same energy, more power: accelerating energy efficiency in asia

7/27/2019 Same Energy, More Power: Accelerating Energy Efficiency in Asia

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Accelerating Energy Efficiency in Asia


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2 3 Asian evelopment Bank

All rights reserved. ublished 2 3.rinted in the hilippines.

B 978-92-9254- 63-7 rint) 978-92-9254- 64-4 )ublication tock o. T 35828-3

Cataloging- n- ublication ata

Asian evelopment Bank.ame energy more power: Accelerating energy efficiency in Asia.

andaluyong City hilippines: Asian evelopment Bank 2 3.

. Clean energy 2. nergy efficiency. . Asian evelopment Bank.

The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of theAsian evelopment Bank A B) or its Board of overnors or the governments they represent.

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rinted on recycled paper


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iii

Contents

List of Figures and Tables vForeword viAcknowledgments viiiAbbreviations ix Weights and Measures x Executive Summary xi1 Introduction: The Energy Efficiency Imperative

. Background: The alue of nergy fficiency

.2 nvironmental and ocial Benefits 2

.3 Technical and conomic Benefits 3

.4 nergy fficiency in Asia: tatus and rospects 6

.5 caling p nergy fficiency Action: A Bs ole 72 Causes of Underinvestment and Persistent Energy Inefficiency 9

2. avigating the nvestment Context 92.2 An conomic iew of Barriers to nergy fficiency 92.3 emographic Trends and nergy emand rowth 2.4 The nstitutional nvironment for nergy fficiency 22.5 Behavioral actors 42.6 nergy fficiency undamentals: esign Considerations for olicy and inance 4

3 Lessons Learned from Energy Efficiency Investment Experience 83. romoting nergy fficiency: A urvey of Tools and echanisms 83.2 verarching eeds for mplementation 83.3 olicy rograms and ncentives 23.4 ngaging takeholders 283.5 onitoring and valuation 293.6 caling p and ystematizing nergy fficiency: ome ays orward 293.7 Building on olicy xperience: ext teps 35

4 Energy Efficiency State of Play in the PRC, India, and Southeast Asia 364. A tatus eport on Asia 364.2 Country Commitments to nergy fficiency 364.3 nergy Trends in Asia 394.4 olicies and rojects of ote: A egional urvey 44.5 upportive egional Actors 44


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Same Energy, More Poweriviv Contents

5 ADBs Energy Efficiency Activities and Investments 465. A Bs alue to nergy fficiency nvestments 465.2 xpansion of A Bs Clean nergy nvestments 475.3 A Bs emand- ide nergy fficiency rojects 55.4 emand- ide nergy fficiency in ractice: Case tudies of A B Action 525.5 ecommendations for A Bs Clean nergy rogram 55

6 Realizing Energy Efficiency Potential in Asia and the Pacific 576. Capturing ider ains for nergy fficiency 576.2 nhancing upport ithin A B for emand- ide nergy fficiency 576.3 Taking a ore ystematic Approach 66.4 easuring A Bs Contribution to nergy fficiency 626.5 p-front und acility for nergy fficiency 626.6 uideposts for uture emand- ide nergy fficiency nvestments 626.7 inal Considerations: oving from Concept to Action 63

7 Conclusion 64Appendixes

Analysis of A Bs Clean nergy ortfolio 652 A Bs emand- ide nergy fficiency nvestments 2 52 663 A Bs ndependent valuation epartment eport: indings

and ecommendations 74 nterviewees 73

References 74


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Figures and Tables

Figures eneration Cost Compared to Cost of nergy fficiency 4

2 itigation easures for C2 Abatement to 2 35 53 nergy fficiency in rojected nergy nvestments and rimary nergy Consumption

in outheast Asia 384 Breakdown of A B Clean nergy nvestments 2 2 485 Breakdown of A B nergy ector nvestments Approved 2 52 486 Breakdown of A B Clean nergy nvestments Approved 2 72 497 A B emand- ide nergy fficiency nvestments by ear 2 52 58 A B emand- ide nergy fficiency nvestments by Type 2 52 59 roposed esign of the nergy fficiency Technical upport nit 58

A Categories and Classifications sed in the Analysis of A Bs Clean nergy ortfolio 65

Tables upply- ide versus emand- ide nergy fficiency

2 orld opulation ithout Access to lectricity in 2 8 with rojections to 2 3 3 nterventions for nergy fficiency by conomic ector 64 nvestments eeded to eet ational Targets by 2 2 375 urvey of rimary nergy Consumption Among A B embers to 2 3 46 A B emand- ide nergy fficiency rojects 2 52 57 A B emand- ide nergy fficiency rojects in 2 53

A2 A B rojects with emand- ide nergy fficiency nvestment 2 52 66


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Foreword

Asias remarkable economic expansion over the last 2 decades has lifted millions out ofpoverty. ith continued growth by the middle of this century an additional 3 billionAsians could enjoy living standards similar to those in urope today. This future howeveris not preordained and must be strategically supported by an energy system that is sustainableaffordable and accessible for all Asians. ew energy resources must be developed to includelow-carbon renewable options and greater emphasis must be given to energy efficiency thelowest-cost energy resource of all.

nergy efficiency is a key solution to meeting energy and economic challenges in developingAsia. nlike approaches that simply expand energy supply such as building new power plantsenergy efficiency prioritizes actions that first reduce the need for energy. uch reductions mayoccur by decreasing energy losses in the supply chain an approach known as supply-side energyefficiency ). Another approach is to consume less energy for the same level of service foexample when operating buildings tools products and machinery. This strategy is known asdemand-side energy efficiency ).

imperatives often take precedence in resource planning and related investment decisions. by contrast which may require interventions at hundreds or thousands of homes

businesses industrial sites and government facilities can appear daunting. As a result inertiaoften limits efforts to act on energy efficiencys potential in both developed and developingcountries. et its value cannot be ignored in a finance- and resource-constrained world. Thecontinued rise in global carbon dioxide C2) levels and the implied threat of climate change aslinked to reliance on fossil fuels add still greater urgency to calls for a new emphasis on energyefficiency as a key strategy by which to curb burgeoning energy demand.

As this report identifies a 4 investment in energy efficiency as a share of overall energysector investment can meet as much as 25 of the projected increase in primary energyconsumption in developing Asian countries by 2 3 . This cost-effective investment in turncan boost regional energy security by tempering the need for imported energy as most

countries in the region 2 decades from now will produce 5 or less of the energy theyrequire. ore generally robust deployment of energy efficiency can relieve pressure on existingenergy infrastructure while reducing emissions and other pollutants that harm air quality andcontribute to climate change.

ver the past decade the Asian evelopment Bank A B) has succeeded in quickly scalingup its investment in energy efficiency and the development of renewable resources within itsdeveloping member countries Cs) through its Clean nergy rogram. n recent years A B


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Causes of Underinvestment and Persistent Energy Inefficiency viiviiForeword

has been channeling approximately 5 of its energy sector investments into clean energy. A Bachieved an initial target of $ billion in clean energy investment per year by 2 8 then reached$2. billion in 2 realizing its 2 3 target 2 years ahead of time. n 2 2 A B achievedclean energy investments of $2.3 billion. investments $72 .5 million) represented 3of all clean energy projects while investments $252.4 million) accounted for . Theseresults for 2 2 show a significant role for overall in A Bs clean energy investments.

A more in-depth analysis of A Bs investments in energy efficiency based on comprehensivedata available on projects through 2 sheds greater light on the types of initiatives andfunding levels supported over the years as part of this investment. hile the general trend inA Bs clean energy investments has been positive investments in energy efficiency have laggedbehind particularly on the demand side. Building sector interventions in particular have beenunderutilized relative to their potential.

A B has significant scope to scale up its technical assistance and funding for energy efficiency

in Asia toward a more even portfolio of and interventions. nergy efficiencyimprovements at the level of households commercial businesses and industrial facilities mayin turn be complemented by a focus on green city design. As Asia continues to urbanizeintegrated planning for infrastructure can maximize efficiencies across the built environmentfor mixed-use development in combination with renewable energy new public transportoptions and more efficient vehicles. Together these changes promise to capture the next levelof dramatic energy savings toward vast economic and environmental gains.

This effort is critical in meeting growing regional energy demand in a sustainable manneraccording to A Bs trategy 2 2 . Based on recent in-depth analysis further support for anexpansion of A Bs energy efficiency investment and lending in its Cs will be considered.

The following report accordingly identifies key areas of interest for accelerating energy efficiencyinvestments. The report also examines global and regional trends that are driving Asias energydemand and the resulting policy and regulatory environment for energy efficiency. t is hopedthat this report and the strategy proposed within can help to unlock energy efficiencys potentialtoward an accelerated pace of investment in Asia and the acific. This notioni.e. unlockingAsias clean energy futureaims at providing more energy service with the same amountof energy.

Asias future is one of near limitless possibilities. But cost-effective low-carbon energy resourcesmust be tapped to end poverty expand energy access and improve the quality of life for all.As a growing number of countries in Asia turn to energy efficiency as a least-cost prioritysolution to meet energy demand A B stands ready to build onand ramp upits existingachievements in the sector. The cost of doing otherwise is simply too high.

Bindu Lohaniice residentnowledge anagement and ustainable evelopment

Asian evelopment Bank


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viii

Acknowledgments

This publication documents the results of an analysis of past efforts by the Asian evelopmentBank to support energy efficiency interventions across multiple sectors in its developingmember countries. The report also includes an overview of energy efficiency policy andprogrammatic approaches in Asia and other regions throughout the world.

This publication was a product of team work led by Aiming hou enior nergy pecialistustainable nfrastructure ivision egional and ustainable evelopment epartment )

with support and guidance from Anthony ude enior Advisor and ractice eader nergy); Ashok Bhargava irector nergy ivision ast Asia epartment; il- ong im irec

ustainable nfrastructure ivision ; il-Bae ong retired) then enior Advisor aractice eader nergy) ; obert uild irector Transport nergy and atural esourivision acific epartment; une troem irector nergy ivision Central and est Asepartment; ongping hai irector nergy ivision outh Asia epartment; ooChong meputy irector eneral ; and . Chander irector eneral concurrently Chie

Compliance fficer). ther individuals interviewed for this report are listed in Appendix 4.

e also thank colleagues in the nergy Community of ractice of A B) for their comments onthe report and extend additional thanks to eter u ont Carina aton risten ughes andAlex Ablaza for their contributions.


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AbbreviationsA B Asian evelopment Bank A C Asia acific nergy esearch CentreA A Association of outheast Asian ationsBA business-as-usualB Bureau of nergy fficiency ndia)CCT clean coal technologyC centralized district heatingC Clean evelopment echanismC Clean nergy rogram of A B)C cleaner fuelsC compact fluorescent lampC [ eoples epublic of] China tility-Based nergy fficiency inance rogramC 2 carbon dioxideC corporate social responsibility

C developing member country demand-side energy efficiency

demand-side managementC uropean Commission

energy efficiency nergy fficiency nitiative of A B)

nergy fficiency esource tandardsT nergy fficiency Technical upport nitA nergy nformation AdministrationA nvironmental rotection AgencyC energy service company uropean nion

gross domestic product lobal nvironment acility greenhouse gas

A nternational nergy Agency ndependent valuation epartment of A B)

nstitute of nergy conomics apanC nternational inance CorporationCC ntergovernmental anel on Climate Change

measurement and verificationA anufacturing alue AddedC rganisation for conomic Co-operation and evelopment

rivate ector perations ivision of A B) renewable energy


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Same Energy, More Powerx x Weights and Measures

TA regional technical assistance egional and ustainable evelopment epartment of A B) supply-side energy efficiency

T transmission and distribution nited ations

CCC nited ations ramework Convention on Climate ChangeA nited tates Agency for nternational evelopment

nited tates epartment of nergy

Weights and Measures

t gigatonktoe thousand tons of oil equivalentk h kilowatt-hour

T million tons of oil equivalent megawatt

T h terawatt-hour


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Executive Summary

Energy Efficiency in Asia: An Untapped Resource

nergy efficiency ) is often defined as delivered energy service per unit of energy suppliedinto a system. The value of is grounded upon its ability to aid energy systems in meetingend-user needs without requiring an expansion of system capacity. nlike approaches thatsimply expand energy supply such as building new power plants prioritizes actions thatfirst reduce the need for energy. uch reductions may occur by decreasing energy losses inthe supply chain an approach known as supply-side energy efficiency ) for improvedperformance in the production and delivery of electricity and heat see Table in Chapter p.

). Another approach is to consume less energy for the same level of service a strategy knownas demand-side energy efficiency ). or end-use ) relies on improved efficiencies atthe point of final energy consumption for example when operating buildings tools productsand machinery.

Among the range of technology options that exist to provide energy service approachesare the most cost competitive. As a resource by which to meet national or regional goalsfor development and economic growth is growing in importance for many developing

member countries Cs) of the Asian evelopment Bank A B). The appeal of or end-use comes from its ability to reduce the cost of energy service as noted above and to respondto a number of wider social and environmental concerns. These include the environmental risksthat surround ongoing reliance on conventional fossil fuels in particular the threat of climatechange and the need to develop energy resources that bolster national energy security andsystem reliability.

hen pursued alongside efforts to decarbonize energy systems through the developmentof resources such as wind and solar interventions offer an opportunity to transformthe character of energy service. reater sustainability affordability and reliability may beachieved even as the energy system is able to reach a greater number of end users. eychanges in policy priorities and investment strategies will be necessary however to realize

these outcomes particularly in developing Asia where rapid economic growth is coinciding withurbanization impacts.

This report examines prospects for A B to ramp up efforts in the region for greater utilizationof the most cost-effective source of energy supply. The report further identifies global andregional trends that are driving Asias energy demand and the resulting policy and regulatoryenvironment for energy efficiency.


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Same Energy, More Powerxiixii Executive Summary

Obstacles and Opportunities: Energy EfficiencyInvestment Strategies

obust deployment of interventions can relieve national pressure on fossil fuel reserves andhelp reduce the need for energy imports thereby conserving domestic expenditures for alternativeinvestments in education health care and other amenities. reater emphasis on end-use candefer the need for expansions of power plants and transmission and distribution infrastructurewhile reducing pollution impacts and contributions to climate change. As advanced smart gridnetworks emerge will play a key role in balancing the systems equilibrium allowing theintegration of smart meters distributed generation intermittent renewable resources andelectric vehicles and charging technology.

espite s remarkable potential to deliver high value to end users its utilization has beendisappointing for reasons that span economic institutional and behavioral factors Taylor etal 2 8 A B 2 2a A 2 2). otential beneficiaries of investment may face pridistortions and high transaction costs or they may lack sufficient information to understandor proceed with projects. A lack of commercially attractive financing high capital costsand concerns about project risk also can dampen enthusiasm for uptake. n many localesthe institutional context for is characterized by the absence of governmental leadership aswell as the lack of a centralized authority or agency that can encourage or manage wide-scale

implementation. olicy and regulatory approaches in the energy space also tend to favorsupply-side options that respond to demand by expanding generation capacity.

These barriers can be surmounted or lessened through efforts to design interventions thatmore specifically meet the needs of diverse stakeholders. ew institutional capacity can scale uptargeted action across households businesses industrial facilities public infrastructure and thetransport sector. ursuit of larger interventions can further benefit from attention to deliverymechanisms for facilitating investment. ptions include energy service companies C s) loanfinancing and partial loan guarantees demand-side management ) programs offeredby distribution utilities in the energy sector and bulk procurement programs as ordinarily ledby government Taylor et al 2 8 C 2 2). Clarity and consistency of purpose ongoingstakeholder engagement careful monitoring and evaluation and support for awarenesscampaigns are all contributing factors for effectiveness A B 2 2d ani 2 2). The largergoal is to ensure that policy and incentives financing packages and project design cometogether in ways that respond to the opportunities that exist in different market segments.

Current Energy Efficiency Activities in Asia

ith projections for global economic growth and the emerging role of developing countries ascenters of industrial activity the need for greater efficiency in energy use is increasing worldwide.

nergy demand between developing and developed countries reached parity in 2 . ver thenext 2 decades developing countries in total should account for some 9 of the increase inglobal primary energy demand A 2 ).

By 2 35 the share of developing Asia specifically in primary global energy consumption iexpected to increase from 34 in 2 to as much as 56 according to some projections


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Causes of Underinvestment and Persistent Energy Inefficiency xiiixiiiExecutive Summary

A B 2 3a citing A 2 2 and ee ark and aunders [forthcoming]). This trend reflectsAsias increasing role as a center of manufacturing and its status in claiming over half of allglobal megacities. eanwhile Asias dependence on energy imports is growing. ost countriesin the region 2 decades from now will produce 5 or less of the energy they require. nergyimports and specifically imported oil will continue to be critical in the region A B 2 3a).

Against regional trends for growth and in recognition of s benefits large emerging economiessuch as the eoples epublic of China C) and ndia have launched initiatives resulting insignificant improvements in the industry sector. ore generally countries throughout Asiahave established commitments or targets to expand s role in meeting national energy needs.

The C a leading player in Asia and an emerging global economic power has emphasizedthe role of energy conservation in national policy since the 98 s nformation ffice of the

tate Council of the eoples epublic of China 2 2). rom 2 6 to 2 its energy use perunit of gross domestic product ) declined by 9 . uring the Cs Twelfth ive- ear

lan eriod 2 2 5) the tate Council put forward proposals to significantly expand suchefforts. The countrys energy use per unit of is targeted to decrease by 6 against a 2baseline with carbon dioxide C2) emissions per unit of targeted to fall by 7 an and ang 2 2).

n ndia the nergy Conservation Act of 2 guides a national strategy to lower the energyintensity of the countrys economy. The Bureau of nergy fficiency is tasked with carrying out

initiatives. rom 2 7 to 2 its efforts resulted in cumulative verified energy savings of22.5 million tons of oil equivalent B 2 ).

n ndonesia the irectorate eneral of ew enewable nergy and nergy Conservation wascreated in 2 to engage policy and regulatory development and to advocate for . n 2

the irectorate created the nergy fficiency and Conservation Clearing ouse ndonesia as acentral source of information and best practice on A 2 ).

Thailands 2 - ear nergy fficiency evelopment lan spanning 2 to 2 3 promotesenergy savings with an emphasis on the industry and transport sectors. ore broadly robustimplementation of the plan should achieve each year cumulative energy savings averaging

4 5 ktoe. The resulting cumulative reductions in C2 emissions should average 49 milliontons each year Thailand inistry of nergy 2 ).

fforts in Asia to advance implementation further benefit from the provision of external aidassistance from a number of regional and international players. ore broadly clean energyinvestmentoverallhas been increasing in the region. uring the last decade investmentin clean energy in Asia expanded by almost fifteenfold A 2 B 2 ). n2 Asia and the acific claimed the greatest portionsome $59 billionof worldwide cleanenergy investment which totaled $2 billion that year. The C $49 billion) garnered thelargest investment with ndia at $3.8 billion. ndonesia Thailand and iet am each claimedinvestment amounts that varied between $2 million and $7 million B 2 ).

The above figures are impressive but the total $2 billion invested worldwide in 2translated to investments in renewable energy. nvestment in energy-smart technologiese.g. systems and devices electric vehicles the smart grid etc.summed to $23.9 billion


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Same Energy, More Powerxivxiv Executive Summary

in 2 . f that amount the financial new investment portion not including research anddevelopment was reported as $5 billion. orth America followed by Asia and ceania andthen urope claimed the largest share of this investment B 2 ).

Driving Energy Efficiency Investment: ADBs Toolsand Interventions for Asia

f end-use is to claim its rightful share among energy sector investments around the worldand in Asia specifically then greater efforts are necessary to marshal policy markets andstakeholder collaboration in support of such outcomes. ver the coming decade national targets and policies in Asia and the acific will play a major role in advancing regional investmentin technologies and solutions.

A B estimates that a total of $944 billion of investment in end-use is needed for the Cndia and outheast Asian countries to meet their national targets for and greenhouse

gas ) emission reductions by 2 2 see Table 4 in Chapter 4). hile the majority of thisneeded investment$865 billionis in the C the investment required in other developingAsian countries is also quite significant with $68 billion estimated for ndia and $ billion for

outheast Asian countries. An additional $ 5 billion is needed to meet government targets inoutheast Asia by 2 3 .

The impact of investment on meeting energy demand by 2 3 assuming that national targets are met is compelling. n Brunei arussalam ndonesia alaysia the hilippin

Thailand and iet am an investment share of just 4 of overall energy investmentserves to meet at least 8 to as much as 25 of the projected increase in primary energyconsumption. This dynamic reinforces s relevance as a least-cost solution to meeting

outheast Asias growing energy demand.

n total larger efforts for investment by the C ndia and outheast Asian countries cathe potential for significant impact in the wider region. nder business as usual their combinedprimary energy demand is projected to rise from 3664.6 million tons of oil equivalent T ) in2 totaling 73 of primary energy demand in Asia and the acific) to 6769.9 T 8of the regional total) in 2 35.

n many countries of Central and est Asia aging energy infrastructure is not improving evenas national economies have grown. These conditions point to largely untapped energy savingpotential lshanskaya 2 9). owever due to a shortage of data this report cannot estimate

the needed investment amount for these countries. eanwhile A Bs Cs in the acificaccount for a very small share of final energy consumption in the larger region A B database2 3) and due likewise to a shortage of available data their investment potential was notexamined for this study.

ver the past decade A B has succeeded in quickly scaling up its investments in energyefficiency and the development of renewable resources through its Clean nergy rogram.A B achieved an initial target of $ billion in clean energy investments per year by 2 8 thenreached $2. billion in 2 realizing its 2 3 target 2 years ahead of time. n 2 2 A Bachieved clean energy investments of $2.3 billion A B 2 3b).


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Causes of Underinvestment and Persistent Energy Inefficiency xvxvExecutive Summary

n late 2 A Bs ndependent valuation epartment ) published a review of A Bs cleanenergy investments focusing on 2 32 . The eport found that industry and buildingsare responsible for more than 7 of total commercial energy consumption in Asia. They arefurther responsible for a remarkable 85 of electricity use in the region. owever in contrastwith these percentages A B support to manage energy consumption in the two sectors hasrepresented just 4 of its overall clean energy portfolio A B 2 b).

n light of these findings the report made recommendations for strengthening A Bsefforts in including a suggestion for an increased focus on investments in industry andbuildings. Additional research undertaken more recently by A B has also revealed imperatives toredress a lack of host country capacity and demand for end-use projects and to mainstream

into A Bs operations.

This report builds on the 2 evaluation and more recent research to assess the capacityof A B in end-use and the challenges it faces in scaling up its investments. The report

further considers options by which to support a more systematic approach to catalyzing investments in Asia and the acific as summarized below.

Scaling Up ADBs Energy Efficiency Investments

n examining ways to expand its portfolio A B may draw upon a mix of tools and mechanismsemployed at different scales around the world. any of these approaches listed below arecharacterized by ambitious targets or mandates with goals for participation across sectorsand stakeholders:

i) policy and regulationii) standards and building codesiii) utility market activitiesiv) innovative financing mechanismsv) development of national and or local institutional capacityvi) information systems andvii) awareness of means and benefits.

The lessons learned to date from the implementation of these approaches across countriesand thematic areas point to key considerations for A B in evaluating specific interventionsfor Asia. ore systematized program support and investment can leverage existing resourcesto generate broader and deeper impacts while generating momentum for further marketdevelopment. Areas where A B may engage such activities to significant effect in Asia include

i) regional and country-specific thematic programs ii) investments in utility-sponsoredperformance-based resource programs and iii) investments in raising standards.

Regional and Country-Specific Thematic Energy Efficiency Programs

Public Buildings

n Asia A B could support a standardized program for public building improvements to beoperational at a regional national or possibly provincial scale. rogram development couldbenefit from cooperation with a local public entity. A procedural framework could be devised


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Same Energy, More Powerxvixvi Executive Summary

whereby interested energy service providers in the private or public sectors would compete tooffer efficiency improvements. A B could provide a funding mechanism complemented bylending criteria that incentivize demand for the program.

Municipal Lighting

or street lighting efforts in Asia may benefit from greater attention to development ofadministrative and legal frameworks to guide private sector involvement. A B can contributesignificant value to these initiatives as the potential financial savings of public lighting efficiencyprojects are impressive and the needed capital investment is also high.

Publicly Owned Industrial Facilities

or these facilities program development in the region may benefit from a country-specificrather than regional) focus where designated public facility improvements are supported by

a financing mechanism that is tailored to national policy and operational contexts.Smart Metering

The key issue surrounds the amount of capital that is needed to support upgrades for millionsof metering devices throughout a designated jurisdiction. ith this challenge in mind A Bsefforts can entail the development of a funding mechanism that is linked to a technical supportcomponent. This combination of assistance can help facilitate compliance with local rulesand standards.

Investments in Utility-Sponsored Performance-Based Energy EfficiencyResource Programs

A B can help extend the reach of these initiatives by serving as an investor partner and marketdevelopment agent. This role may entail the provision of capital as a means to assist utilitiesin broadening their implementation efforts toward expanding the energy-saving impact ofprograms. A B also may assist capacity development among market players such as C s andother service providers so that performance-based services reach a wider base of customers.

Investments in Raising Energy Efficiency Standards

Phasing Out Inefficient Products

n many developing Asian countries the phasing out of inefficient products is likely to requireefforts to assist manufacturers in altering their production lines. ther initiatives will likelybe needed to shift any newly redundant technologies out of the marketplace. The financialinterventions implied here can be supported by A B through its design and offer of certainfinancing vehicles to advance program imperatives.

Local and Regional Testing Capability

n Asia testing facilities could benefit from A Bs provision of funding resources and anyassistance to encourage facility development through collaborative activities with local


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Causes of Underinvestment and Persistent Energy Inefficiency xviixviiExecutive Summary

partners or stakeholders. The facility and A B could partner to support the piloting of newapproaches for possible regional replication. ther shared efforts could focus on the creation ofa labeling scheme specific to Asia or alternatively a recognized mark for dissemination acrossmany countries.

Voluntary Energy Excellence

oluntary initiatives for reen and ero nergy Buildings serve as models for what the buildingindustry in Asia could achieve should such efforts be marketed and promoted by a regionalplayer like A B. This type of campaign fits with A Bs strategic commitment to lead on and clean energy initiatives with global visibility. The contribution by A B to this effort doesnot necessarily imply a sizable investment of funding but rather an emphasis on awarenessbuilding creative marketing and technical assistance. The last of these tasks could entail designassistance to engineers and architects support for energy modeling and sponsoring of designcompetitions. ore broadly efforts to lead on voluntary energy excellence can be viewed as

part of A Bs corporate social responsibility.

Catalyzing Energy Efficiency

This report looks to A Bs historical investment trends to consider options for accelerating investment and implementation in Asia. Toward this outcome it is proposed that A Bs

nergy Community of ractice nergy Co ) establish an nergy fficiency Technical upportnit T ). As focused on end-use three primary functions for the nergy Co via the

T could include: i) nstitutional xpertise ii) nowledge anagement and iii) CapacityBuilding and Coordination.

The nstitutional xpertise function could address issues of common regional interest in waysthat enhance effective implementation. A database of experts could be maintained to support

projects and activities. Together these resources can serve to provide external knowledgesupport on demand for diverse initiatives.

The nowledge anagement function could support the tracking and monitoring of lending and investment. An ibrary could be established to consolidate -related data forall projects with end-use or components with attention to technology availabilityand performance key indicators and data on inventories. eanwhile the CapacityBuilding and Coordination function could support the development of regional workshops andcollaborative capacity building devoted to proliferation in Asia.

These shared efforts could further help build awareness among senior government officialsin the region regarding the multiple economic and environmental benefits of . n tandemthey could provide support for the design and implementation of effective country programsthat draw on a range of global best practices in policies technologies and financialinnovation. ore broadly enhanced efforts for could more systematically advance

initiatives in Asia taking advantage of A Bs high profile and extensive networksin the region.


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1

1 Introduction: The EnergyEfficiency Imperative

1.1 Background: The Value of Energy Efficiency

nergy efficiency ) is often defined as delivered energy service per unit of energy supplied intoa system. rom the viewpoint of a business owner or household the ability to operate lightingmachinery or other equipment is not diminished if an electricity system for example can meetthat demand with less inputs or units of energy. The value of is accordingly grounded uponits ability to aid energy systems in meeting end-user needs without requiring an expansion ofsystem capacity.

Among the range of technology options that exist in the market to provide energy service approaches are the most cost competitive. nlike approaches that simply expand energy

supply such as building new power plants prioritizes actions that first reduce the need forenergy. uch reductions may occur by decreasing energy losses in the supply chain an approachknown as supply-side energy efficiency ) for improved performance in the production

and delivery of electricity and heat Table ). Another approach is to consume less energy forthe same level of service a strategy known as demand-side energy efficiency ). orend-use efficiency relies on improved efficiencies at the point of final energy consumption forexample when operating buildings tools products and machinery.

Table 1 Supply-Side versus Demand-Side Energy Efficiency

Supply-Side Efficiency Demand-Side Efficiency

Production and Delivery

mproved efficiency in the production and deliveryof electricity and heat

ew efficient power plantsower plant upgradesTransmission and distribution system

improvements

ses less energy input and produces the same ormore energy at the generation and distributionsegment

Consumption

mproved efficiency at the point of final energyend) use

roducts and appliancesBuilding design and usendustrial operations

Alternative transport

owers energy consumption withoutcompromising service quality

such as personal comfort) or organizationalcompetitiveness

ource: A B.


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Same Energy, More Power2 Same Energy, More Power2

As a resource by which to meet national or regional goals for development and economicgrowth is growing in importance for many developing member countries Cs) of theAsian evelopment Bank A B). The appeal of comes from its ability to reduce the cost ofenergy service and to respond to wider social and environmental concerns. These include theenvironmental risks that surround ongoing reliance on conventional fossil fuels in particularthe threat of climate change and the need to develop energy resources that bolster nationalenergy security and system reliability. can serve these goals in myriad ways offering variedopportunities for cost-effective investments in the public and private sectors with implicationsfor industry consumer products and appliances buildings the transport sector and electricitysystems and infrastructure.

hen pursued alongside efforts to decarbonize the energy system through the developmentof resources such as wind and solar interventions offer an opportunity to transform thecharacter of energy service. reater sustainability affordability and reliability may be achievedeven as the energy system is able to reach a greater number of end users. ey changes in policy

priorities and investment strategies will be necessary however to realize these outcomes.

1.2 Environmental and Social Benefits

ithout the prioritization of it is unavoidable that the worlds economy will require anever-increasing stock of energy reserves. rom mining and drilling activities to the combustionof fossil fuels in power plants and industrial facilities the ever-increasing production and useof conventional energy can result in a range of negative impacts. The extraction of resourcessuch as coal and petroleum can transform landscapes and ecosystems and air and waterquality may become degraded as pollutants heavy metals and particulates are released into theatmosphere. eliance on nuclear power carries the risk of catastrophic accidents and requiressignificant government intervention to safely dispose of radioactive waste.

otable risk beyond the impacts noted above also attends conventional energy systems whenpowered by fossil fuels. merging scientific evidence points to the existence of changes in theearths global average temperature attributed in significant part to increases in atmosphericconcentrations of greenhouse gases s) from the combustion of fossil fuels and otheranthropogenic activities CC 2 7). Atmospheric concentrations of carbon dioxide C2)have grown steadily from 28 parts per million ppm) before the ndustrial evolution toapproximately 388 ppm at present. The accumulated amount of s in the earths atmospherehas resulted in a certain amount of global warming that is unequivocal CC 2 7 p. 3 ).

tabilization of s at or below 45 ppm is necessary if average global temperature rise isnot to exceed 2C degrees Celsius). This rate of stabilization translates as a 5 7 drop inworldwide emissions by 2 5 against a 2 5 baseline tern 2 6).

The accumulated s in the earths atmosphere attributed to human activity are in turn largelythe outcome of industrial processes set in motion by todays wealthy industrialized nations. Thisoutcome has served as the basis among some governments and nongovernment organizationsto focus on industrialized country action as the primary focus for first-wave efforts to significantlylower s from energy use and related activities. The yoto rotocol which entered into forcein 2 5 established binding limits on s among participating industrialized countries so-called Annex countries). Annex countries agreed to lower their emissions by an average of


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Causes of Underinvestment and Persistent Energy Inefficiency 3Introduction 3

5.2 from 2 8 to 2 2 against a 99 baseline. lexibility mechanisms under the rotocolpermitted Annex countries to utilize emissions trading joint implementation projects and theClean evelopment echanism to meet their reduction targets.

ith projections for global economic growth and the emerging role of developing countries ascenters of manufacturing and industrial activity the need for sustainability in energy systemsis increasing everywhere. As economies continue their historic expansion in much of thedeveloping world demand for energy will jump dramatically. The share of developing Asia inprimary energy consumption has been projected to increase from 34 in 2 to as much as56 in approximately 2 decades according to some estimates A B 2 3a citing A 2 2a and

ee ark and aunders [forthcoming]). n the meantime Asias dependence on energy importsis growing. ost countries in the region by 2 35 will produce 5 or less of the energy theyrequire. nergy imports and specifically imported oil will continue to be critical in the region

A B 2 3a).

obust implementation of energy-saving measures by households industry commercialbusinesses and public sector authorities can help temper this demand and the accompanyingexpenditures that will be necessary at societal and individual levels to secure access to energysources. uch an outcome is especially important where domestic energy needs are met primarilythrough imported fuels.

ithout aggressive action to reduce long-term growth in energy consumption a country maytransfer an increasing share of its national wealth to foreign energy producers. pportunitiesfor domestic investment in education health care public infrastructure and other amenitiesmay be lost or diminished. At the same time domestic reliance on foreign energy resourcescan increase national dependence on major trading partners exacerbating vulnerabilities andimbalances in international political power.

fforts throughout Asia to deploy policy and investment strategies in support of interventionscan help to conserve existing national energy resources. n some cases ambitious targetsmay restrict the need for additional fuel imports or delay the imperative for expensive additionsto power plants. ither way certain types of very large investments in energy infrastructuremay be deferred so that countries are better able to choose where to spend critical financialresources in support of national goals and objectives.

1.3 Technical and Economic Benefits

The cost effectiveness of relative to other energy options is another key factor supportingits prioritization for greater immediate action. igure depicts a range of costs recorded inthe market for various energy-saving and energy-generating technologies. n comparing toalternatives the figure illustrates that significantly less money is needed to save electricity inmost cases compared to the cost of generating that electricity through both conventional andrenewable energy options.

This emerging cost data for a range of technologies and applications has helped to clarifythe potential role for in long-term reduction at a global scale. n this topic the

nternational nergy Agency A) in its orld nergy utlook 2 2 provides estimations


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regarding global scenarios in 2 2 and 2 35 as emissions are placed onto a trajectory toeventually curtail world average temperature rise to 2C. As noted above long-term stabilizationof sor C2-equivalent emissionsat or below 45 ppm is necessary to hold averageglobal temperature rise to this level.

The policy efforts needed to achieve this outcome coalesce under the As so-called45 cenario. The technology outlook in turn for a range of C2 abatement measures underthe 45 cenario against a ew olicies cenario baseline is projected in igure 2. The ew

olicies cenario reflects overall policy commitments plans and or pledges made by countrieto shift away from subsidies for fossil fuels and to lower emissions.

nder the 45 cenario energy efficiencyto include power plant and end-use efficiency andelectricity savingsaccounts for about 75 of avoided emissions in 2 2 igure 2). lobalelectricity demand in the buildings sector specifically falls by more than 8 terawatt-hours

T h) through incorporation of advanced lighting space heating equipment and appliances.lectricity demand in industry declines by 6 T h primarily from use of more efficient motors.n absolute terms s contribution to abatement grows from 2.2 gigatons t) C2 avoided in

2 2 to 6.4 t C2 avoided in 2 35. et s share in C2 abatement decreases by 2 35 asthe contribution of renewable energy and carbon capture and sequestration expands.

The 45 cenario implies a transformation in the worlds energy system at a cost of $ 6 trillionin cumulative investment that is additional to the costs implied in the ew olicies cenario

Figure 1 Generation Cost Compared to Cost of Energy Efficiency

- oom ACs

- efrigerators- istributionCoal- ubcritical

Coal- upercriticalCoal- CC

as-CC Tas- C T

ydro- argeydro- mall

ind nshoreind ffshore

olar > .5 olar Thermal

Biomass gas

US cents/kWh

2 3 4 5

ACs = air conditioners CC T = combined cycle gas turbine = energy efficiency CC = integrated gasificationcombined cycle k h = kilowatt-hour = megawatt C T = open cycle gas turbine = photovoltaic.

ources: ata from nited tates Agency for nternational evelopment A ) 2 7 figure 22 p. 54 withupdated numbers from rganisation for conomic Co-operation and evelopment C ) uclear nergyAgency. 2 . rojected Costs of enerating lectricity 2 . C ublishing aris: C A and ssy-les-

oulineaux rance: C uclear nergy Agency.


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orld nergy utlook 2 2 p. 24 ). This investment however also should result in gains suchas improved local air quality and decreased costs for fossil fuel imports. Because accountsfor more than 5 of the total emissions saved followed by renewables at 2 and carboncapture and sequestration at 2 the bulk share of investment would likely go to the sector.

Beyond its contributions to cost-effective mitigation of climate threats the strategicdeployment of end-use also can improve the overall performance of conventional electricitysystems. hen installed at homes offices and industrial facilities throughout a city or region

products and appliances can reduce energy demand at different locational points across theelectricity network.

The resulting drop in consumption allows power plants to operate at optimized capacity andhelps avoid the need to bring additional generating unitssometimes known as peakingunitsonline at times of peak customer demand. xisting generation and transmission anddistribution T ) systems will be better equipped to meet projected load without drawingupon additional reserve capacity. n many instances due to their short annual operationstime peaking units are the most expensive sources of power across the entire spectrum ofgeneration options in a given electricity system. Avoided reliance on these expensive unitscan thus contribute a disproportionately high amount of savings to consumers when end-use

is deployed.

eanwhile a reduction in the volume of electricity that is shipped over T lines which maycover hundreds of kilometers can further decrease pressure on the system. ess intensiveuse of T infrastructure can delay the need for line replacements and upgrades and mayserve to boost system reliability through the avoided incidence of blackouts and brownouts.

Figure 2 Mitigation Measures for CO 2 Abatement to 2035

CC = carbon capture and sequestration C2 = carbon dioxide t C2 = gigatons carbon dioxide.ote: Activity refers to altered demand for energy services for example transport or lighting from price

responses. ower plant efficiency entails coal-to-gas switching that results in emissions savings.ource: orld nergy utlook 2 2 C A 2 2 figure 8.7 p. 253.

38

G t

3634323282624222

2 2 5 2 2

45 cenario

ew olicies cenario

2 25 2 3 2 35

Activity 2 2nd- se efficiency 8 3ower plant efficiency 3 2lectricity savings 5 27uel and technology

switching in end users 2 3enewables 5 23

Biofuels 2 4uclear 5 8

CC 4 7

CO2 abatement 2020 2035

Total (Gt CO 2) 3.1 15.0


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The benefits of to electricity system performance are even more obvious when consideringthe network losses that typically occur from the site of generation to the point of finalconsumption. or example with regards to traditional lighting under normal circumstances itis suggested that only 5 of the energy originally comprised in a unit of fossil fuel is delivered asillumination to end users. The other 95 is lost during transmission and conversion uropeanCommission 2 2).

hile the actual costs of may change across countries relative to the technologies andprocesses utilized a trend exists for to require one-quarter to one-half of the investmentneeded to pay for otherwise vital energy supply Taylor et al 2 8). This remarkable cost savingsfrom when considering the range of losses that otherwise occur from fuel conversion anddelivery to ultimate consumption highlights the need for a new approach in prioritizing as a response to customer demand.

1.4 Energy Efficiency in Asia: Status and Prospects can serve as a low-cost answer to the coinciding challenges of fast-growing global energy

demand particularly in Asia and increasing international pressure to decarbonize the energysystem. The field continues to benefit from an ever-expanding reserve of new technologiesprofessional expertise policy innovations and performance data. This body of knowledgederived from current energy practice throughout the world offers an abundance of informationto guide strategic deployment of across sectors and at multiple scales.

Considering its apparent advantages investment would seem to be an obvious priorityfor global action among the total range of available investment options that comprise the cleanenergy portfolio. trides have been made in recent years but a closer look at the sector showsthat interventions have likely been underutilized relative to their indisputable economic value.

or example clean energy yearly investment worldwide totaled approximately $2 billion i2 but this figure translates to investments in renewable energy B 2 ). Thasame year investment in energy-smart technologiese.g. systems and devices electricvehicles the smart grid etc.was reported as $23.9 billion.

uch funding levels are helpful steps in the right direction. et more generally they remaininadequate to meet the demands of the As 45 cenario as earlier described. The lingeringgap in funding to realize s potential in energy savings and mitigation is due in partto the scattered nature of most opportunities throughout society. n addition expertiseor financial assistance may be difficult to locate or access. Broader economic and behavioralbarriers also challenge greater progress at the micro and macro levels in ratcheting up

investment.

f a range of interventions to include are to claim their rightful share among energysector investments around the world then greater efforts are necessary to marshal policymarkets and stakeholder collaboration in support of such outcomes. ver the coming decadenational targets and policies in Asia and the acific will play a major role in advancing


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regional investment in technologies and solutions. A B estimates that a total of $944 billionof investment in end-use is needed for the C ndia and outheast Asian countries to meettheir national targets for and emission reductions by 2 2 . hile the majority of thisneeded investment$865 billionis in the C the investment required in other developingAsian countries is also quite significant with $68 billion estimated for ndia and $ billion for

outheast Asian countries. An additional $ 5 billion is needed to meet government targets inoutheast Asia by 2 3 .

fforts for investment by the C ndia and outheast Asian countries carry the potential forsignificant impact in the wider region. nder business as usual their combined primary energydemand is projected to rise from 3664.6 million tons of oil equivalent T ) in 2 totaling73 of primary energy demand in Asia and the acific) to 6769.9 T 8 of the regionaltotal) in 2 35.

n many countries of Central and est Asia aging energy infrastructure is not improving even

as national economies have grown. These conditions point to largely untapped energy savingpotential lshanskaya 2 9). owever due to a shortage of data this report cannot estimatethe needed investment amount for these countries. eanwhile A Bs Cs in the acificaccount for a very small share of final energy consumption in the larger region A B database2 3) and due likewise to a shortage of available data their investment potential was notexamined for this study.

As focused on the C ndia and outheast Asian countries this report considers how A Bmay accelerate the pace of investment in the region to drive more ambitious change. tsparticular focus is the promotion of end-use the most cost-effective and rapidly deployablesource of energy supply.

1.5 Scaling Up Energy Efficiency Action: ADBs Role

ver the past decade A B has succeeded in quickly scaling up its investments in energyefficiency and the development of renewable resources through its Clean nergy rogram.A B achieved an initial target of $ billion in clean energy investments per year by 2 8 thenreached $2. billion in 2 meeting its 2 3 target 2 years ahead of time. n 2 2 A Bmaintained this upward trend achieving clean energy investments of $2.3 billion.

n late 2 A Bs ndependent valuation epartment ) published an assessment ofA Bs clean energy investments focusing on 2 32 . The study found that industryand buildings are responsible for more than 7 of total commercial energy consumption inAsia. They are additionally responsible for a remarkable 85 of electricity use in the region.

owever in contrast with these percentages A B support to manage energy consumptionin the two sectors has represented just 4 of its overall clean energy portfolio A B 2 b).

n light of these findings the study made a number of recommendations for improvingand strengthening A Bs efforts in including a suggestion for an increased focus on

investments in industry and buildings.


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This report builds on the 2 study and more recent research to assess the capacity ofA B in end-use as well as the challenges it faces in accelerating investment in Asia. Thereport reviews A Bs recent pipeline of end-use projects and proposes a strategy for A Bsmore systematic support of investment in the Asia and acific region. ssues explored inthis regard surround the enhanced provision of institutional expertise knowledge creation andmanagement and capacity building and coordinationall focused on accelerating end-use

investment.


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9

2 Causes of Underinvestmentand Persistent EnergyInefficiency

2.1 Navigating the Investment ContextAs noted in Chapter the significant potential for cost-effective energy efficiency ) gainsat a global scale has yet to be matched by a proportionate level of investment support. ithinand beyond Asia profitable opportunities for investment to include demand-side energyefficiency ) struggle to compete with alternative investments for new energy supply.

ome reasons for this lingering underinvestment in are considered below with attention toeconomic social behavioral institutional and policy design factors.

2.2 An Economic View of Barriers to Energy Efficiency

hen examined from an economic perspective the barriers to greater investment can beformidable for a number of market participants Taylor et al 2 8 orld nergy utlook 2 9

ational Action lan for nergy fficiency 2 9 A 2 2). undamentally customersmay face price distortions for energy when the market does not reflect its true cost. or exampleenergy tariffs may not reflect the costs of resource capture and delivery or pollution and climatechange impacts that harm human health and degrade ecosystems. rice distortions may resultfrom incomplete prior knowledge of the full range of costs associated with energy productionand consumption or from poorly designed policy or regulatory interventions as in the case ofmany energy subsidies.

ubsidies may be adopted with the official goal of decreasing the price of energy to consumers.

et there can be undesirable outcomes. ubsidies may work to discourage adoption of moreenergy-efficient technologies when energy users do not immediately experience the fullfinancial burden of their energy consumption. f not adequately designed subsidies are alsolikely to benefit higher-income populations who tend to consume more energy than lower-income groups.

ossil fuel consumption subsidies in developing Asia have been increasing in recent yearsreaching $ 6 .7 billion in 2 A B 2 3a citing A 2 ). et in many cases the poorare not the primary beneficiaries of these subsidies. According to the A 2 ) among nine


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Asian countries with the largest fossil fuel subsidies as well as two African countries just 5of the benefit of subsidies for liquefied petroleum gas reached the poorest 2 th percentile.

imilarly only 9 of electricity subsidies and 5 of kerosene subsidies reached the poorest2 th percentile.

These outcomes suggest that interventions to rectify high cost energy burdens to lower-incomepopulations should consider alternatives other than subsidies to improve service affordabilityand access. A B is examining options to promote reform of inefficient fossil fuel energy subsidiesin Asia as appropriate social protection measures are established.

Capacity or willingness to pursue initiatives may also be limited by high transaction costs asfaced by providers of energy-related services or financing and their customers. Transaction costsrefer to the investments of time and effort that must be made by individuals or firms to identifythe best options for proceeding with a given purchase or project. Customers who might benefitfrom investments can additionally lack sufficient information by which to evaluate potential

options. imilarly where economically profitable and technically feasible projects are identifiedas worthwhile individuals and organizations may struggle to access professionals with theappropriate managerial or financial expertise for project implementation. Beyond accessinginformation and skilled professionals in the field the beneficiaries of investments may not beable to obtain financing for proposed projects or the cost of capital may prove to be excessive.

here customers identify theoretical savings from they may experience lingering concernsabout the larger impact of project implementation on the normal operations of their businessor organization and the disruptions that might occur. ithout sufficient evidence from priorexperience that such disruptions can be avoided or minimized customers may find the potentialrisk of project implementation to exceed its rewards. ikewise where end users perceive risk to projects or where they identify alternative non- ) uses for the expenditure of time

and capital they may assign high discount rates to their evaluation of options. The use ofa high discount rate means that a party to a transaction assigns a higher value to money thatis accessible now rather than sometime in the future. nder such an assumption the netpresent value of an investment that should generate monetary savings over time becomesless appealing to a potential investor.

inally the energy savings from a given intervention may simply appear to be too small atleast in the short term relative to the cost of the immediate required investment. n essencethe economic savings of one project may be modest enough that households or firms forgothe opportunity. This characteristic of micro investment in points to the need for a broaderperspective in identifying ways to encourage smaller projects that sum to large savings in total.

These economic barriers help to explain why many households and businesses fail to pursueprofitable investments. evertheless other forces also discourage more enthusiastic uptake.

or a broader perspective on the challenge it is helpful to reflect on additional considerationsthat set the context for energy use. f interest here are the varied social conditions anddevelopmental trajectories found throughout the world as well as the particular characteristicsand dynamics associated with institutions and human behavior. These considerations and theirimplications for implementation in Asia and elsewhere are discussed below.


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Causes of Underinvestment and Persistent Energy Inefficiency 11

2.3 Demographic Trends and Energy Demand Growth

nergy use is unavoidably necessary in fueling industrialized economic systems and theproduction of a near limitless range of goods and services to meet diverse consumer preferences.

nergy consumption profiles among countries in turn are affected by a broad range offactors pertaining to population size weather patterns economic structure scale of industrialdevelopment national wealth personal lifestyles and the relative urbanization of populations.

eveloping countries in Asia and throughout the world seek economic growth to increasepersonal and household incomes and to gain social access to modern amenities related to healthmobility recreation and education. This sought-after growth curve in economic expansionfueled by an accompanying enlargement of energy supply systems and delivery infrastructurehas already occurred over the last 5 years in the currently industrialized countries. Alreadymany emerging economies in Asia have achieved impressive gains in capturing an increasingshare of global manufacturing capacity and foreign direct investment. Their rapid economic

expansion is coinciding with new consumer purchasing power for the rising middle class. Tokeep pace with this growth and the economic aspirations of their populations developingcountries often share a policy perspective that strongly values expansion in new energy supplyas a means to achieve national goals.

uch perspectives however can benefit from a larger role for within national energy policyand planning for reasons that speak to regional security and social equity. ore specificallydespite the developmental achievements to date of many emerging economies significantpopulations in various parts of the world continue to lack access to modern energy service.Table 2 shows the relative intransigence of the challenge comparing global population withoutaccess to electricity service in 2 8or approximately .5 billion peoplewith projections for2 3 . As the regional figures suggest improvements will be made in many parts of the worldover the next 2 decades. et without extra efforts to prioritize equitable access to electricityservice some .3 billion people may continue to be left behind orld nergy utlook 2 9).

Table 2 World Population Without Accessto Electricity in 2008 with Projections to 2030

(million population)

2008 2030

atin America 34. 2.8iddle ast 2 .4 5.orth Africa .7 .6

C and ast Asia 95. 72.5outh Asia 6 3.9 488.6ub- aharan Africa 587. 698.3

Total 1,453.3 1,278.9

C = eoples epublic of China.ource: ata reported in orld nergy utlook 2 9 C A 2 9

figure 2. p. 3 .


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The above dynamics in renewing attention to the need for expanded energy access do notnegate the importance of at global and regional scales. To the contrary an emphasis onlow-cost will become even more critical to diffuse pressure on existing electricity systemsand to defer or avoid the need for capacity expansion of power plants and T . ith robust

deployment a larger number of people can receive energy service from the same amountof existing fuels resources and infrastructure. inancial and technical resources in turn canbe deployed to expand access to critically underserved low-income populations or remotecommunities. At the same time a greater share of expenditures on energy can be retainedwithin national borders as the need for energy imports is reduced. uch savings can free updomestic expenditures for alternative investments in education health care public transitand other amenities that are vital to the long-term prosperity and well-being of populationseverywhere to include developing Asia.

2.4 The Institutional Environment for Energy Efficiency

n considering ways to overcome the barriers discussed an examination of institutionalcharacteristics takes on greater urgency. A study by the orld Bank Taylor et al 2 8) clarifiesthis imperative suggesting that barriers such as risk perception and high transaction costscan be viewed as institutional in their origin or operation. ndividuals or businesses may find

projects to be too risky or may encounter high transaction costs due in part to institutionaldynamics that engender these outcomes. f institutions public or private can be seen as systemsthat structure interactions and relationships then an assessment of s underwhelminginvestment to date in the wider marketplace calls for attention to institutional practicesor thelack thereofthat impact s prospects.

overnment and other public authorities may be compelled to encourage investment due tothe wider social and environmental consequences of alternative scenarios where conventionalfuels and resources continue to predominate. ecognizing the value of cleaner air or water orthe benefits of reduced reliance on energy imports governments may choose to intervene on

s behalf when markets do not form to capture existing opportunities.

n many places however the institutional context for is characterized by the absence ofgovernmental leadership as well as the lack of a centralized authority or agency that can leadencourage or manage wide-scale implementation. This absence is problematic as notedpreviously because achievement of reductions in any given locale entails capturing gainsamong thousands or even millions of households and businesses. At the same time institutionalactors that function in the energy space may be compelled to operate according to discretedesignated lines of responsibility so that their functional capacity to collaborate across sectorsis limited.

or example electric utilities are often considered a logical central point for dispersing information programs and expertise to energy consumers across the residential commercialindustry and public sectors. et electric utilities have historically operated under a model whereearnings are attached to sales of kilowatt-hours rather than the overall quality of serviceprovided to customers through least-cost low-carbon demand-side resources Crossley 2 3).

hile this model is changing in many places as discussed in Chapter 3) the larger tendency


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remains so that utilities are incentivized to favor supply-side options to address immediate andlong-term demand.

easing companies infrastructure finance companies energy service companies C s) andbanks also may figure prominently in the financing of measures. An enthusiastic push bybanks for example to expand lending could open up vast opportunities for wide-scale interventions while simultaneously contributing to bank profits. The challenge here is that manybanks continue to lack familiarity with projects and the types of value streams e.g. savingson energy bills that are likely to result.

ther split incentives that curtail efforts pertain to building construction and occupancy. nmany cases the developers or owners of residential or commercial buildings will not occupyor utilize these facilities on a daily basis. ithout incentives or requirements to the contrarythey may fail to incorporate improvements. eanwhile the cost of energy service in thesedwellings is faced by the buildings tenants or lessees who often lack the capacity or authority

to retrofit structures for better energy performance.vercoming split incentives and fostering a central institutional agent for action can be

challenging to the public sector as well. The bureaucratic character of many governmentfunctions often results in the performance of planning and management duties according to veryspecific mandates within discrete agencies or offices. hysical and jurisdictional distance in thesesettings can impede collaboration and information sharing among officials contributing to amind-set for specialized attention to narrow topics. ith regards to initiatives the challengeis to maintain expertise among public sector stakeholders and accountability for specializedtasks while enhancing institutional capacity and rewards for joint action across traditionallyseparate sectors. reater efforts here can maximize the capture of larger energy savings whileavoiding duplication of bureaucratic effort and the resulting waste of taxpayer funds.

The traditional narrow focus of many institutions in the energy space is being challenged forreasons that go beyond merely capturing gains. Technical advances point to transformationsin the future architecture of electricity systems buildings vehicles and urban infrastructure.

omes and businesses are increasingly fitted with photovoltaic panels and other distributedforms of energy generation. lectric vehicles may serve as mobile energy storage devices. Thanksto the smart grid appliances may choose to power down when the system hits peak demand.The challenge of managing these diverse interactions and s role in contributing to network equilibrium will only grow with time pointing to the need for broader cross-sector institutionalaction in pursuing opportunities 2 2b).

hether dealing with existing institutions or developing new ones the need fororganizational strategic support of is evident. pecifically a broader comprehensive visionof s potential across traditional sectoral boundaries is required. As new institutions developaround the mission of supporting or as existing institutions evolve in this directiontheir effectiveness will depend upon their capacity to promote change in ways that matchthe exigencies of local conditions. nstitutions must close gaps between potential andcurrent conditions within given jurisdictions. This means developing institutional capacity thatresponds to available technology and professional expertise the legislative and regulatorycontext the legal environment and the relationships that exist among various stakeholders

Taylor et al 2 8).


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ith these factors in mind new institutional capacities may contribute most significantly torobust improvements by providing a spacein either the physical or conceptual sensethatis dedicated to wide-ranging ambitious and more coordinated gains across sectors and atmultiple scales. uch an effort can complement recent policy interest for greater gains andmay deliver the scaled up action that is vital to achieve meaningful impacts.

2.5 Behavioral Factors

As greater attention is given to the market and institutional factors that impede s progressconsideration also should be given to the non-price factors that influence personal decisionmaking related to energy. ndividual choice can be influenced by morality habits communityexpectations and social norms uller 2 9). Also significant are nonmonetary incentives andthe manner in which options are presented.

n seeking to understand the behavioral factors that often limit action a related considerationis the mind-set that has been cultivated over time among many consumers regarding theway in which they experience access to and use of energy. any potential beneficiaries of interventions are accustomed to simply receiving energy service. They assume the servicewill be available at least most of the time and beyond remembering to pay for the service atregular intervals they are not accustomed to actively considering ways of altering or reducingtheir consumption. here the price of energy service is seemingly inexpensive or at leastmanageable relative to household or firm budgets) and where service reliability is adequateindividuals may rarelyif everstop to consider possibilities for substantially altering theirusage. nder these conditions the wider net benefits to society of such individual changes arealso likely to escape consideration.

The phenomenon described here speaks to a mix of historical and economic conditions thathave engendered in many consumers a passive attitude toward the notion of energy choiceas oriented in this instance to greater efficiency in energy use. Changing these passive mind-sets and working against dynamics that cultivate subpar outcomes will require efforts togenerate awareness of the need for more active evaluations of all energy service options toinclude .

2.6 Energy Efficiency Fundamentals: Design Considerationsfor Policy and Finance

ith initiatives growing in popularity a number of considerations should guide the choiceand design of supportive strategies. The review of policy and investment action undertakenfor this report summarized in Chapters 3 and 4 points to the following imperatives.

rom national to more local scales public authorities may choose particular interventionsbased on their capacity or willingness to engage high levels of administrative and regulatoryoversight. or example traditional regulatory approaches so-called command and controlmechanisms refer to standards that prescribe the use of particular technologies or processesas a means of controlling energy use. They may include for example mandatory energy


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performance standards for products and appliances or building energy codes. These instrumentscan achieve significant reductions in energy use but enforcement can be expensive and time-consuming. ome public authorities accordingly have expressed preferences for more market-based instruments such as the use of tradable white certificates which can spur marketforces to drive reductions in energy use A B 2 2a). deally their utilization lowers the needfor administrative and regulatory oversight for stakeholder compliance.

here public authorities lack the will or capacity to pursue ambitious enforcement then a betterstrategy may entail their facilitation of self-reinforcing markets for improvements. The strategies chosen should reflect the existing technical capacity of targeted sectors and groupsas well as larger economic conditions that may impact their ability to comply or participate.

iscussions with stakeholders as detailed later in this report can help identify areas of actionwith high potential for energy savings while revealing where support is needed for capacitybuilding and financing as described further below.

ublic authorities should strive to act with clarity and consistency in policy design and implementation.Apart from any changes made in the face of monitoring and evaluation policy and program stabilitycan enhance stakeholder confidence in the credibility of initiatives. Consistent enforcement andimplementation across stakeholders can help encourage robust compliance particularly whenstakeholders are able to obtain needed clearances permits or technical resources in a timely wayand where appropriate. uch efforts have been identified as important determinants of a desirableinvestment climate for and renewable energy projects ani 2 2).

Awareness campaigns can help targeted sectors or groups to understand new initiatives andmethods for compliance or they may encourage participation by emphasizing s benefitssuch as improved firm operations or profitability. upport for demonstration projects intargeted sectors especially those that are highly replicable in design and implementation can

be valuable where technologies and financing are viable yet stakeholders lack experiencewith their deployment and are reluctant to act. upport for research and development viagovernment investment in laboratories can speed up technology advances for improved energyperformance at a lower cost. n the face of such advances targeted sectors for action suchas industry may be more willing to take on ambitious energy cuts.

The orld Bank Taylor et al 2 8) has sought to classify opportunities according to theparticular characteristics of different economic sectors. esign of policy interventions willfurther vary according to the needs of subsectors Table 3).

or example existing facilities in the industry and buildings sectors can benefit significantlyfrom changes to operational management facility renovations and technology replacement.

n existing buildings cost-effective measures to improve include upgrades in lighting aswell as heating ventilation and air conditioning. n new buildings major improvementscome from changes in i) ventilation systems and thermal integrity; ii) the utilization of efficientcooling heating and lighting technologies; iii) high standards in construction practices; and

iv) building orientation and design. Among developers designers and construction companies may be a consideration in proceeding with given projects but the appearance location and

cost of structures are often more important factors. ith this in mind mandatory codes forbuildings may be easier to engage when they target changes that are amenable to low-costintegration Taylor et al 2 8).


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n the industry sector many possibilities exist to improve energy intensity through the use ofcogeneration recovery of waste heat and installation of more efficient motors and systems. orindustries such as chemicals petroleum refining and basic metals energy use represents a majorshare of operating costs 2 ). n designing interventions to encourage industrial improvements a fundamental consideration in developing countries is that cannot realisticallybe a top objective for firms that lack a high quality reliable) supply of electricity. Accordingly

initiatives are likely to gain greater support from stakeholders where electricity supply is reliablebut the energy intensity of operations is high. eaningful dialogue with industrial stakeholderscan assist authorities in creating targets that are quantifiable responsive to technologicaland business risks and structured to produce interim gains toward long-term horizons. hentargeting the energy performance of particular products and appliances government cancollaborate with manufacturers to devise labels and standards in ways that incentivize industryto take innovative leaps forward in research demonstration and commercialization.

or initiatives that go beyond the switching out of a handful of inexpensive technologiesstakeholders must have the technical and financial capacity to proceed. The extent to whichtechnical and financial resources are developed internally within organizations will impact theamount of external resources that are required for advanced projects. here expertise inauditing and engineering is lacking or where professionals lack project development experiencethe public sector can support training activities and certify professionals accordingly.

The need to expand technical and financial capacity for the pursuit of larger projects hasfocused attention on new delivery mechanisms for facilitating investment Taylor et al 2 8).

rimary delivery mechanisms in this regard include energy service companies C s) loanfinancing and partial loan guarantees demand-side management ) programs offered bydistribution utilities in the energy sector and bulk procurement programs by government.

Table 3 Interventions for Energy Efficiency by Economic Sector

Key Sector Subsector Principal EE Interventions

ndustry A. ew plant

B. xisting plant. nergy supply industries

2. ndustrial energy consumers

olicy and planningquipment regulating standards

estructuring investment investment

estructuring investment investment

Buildings commercialpublic and residential)

A. ew buildings

B. xisting buildings

Building codes and standardsolicy and planning

investmentTransportation A. otor vehicles

B. therehicle regulating standardsolicy and planning

estructuring investment = energy efficiency.

ource: Taylor et al. 2 8.Financing Energy Efficiency: Lessons from Brazil, [Peoples Republic of] China, India, and Beyond . orld Bank table 2. p. 37.


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The commercial banking sector in many locales is already well positioned to support projectsand loan products may require only minor changes to the credit review process and loan terms.

or projects loan repayment can occur more frequently with greater attention to the timing ofcash streams that occur due to investments. As new projects generate savings loan customerscan be required to make payments into escrow accounts over which lenders assume control.

ore careful preparation of project proposals can strengthen loan applications with greaterchances for matching the information requirements of finance professionals. Banks meanwhilemay benefit from outside efforts to assist their identification of markets in ways that grow theirbusiness lines expand service to valued customers or promote their standing in the community.As financial institutions better understand s value to different customers they may devotespecial attention to devising sophisticated financing mechanisms that encourage even moreambitious action in different sectors Taylor et al 2 8 A B 2 2d A 2 2).

artial-risk loan guarantee instruments and more financially structured risk-sharing facilities withbacking from international financial institutions have helped launch new programs for financing

by reducing some of the risk of lending. They appear particularly effective when operating in localeswhere the banking sector is relatively robust with regards to the maturity of its lending practices.Also of interest are special revolving funds. Through their ability to merge project development withfinancial intermediation in service to improvements they may be particularly useful in localeswhere the banking sector is undergoing restructuring or significant reforms.

C

same energy, more power: accelerating energy efficiency in asia

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