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Role of Energy Efficiency in Asia
Amit Bando, Executive Director, IPEEC June 2013
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What is IPEEC?1.
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IPEEC is an Autonomous Entity
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Established in 2009 at the G8 summit in Italy; Reports to G20, Clean Energy Ministerial & others
Facilitates Rapid Deployment of Clean Technologies WorldwideThe IPEEC Secretariat is located in Paris, France
Members account for over 80% of world GDP and energy use.
Italy
Russia
Japan
Republic of KoreaChina
India
Australia
GermanyUnited
KingdomFrance
Canada
USA
Mexico
Brazil
EU
South Africa
Context2
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Energy Efficiency: More Than Just Energy Savings
Government Action to Promote Energy Efficiency
Climate Change Mitigation:
Reduced GHG Emissions
Sustainable Development:
Enhanced Energy Access
Energy Security:Reducing
Energy Use
Low Carbon Economy• Improved air quality
• Jobs created• Lower energy cost
Global additional investmentby end-use sector
Transport
0
200
400
600
800
1 000
1 200
2015 2020 2025 2030 2035
ServicesResidential
Industry
Billi
on d
olla
rs (2
011)
Additional investments required in end-use efficiency are $11.8 trillion over2012-2035; saving consumers $17.5 trillion in energy expenditures in this period
(Source: IEA)
The Efficient World Scenario relative to the New Policies Scenario
Power generation
Industry
Transport
Other
Room to manoeuvre
The Efficient World Scenario Delays Carbon Lock-in
Energy efficiency can delay “lock-in” of CO2 emissions permitted under a 2°C trajectory – which is set to happen in 2017 – until 2022, buying five extra years
5
10
15
20
25
30
2011 2015 2020 2025 2030 2035
Gt
2 °C trajectory
Lock-in of existinginfrastructure
2017
Lock-in of infrastructure in New Policies Scenario in 2017
202235
Lock-in of infrastructurein Efficient World Scenario in 2022
Barriers to Energy Efficiency
Barrier ExamplesMarket Market organisation and price distortions prevent customers from appraising
the true value of energy efficiency. The principal agent problem, in which the investor does not reap the rewards
of improved efficiency (the classic case being the landlord-tenant situation). Transaction costs (project costs are high relative to energy savings).
Financial Up-front costs and dispersed benefits discourage investors. Perception of EE investments as complicated & risky - high transaction costs. Lack of awareness of financial benefits on the part of financial institutions.
Information and awareness
Lack of sufficient information and understanding, on the part of consumers, to make rational consumption and investment decisions.
Regulatory and institutional
Energy tariffs that discourage EE investment (such as declining block prices and fuel subsidies).
Incentive structures encourage energy providers to sell energy rather than invest in cost-effective energy efficiency.
Institutional bias towards supply-side investments.
Technical Lack of affordable energy efficiency technologies suitable to local conditions. Insufficient local capacities to identify, develop, implement and maintain
energy efficiency investments.
Why doesn’t it happen?
Key Trends in Asia Pacific Region
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UrbanizationBetween 2005-2010, urban
population overtook the rural population
rising from 49% to 51%
By 2030, a majority or 2.7 billion people will live in cities and towns
equivalent to adding a new town of 137,000 people every day for next 21 years!
In the last two decades the Asia-Pacific urban proportion has risen by 29%
more than any other region 12
Urban population, Asia-Pacific subregions, 1990 and 2010
Source: Statistical Yearbook for Asia and the Pacific 2011, UNESCAP
Energy Intensity
Today, Asia covers the lion’s share of the world’s primary energy consumption
Between 2007 and 2030, the region is projected to account for 45-50% of the increase in world primary energy demand
Non-OECD Asian nations will lead industrial energy demand by an average of 2.3 to 2.6% per year
projected annual growth in OECD nations of 0.5% / year 13
Global Primary Energy Intensity (2009)
Energy Intensity Trends Global energy intensity has decreased by 1.4% p.a. since 1990
Largest reductions found in the regions with the highest energy intensities (China, CIS and India)
Industry and power generation accounted for almost ½ of that reduction (about 30% and 15%, respectively)
Per capita energy consumption to 2030 is likely to grow at about
the same rate as in 1970 - 90 (0.7% p.a.)
Energy per unit of GDP – continues to improve globally, and at an accelerating rate
This acceleration is important as restrains the overall growth of primary energy.
Ex: During the 11th Five Year Plan in China, through various EE initiatives, energy consumption grew at an annual average of 6.6% compared to average annual growth rate of 11.2% for the national economy
Energy Efficiency Financing Trends
Asia Pacific deals by sector
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Source: Final Renewables Deals 2012 Review, PwC.
Energy Service Companies (ESCOs)
The ESCO industry in Asia Pacific is poised to grow From $3.0 billion in annual revenue in 2009 to
$18.5 billion by 2016 421% increase from 2010 levels
Example: Despite not even being operational until 1998, annual revenues for China’s ESCO industry to reach $17 billion by 2015, increasing its share of the APAC regional market to over 90% (Source: Pike Research).
Overcoming First Cost Barriers to Financing
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IPEEC Clears Roadblocks to Successful EE Financing
Critical financial and market roadblocks that need to be addressed:
Fixed cost of lending incentivizes banks to focus on large corporate loans.
Information asymmetry between banks and borrowers: Adverse selection: Average pricing will attract risky borrowers and turn away
attractive borrowers; Moral Hazard: Risky behavior as borrower knows that bank has imperfect
oversight.
Lack of credit bureaus & clear credit history increases risk-assessment costs.
Inadequate knowledge and experience with the product .
Inefficient price signals – consumption disconnected from cost.
Network of contractors & suppliers unavailable or inexperienced.
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IPEEC is your partner.Thank you!
Any questions? Please contact:[email protected]
[email protected] rue de la Fédération
75739 Paris France
