How to Finance and Sustain Energy Efficiency Initiatives

This article is contributed by Glen Plumbridge, Managing Director, Sustainable Development Capital (Asia) Limited (“SDCL”). He is speaking at this year’s National Energy Efficiency Conference in Singapore, taking place on 9 and 10 October.

Glen PlumbridgeAs global awareness of climate change continues to grow, there has been an increasing focus on energy efficiency. The International Energy Agency (IEA) has for many years identified energy efficiency as one of the main solutions to a reduction in carbon emissions and estimate that two thirds of the hoped for carbon dioxide emission reduction in developing countries must come from improved energy efficiency. The World Bank has also identified greater energy efficiency as being key in shifting country development paths towards a lower-carbon economic growth.

Energy efficiency upgrades are typically carried out by Energy Services Company (“ESCO”), turn-key contractors who assume full responsibility for the design, development, and installation of energy efficiency projects. Most ESCOs are unable or unwilling to assume the financing risk for these projects.

Hosts who could benefit from energy efficiency retrofits often fail to invest the needed capital on their own due to the multi-year payback periods involved, or their unwillingness to carry the projects on their balance sheet. Compounding the problem, few financial institutions have the internal capacity to evaluate, recognize, or accept cash flows from energy efficiency projects as collateral for loans.

Barriers of this type have slowed the development of the energy efficiency model – addressing these barriers through a finance led approach will help unlock many of the energy efficiency opportunities.

A country with almost no indigenous hydrocarbon resources, Singapore has been increasingly emphasizing a more sustainable, energy efficient development path. Since early 2000’s, Singapore began to liberalize its electricity market, through the National Electricity Market of Singapore (NEMS), a real-time electricity trading platform opened in 2003. To further promote energy efficiency and address the climate change issues, Singapore introduced a target to achieve 35% improvement in energy intensity by 2030 from 2005 levels, and 16% reduction of carbon emissions below “Business As Usual” (BAU) by 2020.

A market driven electricity trading system, an aggressive national target to reduce energy intensity and carbon emission, together with the recent mandate on companies’ energy management have made Singapore an ideal location to develop a robust market for energy efficiency technology, services and investment.

Industry-related energy consumption accounts for 40% of her total electricity use and over 80% of gas use in Singapore. The Singapore government focused on a variety of value chain and aspects of energy use to improve the energy efficiency in the industrial sectors. The Singapore Economic Development Board (EDB) and National Environment Agency (NEA) are instrumental in establishing the energy efficiency programs in the industrial sector.

SDCL has been working closely with both agencies in establishing the first investment program in Singapore to finance the energy efficiency projects for Singapore’s manufacturing facilities. Leveraging the strong support from the government, increased awareness of curbing energy intensity in the business community and a well established financial market, the investment program in energy efficiency will create a win-win for both the country’s long term development target and the private sector’s healthier growth.

SDCL will be supporting the Singapore National Energy Efficiency Conference and will be presenting their new Singapore energy efficiency finance program at this forum.

SDCL Asia, a joint venture between Sustainable Development Capital LLP (“SDCL”) and First Eastern Investment Group (“First Eastern”) of Hong Kong, has committed to be the cornerstone investor to launch the energy efficiency financing process. SDCL Asia will be drawing on the specialist experience and expertise developed within the SDCL Group both in the UK and Asia to implement energy efficiency in Singapore, which will be a first of a kind for the region.

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