Incentives urged for energy efficiency retrofit projects

The government should direct non-debt-based capital to flow into energy service companies to help achieve its goal of fostering a more efficient use of energy resources.

This is the among the items listed by the Philippine Energy Efficiency Alliance, Inc. in its position paper submitted to the Board of Investments (BoI), which is gathering stakeholders’ input in a public consultation on the 2017 Investment Priorities Plan.

“If the Philippine economy has to mobilize $180 billion in energy efficiency project capital in the next 14 years, we should expect that only a minority share can be supported through self-financed or debt-financed mechanisms,” said Alexander Ablaza, president of the alliance.

“The convenient theory that most enterprises would readily self-finance or utilize available credit to implement non-core business activities such as energy efficiency is clearly flawed as only a limited circle of commercial and industrial entities in the Philippines have actually mainstreamed such investments in their operations,” said the alliance, which is also known as PE2.

What the economy needs are catalytic vehicles of energy efficiency capital flowing from third-party investors to willing and capable project developers such as energy service companies, or ESCOs, Mr. Ablaza said.

“The need for non-debt-based capital is highlighted by the fact that over 98% of ESCOs in developing Asia have no reasonable access to bank lending to be able to scale-up their project portfolios,” he said.

As such, he said the government should be able to incentivize and accelerate capital flow from third-party investors to energy efficiency assets.

Mr. Ablaza said the BoI’s move to include energy efficiency among the eligible investment priorities next year was commendable, but the country’s investments promotion agency should develop “special definitions for project boundaries.”

“The IPP should not only include pure greenfield energy efficiency projects located in semi-greenfield sites, such as the construction of district cooling systems, waste heat recovery cogeneration plants, and biomass power generation plants,” he said.

He said the agency’s energy efficiency project boundaries “should be able to cater to greenfield retrofit projects in existing, brownfield sites, which may comprise over 90% of energy efficiency investment opportunities in the country.” 

In industry parlance, greenfield projects are new initiatives while brownfield ones are upgrades.

He said examples of greenfield retrofit projects in existing, brownfield sites include the importation and installation of brand-new high-efficiency equipment technologies, including heating, ventilation and air conditioning, cooling, refrigeration and chillers.

Also included are compressors, pumps, motors, drives, controls, building management systems, boilers, LED lighting, process equipment, building envelope solutions), intended to replace older, low-efficiency equipment.

Mr. Ablaza also questioned the notion that “energy savings should be incentive enough,” as he called it “severely flawed.”

“If we allow this reasoning and pure market forces to drive energy efficiency investments, why has not total energy efficiency spending grown significantly in the last 26 years of voluntary energy efficiency policy regime?” he said.

“Consider this a clearer market failure: We see major conglomerates start to expand their portfolio of renewable energy generation assets (aside from coal-fired power plants) mainly because of the viability catalyzed by the fiscal incentives of the Renewable Energy Act, but if energy savings are supposed to make such investments commercially viable, why has not a single one of these major conglomerates invested in portfolios of energy efficiency assets in non-owned facilities or premises?” he said.

“Tax-based and non-tax-based fiscal incentives are clearly necessary to enable equity returns of energy efficiency technologies and services to hurdle viability thresholds expected by third party investors,” he added in the PE2 position paper.