With the exponential population growth and continued expansion of businesses in the Philippines, the demand for energy is continuously growing. The Department of Energy’s Philippine Energy Plan for 2007-2014 reports that the fossil fuels oil and coal account for about half of the primary energy mix. The Philippines’ dependence on these expensive resources and the local make-do mentality of using old, inefficient equipment “as long as it still works” does not help curb our energy appetite. The country is on the brink of an energy supply shortfall.
From an environmental perspective, irresponsible energy use and the continued use of aging equipment release more greenhouse gases into the atmosphere. Sustainable Energy, SE, refers to the intelligent generation and use of energy to meet our current needs without compromising future energy supply nor harming the environment. This includes improving energy efficiency and harnessing renewable energy, possibly our best solution to the imminent energy and environmental crises. Not only does SE reduce pollution thus mitigating climate change, it also makes good business sense.
According to commissioned International Finance Corporation (IFC) studies, there is an estimated US $1.34 billion potential for energy efficiency (EE) projects in the Philippines within the next four years. Switching to energy efficient equipment could reduce consumers’ electricity bills by as much as 20%, improving profit margins and freeing up cash that could be used for profitable activities. For example, an analysis of the energy consumption and efficiency of 52 buildings in the Makati Commercial Business District, the Philippines’ premiere business district, showed a total potential savings of US $ 4.5 million annually if all 52 buildings would shift to more efficient heating, ventilation, air-conditioning (HVAC) and lighting systems. The energy saved would be equivalent to avoided power generation by a 12-megawatt power plant -- enough to energize 57,000 households in rural areas.
The said survey aimed to identify energy savings scenarios and strategies for possible adoption of the commercial sector, which includes recommended system retrofits to improve EE in buildings. To illustrate the business potential of EE, one of the surveyed buildings showed an annual potential savings of US$ 23,404 if the building switched to more efficient lighting and heating, ventilation and air conditioning (HVAC) systems. With a projected initial investment of US$ 106,382 for system retrofits, this particular building owner could recover his investment in four years.
EE opportunities are everywhere – both in the commercial (office and residential buildings, schools, hotels, hospitals) and industrial/ manufacturing sectors. Projects with high potential for savings include lighting, heating, ventilation and air conditioning (HVAC), high-efficiency motors, variable speed drives, compressors, building management systems, thermal storage, cogeneration/ tri-generation, and upgrade of manufacturing facilities using more efficient equipment.
According to a Department of Energy official, renewable energy (RE) investments would need to reach US$ 8.5 Billion in order to meet the country’s goal of having 4,500 megawatts of new RE capacity by the year 2014. RE involves harnessing energy from renewable sources such as geothermal, hydro-electric, wind, wave, biomass and solar power. Utilization of energy from these sources greatly decreases carbon emissions and consumption of expensive, limited and usually imported fossil fuels. Some types of RE sources, such as biomass (i.e rice husk or animal waste), also offer practical solutions for better waste management.
The passage of the Renewable Energy Act (Republic Act 9513) in 2008 is expected to catalyze increased interest and growth in the number of RE projects. Among the fiscal incentives offered by the law are income tax holidays for the first seven years of operation, tax-free carbon credits from renewable energy projects, and tariff exemptions and duty-free importation of machinery and equipment for the first 10 years of operation, with power from renewable energy sources to be exempt from value added tax. Non-fiscal incentives include a renewable energy portfolio standard, which includes mandatory utilization of renewable energy power in grids, and priority dispatch for power produced from renewable energy resources.
Given the availability of EE and RE technologies, outstanding benefits, plus additional government support, why are there so few actual investments in the market? One reason is that the business sector lacks a full understanding of the potential returns on SE investments. Even if businessmen see benefits from SE, a general lack of financing sources also hinders investments. Most companies would rather spend cash on projects that would generate more business immediately, rather than buying new equipment that could save them money in the long run. Another barrier is the limited number of technically competent professionals in the field of EE and RE. A listing of the known service and technology providers reveals only a handful who understands the complete SE project development and implementation cycle. There is also a need to further strengthen the existing implementing rules and regulations for the RE Act and to institutionalize government policies on EE in order to boost investments.
International Finance Corporation (IFC), with funding from the Global Environment Facility, has begun addressing these identified barriers to sustainable energy investments through its Philippine Sustainable Energy Finance Program (SEF). Leveraging its expertise from the implementation of such projects in several regions around the globe, IFC continues to partner with local financial institutions to help build their knowledge and understanding of the potentials of SE financing. Capacity-building on SE for financial institutions helped grow their portfolio, and enabled them to add value to their clients’ businesses through financing EE and RE projects. In its implementation from 2008-2009, IFC SEF helped two local partner financial institutions build profitable portfolios of EE and RE projects, generating a total of US $ 35.6 million in sustainable energy loans and a pipeline worth US $114.6 million.
Over the next three years, IFC hopes to further increase the number of projects by assisting selected end-users in development and implementation of projects and providing technical assistance to service and technology providers so that they may be able to provide expert advice to more end-user clients. The SEF Program will complement these activities by participating in regulatory processes to help simplify rules and create a transparent environment to attract more SE investments and by working with other like-minded organizations in spreading public awareness about the importance of promoting sustainable energy.
Through implementation of the SEF program, IFC plays a catalytic role to increase investments in sustainable energy through sustainable solutions that bring about heightened awareness, an enhanced regulatory environment, and increased access to finance. With this support structure in place, now is the best time for businesses to consider investing in sustainable energy.
Romel M. Carlos is the Associate Operations Officer for the Sustainable Energy Finance Program of IFC Philippines. IFC is the private sector arm of the World Bank.