPS Capital entity, proceeds of which will be used exclusively for the equity component of EE project finance (not working capital); and (ii) PCG-supporting project finance loans from local FIs. TA tools that would help Noble EPS to develop projects and build capacities of its ESCO investees are also possible. This type of opportunity could be developed in other countries as their ESCO industries develop. ADB TA programs to develop ESCO industries could be followed by such an investment. H. Bagasse Cogeneration, Regional Initiative

19. There are opportunities for region-wide initiatives in target sectors that have common sustainable energy technology solutions. A good example is bagasse cogeneration, using proven technology that can typically produce thermal energy for sugar processing and power for site use and/or grid sale at a very economical cost. Bagasse is typically burnt at very low efficiencies, and has minimal alternative productive uses. ADBs regional TA to Promote Renewable Energy, Energy Efficiency and Greenhouse Gas Abatement (PREGA) program studied these opportunities in Bangladesh, Indonesia and Viet Nam. Extrapolating those results to DMCs where production of sugar cane is known, the additional capacity available from installing modern bagasse cogeneration plants would be 100 MW in Bangladesh, 500 MW in Viet Nam, 1,000 MW each in Indonesia and Philippines, 2,000 MW in Pakistan, 4,000 MW in

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PRC, and 10,000 MW in India. Of course, developing this potential requires significant work, and for power sales, an enabling regulatory and legal framework would be necessary. Further issues exist with respect to the creditworthiness of sugar industries. The scale and breadth of the opportunity warrants exploration. Approaching the development of such projects systematically, in collaboration with respective DMC government agencies and possibly private sector project developers, could lower transaction costs, aggregate projects for development and finance, build targeted project development capacities, and accelerate their development. Other areas where such regional opportunities exist include the utilization of rice husks; waste manures from piggeries, poultry and livestock operations; and municipal solid waste. Both public sector and private sector investments could be applicable in these areas, and could be coupled with the investment programs identified above.

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STANDARD ENERGY EFFICIENCY MARKET RESEARCH AGENDA

Appendix 9

1. This Appendix defines a research agenda for energy efficiency (EE) markets for selected developing member countries (DMCs) of the Asian Development Bank (ADB). The purpose of this research is twofold: (i) to understand and identify market and project opportunities; and, (ii) to build knowledge of the legal and regulatory framework and other factors that will affect the financial viability and inform the due diligence and financial analysis of specific EE projects. This knowledge will be essential for lenders to understand the market risks for such projects. A. Legal and Regulatory Aspects

2. What are the rules and laws governing obligations of energy end-users to conserve and/or reduce energy use? Are the industrial, commercial, residential and transportation sectors obligated to reduce energy consumption? What are the specific provisions of the law, if there are any, or specific policies that mandate end-users to reduce energy use? 3. What are the existing government programs on EE? (i) Identify and summarize background, experience, interests and activities of governments, nongovernmental organizations (NGOs), and development agencies active in promoting EE project development and finance. Inventory main development and concessional programs underway and the resources they offer; prior EE technical assistance (TA) activities that have helped build end-user awareness, and conduct audits and demo projects, etc. Inventory and evaluate all other EE finance concessional programs, sponsored by both international and domestic agencies.

(ii)

(iii)

B.

Energy Sector Price and Tariff Aspects

4. General energy sector background information is needed with a focus on tariffs, prices, and regulatory structure; policy and institutional support for EE and for business investment generally (e.g., legal environment). Include background on independent power and cogeneration projects and rules/tariffs for independent power producer buyback and standby rates for power sales to the utility grid. 5. Are governments giving incentives to energy efficient technologies or equipment? If energy prices are subsidized, evaluate the benefits to either the suppliers or consumers.

C.

Market Delivery Channels

6. Analyze the potential size of the EE market in the country. The analysis should look at the market from both the amount of megawatthours (or oil equivalent) that would be saved from EE and the size of the market in monetary terms, i.e., how much EE investment could the market be reasonably expected to absorb. 7. Describe the methodology used to estimate the size of the EE market and explain why the methodology was used. Provide alternative methodologies and describe the pros and cons of each. The methodology should include a cost benefit analysis of the EE interventions and examine barriers to their adoption.

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8. Identify specific sectors that provide the greatest opportunities for EE investments. Develop a matrix to prioritize the different sectors by factors including: (i) which would be easiest to improve, (ii) which are most receptive to loan financing, and (iii) which provide greatest energy savings, etc. 9. Are EE technologies, products and equipment available in the market? Does the government follow procurement rules? Does the government give incentives to manufacturers? 10. Are there energy service companies (ESCOs) in the country? Provide examples of ESCOs operating in the country. 11. D. Is there supporting infrastructure for ESCOs? Environmental Aspects

12. Are there any environmental regulations that promote EE? What are the other market drivers for EE? 13. What are the activities identified under the Climate Change Action Plan of the country? Does this include EE? 14. What activities are underway to use the Clean Development Mechanism and to realize financially the greenhouse gas (GHG) emissions reduction benefits of EE projects? E. Economic and Financial Aspects

15. Analyze typical EE project economics, including cogeneration, power distribution efficiency, industrial waste heat recovery, etc. The easiest method for researching this topic is to collect project engineering/economic feasibility studies for existing and prospective projects. 16. Capacities, experience and lending criteria of main Financial Institutions (FIs), both commercial bank and non-bank (including leasing companies) FIs; identification of FIs interested in the EE market and/or with relevant, adaptable experience, and capital market conditions; government finance and economic development programs, including programs to channel capital to EE projects and to small- and medium-size enterprises (SMEs). Identify case studies of EE projects that have been financed to understand current state of the practice. 17. Country Capital Market and Macroeconomic Background Conditions. Background information and reports on general macroeconomic and capital market conditions in country affecting climate for borrowing and investment, including (i) interest rates, inflation, exchange rates, GDP growth rates, current account, foreign exchange reserves, foreign direct investment, and outlooks for these factors; (ii) availability of medium- and long-term capital in both local and foreign currency; and (iii) credit conditions, i.e., credit quality of various target borrower (enduser) sectors. F. End-User and Stakeholders

18. Identify and provide initial assessment of key market players (project developers, equipment vendors, contractors, engineers, associations) in EE:

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(i)

Appendix 9

Energy efficiency companies. Identity and collect background information on experience, business interests and activities of main commercial players in the EE market including EE businesses, ESCOs, mechanical/electrical contractors, EE engineers, utilities, and others who are developing projects. From interested, cooperating firms, collect case studies of implemented projects and feasibility studies for projects under development. Utilities. Identify utilities (electric and gas primarily) that are known to have an interest in or already established EE and demand-side management programs. Also identify power distribution efficiency and supply-side efficiency investments, e.g., power plant upgrades. Provide background information on the utilities and their activities in these fields. Sample representative energy efficiency projects. Provide sample summary economic feasibility studies on proposed EE projects under development and/or case studies of implemented EE projects, which are representative of key types of projects, e.g., cogeneration, power distribution efficiency, industrial waste heat recovery, etc., of project economics in the country. Proprietary information, e.g., end-user name, can be omitted. Energy efficiency market actors. Identify other key EE market actors, including government agencies, NGOs, and industry associations, and provide background information on their EE activities and programs. Prospective project sponsors and investment pipeline. Identify and provide background information on prospective EE project sponsors and their respective EE investment needs, which may be suitable for ADB consideration for development of an initial EE investment pipeline. Key end-user sector research. Provide background on credit, legal and institutional decisions that are characteristic of key/select energy end-user sectors such as: industry, municipal, power utility, hospital, etc. Provide procurement rules for public sector end-users. Further detailed sector-specific market research agendas are available on public sector procurement, cogeneration, public lighting and for specific EE companies and ESCOs.

(ii)

(iii)

(iv)

(v)

(vi)