Market potential in energy efficiency in Southeast Asia

In light of the growing energy demand in Southeast Asia, energy efficiency programmes would offer large energy-saving potentials for the region and opens vast new business opportunities.

To narrow the focus of the study, five major countries were covered, namely Indonesia, Malaysia, Singapore, Thailand and Vietnam. Together, these five countries accounted for 86 percent of ASEAN's total GDP in 2010, and thus serve as a good representative subset of the region as a whole. The main part of the study is based on interviews with a wide range of players and stakeholders in the EE eco-system, including companies with high energy consumption, EE product and technology suppliers, energy service companies (ESCOs), government agencies and research institutes.

Our analysis indicates that by 2020, Southeast Asia could achieve efficiency gains of between 12 and 30 percent, a projection that would translate into power savings ranging between 119TWh and 297TWh, or US$15 billion and US$43 billion. Nonetheless, the actual energy savings will ultimately depend on the commitment of both industry and governments.

Albeit increasing government effort and industry initiatives to improve energy efficiency in the region, there are still some major barriers to be addressed at multiple levels of the value chain to stimulate the diffusion of EE technologies. The following four key challenges have been identified:

1. Energy efficiency standards and policies are insufficient.Where they exist, they are not stringently enforced. At the same time, incentive application procedures are often cumbersome.
2. Energy efficiency is still not seen as a top business priority by many companies.EE-related investments continue to be overshadowed by other investments deemed more critical to the company's core business operation.
3. Expectation mismatches and information asymmetries between stakeholders are pervasive within the industry. Users perceive that suppliers do not commit enough resources to conduct a proper auditing process and are sceptical about energy-saving potentials communicated by the suppliers. Suppliers and ESCOs complain about the low EE awareness of companies and the lack of commitment in investing in EE technologies by the users. Mistrust is created and spreads across the industry.
4. There is a shortage of funding options to finance EE projects.Financial institutions are still hesitant about financing EE projects due to concerns about the potential risks and unstable cashflows associated with investments in the EE sector.

While there is no "one-size-fits-all" panacea to fully unlock EE market potentials in the individual countries, this study proposes some concrete measures for both governments and businesses in the region to capture the EE market potentials.

Southeast Asian governments have to take decisive action in the coming few years in order to promote EE technologies. Five recommendations are proposed:

1. Provide an overarching policy framework by combining mandatory and voluntary policies and by strengthening the enforcement of EE-friendly policies.
2. Promote greater awareness of EE among users through campaigns aimed at communicating the potential benefits and latest developments of EE technologies.
3. Play an essential role as integrator of the value chain and establish funding mechanisms to jumpstart EE financing, particularly in the short term.
4. Institutionalise standards setting and enhance professionalism within the industry by creating proper accreditation and certification standards, as well as by publicising more accurate information about EE product suppliers and ESCOs.
5. Remove other barriers that distort markets such as energy subsidies.

However, businesses should not just wait for governments to take action. Companies can play an equally important role in developing the EE industry in Southeast Asia. Our recommendations for businesses include:

1. Moving towards an integrated value chain approachwhere suppliers extend their service portfolio to offer complete solutions ranging from auditing and consulting services to installation, maintenance and financing solutions.
2. Developing innovative financing vehicles for EE projectsby collaborating with financial institutions and by developing expertise in EE project financing.
3. Increasing awareness of EE and enhance professionalism of the industry from within.EE suppliers and ESCOs should adopt a more active role in promoting EE and in professionalising the industry from within by setting standards and benchmarks. Multinationals should act as catalysts by bringing in the best practices from their experiences in other countries. 

The Executive Summary of the study, conducted by the Sustainability Committee of the European Chamber of Commerce, Singapore, in collaboration with Roland Berger Strategy Consultants, was republished with permission.