S3_South-East Asian Energy Efficiency Market - Indonesia

8/2/2019 S3_South-East Asian Energy Efficiency Market - Indonesia

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Presentation to UNEP / SEAN-CCMay 4, 2011

Park Lane Hotel - Jakarta

South-East Asian Energy EfficiencyMarket Feasibility Report


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Energy Efficiency

Saving Money

as well as the Environment

2

negative cost option for carbon mitigation

Money lying on the floor?!!

Where?

**Source: McKinsey


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Agenda

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2. Objectives of Market Feasibility Report

1. Energy Efficiency and its benefits

3. Key Results of Report

4. Barriers to Energy Efficiency adoption

6. Conclusions

5. Indonesia Energy Efficiency market highlights


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Energy Efficiency

4

Energy Efficiency (EE) is defined as:

Lower

consumption of

energy

(energy input per unit of

delivered output or

service)

Resulting from

economicinvestments

(in energy generation,

delivery and end-useequipment, facilities,

buildings, and infrastructure)


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EE and its benefits (1/2)

EE can reduce SEA regions energy bill by US$1.34b*;

Indonesias energy bill by at least US$278m annually

5*ReEx estimates

EE improves Energy Security (& bridges power deficit)

247

278

196

317

193214

0

50

100

150

200

250

300

350

Malaysia Indonesia Thailand Singapore Vietnam Philippines

Annual Savings in Energy Bills (in US$ mil)


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EE and its benefits (2/2)

EE expected to contribute 57% of projected reduction in CO2

emissions by 2030***

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***Source: World Energy Outlook, IEA 2009

EE reduces CO2 emissions


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Sources of EE

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INDUSTRIAL SECTOR: EE Potential in

Production Processes, Heating and

Cooling systems in production facilitiesof industry sectors like Semi-con,

Pharmaceuticals, Automotive, F&B etc.

RESIDENTIAL SECTOR: EE

Potential in lighting, heating and

cooling systems apart from more

rational and frugal usage

practices

COMMERCIAL SECTOR: EE Potential in

Heating, Cooling, Lighting systems in

Private and Government Offices, Hotels,Malls, Hospitals, Data Centers and

Educational institutions

TRANSPORTATION SECTOR: EE potential

in engine, fuel and transmission

technologies in Road, Rail, Air and

Marine transport.

All primary and secondary energy consumers present EE potential


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Market Feasibility Report

8

Improve informational

transparency in SEA EnergyEfficiency market

Identify areas of improvement atdifferent levels: Regulation,Investment friendliness and

Supply-side capacity

Stimulate interest of local &foreign investors and otherstakeholders in the market

Enhance capital, knowledge andtechnology transfer

Assessment of South-East Asian (SEA) Energy Efficiency market by

ReEx Capital Asia to:


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Methodology

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IDENTIFY KEY

STAKEHOLDERS

IDENTIFY BESTINVESTMENT

DESTINATIONS

ESCO SECTOR

ASSESSMENT

REGULATORY

FRAMEWORKASSESSMENT

6 South-East Asian Countries assessed: Singapore, Malaysia,

Indonesia, Philippines, Thailand and Vietnam

Methodology adopted in the Market Feasibility Report


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Key Results (1/4)

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Investment Potential v/s Size of Economy*

Malaysia

Indonesia

Thailand

Singapore

Vietnam

Philippines

Investment Potential- in million US$

*Economy size in GDP; Source: Global Finance Magazine, GDP estimates for 2010

1,39

1,12

1,44

1,10

0,79 0,85

00,20,40,60,8

11,21,41,6

Indonesia

T

hailand

M

alaysia

Sin

gapore

Ph

ilippine

s

V

ietnam

Investment Potential (in bil US$)

695

312219 215 189

101

0

200

400

600

800

Indonesia Thai land Malaysia Singapore Philippines Vietnam

Size of Economy (in bil US$)

Investment Potential related to size of economy, inefficiency of

dominant industries and category of commercial buildings (office/hotel)

[Investment potential & Paybacks for industrial sector based on database of assessments conducted

by U.S Department of Energy; For Commercial sector, based on Singapore NEA database]


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Key Results (2/4)

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6,2 6,9 6,5

13,512,4

7,8

0

5

10

15

Indonesia Malaysia Thailand Singapore Phil ippines Vietnam

Energy Tariffs as of May 10 (US cents)

Market-based electricity tariffs, tax and other incentives, dominance of

energy inefficient industries and buildings like hotels reduce pay-back

periods

5

5,8 5,7

3,5 3,74,4

0

1

2

3

4

5

6

7

Indonesia Malaysia Thailand Singapore Philippines Vietnam

Payback period (in years)

[Case in point: Hotels tend to be

inefficient; 24* 7 operation, hot

water requirements, wasteful habits

of guests, large scale lighting,

cooling]


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Key Results (3/4)

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ESCO Sector maturity critical for market development and penetration

Most developed in Singapore and Thailand

[Result implies that ESCOs in these countries are in best position to implement large scale EE

projects if investments start flowing and demand increase substantially]

Regulatory Environment is the ultimate determinant of best investment destination

Favorable locations: Singapore and Thailand - followed by Philippines & Malaysia

[Result implies that the regulation in these countries is most conducive for international and

domestic investors: Tax waivers/ subsidies/ other incentives/ some financing/ low(er) red-tape]


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Key Results (4/4)

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RANK

Investment

Potential

Payback

Period

ESCO sector

capacity

Regulatory

framework

Overall

Ranking

1 Malaysia Singapore Thailand Singapore,Thailand Singapore

2 Indonesia Philippines Singapore Malaysia,

Philippines

Thailand

3 Thailand Vietnam Malaysia,

Philippines

Indonesia,

Vietnam

Philippines

4 Singapore Indonesia Indonesia,

Vietnam

Malaysia

5 Vietnam Thailand Indonesia

6 Philippines Malaysia Vietnam

OVERALL RANKINGS


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Regional best practices

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REGULATION

ENCON Act created large EE market inThailand: Only policy mandating EE

implementation in both factories and

buildings

Market-driven tariffs in Singapore and

Philippines enhance ROI; No distortion

of project economics

INCENTIVES, GRANTS AND OTHER PROGRAMS

Tax-allowances and Depreciation schemes for EEPs in Thailand, Malaysia and Singapore;

Import duties waivers in Philippines and Thailand

Technical Assistance and capacity building grant scheme in Thailand and Vietnam; Energy

Audit grants in Singapore, Thailand and Vietnam- Build awareness about EE and help kick-

start EE activity in end-users facilities

Dedicated, exclusive multi-agency committee (E2PO) to promote EE in Singapore- Single nodal

agency cuts red-tape, creates focus and fast-tracks decision making

FINANCING

Govt. financing schemes in Thailandovercome a critical financing barrier: EE

Revolving Fund, ESCO Fund, Soft Loans

Grant schemes in Singapore to defray

costs, create interest and incentivize

adoption: EASe, GREET and DfE


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Key Barriers (1/4)

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KEY

BARRIERS

Lack ofAwareness

Limited accessto Financing

Subsidized

energy tariffs

Limited ESCOsector

capacity

Key Barriers inhibiting large-scale adoption of EE


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Key Barriers (2/4)

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Lack of Awareness among energy consumers, policy makers and

financial institutions

EE Projects perceived as either unimportant or high-risk byenergy consumers

Even though they add to ROI and increase competitiveness

Fewer incentives for EE compared to other industry sectors

Even though carbon reduction and energy security are key policygoals

Lack of well-documented information, case-studies and guides

Leads to low awareness and high perceived risk by Financiers andend-users


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Key Barriers (3/4)

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Limited capacity of Energy Services Companies (ESCO) sector

Distort economics of EE projects and diminish profitability Also increase wasteful practices leading to higher consumption

Demonstrated by longer paybacks in subsidized countries

Investment will flow to countries without subsidies

Subsidized Energy Tariffs

Lack of innovative services: Energy Performance Contracting,Shared Savings to overcome energy consumers perceived risks

Limited capacity to offer financing options, performance guarantees

Limited capacity to offer comprehensive solutions beyond HVAC andlighting retrofits


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Key Barriers (4/4)

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Limited access to commercial financing mechanisms

Stalemate in EE market because of lack of private sector financing

End-users reluctant to finance EE projects through corporate debt orinternal cash; Awaiting financing incentive to adopt EE

ESCOs have weak balance sheets and are unable to offer financingthrough internal resources without Financial Institution (FI) support

EE not an interest area for FIs; Lack project assessment capability

Result- STALEMATE IN THE EE MARKET


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Indonesia EE market (1/3)

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Investment potential Annual Savings potential

Largest economy in the region with second-largest EE market;

Subsidized electricity tariffs depress dollar value of savings

- Investment potential of about US$1.4 billion (conservative number)

- Up to US$9.7 billion if industrial co-generation is considered

- Average annual savings potential of about US$280 million

(Average payback period of 5 years)

808;

58%

578;

42%

in mil US$

Industrial

Commercial

216;

78%

62;

22%

in mil US$

Industrial

Commercial


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Investment v/s Savings, by sector, in million US$

Shorter paybacks in industrial sector (3.7 years) compared to

commercial sector (9.3 years) BUT.

808

578

216

62

0

100

200

300

400

500

600

700

800

900

Industrial Commercial

Investment

potential

Annual savings

potential

..Commercial sector EE

projects relatively easier to

implement.

[Industrial projects riskier because of

cyclical nature of output and

production, potential costs of

operational disruption too high vis--

vis risk, extremely quick pay-backexpectations of industrial end-users

etc.]

[Commercial buildings have more

predictable energy consumption

patterns, steady revenues etc.]


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Top sub-sectors in Industry:

- Food, Beverages & Tobacco,

Transport Equipment, Fertilizer& Rubber, Textiles & Leather,

Cement & Non-metallic

- Payback periods ranging from

1.5-7 years

Top sub-sectors in Buildings:

- Hotels, Retail Malls and Offices

- Payback periods ranging from

7-15+ years

271

226

113

635046

6645

9 9

0

50

100

150

200

250

300

Food, Bev &

Tob

Transport

Equip. & M/C

Fertilizer,

Rubber &

Chem.

Textiles &

Leather

Cement &

Non-Mettalix

Investment

potential

Annual

Savings

57

156

365

5 9

48

0

50

100

150

200

250

300

350

400

Offices Retail Malls Hotels

Investment

Potential

Annual Savings

In million US$ In million US$


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Conclusions (1/2)

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EE presents an exciting opportunity for Investors, ESCOs,

Equipment suppliers and Financial Institutions

- US$6.7 billion market opportunity in six countries in SE Asia

Largely untapped because of various barriers

- Projected average paybacks of 5 years (all 6 countries)Comparable to conventional asset classes

Market-based electricity tariffs and EE friendly policies crucial for

market development

- Increase profitability of EE investments

3.5 year payback in Singapore vs 5-year payback in Indonesia

- Make transition to a low-carbon economy more profitable for all

Win-Win situation for Governments and Private sector

Conclusions (1/2)


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Conclusions (2/2)

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Urgent need for Market Awareness and Capacity Building

- Necessary to overcome situation of market-failure

Everyday of inaction represents an opportunity loss

- Take advantage of low-cost option for carbon abatement

EE can contribute 57% of reduction targets with attractive returns

Innovative Financing mechanisms required

- Such as revolving loans, third-party financing, credit enhancement,

loan guarantees

C


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Contact us

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Frdric Cramp

ReEx Capital Asia Pte Ltd

16 Collyer Quay Hitachi Tower #20

Singapore 049318

www.reexasia.com

Mobile: +65 9625 4770

Tel: +65 6818 [email protected]

S3_South-East Asian Energy Efficiency Market - Indonesia

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