Energy efficiency investments and fuel subsidies in South East Asia

Summary

Two new reports have been released in the last month: a SE Asian regional report on investment opportunities in energy efficiency, and another report on the need to reduce fuel subsidies.  The first report, produced by ReEx Capital Asia, estimates that the regional energy efficiency market size is US$6.7bn, and that the potential for annual savings from  energy efficiency measures is US$1.4bn - with an annual payback period of only 3.5 years. Business opportunities exist, but in some countries fuel subsidies are acting as a significant disincentive. The project aims to engage Government officials who prepare and implement policy; legislators; the business community, particularly large companies with the potential to implement significant changes in practice; financial institutions; and influential think tanks. The analysis undertaken should prove indispensable for UK businesses seeking such opportunities.

Full Article

South East Asia is an important region in the worldwide effort to encourage a low carbon transition. Home to over 500 million people, with a rapidly growing economy (OECD forecast 6% pa 2011-2015) in 2000, the region accounted for 12% of global GHG emissions. But total emissions are forecast to grow greatly by 2030 under a Business as Usual scenario.  So there is a strong need for a sustainable transition to a low carbon economy, to avoid the region becoming one of the world’s leading polluters.

Two new reports have been released in the last month: SE Asian regional project on investment opportunities in energy efficiency, and on the need to reduce fuel subsidies.  The regional energy efficiency market size is estimated to be US$6.7bn, and annual savings potential US$1.4bn - with an annual payback period of only 3.5 years. Business opportunities exist, but in some countries fuel subsidies are acting as a significant disincentive. The project aims to engage with Government officials who prepare and implement policy; legislators; the business community, particularly large companies with the potential to implement significant changes in practice; financial institutions; and influential think tanks. The analysis undertaken should prove indispensable for UK businesses seeking such opportunities.

Energy Efficiency

ReEx Capital Asia, which conducted the research, is a finance boutique specialising in renewable energy and energy efficiency. It consulted leading policymakers and undertook a study to estimate the potential for energy efficiency investments in South East Asia. The first of its kind, the report finds that there is large potential for such investments, which would reduce Greenhouse Gas emissions as well as saving money for the implementing organisations. The total market size for the six countries studied is estimated at US$6.7bn – with the inclusion of co-generation facilities, this would probably rise to over US$35bn.

As part of its work, ReEx Capital Asia is using the report to carry out capacity building workshops with Governments and Energy Saving Companies in the region. This will identify the scope to improve procedures and the potential for energy efficiency investment.

Singapore and the Philippines offer most potential for energy efficiency savings for 3 reasons: their favourable regulatory environments, most developed environment for Energy Saving Companies, and market based fuel prices. One conclusion is very clear – fuel subsidies dissuade low carbon business.  

Fuel subsidies

Specialists in our regional network have produced a background paper to analyse the current state of subsidies in the region. It finds that subsidies are costly - between 2005-10, SE Asian countries spent at least US$106 billion on fuel subsidies, mainly in Indonesia and Malaysia. They are also regressive and poorly targeted – typically, the bottom 40% of the population receives only 15-20% of the subsidies – despite the popular belief that subsidies help the poor. Generally, the richer sectors of society benefit much more from such subsidies – as they have higher levels of vehicle ownership.  They are also growth impeding – eliminating such subsidies could increase growth by 0.1-0.7% each year, and also reduce GHG emissions by about 13% by 2050 (compared to Business As Usual). This money could be better spent on other development related activity.

Singapore launch

The Singapore launch of reports on 11 February focused exclusively on energy efficiency (there are no fuel subsidies in Singapore). Over 70 people attended from government, clean technology companies, the media and think tanks. The Clinton Climate Initiative, which is pursuing a wide ranging programme of building retrofitting, and the Singapore Economic Development Board, were supporting partners. Positive media coverage has included an article in the main (Government-supporting) English language daily, The Straits Times. Since the energy efficiency report was released, the Singapore government has commissioned ReEx Capital Asia to advise them on how Singapore can further develop its energy service companies, with a view to being a regional leader in these businesses.