Jakarta energy efficiency programme

Welcome energy news from Jakarta, Indonesia – in what appears to be another p2e2 initiative in Asia, having the banking sector involved, and apparently embracing the opportunities for improved building and industrial energy efficiency, with ESCO contracts, is worthy of reporting here.

It does seem that, yet again, one key point has perhaps been overlooked. Certainly invest US$420,000 in the project but ensure the outcome is independently checked – trust but verify – what is known in the trade as independent M&V (Measurement and Verification) to ensure that promised savings are delivered.

And just in case I loose it, or the URL changes, here is the entire announcement by ADB:

http://www.adb.org/Media/Articles/2009/13083-indonesian-clean-energies/

26 November 2009
ADB Conference Promotes Investments in Indonesia’s Energy Efficiency Sector

Investments in energy efficiency solutions in Indonesia offer a potential $4 billion market for commercial banks and the industrial sector, a Jakarta conference co-organized by the Asian Development Bank (ADB) heard today.

“Indonesia’s energy sector is a vast green field of investment opportunities that awaits the participation of the domestic and international banking as well as industrial sectors,” said Anthony Jude, Director of the Energy and Water Division in ADB’s Southeast Asia Department. “Energy efficiency investments, like low hanging fruits, reap significant returns.”

The $4 billion figure is ADB’s estimate of the potential market size for retrofits and other energy-saving improvements in commercial buildings and industrial facilities. Types of projects range from electrical system retrofits to improving efficiency of air conditioning systems (including chillers), lighting and waste heat recovery.

For example, a commercial bank might co-finance a $420,000 project to upgrade the air conditioning, pumps and lighting systems of a large office building. These upgrades will bring about huge electricity savings – in this scenario some $100,000 a year – therefore paying back the initial investment in just over four years.

The Jakarta conference, “Financing $4 billion Energy Efficiency Solutions in Indonesia,” brought together close to 200 representatives of commercial banks, government, and major industries. The event, which ADB is co-hosting with MKI, the Indonesian Electrical Power Society, and KADIN, the Indonesia Chamber of Commerce, was designed to create mutually beneficial partnerships between commercial banks, equipment suppliers and energy service companies that will in turn promote environmentally sustainable growth.

Agus Purnomo, Head of Secretariat at Indonesia’s National Council on Climate Change, noted the significance of the conference taking place just prior to the UN Framework Convention on Climate Change (UNFCCC) talks that get underway in Copenhagen on 7 December.

“The energy sector is a key player in Indonesia’s drive to combat climate change,” Mr. Purnomo said in a keynote address. “Therefore we strongly welcome national and international commercial banks, as well as equipment suppliers and energy service companies, as critical partners in facilitating new financing opportunities in energy efficiency and renewable energies.”

Last year, ADB approved nearly $1.7 billion in clean energy investments, exceeding the bank’s target of $1 billion. Under a new Energy Policy passed by its Board of Directors earlier this year, ADB will double its targets for clean energy annually to $2 billion starting 2013.

– John Herbert, Consultant, Kelcroft E&M Limited
helping lower the cost and impact of doing business in Asia

International Energy Efficiency Finance Protocol

Hope on the horizon for ESCO’s and Energy efficiency projects? EVO has released (April 2009) a new publication (cover see right) titled International Energy Efficiency Financing Protocol or IEEFP to tackle the issue of bank training.

This guide is based on work conducted by EVO in Mexico, and Thailand is targeted at your local financing institution, primarily banks, essentially helping them to understand and evaluate energy efficiency project finance risk.

As mentioned here ESCO’s historically suffer from a  weak balance sheet, and often find difficultly finance for viable energy projects, one of the reasons most often cited being Financial Institutions lend only based on collateral.

Considering the financial chaos gripping the US, perhaps that prudence should have been extended across all sectors of banks activities?  Anyway, the present approach, demanding asset based collateral, overlooks the benefits of energy efficiency improvement projects, including the income stream from lower energy costs and to some extent lack of understand the mechanics of energy efficiency programmes.

This guide aims to show financial institutions how energy projects that generate energy savings, result in cash flow revenue, and can increase credit capacity for repayment of loans. It is comprehensive overview including a plan for a two day training programme, what expected risks strategies from new and emerging technologies one might encounter.

Unlike the Hong Kong’s recently launched Buildings energy funds it clearly states the obvious, the need for Investment grade energy audits and M&V (Measurement and Verification) to ensure that projects are sound and that projected energy savings are sustainable.

Risk is always an issue, especially for banks entering new territory, recognizing the outstanding opportunities and potential benefits multinational financial institutions (MNF) such as IFC created a programme for help manage the credit risk, for example this publication cites the experience from using IFC/GEF Commercializing Energy Efficiency Finance (“CEEF”) programme.  Locally, we already have IFC’s CHUEE programme which is entirely focused on China energy efficiency projects.

I agree that education, and edcuating the banking sector as a whole, not one person at a time, is a critical issue for wider adoption of energy efficiency improvement projects.  So will this guide answer all of your questions? Unfortunately no, as stated in the preface, it only provides a framework, it is intended as a starting point for a series of further IEEFP programmes and a perhaps a teaser for their two day training course.

Overall yes it is a useful energy efficiency primer, IEEFP 101. It does provide the bare bones of a programme, however key points are only covered with a list of bullet points and likely to leave the reader equally unsatisfied.

John Herbert
Consultant
Kelcroft E&M Limited
helping lower the cost and impact of doing business in Asia