Energy Service Company in ASEAN: Potentials and Challenges August 4, 2016 | by

Launched on 31 December 2015, the ASEAN Economic Community (AEC) would create the world’s seventh largest single market and 3rd largest market after the People’s Republic China and India. Taking the advantage of this market growth requires dealing with a vast demand for energy while at the same time facing the challenge of both energy security and sustainable development. Seeing the challenges, the region improved the strategy and plan to create a more sustainable and energy-efficient economy. This goal has intensified Southeast Asia’s attention to the industry and building sectors as the primary sources of energy consumption. In addition, the free flow of investments, skilled labours and capital under the framework of the AEC would drive energy demand in both sectors to a much higher level.

According to the ASEAN Centre for Energy’s 4th ASEAN Energy Outlook under the Business-As-Usual (BAU) scenario, the commercial sector consumption will grow the fastest at 7.3% yearly driven by the increasing per-capita income, followed by the industrial sector consumption to grow yearly at 5.3% onto 2035. However, in its Advancing Policy Scenario (APS) whereby energy efficiency and conservation would be implemented, ASEAN’s total final energy consumption will grow at a lower annual rate of 3 % compared to the 4.3% annual increase under the BAU Scenario. Under the APS, the energy savings potential of the industry sector will be around 25% and 12.9% for the commercial sector by the year 2035.

Driven by those macro trends and promising energy saving potential, energy efficiency solutions for commercial buildings and industry have become a paramount for the successful implementation of energy efficiency and conservation (EE&C) policy and regulation in this region. These developments have triggered the growth of the energy service company (ESCO) industry to a higher level. In recent years, several ASEAN Member States (AMS) have recognised the unique role of ESCOs in improving energy efficiency in a cost-effective manner. Apart from that, some AMS provided financing schemes, such as the Green Technology Financing Scheme and Green Technology Incentive (Malaysia), as well as the Energy Efficiency Revolving Fund Project and ESCO Fund Project (Thailand) to create a market and to attract the private investment. With these efforts, it is expected that the market players and private sector can benefit from the ESCO concept to reach their full potentials.

There is an important potential for ESCO project implementation in energy intensive industries (cement, iron, steel, chemical, pulp and paper industries) to reach a good market size. However, it may take several years to have a fully working and self-sustained market, and it often requires a strong regulatory framework at the national level. Some AMS have set up the policy for ESCO but some still have it under process.

Challenges and barriers have been observed to be similar in AMS. Key Challenges and barriers have been identified to be common in AMS are: (a) lack of legislative support; (b) lack of strong regulation on efficient management of electrical energy to further stimulate the ESCO market; (c) lack of financing options and experienced players; (d)  financial institutions remain sceptical about the profitability of ESCO investments; (f) potential customers, particularly industrial sector are reluctant to invest on EE technologies, since they have not seen the potential benefit for these technologies. This condition is mainly influenced by the low energy price; and (g) lack of certified ESCOs or energy professionals to perform ESCO projects.

Under the new ASEAN Plan of Action for Energy Cooperation (APAEC) 2016-2020 under the Programme Area No. 4 – Energy Efficiency and Conservation, the plan would like to enhance private sector’s participation including ESCOs for EE&C promotion. To this end, the ASEAN Centre for Energy (ACE) has initiated a comprehensive cooperation with ASEAN’s dialogue partners and international organisations, to benefit from their expertise and enhance the region’s technical capacity in ESCO development. At the same time, the promotion of EE&C has been undertaken to raise public awareness on its significance. However, a strong policy and regulatory framework is still most important for the success of ESCO development.

References

  • ASEAN Centre for Energy. (2015). The ASEAN Plan of Action for Energy Cooperation (APAEC) 2016-2025 Phase-1. Available here

The views, opinions, and information expressed in this article were compiled from sources believed to be reliable for information and sharing purposes only, and are solely those of the writer/s.  They do not necessarily reflect the views and opinions of the ASEAN Centre for Energy (ACE) and/or ASEAN Member States.  Any use of this article’s content should be by ACE’s permission.