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Paper Presentations THAI ENERGY DAY "ENERGY FOR TOMORROW" |
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Paper Presentations THAI ENERGY DAY "ENERGY FOR TOMORROW" |
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Background
During the last decade, many countries in Asia have witnessed rapid growth in electricity demand, necessitated by their economic expansion. The increase in power demand has required the countries in the region to make significant investment in power generation, transmission and distribution. A practice known as “Demand-Side Management or DSM”, which aims to reduce the power demand rather than to increase generation resources, is rapidly gaining government support as it can delay or offset the need for future power plants. DSM is also viewed as one of the most cost-effective ways to reduce greenhouse gases such as CO2.
In 1991, Thailand became the first country in Asia to formally adopt a nationwide demand-side management master plan. The Royal Thai Government approved the program budget of US $189 million to implement DSM programs in Thailand. In recognition of the unique potential of the Thai DSM effort to serve as a model for energy conservation and greenhouse gas emission reduction efforts, the World Bank, under the auspices of the Global Environment Facility (GEF), has also supported the project with a grant funding of US $15.5 million.
To date, the Electricity Generating Authority of Thailand (EGAT) has implemented DSM programs in all sectors, including:
- Energy Efficient Fluorescent Lamp Program, known as Thin Tube Program,
- Refrigerator Efficiency Labeling Program,
- Air Conditioner Efficiency Labeling Program,
- Commercial Building Retrofit Program, known as Green Buildings Program,
- High Efficiency Motor Program,
- Energy Efficient Street Light Program using High Pressure Sodium Vapors,
- Compact Fluorescent Lamp Program, and
- Cool Storage Program.
I will first describe the key DSM implementation strategies EGAT has adopted to implement these programs, and then I will summarize some lessons learned to date.
Implementation Strategies
The DSM implementation strategies adopted by EGAT to date can largely be classified into four categories: (a) Market Transformation through Voluntary Agreement; (b) Energy Efficiency Labeling; (c) Customer-Oriented Program Design; and (d) Public-Private Sector Partnerships. Some of these strategies deviate significantly from the traditional DSM implementation strategies used in government-driven or utility-sponsored energy efficiency/conservation programs in other countries.
(a) Market Transformation: When the Demand-Side Management Office (DSMO) began its operation in 1993, the program design staff recognized the conceptual difficulty with providing rebates to customers, because the public perceived that the ‘chosen few’ such as large commercial users would primarily reap the benefits of the rebates. Consequently, for its first DSM program, “thin tube program,” EGAT engaged in direct negotiations with Thai lamp manufacturers to voluntarily agree to ban the production of low-efficiency T-12 lamps and only produce high-efficiency T-8 lamps which emit the equivalent lumen output. This shift resulted in about 10% reduction in energy used by fluorescent lamps. In return for the agreement, EGAT financed advertising campaigns in mass media to promote new energy saving lamps during 1993-1995. By mid-1995, all lamp manufacturers and importers complied with the agreement. The impact of this program has been substantial, because the efficiency of all lamps sold in Thailand (about 50 million lamps per year) was improved at up-stream (i.e., at the manufacturing level), resulting in coincident peak demand savings of over 230 MW and energy savings of 1,025 GWh per annum.
(b) Energy Efficiency Labeling: For refrigerators and air conditioners, EGAT adopted a product efficiency labeling approach, where all participating brands of refrigerators and air conditioners would carry a label which indicates the efficiency label, annual kWh consumption and the energy saving estimates. For refrigerators, the models that fell within 10% of the average efficiency of the refrigerators sold were rated at 3, the models that use 10-25% less electricity were rated at 4, and the models that are more than 25% efficient than the average were rated at 5. Since the program was launched in January 1995, the efficiency level of the refrigerators sold has consistently improved. In early 1995, only 12% of refrigerators sold were rated at 5. By September 1997, level 5 refrigerators accounted for over 85%. The program achieved coincident peak demand savings of 38 MW and energy savings of 290 GWh per annum.
For air conditioners, efficiency rating was determined based on the Energy Efficiency Ratio (or EER). The baseline efficiency EER of 7.6 was rated at 1, and the EER improvement of 1 increased the rating by one level. For example, air conditioners with EER between 7.6 and 8.6 are rated at 2. The best efficiency air conditioners (level 5) have EER efficiency higher than 10.6. Total air conditioner sales in Thailand is about 500,000 units per year. During the first year (1996) of program implementation, the program penetrated 20% of the air conditioner market in Thailand (about 100,000 units), and during the nine months of 1997, over 107,000 labels are already affixed in air conditioners.
(c) Customer-Oriented Program Design: The third strategy EGAT adopted was a customer-oriented program development. Under this approach, EGAT has implemented an energy efficient building program called the “Green Buildings Program”. Since each customer is unique with respect to the size, type of energy efficiency improvement, and the needs for financing, EGAT has provided flexible program designs to accommodate every participant in terms of equipment selection and investment financing. For example, under the Green Building Program, EGAT has installed load monitoring and control equipment at a resort hotel, which is designed to assist the hotel’s energy management needs. The hotel reduced its monthly peak demand from 1,360 kW to 1,200 kW by continuously monitoring the electricity consumption at key locations, such as chillers, the kitchen, the laundry, and convention centers, and shifting non-critical loads to off-peak hours without affecting the hotel operation. To date, about 400 building owners have agreed to participate in the Green Building Program, and about 140 buildings have installed the load monitoring and control equipment in their premises.
(d) Public-Private Sectors Partnership: To support private sector participation of energy services delivery, EGAT is implementing pilot energy services company (or ESCO) projects using performance contracting process and providing public sector funding. ESCOs are private companies that provide comprehensive energy-efficiency or load-reduction services to customers who own or operate facilities such as factories or buildings. Performance contracting refers to the practice of providing energy savings to a customer for a fee, the level of which depends on the amount of energy saved.
Under the pilot ESCO program, the DSMO will provide interest-free loans to finance industrial energy conservation investments that use the performance contracting process. Private ESCOs will enter into an agreement with customers to provide a turn-key operation of energy efficiency investment and a guarantee for energy savings performance of installed equipment. Customers will pay back the cost of the investment over a pre-determined period. During the first phase of project implementation, EGAT plans to provide loans to customers without interest, and therefore, the customers need to repay the principal of the loan only.
Lessons Learned To Date
First, programs should be designed to fit the local situation. In designing the programs, it is critical that implementation strategies should explicitly consider the cultural and sociological context within which the programs will be offered. For example, as in the Thin Tube program, rebate-based incentive schemes which have been widely used in Western countries were not received well by the Thai public. In a society where agreements (to improve efficiency of products at the manufacturing level) are more easily reached by negotiations, price-driven incentives (to consumers or manufacturers) may not be necessary. On the other hand, reaching a voluntary agreement often requires an extensive stakeholder consultation process. In the design stage of program development, EGAT has always sought consultation from key stakeholders, including equipment manufacturers and distributors, the financial community, engineering experts, appliance testing agencies, various trade associations, as well as customers. Through a dialogue with all stakeholders, one could identify the energy saving opportunities and program designs that maximize the penetration of high efficiency technologies.
Second, program design should consider the significance of the first-cost barrier. If financial incentives are deemed necessary to promote energy efficiency, DSM program designs should consider that the first-cost barrier is more significant in less-developed economies than in developed economies. The incremental cost of procuring high efficiency equipment as a proportion of consumer’s disposable income is higher in less-developed countries. Under this circumstance, the provision of interest-free loan for the entire investment cost may be a more effective marketing strategy than offering a fraction of the incremental cost in the form of rebates. The direct program cost for interest-free loan would be the present value of the opportunity cost for the loan, and it may not exceed the level of rebates which are typically paid out immediately. Recognizing this, EGAT has either directly financed or arranged for interest-free loans for the customer investment cost of energy efficient products (e.g., Green Building Program, Cool Storage Systems).
Third, establishing a funding mechanism for DSM investments is essential for long-term sustainability. Assurance of cost recovery for cost-effective DSM investments is critical to convince utility managers (who are used to investing in tangible supply-side resources) to engage in less tangible energy efficiency projects. One of the main reasons for the success of EGAT’s DSM programs is the provision of specific funding mechanisms for DSM activities. In Thailand, DSM expenses, if prudently incurred, are passed to all ratepayers through tariff mechanism or funded by the Energy Conservation Fund.
Finally, public sector-sponsored DSM needs to be implemented first where necessary infrastructures do not exist. One of the biggest stumbling blocks in the initial implementation of Thailand’s energy efficiency programs has been the lack of basic infrastructure for energy efficiency. The lag between the development of energy-efficiency policies and the ability of the private sector to provide products and services in support of these policies has contributed to the delay in program implementation.
A good example can be found in the development of ESCOs in Thailand. Although the program framework to promote private sector delivery of energy services such as ESCOs was developed in early stage of the DSMO operation, there has been a significant delay in private-sector initiated energy efficiency investments. The lack of understanding of energy performance contract process, on the part of local energy service firms (e.g., contractors, M&E firms, and consultants), customers and, most importantly, the commercial lenders, has contributed to the delay in private ESCO projects. For example, it is difficult for commercial lenders to provide a loan for energy performance contracts, because (i) they do not have technical capability to assess the risks involved in EPC contracts, (ii), there is little recoverable collateral from customers, (iii) ESCOs do not bear the customer’s credit risk, and perhaps most importantly, (iv) there is no example in Thailand to demonstrate the success of ESCO projects. For these reasons, ESCO program focuses on providing project financing for the initial projects that will demonstrate the feasibility of EPC arrangements. Once the ESCO program demonstrates that customers can repay the loan from energy savings, commercial lenders would be more willing to finance such projects.
Conclusion
Since the inception of DSMO operation in Thailand in 1992, we have achieved over 270 MW of peak load demand savings and 1,500 Gwh of energy savings to date. We expect at least three to four times more electricity savings by the turn of the century. The DSM implementation has also created and nurtured business opportunities for private sector firms for consultant assignments, energy conservation equipment supply, energy audits, and energy performance contracting projects. The success of DSM implementation to date is attributable to many factors as I noted above. I must also add that coherent Government policy and consistent support for DSM, spearheaded by the National Energy Policy Office (NEPO), have played an important role in advancing energy conservation and DSM in Thailand. In addition, I would like to congratulate the Department of Energy Development and Promotion (DEDP) for the job well done in providing regulatory and legal framework, in implementing energy audit program, and in its other activities. Working together with NEPO, DEDP, and the private sector firms, and based on the success of early implementation in Thailand during last 3-4 years, DSM is now implemented on a full-scale basis throughout the 8th National Economic and Social Development Plan period (1997-2001). We are hopeful that the various energy efficiency initiatives by EGAT and DEDP will raise the awareness of the value of energy conservation and provide sustainable benefits to our customers and the utility as well as to the whole nation.
File updated 28 February 1998