Developing energy efficiency in the Asia Pacific region
Renewable energy, in the last period, is capturing most of our attention but if you doubt why energy efficiency must play a significant and probably leading part of the energy business just examine the flow graphic developed by McCall and Bassett and reprinted last June by the Massachusetts Institute of Technology magazine, “Technology Review”. They show that at least half of energy consumption goes to nothing more than creation of hot air through waste heat. That’s the case for the U.S. market but I’m quite sure we are not different from other parts of the world. Major causes are related to the “old-style” distribution and consumption.
If we will really adopt new measures then we will really have energy security (less dependence on fossil fuels or sources of energy), employment creation (jobs resulting from such activities), new business opportunities, and cost savings. Energy efficiency is a good idea if you want to lower operational costs of industrial and business activities. But also take a look to the stock market to scout companies directly involved in the sector.
Demand for energy in the Asia Pacific region is rising quickly, driven in large part by rapid economic growth in Southeast Asia, India, and China. Simultaneously, Asian governments and industry leaders are highly focused on creating more sustainable and energy-efficient economies and these goals have intensified their attention on the building sector, which is one of the primary sources of energy consumption.
Driven by these macro trends, energy efficiency solutions for commercial buildings have become an increasingly larger priority for companies within the region. The Energy Service Companies (ESCOs) in Asia Pacific are meeting demand by providing energy-saving systems and comprehensive services adapted to their customers’ building facilities and building spaces. Over the past several years, performance contracting has become a more common business model to assist building owners and managers in optimizing energy use in existing buildings.
Today Asian ESCOs focus on an increasingly diverse mix of business-wide solutions including engineering, construction, maintenance, design, and consulting. They aim to assist customers in guaranteeing long-term reductions in energy use through energy-saving modifications. Recently, they have also started to help customers gain access to subsidy programs through energy savings performance contracts. According to a new report from Pike Research, a U.S. market research and consulting company, the ESCO industry in Asia Pacific is poised for dynamic growth over the next several years, rising from US$3 billion in annual revenue in 2009 to US$18.5 billion by 2016.
China will be the primary growth engine for the Asia Pacific ESCO market over the next several years, increasing from just 5 percent of the regional market in 2009 to more than 90 percent by 2015. During that period, the Indian ESCO industry – boosted by energy consumption that is increasing twice as fast as other regions in the world will also experience rapid expansion on a smaller scale. Therefore, this region is generating abundant opportunities for investors in energy efficiency technologies.
Although the prospects in this market seem bright, energy-efficient technology developers may initially have to struggle to gain a toehold. Financial institutions in Asia may not be familiar with the energy efficiency market or the concept of using energy efficiency to boost the profitability of both financial institutions and project developers/industrial owners. Moreover, the projects are considered more risky because they are often regarded as non-asset-based investment, for which, collateral is difficult to obtain.
The local banks seem risk-averse, as they perceive large-scale projects as high-risk ones, and this hinders the widespread commercialization and implementation of energy efficiency improvements. Potential market participants should invest in tools that help evaluate energy usage and savings from reduced energy consumption. Solution providers have to arrange for the technical assistance needed to build the capacity for financial applications. They could also develop alternatives to facilitate investments for businesses that do not qualify for traditional loans. Market participants have to take stock of their financial and technical capabilities in energy efficiency projects and seek advice from financial institutions when necessary.
Financial institutions, for their part, must be aware of the potential of energy efficiency projects and should have extensive financial services for them. The deployment of energy efficient technologies is expected to attract a steady stream of investments over the next five years, which will auger well for the clean technology industry. The internal rate of returns currently average 17-20 percent and it has the potential to increase with more structured planning in the technical and financial aspects. As a consequence of importance of energy efficiency a number of Smart Grid networks are coming up. They can intelligently integrate the behavior and actions of all users connected to the grid in order to efficiently deliver sustainable, economic and secure electricity supplies.
At the beginning of August, an experimental power grid centre was being set up in Singapore to develop the country as a “living laboratory for smart grid solutions”. The strategic partnership of Rolls Royce, Vestas, SP Power Grid and CEI Contract Manufacturing with the Agency for Science, Technology and Research (A*STAR) are developing innovative energy efficient solutions for Singapore.
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