1

Energy Efficiency in the Global Context: Role and Opportunities for Enhancing Energy Security

Ashok SarkarThe World Bank

Consultation Workshop on“Future Energy Scenarios toward Sustainable

Energy Policies and Practice in Thailand’

Bangkok, ThailandAugust 28, 2006

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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

3

Global EE Outlook

4

Global Energy Growth Trends

Source: IEA World Energy Outlook, 2004

5

Primary Energy Demand by Region(Business As Usual)

By 2050 developing countries account for 55% of global energy demand

52%43% 38%

10%

9%7%

38%48% 55%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2003 2030 2050

Developingcountries

Transitioneconomies

OECD

Source: IEA Energy Technology Perspectives 2006

6

Global Energy-Environment Dynamics

Source: IEA World Energy Outlook, 2004

9

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

10

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2003 Baseline 2050 ACT Map2050

2003 Baseline 2050 ACT Map2050

Mt C

O2

OECD Developing Countries

-32%

+65%

OECD Emissions one-third below 2003 level, while emissions in Developing Countries are two-thirds higher; Improved energy efficiency saves about 15 Gt CO2 by 2050 – equivalent to 60% of current emissions

CO2 Emissions in 2025Business-As-Usual vs. IEA

Scenario

+255%+70

%

Source: IEA Energy Technology Perspectives 2006

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Emission Reduction by Technology Area

IEA’s Scenario through 2050

Improved energy efficiency most important contributor to reduced emissions

Other renewables

Biomass

Fossil fuel generation efficiency

Nuclear

Coal to gas

Hydropower

CCSPower

generation

End-useefficiency

Biofuels in transport

CCS in fuel transformation

CCS in industry

Fuel mix in buildings and industry

Source: IEA Energy Technology Perspectives 2006

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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…)

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Global EE RoadmapWhere does Thailand Fit In?

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Gains from Energy Efficiency – OECD Countries (1973-1998)

49 %

Exa

jou

les

Hypothetical Energy Use without Savings

Actual Energy Use

0

20

40

60

80

100

120

140

160

Additional Energy Usewithout Intensity Declines =Energy Savings

Source: IEA

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Energy Efficiency Roadmap (1)Energy Intensities have been declining…

Source: Exxon-Mobil (2005). “The Outlook for Energy- A View to 2030”

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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

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Where does Thailand Fit intothis 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

Energy Intensity - Selected Countries

Brazil

China

India

Japan

USA

Ireland

Canada

Australia

Sub-Saharan Africa

Mexico

South AfricaMiddle-Income Countries

Low-Income Countries

Germany

Indonesia

Russian Federation

Ghana

World

Thailand

-

200

400

600

800

1,000

1,200

- 10,000 20,000 30,000 40,000 50,000

GDP per capita (US$)

En

erg

y In

ten

sit

y (

kg

oe

/'00

0$

GD

P)

THREE KEY QUESTIONS

WHY (SO)? WHAT (NOW)? HOW (TO)?

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EE Opportunities and Challenges for Thailand

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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 and 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.

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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

• OECD/IEA – recent experience with EE indicators.

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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

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How? “Hypothesis”• Building Up on Existing Successes:

– Scale up the DSM momentum – at 1.3 cents/kWh and $63/kW 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 ($50M 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

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Strategies and Policies for Transforming EE Markets

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Transforming EE MarketsExperiences from the Developed World

Mar

ket

Per

fect

ion

----

-

Finance ----------

PublicPolicies,Finance

Public-Private

Partnerships

PrivateCapital

RisksTransactions

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EE Implementation Strategies Menu of Options to Overcome Barriers

OPTIONS•Mandatory En. Audits•Min En. Perf. Standards•Building EE Codes•Utility DSM (EPP)

OPTIONS•Appliance EE Labels•Energy Service Cos./•Performance Contracts•Innovative Financing Mechanisms

Market Market “Push”“Push” &&

Market Market “Pull”“Pull”

Publicly-supported,Incentive-Based,

RegulatoryCommand & ControlCommand & Control

Policy Strategies

Market-DrivenMarket-Driven&

SustainableMechanisms

TIME

Vietnam, Indonesia,… India, China, Thailand,… Japan, US, Europe,…

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EE Standards and Labeling

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Energy Efficiency Standards(Appliance/Equipment)

TheThe Ratcheting EffectRatcheting Effect:Standards promote innovation and technology development

Source: Weil & McMohan, 2001

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Impact of Energy Efficiency Standards

Estimated Impact of Ballast Energy Efficiency Standards by USDOE 2000

Source: Energy Information Administration, 2001; Weil & McMohan, 2001

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Energy Efficiency Labels

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Adding New Equipment and Adopting a Systems Approach

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Motor Systems Energy Consumption (~ 50% of Industry Energy Cons.)

Source: UNIDO

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Pumping Systems ( Motor + Pump + Valve)

More than 40 psigdrop across thethrottle valve

Package efficiency = Hydraulic output / Motor input =

2.7 / 14.9 = 0.18, or 18% Source: UNIDO

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Pump System Optimization

Source: UNIDO

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New Pump System

Source: UNIDO

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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.

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Utility Demand Side Management

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Utility Demand Side Management International Success Stories

• United States: Since late 1970s, 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.

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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.

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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

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Regulatory “Pressure” for DSM:International Experiences

• New Zealand: Law requires publicly-owned utilities to offer Energy Efficiency.

• Norway: In 1980s, 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.

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Creating an Enabling Environment for End Users and ESCOs

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EE Implementation through the ESCO Shared Savings Model

CustomerCustomer

ESCOESCO LenderLender

PERFORMANCE RISK

+CREDIT RISK

Savings Guarantee

FixedRepayment

Schedule

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EE Implementation through ESCO Guaranteed Savings Model

CustomerCustomer

ESCOESCO LenderLender

Savings GuaranteeFixed Repayment

Schedule

CREDIT RISK

PERFORMANCE RISK

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Barriers to Commercialization of EE in Asia

0

5

10

15

20

25

Energy & environmental

policies Low energy

prices Lack of awareness Access to

funds High business risks Access high

quality EE products

High costs of EE products Low market

potential Low potential for ESCO

profits Lack of ESCO- personnel skills

Num

ber

of r

esp

ond

ents

Is a significant Barrier Is somewhat a Barrier Is not a Barrier

ESCO Survey Results: Barriers

Source: ADB, 2004

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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

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China: ESCO Loan Guarantee Program (1)

Source: Three Country Energy Efficiency Project, Draft Report, World bank, April 2006

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China: Full-Service Shared Savings ESCO Model

Financing

Project design

Loan finance

Equipment suppliers

and technicians

Project management and oversight

Repayment from project operations

ESCO Corporate Shareholders

Equity finance, loan finance

Repayment and/or dividends

ESCO

Financial Institutions

Equipment performance warranties

End-user Client

Repayment Guarantor

Repayment guarantee (if

required)Repayment according to EPS

Source: Three Country Energy Efficiency Project, Draft Report, World Bank, April 2006

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Central Maine Power DSM Program:Utility Purchase of Delivered Energy Savings

Commercial, Industrial, & Institutional Energy Users

engineering, turnkey cooperation, access,equipment installation payment of portionO&M/monitoring of capital costs, early

services termination payment

ESCO (several selected)

CMP Electric utility

Energy Services Agreement

delivers verified kw& kwh savings

payment/kw & kwhdelivered

capital for loan payments/ equipment assignment of projectinstallation revenues and security

Loan Agreement

Financial Institution

DSM Contract

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, PSE&G, etc.

Source: J. MacLean @ IEEFP, 2006

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Payments on electric bill, per CFL

Residential End-users

E.D.F.

CFL Mfg.s

(Osram)

Bulk Purchase

Retailers

Distribution of CFLs

Electricite du France Residential CFL Leasing: Martinique & Guadeloupe

…

Redemption of coupons

Advertising campaign

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 •Many similar programs internationally

Source: J. MacLean @ IEEFP, 2006

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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 • 1st Demo Phase: ~300,000 lamps in Bangalore Urban District• 2nd 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 (2nd Phase)

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IFC China Utility-based EE Finance Program

Commercial & Industrial Customers

Bank

IFC

Energy Equipment + Service Providers

EE Project/Equipment Loans

Support from IFC & GEF•Program Design•Program Operations Cost Share•Technical Assistance support: for preparation of EE Projects•Loss Sharing Facility

Utility Gas/Electric Payments

ProgramAgreement

Integrated Utility + Loan

payment

Gas/ElectricSales

EE ProjectMarketing+Development

CooperationAgreementw/ qualifiedcompanies

EnergyEquipment Projects+

Services

Utility:CustomerService Center

Loss Sharing Facility

China Ministry of Finance + Government Support

Typical Projects•Boilers•Cogeneration/Small Power•Industrial Process•Heating & Air Conditioning•Refrigeration•Compressors•Lighting, Motors, Controls•Engineering firms•Installation Contractors•Others…

Project stepsMarketingEnergy AuditFeasibility StudyCustomer DecisionEngineeringFinancingInstallationOperations

Loan Program Agreement

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Sustainable ESCO Financing in AECo, India (IREDA Model)

IREDA (Bank)

ESCO

Repayment

User

Equipment Lease

Utility

Rental with

Billing

Escrow Account

Rental

First Charge

Loan

Rental

Source: IREDASource: IREDAPublic-Private PartnershipTripartite Agreement

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U.S. Federal Energy Management Program (FEMP): Super Energy Performance Contract Program

U.S. Gov’t

FEMP

Authorizing legislation Energy Conservation Act 1992

.…

Qualified ESCOs

Framework RFP & Contract

Federal agencies & Facilities, e.g., Dept of Defense

.…

Individual project

procurements

Turnkey projects; EPC payments; w/ “termination for convenience”

F.I.

loan or lease

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

EnergyPerformanceContract

Source: J. MacLean @ IEEFP, 2006

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Catalyzing EE Investments through Carbon Market

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Carbon Prices – The Key?

Required price of CO2 to raise IRR by 1%

Source: ADB, 2005

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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

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Conclusions (2)

• Building Up on Existing Successes:– Scale up the DSM momentum – at 1.3 cents/kWh and $63/kW 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 ($50M 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

72

For more informationon World Bank EE Projects…

http://www.worldbank.org/energy

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Thank You

Ashok Sarkar, Ph.D.

Senior Energy SpecialistEnergy Sector Management Assistance Program (ESMAP)

Energy and Water Division

The World Bank

Washington, DC.

asarkar@worldbank.org