Financing Energy Efficiency in ASEAN: Is It Attractive Enough? May 24, 2017 | by

EE finance 2

ASEAN’s accelerated economic performance in recent years as well as its projected economic growth, mean increasing energy demands across the region. It has become imperative to take definite steps to enhance energy security and to set ASEAN Member States (AMS) on a sustainable energy growth. Therefore, it is important to look at its large untapped opportunities to increase energy productivity and the many innovative models to finance the initiatives.

Some AMS are stepping up efforts in the development of innovative financing models that combine public and private investments on energy efficiency (EE). Malaysia and Thailand adopted already existing and new models for EE financing. With the gradual enhancement of the practitioners’ capacity, combined with further advancement of EE financing mechanisms at the national level, both AMS are in a smooth transition towards innovative EE efforts.

The Government of Malaysia has established the Green Technology Financing Scheme (GTFS) in 2010, which is a loan guarantee scheme to support the development of green technology in Malaysia. The scheme is implemented by Malaysian Green Technology Corporation (GreenTech Malaysia) in partnership with Credit Guarantee Corporation Malaysia Berhad and local banks that provide the actual loans. The total amount of financing approvals per April 2017 was RM2.96 billion (USD 666 m) out of the total approvals target of RM3.5 billion (USD 788 m), which provides debtors with an interest subsidy of 2%pa from the interest rate charged by the financial institution, and with 60% of government guarantee on the approved loan. Projects eligible for financing must be located in Malaysia and may use locally produced or imported green technology. By the end of 2016, 272 projects had secured financing support amounting to RM2.96 billion (USD 666 million), that comprises RM233 billion (USD 524 million) in the energy sector, RM25.2 million (USD 5.7 million) in the transport sector, RM485 million (USD 109 million) in the water & waste sector, and RM2.4 million (USD 4.8 million) in the building sector. Of this substantial sum, it is anticipated that these projects would help avoid 3.16 million tonnes of carbon dioxide equivalent per year, while generating RM5.51 billion (USD 1.36 billion) in green investments and creating over 4,600 jobs.

In Thailand, the government established the Energy Conservation Fund, a financing scheme which should provide finance for EE or renewable energy (RE) projects. Established in 1992, the revenue is collected from petroleum products at USD 1 to 3 cents per litre. Recently, the total funding is sitting at around USD 1.1 billion. The Fund has been disbursed using a number of different economic and financial mechanisms, including: grants, subsidies, tax incentives, a feed-in premium for RE, the Energy Efficiency Revolving Fund (EERF) and the ESCO Fund.

Thailand’s 20/80 Subsidies programme: Initiated in the early 2000s as 30/70 technology subsidy programme, it was originally designed with the support from Danish development agency. A grant was offered to an industry and building provider, originally for implementing nine identified ‘standard measures’ equal to 20% for designated and 30% for non-designated factory and building for the cost of the technology. The 30% subsidy expanded to also include more complicated projects with customised sets of EE measures. In early 2000, the 30/70 subsidy programme was tightened to 20/80, thus increasing the portion of investment made by the industry or building owner.

Thailand’s Energy Efficiency Revolving Fund 2003 – 2012; 2015 – now: The EERF is a debt-financing mechanism that provides zero to low interest loans to banks for EE lending. Thai banks could on-lend the funds at a maximum of 3.5% interest. The initial amount of the EERF was THB 2 billion for a 10-year time frame (USD 50 million). It ran for three phases until 2012 and then restarted again in 2015. The interest rates for banks was increased to 0.5%.

Thailand’s tax incentives: Since 2006, tax incentives have included a combination of tax exemptions for EE and RE equipment, tax exemptions for corporate tax for ESCO companies, and for companies who invest in EE or RE projects. Department of Alternative Energy Development and Efficiency (DEDE) was the driving force who lobbied tax incentives to the Board of Investment. But it was noted that tax incentives only work for companies who are large enough to have taxable income.

Besides preparing for public incentive mechanisms, the Carbon Trust highlights that EE markets require stronger and more supportive government policy, increased awareness on opportunities, sufficient technical assistance, and a focus on upskilling local suppliers and project developers. It is important to recognise that finance is only one element in a market, and it requires attractive opportunities to invest in. Among Carbon Trust’s recommendations, building a trusted and credible supply chain of energy efficient technologies is crucial to ensure buy-in from all stakeholders (e.g. the general public, industry and financial institutions) in order to increase demand and investment.

In conclusion, Thailand and Malaysia demonstrated that numerous public and private incentive schemes for EE are possible to make EE a sound commercial investment. But the target group and existent situation of the energy and finance sector will decide which combination of public and private finance mechanisms will be necessary to maximise private sector investments. The ASEAN Centre for Energy will continue to provide information exchange among the Member States about successful public-private partnerships that support the goals of ASEAN Plan of Actions for Energy Cooperation.

 

 

 

References

ASEAN Centre for Energy. (2015). 4th ASEAN Energy Outlook.

Syed Mustafa, S.A. (2017, March 23), Green Technology Financing Scheme – Easier Access to Financing [Webinar]. In ASEAN Center for Energy’s Webinar series, ‘”Energy Efficiency in ASEAN, is it attractive enough. Retrieved from http://www.aseanenergy.org/events/past-events/webinar-financing-energy-efficiency-in-asean-is-it-attractive-enough/

Maethasith, W. (2017, March 23), Energy Efficiency Revolving Fund[Webinar]. In ASEAN Center for Energy’s Webinar series, ‘”Energy Efficiency in ASEAN, is it attractive enough. Retrieved from http://www.aseanenergy.org/events/past-events/webinar-financing-energy-efficiency-in-asean-is-it-attractive-enough/  

 Carbon Trust website:  https://www.carbontrust.com/resources/reports/technology/available-attractive-too-slow-energy-efficiency-finance

 

 

 

 

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.