A New Era For Energy Efficiency in The Philippines
A New Era For Energy Efficiency in The Philippines
A New Era For Energy Efficiency in The Philippines
Alexander Ablaza
29 November 2019
44th IIEE Annual National Convention
All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2)
PE2’s 4-point approach toward a long-term
transformation of the EE market www.pe2.org
EE
ESCOs
Tech/Services
Establish EE Enable EE
Enforce EE Establish a
alliance and Law and
Bridge Public-Private
build sector Fiscal
Policies Collaboration
capacities Incentives
NPOs /
EE Finance
Implementors
PE2 has a 14-year history, with its predecessor Energy Service Company Association of the
Philippines (ESCOPhil) established in May 2005 with the guidance and oversight of the
Department of Energy. EE Policy Reform Agenda Strengthening the ESCO Industry
•Combined push for the swift passage of the EE •Training of trainors and PE2 personnel related
PE2 was officially reorganized in April 2016 as a non-market, non-state, non-profit Bill and fiscal incentives to performance contracting, IGAs, M&V and
organization to embrace the needs of various EE market stakeholders through the following •Combined push for immediate enforcement of preparing investment-grade projects –
membership categories: bridge policies certification of CEMs, CMVPs
• Regular A – Accredited energy service companies (ESCOs) •Combined push for enabled Government •Preparation of Investment-Grade Projects
• Regular B – EE technology/solutions/service providers, professional/legal services, procurement, budgeting and multi-year •Drafting and Adoption of Industry-Standard
contractors, EPCs, utilities contracting of ESCO services and PPP Performance Contracting Templates
transactions for EE projects in the public •Preparation of a Business Plan for the
• Regular C – Financial institutions, equity providers, leasing cos, guarantee cos, fund sector Establishment, Seed Funding, Operation and
managers •Co-establish a public-private-civil society Replenishment of an ESCO Guarantee Fund or
• Associate D – Non-profit, non-market, non-state civil society organizations, industry collaborative platform that would sustain the Insurance Facility
associations/chambers, foreign-assisted projects, academe and research institutes long-term EE market transformation efforts
• Associate E – Large organizations or enterprises which have mainstreamed EE in their
core activities
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With the recent passage of RA 11285, the
Philippines finally rejoins the many jurisdictions
around the world with an Energy Efficiency law
and incentive framework in place
Several EE
policy
measures
incorporate
fiscal, tax-
based
Source: Enerdata
incentives
• Asian countries tend
to employ more tax
reductions than tax
credits
• Reduction on VAT
and on import tax on
EE equipment is
widely used in
developing countries
Source: ACEEE, 2016
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No-brainer multitude of EE co-benefits
Source: IEA
Source: Pembina Institute All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2)
Source: A. Ablaza, July 2017 5
All rights reserved by A. Ablaza, the Philippine Energy Efficiency Alliance Inc (PE2)
A 4-decade journey of the EE&C Act
1990:
1980:
HB29056,
BP73 EnerCon HB32655 &
Act effective HB32781 filed
for 5 years in 8th Congress
1985:
2019:
BP872
extends RA11285 is passed
EnerCon Act from SB1531 &
by 5 years HB8629 of 17th
Congress
Energy Designated
Government Certification Incentives Other Features
Performance Establishments
Demand-side
Minimum Energy Type 1: 0.5-4.0 Management (DOE,
Certified EE&C million kWh/yr ERC, PEZA)
DOE is lead agency Performance and Fiscal Incentives
Officer
Labeling
Waste Management
Type 2: > 4.0 million
kWh/yr
NGAs, GOCCs, GFIs DOE Examination,
Certified Energy Non-fiscal DOE-EUMB
and LGUs have new Testing and
Manager Incentives Strengthening
roles Verification
Reporting of Other
Establishments: 0.1-
Prohibited Acts, DOE
0.5 mln kWh/yr
Measures, Penalties,
Inter-Agency EE&C Energy Performance Fines and Liability
Energy Service
Committee, GEMP of Transport Concessional
Company (ESCO) DOE Visitorial Appropriations, IRR,
and Govt EE Vehicles and Finance
Certification Powers Codes, Guidelines,
Projects Buildings
JCEC Oversight
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Download the full text of the
EE&C Act from pe2.org
Business-as-usual EE capital to
be mobilized through:
• Self-financed
• Debt-financed
Business-as- • Lease-financed
usual PHP 4 • Other on-balance-sheet*
trillion
modalities
Off-balance sheet* EE capital
flows through:
• ESCO performance Off-balance sheet capital
contracts PHP 8 trillion * Balance sheet of host or end-user of EE project
• Government, large-scale
retrofit programs
• Other off-balance-sheet*
modalities
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Energy Efficiency Financing and
Investment Modalities
Off-balance
Special Market
Self-financed Debt-financed Sheet
Channels
Investments
EE leasing
Portfolio investments Guarantees (EE
Performance and
Customer Credit)
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Self-financed EE projects
• On-balance sheet procurement.
• Typically, 100% of EE project cost is funded by end-user or facility owner.
• End-user or facility owner is the legal and “accounting” owner of the EE equipment assets from beginning. Applies to
all energy end-use sectors: residential, commercial, industrial, transport, government.
• End-user enjoys 100% of savings or avoided energy purchases immediately. In isolated cases wherein the EE technology
solutions provider is an ESCO, the ESCO can issue an energy savings performance guarantee to the purchasing end-user.
Barrier: EE for end-users is a non-core activity, and therefore a low-priority expenditure for it to be using available cash
budgets.
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Debt- and lease-financed EE projects
• On-balance sheet procurement. • For EE equipment leases, the leasing company remains the legal owner of the EE
equipment assets through lease term. For both EE loans and leases, the borrower or
• 70-80% of EE project cost is
lessee (end-user or ESCO) becomes “accounting” owner from the beginning.
typically financed by a bank or
leasing company. • Applies to all energy end-use sectors: residential, commercial, industrial, transport,
government.
• Credit cards are popular ways of financing smaller, non-ESCO EE.
Project Capital
Loan or Lease
Loan or Lease
Loan or Lease
Loan or Lease
Agreement
Agreement
Repayments
Repayments
DBP, LandBank)
Guaranteed Savings Model (End-User is borrower or lessee) Shared Savings Model (ESCO is borrower or lessee)
Barriers: Most ESCOs, MSMEs and households are not creditworthy enough to gain sufficient access to EE loan and leasing facilities.
Many end-users (including C&I corporates) prefer not to use available credit/ leasing lines for non-core activities like EE projects.
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Third Party Investor (Project Company) provides capital
through ESCO
• Off-balance sheet procurement. • The Project Company remains the legal and “accounting” owner of the EE
• In most cases, up to 100% of EE project equipment assets through contract term.
cost is financed by a third party investor • Rationale: Over 98% of ESCOs in developing Asia have no adequate access to
through a special purpose Project bank financing to grow their portfolio of performance contracts. Over 66% of
Company. EE capital through 2017-2040 in the Philippines will have to flow through this
model.
• Applies to larger energy end-use 3rd Party Investor • The Project Company reaps a significant
sectors: commercial, industrial, Equity Provider as majority of the monetized energy and
(transport) and government Project Co. maintenance savings or sells 100% of
energy output to end-user to enable
medium-term risk mitigation.
Barriers: Third party investors find it difficult to capitalize EE projects unless after-tax returns are made commercially attractive (i.e.
IRRs in upper teens) by a whole suite of fiscal incentives. Government procurement and PPP policies and guidelines will be needed
to enable private investments in public sector EE projects.
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Special market channels of EE finance
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Using energy savings to pay ESCOs and other third
party investors
• Energy (and other OPEX) savings can be used to finance EE projects implemented by ESCOs and third party project companies under
shared savings performance contracts.
• Example: ESCO project reduces annual electricity bill from P 10 M to P 7.5 M. Out of 25% savings, P 2 M can be used to pay ESCO or
project company. Remaining savings, which normally escalate due to rise in energy tariff, are to be enjoyed by end-user.
Energy (and Other) Costs and Savings, Pesos
> P 2.5 M
Annual Energy
Annual Payment to ESCO from Savings P 2.0 M
Costs before EE
P 10.0 M
Alexander Ablaza
Co-Chair, Asia-Pacific ESCO Industry Alliance (APEIA)
President, Philippine Energy Efficiency Alliance Inc (PE2)
19th floor, Philippine AXA Life Centre
Sen. Gil Puyat Avenue corner Tindalo Street
1200 Makati City, Metro Manila, Philippines
Tel +63 2 (8)759 6680 loc 231
aablaza@live.com
secretariat@pe2.org
www.pe2.org
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