New Approaches to Driving Industrial Energy Efficiency in Asia

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As part of Climate Week 2021, P4G joined the Institute for Sustainable Communities (ISC) for a webinar on “Envisioning Green Partnerships for Driving Sustainable Manufacturing in South and Southeast Asia.” At the event on September 21, leading industrial energy efficiency organizations from Vietnam, Indonesia, India, and the Philippines laid out the status of energy efficiency in their country and pitched their solutions for scaling efficiency in energy service companies (ESCOs). In a shark tank style approach, panelists from funding institutions responded with insights on how to improve and scale approaches to accelerate the development of an active ESCO market.

Introducing the pitch session, Mark Lister, Managing Partner, Asia Clean Energy Partners, highlighted the importance of decarbonizing through scaling practical solutions relevant to each country. Lister shared perspectives from Vietnam, which uses 54% of its energy in industry, such as cement and steel. Despite attempts by the national government to enforce programs for energy efficiency, the ESCO sector is underdeveloped, especially at the local level. Lister called for de-risking measures to encourage private investment, as well as capacity building in ESCO sectors so industry players know what solutions and technologies they can use to improve energy efficiency.

Jon Respati, Chairman, Indonesia Energy Conservation and Efficiency Society (MASKEEI) shared how Indonesia has set national decarbonization targets, but energy efficiency is not mandatory across sectors. Many small and medium enterprises lack awareness about the potential benefits of energy saving for their businesses, while ESCOs struggle to secure adequate funding from financial institutions that fail to understand the merits of energy efficiency. Thus, MASKEEI advocates for incentives that will enhance new regulatory prospects to make energy efficiency mandatory and set clearer, more realistic target across all sectors. Through public-private partnerships, de-risking mechanisms and trading carbon certificates in coordination with government and relevant private sector actors, Indonesia can be a leader in industrial energy efficiency.

According to Mohammed Zahidul Haque, Senior Vice President and United Head, Infrastructure Development Company Limited (IDCOL), energy efficiency is indispensable to improve productivity and working environments in Bangladesh. Through its updated nationally determined contribution (NDC), the country plans to reduce GHG emissions in power transport and industry by 5% by 2030, which they could increase with more international funding and technological support. Haque outlined options including credit guarantee schemes, capacity development initiatives, and green bonds as ways to provide additional finance for effective project development. Haque noted that ESCOs play a pivotal role, but these conversations need to incorporate more vulnerable small businesses to make sure they are able to meet energy efficiency targets.

Poonam Pande, Deputy Head International, Energy Efficiency Services Limited (EESL) noted that 56% of India’s total energy consumption comes from industry, and micro, small and medium enterprises (MSMEs) are responsible for 20-25% of that. EESL is working to drive better industrial energy efficiency by leveraging economies of scale through bulk procurement, demand-driven aggregation, and Pay As You Save measures. They plan to transform the industrial sector by delivering energy efficient technologies to 1,500 MSMEs, which will provide visible savings of 15 – 35% based on the technology and sector and have the potential to reduce carbon emissions by 1 million tons per year. In calling for more funding, Pande noted “We have been able to demonstrate effectiveness, but we need more to scale up.”

Closing out the pitches, Alexander Ablaza, CEO of Climargy and Co-chair of the Asia-Pacific ESCO Industry Alliance, shared the Philippines experience, where private capital is moving toward renewable energy, but there’s still a barrier to energy efficiency improvements, which require double the capital and lack entities that will de-risk upfront project development costs. Climargy arranges equity and debt providers through ESCO contracts, mobilizing $108 million in initial investment tranches, which has the potential to avoid excess energy generation of 300 GWh/year by 2031 and create between 2,100-3,900 jobs. Ablaza highlighted how the problem is not just end-user adoption, but initial capital raising. He called on institutional investors to devote more upstream money to take on risk and help get more of these companies off the ground.

Kicking off the responses, Shalabh Tandon, Regional Head of Operations, South Asia at the International Finance Corporation (IFC) acknowledged that solving energy efficiency challenges for MSMEs has been a challenge for IFC, but they are working on scaling up efforts in game changing sectors, such as power, green transport, and manufacturing. He highlighted four steps needed to develop industrial energy efficiency: demand aggregation, technical assistance, access to finance and making business models commercially viable and credit-worthy. He noted that countries are in different stages, but they need to work through these steps, and IFC hopes to collaborate with them to eventually create a super ESCO platform to implement the innovative solutions needed.

Anjana Seshadri, Vice President of NEEV Fund, shared the fund’s approach to solving poverty and climate change by increasing equity support and risk mitigation for green infrastructure. Through an ecosystem of investment prospects, NEEV fund helps ESCOs address initial funding challenges by serving as an early-stage funder to share risk. The next challenge will be on designing models that can continue to accelerate through blended finance.  

Sharing his excitement about the new sources of funding for ESCO models, Sarbinder Singh, Director of Investments, P4G noted that if governments adopt these models and dedicated funds can invest in the approach, they will become catalytic in saving energy. “Energy efficiency is like peeling an onion, each measure you take means things will keep improving,” he said. Singh also shared P4G’s approach of working with partners like ISC to bring more innovative solutions into play through multistakeholder partnerships, so the impact becomes permanent and the transition moves faster.

Markus Bissel, Project Director for Vietnam, GIZ shared the fund’s approach to providing technical assistance for energy efficiency in Vietnam, where GIZ helped the government develop an ambitious national energy efficiency program and law that resulted in high energy savings for the 3,000 companies that consume 40% of Vietnam’s energy. Markus also raised the challenge of how to convince companies to invest in energy efficiency which competes with renewable energy as a more visible and easier option.

ESCOs will continue to work on answering the hard questions to accelerate adoption of industrial energy efficiency across South and Southeast Asia. As Vivek Adhia, India Program Director, ISC reflected on the tremendous opportunity for energy efficiency, “now is the time to make bold decisions and accelerate clean teach adoption.”

Watch the full session here.