Energy Efficiency in the Global Context: Role and Opportunities for Enhancing Energy Security Ashok Sarkar The World Bank Consultation Workshop on “Future Energy Scenarios toward Sustainable Energy Policies and Practice in Thailand’ Bangkok, Thailand August 28, 2006 1
Outline • Global Energy Efficiency Outlook and Potential • Global Energy Efficiency Roadmap and Thailand • Thailand’s Opportunities and Challenges • Strategies and Policies for Transforming EE Markets • Illustrative Examples of Relevance • Conclusions 2
Global EE Outlook 3
Global Energy Growth Trends Source: IEA World Energy Outlook, 2004 4
Primary Energy Demand by Region (Business As Usual) By 2050 developing countries account for 55% of global energy demand Source: IEA Energy Technology Perspectives 2006 5
Global Energy-Environment Dynamics Source: IEA World Energy Outlook, 2004 6
Is the Current Energy Growth Sustainable? • Business–As–Usual Energy Sector Expansion is unsustainable…because of: – Investment constraints on the supply side – Increased significance in the current regime of high oil prices; projections for 2006 are that prices are likely to remain above $70/bbl; Major impact on growth of net oil-importing countries – Environmental Implications (Enormous impacts at local, regional, global levels) • Business–As–Usual Energy Sector Expansion would lead to… – Energy Insecurity 9
CO 2 Emissions in 2025 Business-As-Usual vs. IEA Scenario OECD Developing Countries +255% +70% +65% -32% OECD Emissions one-third below 2003 level, while emissions in Developing Countries are two-thirds higher; Improved energy efficiency saves about 15 Gt CO 2 by 2050 – equivalent to 60% of current emissions Source: IEA Energy Technology Perspectives 2006 10
Emission Reduction by Technology Area IEA’s Scenario through 2050 Improved energy efficiency most important contributor to reduced emissions ource: IEA Energy Technology Perspectives 2006 12
Renewed Global Interest in EE • World Bank Group: – Bonn Commitments 2004 for 20% annual RE+EE growth – Clean Energy Investment Framework: with emphasis on EE on both supply and demand-side • • EBRD: Sustainable Energy Initiative (€ 1. 5 b, 3 yrs) Asian Dev’t Bank: Energy Efficiency Initiative ($1 b) European Union: Green paper on EE ASEAN Energy Ministers’ Final Communique (Laos, August 1, 2006)- priority emphasis on EE • Countries have started setting up EE targets, legislations and institutions (China, South Africa, Morocco, India, Vietnam, Tunisia, Sri Lanka…) 13
Global EE Roadmap Where does Thailand Fit In? 15
Gains from Energy Efficiency – OECD Countries (1973 -1998) Source: IEA 16
Energy Efficiency Roadmap (1) Energy Intensities have been declining… Source: Exxon-Mobil (2005). “The Outlook for Energy- A View to 2030” 17
Energy Efficiency Roadmap (2) Energy and GDP Growth are Decoupling… • Since 1971 each 1% increase in GDP has resulted in a 0. 64% increase in primary energy consumption. • Between now and 2030, World GDP is expected to grow by an average of about 3% per year, • While primary energy demand is projected to increase only by 1. 7% per year reaching 15. 3 billion tons of oil equivalent (toe) by 2030 18
Where does Thailand Fit into this Global EE Roadmap? • Many EE Actions: – Standards/Labels – Utility DSM – EE Funds • Impacts Insignificant: – Energy-GDP Elasticity very high ~ 1. 4 – Energy Intensity Still on the Higher Side THREE KEY QUESTIONS WHY (SO)? WHAT (NOW)? HOW (TO)? 19
EE Opportunities and Challenges for Thailand 20
Why So? • Hard to answer in absence of systematic energy efficiency indicators. • The energy efficiency indicators are designed to monitor levels and changes in energy efficiency for two primary purposes: – To allow comparisons between countries of their relative energy efficiency situations, at national as well as sub-regional levels and by fuels type and sectors. – To understand communicate the impact of energy efficiency policies, legislation and institutional development, in terms of how these are turned into actions on ground and how they are implemented. 21
The Need for Energy Efficiency Indicators • The methodology for analyzing energy-use trends distinguishes among three main components affecting energy use: – activity levels; – structure (the mix of activities within a sector); and – energy intensities (energy use per unit of sectoral activity). • The separation of impacts on energy use from changes in activity, structure and intensity is critical for policy analysis as most energy-related policies target energy intensities and efficiencies, often promoting new technologies. • Accurately tracking changes in intensities helps measure the effects of these new technologies. • Factoral decomposition where changes in energy use in sector are analyzed in terms of sectoral activity, sectoral structure, and energy intensity of each sub-sectors 22 • OECD/IEA – recent experience with EE indicators.
What now? Targets & Directions • National Policy Targets are Ambitious: – Reduce total energy consumption by 20% by 2009 – Reduce energy: GDP Elasticity from 1. 4 to 1. 0 by 2011 – Reduce oil use for transportation by 25% by 2009 – Reduce energy consumption in industrial sector by 25% by 2008 – Reduce energy consumption in public offices and buildings by 10 -15% immediately • The directions are right but the question is how to achieve these targets Data Source: DEDP and Peter du Pont, 2006 23
How? “Hypothesis” • Building Up on Existing Successes: – Scale up the DSM momentum – at 1. 3 cents/k. Wh and $63/k. W it is cost effective. Even though exceeded target, potential much more than 1306 MW savings in 15 yrs – raise standards, make them mandatory, and go beyond Lights, ACs, and Refrigerators – to motors, pumps, compressors “Systems” approach – Expand beyond ENCON Fund ($50 M is still small)- Phase 2 (focusing on banks leverage) real test – Energy Audit program – Link to actions / implementation – Buildings EE – Expand beyond Public/Commercial buildings, Improve codes • Open Up New Avenues: – Focus on oil and on transportation – 55% share of the annual ~61 mtoe final energy consumption is of oil of which 70% goes into transportation – Create enabling environment for ESCOs and financiers Data Source: DEDE 24
Strategies and Policies for Transforming EE Markets 25
Transforming EE Markets Experiences from the Developed World Risks Transactions Market Perfection----- Private Capital Public. Private Partnerships Public Policies, Finance ----- 27
EE Implementation Strategies Menu of Options to Overcome Barriers Vietnam, Indonesia, … Publicly-supported, Incentive-Based, Regulatory Command & Control Policy Strategies India, China, Thailand, … Market “Push” & Market “Pull” OPTIONS • Mandatory En. Audits • Min En. Perf. Standards • Building EE Codes • Utility DSM (EPP) Japan, US, Europe, … OPTIONS • Appliance EE Labels • Energy Service Cos. / • Performance Contracts • Innovative Financing Mechanisms Market-Driven & Sustainable Mechanisms TIME 28
EE Standards and Labeling 31
Energy Efficiency Standards (Appliance/Equipment) The Ratcheting Effect: Effect Standards promote innovation and technology development Source: Weil & Mc. Mohan, 2001 32
Impact of Energy Efficiency Standards Estimated Impact of Ballast Energy Efficiency Standards by USDOE 2000 Source: Energy Information Administration, 2001; Weil & Mc. Mohan, 2001 34
Energy Efficiency Labels 35
Adding New Equipment and Adopting a Systems Approach 36
Motor Systems Energy Consumption (~ 50% of Industry Energy Cons. ) Source: UNIDO 37
Pumping Systems ( Motor + Pump + Valve) More than 40 psig drop across the throttle valve Source: UNIDO Package efficiency = Hydraulic output / Motor input = 2. 7 / 14. 9 = 0. 18, or 18% 39
Pump System Optimization Source: UNIDO 41
New Pump System Source: UNIDO 42
Steam Leaks in Industries • A “½ inch diameter leak” will release 1, 500 lbm/hr of 250 psig steam • This leak will result in an increased fuel cost of approximately $18, 000 Btu/yr. 43
Utility Demand Side Management 44
Utility Demand Side Management International Success Stories • United States: Since late 1970 s, mandated through regulation and IRP requirements, ratepayer supported, 2 -3% revenues spent on DSM (by 1999, 51 GW and 71 TWh peak reduction). Scenario changing since 1998. • Sri Lanka: CEB-sponsored lighting DSM program (started 1996), saved 75 MW & 110 GWh through 1. 5 million lamps with net annual utility benefit of Rs. 176 Million, in year 2000. 48
Utility Demand Side Management International Success Stories • Brazil: Government Electricity Company spent $20 million by 1991 on 150 projects, ranging from consumer education to motor and lighting replacements, saving $1 billion • Mexico: The national utility spent $24 million (with World Bank and other donor support) on residential CFL program in major cities. 49
Regulatory “Pressure” for DSM: International Experiences • Six Country Case Study (US, UK, Norway, New Zealand, Argentina, Chile): As reforms occur, and prices decrease, utilities offer energy efficiency services only to the extent required by regulations • Korea: Rational Energy Utilization Act of 1995/97, Article 12 - DSM Investment Plan and results to the Minister of Trade, Industry and Energy 50
Regulatory “Pressure” for DSM: International Experiences • New Zealand: Law requires publicly-owned utilities to offer Energy Efficiency. • Norway: In 1980 s, were mandated to perform IRP and DSM (>200 DISCOMs). Efforts have waned since restructuring. • United Kingdom: Regulator responsible for DISCOM Energy Efficiency activities, and small tax to fund government-administered activities. 51
Creating an Enabling Environment for End Users and ESCOs 52
EE Implementation through the ESCO Shared Savings Model Customer Savings Guarantee ESCO PERFORMANCE RISK + CREDIT RISK Fixed Repayment Schedule Lender 53
EE Implementation through ESCO Guaranteed Savings Model CREDIT RISK Customer Savings Guarantee ESCO PERFORMANCE RISK Fixed Repayment Schedule Lender 54
ESCO Survey Results: Barriers Source: ADB, 2004 55
Three Country EE Project • UNEP, World Bank, ESMAP multi-year TA • Brazil, China, India • To generate innovative ideas and approaches for EE financing schemes • South-south capacity building and exchange amongst financing and EE development communities/ practitoners • Major conclusion: Customized solutions (vs. standardized solutions) • EE Delivery models / Financing schemes: – Loan Financing, Guarantees, Clustering – ESCOs, Third Parties – Utility DSM Programs Source: Three Country Energy Efficiency Project, Draft Report, World bank, April 2006 56
China: ESCO Loan Guarantee Program (1) Source: Three Country Energy Efficiency Project, Draft Report, World bank, April 2006 57
China: Full-Service Shared Savings ESCO Model ESCO Corporate Shareholders Financial Institutions Loan finance Repayment from project operations Equity finance, loan finance Equipment performance warranties Financing Repayment and/or dividends ESCO Project design Equipment suppliers and technicians Project management and oversight End-user Client Repayment according to EPS Repayment guarantee (if required) Repayment Guarantor Source: Three Country Energy Efficiency Project, Draft Report, World Bank, April 2006 59
Key Features: • 15 MW implemented 1990 -92 • Two revenue streams to ESCO • Rapid sales process; ESCO becomes channel for end-user to receive utility subsidy • Utility value per kw determined based on value to utility; could have been lower, based on level required to induce end-user project investment decisions • Many similar programs around USA: PG&E, 61 PSE&G, etc. Source: J. Mac. Lean @ IEEFP, 2006
Electricite du France Residential CFL Leasing: Martinique & Guadeloupe Retailers Distribution of CFLs Redemption of coupons CFL Mfg. s (Osram) Advertising campaign Bulk Purchase E. D. F. Source: J. Mac. Lean @ IEEFP, 2006 Residential End-users … Payments on electric bill, per CFL Key Features: • Rapid market penetration for CFLs • 700, 000 units distributed 1992 -94 • ~ 14 MW peak reduction achieved • EDF motivated to reduce losses, as cost of service was > tariff • Customer paid for CFL via utility bill over 18 months; strong pmt performance • Customer breakeven @ ~1000 hrs/yr • Market development via bulk purchase & distributors’ role 62 • Many similar programs internationally
Efficient Lighting Program: Bangalore (India) • BESCOM (Bangalore City) Objective: to improve reliability, addresses high system losses, reduce evening peaks • Focused on residential customers, both CFLs and FTLs • 1 st Demo Phase: ~300, 000 lamps in Bangalore Urban District • 2 nd Phase (ongoing): 2. 6 million customers targeted; three lighting suppliers (Philips, Osram, Asian Electronics) selected through tender to provide lamps with 1 year warranty • CFL Purchase Options- Branded with Cooperative Advertisement: – Direct Purchase: at discounted prices – Installment Scheme: payment through 9 monthly installments through electricity bills or salary – Average savings per CFL > Average installment • Secondary impact: non-participating CFL suppliers also dropped prices • Targeted Reduction: 13. 5 MW (pilot), 117 MW (2 nd Phase) 63
IFC China Utility-based EE Finance Program Project steps Marketing Energy Audit Feasibility Study Customer Decision Engineering Financing Energy Installation Operations Equipment Projects+ Services Energy Equipment + Service Providers Commercial & Industrial Customers EE Project Marketing+ Development Gas/Electric Sales EE Project/ Equipment Loans Integrated Utility + Loan payment Utility Gas/Electric Payments Cooperation Agreement w/ qualified companies Typical Projects • Boilers • Cogeneration/Small Power • Industrial Process • Heating & Air Conditioning • Refrigeration • Compressors • Lighting, Motors, Controls • Engineering firms • Installation Contractors • Others… Utility: Customer Service Center Program Agreement Loan Program Agreement Bank Loss Sharing Facility IFC China Ministry of Finance + Government Support from IFC & GEF • Program Design • Program Operations Cost Share • Technical Assistance support: for preparation of EE Projects • Loss Sharing Facility 64
Sustainable ESCO Financing in AECo, India (IREDA Model) Public-Private Partnership Tripartite Agreement Source: IREDA 65
U. S. Federal Energy Management Program (FEMP): Super Energy Performance Contract Program Qualified ESCOs. … Framework RFP & Contract Authorizing U. S. Gov’t legislation Energy Conservation Act 1992 Individual project procurements Energy Performance Contract FEMP Key Features: • Common class of credits; ESCO responsible for financing, but has US gov’t pmt obligation • $1. 8 billion in projects implemented in 18 agencies • Shows power of pooled procurements with lead agency organizing market . … loan or lease F. I. Turnkey projects; EPC payments; w/ “termination for convenience” Federal agencies & Facilities, e. g. , Dept of Defense 67 Source: J. Mac. Lean @ IEEFP,
Catalyzing EE Investments through Carbon Market 68
Carbon Prices – The Key? Required price of CO 2 to raise IRR by 1% Source: ADB, 2005 69
Conclusions (1) • Energy efficiency improvements have become top priority for global and national decision makers • EE is the best way to address climate change risks and energy security concerns • Thailand has had successes which needs to be scaled up and diversified • Substantial Role for Stronger EE Regulation and Policies • Tracking, Measurement and Evaluation of Impacts is Critical in EE Policy Development • CDM incentives could be suitable for marginal EE projects 70
Conclusions (2) • Building Up on Existing Successes: – Scale up the DSM momentum – at 1. 3 cents/k. Wh and $63/k. W it is cost effective. Even though exceeded target, potential much more than 1306 MW savings in 15 yrs – raise standards, make them mandatory, and go beyond Lights, ACs, and Refrigerators – to motors, pumps, compressors “Systems” approach – Expand beyond ENCON Fund ($50 M is still small)- Phase 2 (focusing on banks leverage) real test – Energy Audit program – Link to actions / implementation – Buildings EE – Expand beyond Public/Commercial buildings, Improve codes • Open Up New Avenues: – Focus on oil and on transportation- the share of the annual ~61 mtoe final energy consumption is of oil of which 70% goes into transportation – Create enabling environment for ESCOs and financiers 71
For more information on World Bank EE Projects… http: //www. worldbank. org/energy 72
Thank You Ashok Sarkar, Ph. D. Senior Energy Specialist Energy Sector Management Assistance Program (ESMAP) Energy and Water Division The World Bank Washington, DC. asarkar@worldbank. org 73
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