Energy Efficiency Gaining Traction in Asia

As Filipinos get ready for the summer months, most people who cannot afford to go on vacation just hide away in air-conditioned shopping malls. The problem is, with the lack of rain recently, cooling those buildings is going to be a major challenge. Because of the poor weather, many of the hydroelectric plants in the Philippines have not been operating at full capacity; therefore Mindanao and other islands are experiencing power shortages.

So this is a problem for those whose business depends on a steady supply of electricity, like the shopping malls that so many Filipinos patronize. The biggest of these mall operators, SM Prime Holdings (SMPH:PM), operates 36 malls in the Philippines and three more in the Chinese cities of Xiamen, Jinjiang, and Chengdu. All told, SM Prime has 4.9 million square meters of floor space that it needs to keep air-conditioned.

That uses up a lot of energy, so SM started making its malls energy efficient as far back as 1998, a company spokesperson said in an e-mail response to questions. SM says it has spent more than $6 million to replace older, less energy-efficient equipment. Smart climate controls for air-conditioning (to compensate for fluctuating energy demand during night and day) have allowed SM to save more than 50 million kilowatt-hours a year. Green and sustainable design methods, including the replacement of older incandescent lamps with compact fluorescent lamps, the use of skylights, and the use of foliage are some of the methods it uses to cut energy consumption. For 17 of its larger SM Supermalls with the energy-efficient air-conditioning systems, it estimates the savings at 67,165 megawatt-hours. Using 2007 as a baseline, the company was able to save 18,584 megawatt-hours in 2008 with an equivalent CO2 reduction of 15,000 metric tons.

More companies in Asia need to follow SM's lead in focusing on ways to use energy more efficiently. Renewable energy, with its images of wind turbines, seems to bring to life the romance of the lead character from Miguel de Cervantes's novel Don Quixote. But one cannot say the same of renewable energy's close but less sexy cousin, energy efficiency.

Efficiency Power Plants

One concept that may help explain it to laypersons is the "efficiency power plant." An efficiency power plant is a visualization of savings in power capacity from energy savings. That is a useful concept, considering how most laypersons struggle to conceptualize energy efficiency, which—unlike the popular images of renewable energy—doesn't easily call to mind images of wind turbines and solar farms. Nevertheless energy efficiency, like its more popular cleantech cousin, is enjoying an increased attractiveness for loans and investments in Asia.

There are still conceptual hurdles to overcome. A lot of industrial customers don't focus on energy efficiency projects because they view such projects as infrastructure, not savings. Sometimes companies that are given newer, more efficient electric motors still choose not to use them, saying the less efficient motors are still working just fine.

To encourage more local banks to lend for implementing energy efficiency projects, there should be a concerted effort to explain the benefits of energy efficiency to them. William Beloe is with the Sustainability Energy Financing program of the International Finance Corp. (IFC) in Manila. The IFC is the World Bank's private-sector finance arm. "We see ourselves as more of a catalyst," Beloe said, citing the IFC's strategy of supporting climate-change adaptation and mitigation efforts.

One of the IFC's initiatives is the Small Power Utility Group. Many of these small utilities are typically off-grid, and are normally the domain of governments. The IFC is trying to move these types of utilities, which are ideal for renewable energy, to the private sector. On energy efficiency, Beloe says the main issue is awareness. "It requires millions of decisions to make an impact," he says. Recently, the IFC has used the lack of demand for products because of the recession to make its case. "We try, at IFC, to raise awareness that energy efficiency can contribute to the bottom line by cutting costs," he said.

The IFC and Local Banks

To do this, the IFC is eager to work with local banks. "We are working to build their loan capacity to support clean-energy projects," he says. The IFC normally finances large projects; its smallest tranche size in these types of projects would be in the $5 million range, according to Beloe. However, he points out that the banks themselves will determine the nature of their portfolio. "All we do is to try to make the banks comfortable, maybe offer financial instruments," he says. Some will be more comfortable putting money in energy efficiency, some in renewable energy, he adds. The IFC is working in the Philippines with banks like the Bank of the Philippine Islands (BPI:PM) and Metrobank for renewable energy and energy efficiency loans.

For his part, Metrobank Vice-President Edgar Esguerra points out that one of the major hurdles for most banks is the limited experience dealing in this area. "This is a new space, especially since the projects are small," he says. According to Esguerra, entities need to step in to offer a credit guarantee resource. "We are willing to go to smaller amounts" such as $1 million, he says. As the banks get more experience loaning to these small ventures, eventually the guarantees will no longer be needed, he believes.

Energy efficiency is a relatively inexpensive and proven way to contribute to climate-change mitigation, and at the same time contribute to the bottom line. We should expect it to share the limelight with its more visible cleantech partner, renewable energy. Until a way can be found to help businesspeople and investors visualize what energy efficiency is and its viability as an investment vehicle, it will always remain the less exciting of the two. The challenge is to make efficiency power plants—just like windmills and solar farms—sexy enough to merit attention.