Capturing Industrial Energy Efficiency Potential Through Policies

Many energy efficiency technologies and measures that could be implemented in industry already exist. They fall short of full deployment for a number of reasons, some of which can be addressed through effective policies and programmes. Table 2.3 sets out a range of ways of addressing the barriers to energy efficiency improvements that have been identified by industry itself. It identifies against each of these some policies and programmes, based on the presentations from the EGM as well as on other material presented in this paper, that could be implemented to give effect to the removal of these barriers. To maximise the potential impact of energy efficiency measures, the lessons learned from the implementation of policies and programmes needs to be distilled, disseminated, and adopted as appropriate in a way which fits local conditions. Removing these barriers is rarely cost free. So when policies are adapted to other settings, allowance needs to be made for the institutional, transactional and other costs necessary to make the deployment of the policy effective. In the context of least developed and developing countries it may require a good deal of analysis and appropriate support to help build institutional capacity and markets.

A. Energy Efficiency Barriers

Obstacles to the implementation of energy efficiency technologies and measures include:

  • • a lack of information about the possibilities for, and costs of, improving energy efficiency;
  • • a lack of awareness of the financial or qualitative benefits arising from energy use reduction measures;
  • • inadequate skills to implement such measures;
  • • capital constraints and corporate cultures that favour investment in new production capacities rather than in energy efficiency measures;
  • • greater weight being given to investment costs than to recurrent energy costs. This can be exacerbated where energy costs are a small proportion of production costs (Monari, 2008);

Policies and Programmes

Target-

Setting

Voluntary

Agreements

Industrial

Energy

Management

Standards

Capacity Building for Energy Management and Energy efficiency Services

Delivery of Energy efficiency Products and

Services

Equipment & System Assessment Standards

Certification and Labeling of Energy efficiency Performance

Financial Mechanisms and Incentives

EE INFORMATION ANDTOOLS

Increased Information on EE technologies and measures

X

X

X

X

Increased information on EE standards

X

X

X

X

Improved access to high quality energy auditing services and assessment tools

X

X

X

Access to training and tools for energy management (EM)

X

X

Increased tracking of EE/GHG emissions: GHG inventories.

X

X

X

Product life-cycle and supply chain energy /GHG assessments

Robust measurement, monitoring, and verification.

X

X

X

X

X

X

Development of high-quality EE data for analysis, policy-makers

X

X

International best practice information

X

X

X

X

X

X

X

SKILLED PERSONNEL

1 ncreased EE training at the college level

X

X

Technical assistance provides for energy management

X

X

Improved capability of energy efficiency service providers- assessment and EE services

X

X

X

Increased EE focus of equipment suppliers and vendors

X

X

X

X

Increased and enhanced skills of independent measurement and verification experts (GHG, EM,EE)

X

X

X

X

Increased capacity for energy management at industrial facilities

X

X

X

X

X

Policies and Programmes

Target-

Setting

Voluntary

Agreements

Industrial

Energy

Management

Standards

Capacity Building for Energy Management and Energy efficiency Services

Delivery of Energy efficiency Products and

Services

Equipment & System Assessment Standards

Certification and Labeling of Energy efficiency Performance

Financial Mechanisms and Incentives

INCREASED MANAGEMENT ATTENTION TOEE

1 ncreased upper management support for energy efficiency /GHG mitigation investments

X

X

X

X

Management commitment to an energy management system

X

X

X

Sustained, continuous improvement in EE/GHG mitigation

X

X

X

EE/GHG MITIGATION COSTS AND FINANCING

Improved access to capital for EE/GHG mitigation investments

X

X

X

Reduce transaction coasts associated with smaller EE projects

X

Improved understanding of among investors and financiers of potential financial returns.

X

X

Training in preparing project and loan request documents Pricing of eneigy to reflect actual costs, encourage EE efficiency

X

X

Reduce risks associated with assessing and securitising revenues generated through using less energy

X

X

  • • slow rates of capital stock turnover in many industrial facilities (Worrell and Biermans, 2005), coupled with the
  • • risks perceived to be inherent in adopting new technologies; and
  • • an emphasis in many industrial investment decisions on large, attractive investment opportunities rather than on the more modest investments needed to improve energy efficiency, even where the profits can be relatively large.

Policy and regulatory-related barriers to the implementation of industrial energy efficiency technologies and measures fall into two broad groups. The first relates to the adoption and pri-oritization of industrial energy efficiency policies and measures at a national level, especially in developing countries. Here the main barrier is inadequate information, skills, and methods to assess the costs and benefits of industrial energy efficiency policies and measures. Methods to address this have been developed (How-ells and Laitner, 2003). But they are not widely deployed and they do not account for the institutional requirements and costs of supporting specific programmes. For example, the marginal cost of adopting policies and measures in a developed country which has many of the required institutions in place can be significantly lower than in a developing country. Although the adoption of industrial energy efficiency policies and measures may have benefits that far outweigh the costs, a substantive assessment of those costs and benefits is needed before policy changes can be mobilized.

The second group relates to the fiscal and regulatory framework within which energy efficiency technologies and measures sit. These include such issues as the non-economic pricing of energy, inappropriate tariff structures, distorted market incentives which encourage energy suppliers to supply more rather than less energy, and inadequate regulatory or legal frameworks to support energy sendee companies (Monari, 2008). The absence of supportive enabling environments for technology transfer can also present a barrier to energy efficiency technology adoption in some countries (IPCC, 2000).

Market-related barriers to the implementation of industrial energy efficiency technologies and measures include a lack of awareness and experience among investors and financiers, particularly at the local level, of the potential financial returns, high transaction costs associated with smaller projects, and risks associated with assessing and securitizing revenues generated through using less energy. In addition, limited access to systems and skills for the measurement, monitoring and verification of reduced energy use create barriers for project financing (Monari, 2008). In developing countries and emerging markets, industry can find it more difficult to secure loans due to a lack of credit history or collateral as well as a lack of experience in preparing project and loan request documents (UNF, 2007; Sambucini, 2008).

In seeking to secure project finance, it is important that all project implementation costs, including the costs of accessing and implementing a technology such as import costs, duties and tariffs, and the costs of securing capital, are included in financial calculations. In making a case for an energy efficiency programme, it is also important to be clear about other costs such as project design costs (e.g. end-use consumer awareness programmes, energy audits), institutional development costs (e.g. the cost of setting up energy efficiency agencies and energy service companies (ESCOs), the training of personnel, etc.), and the cost of monitoring and verifying energy use reductions (e.g. testing labs, testing protocols, testing personnel). These are often overlooked when the value of energy efficiency programmes is being promoted (Sarkar, 2008), undermining confidence in the overall benefit of the programme when such costs are brought to book.

An essential requirement for analysing the success of past and existing policies and programmes, as well as for developing robust recommendations for future efforts, is access to high-quality energy efficiency data. The IEA recently highlighted a significant gap in this respect (IEA, 2007). In the absence of accurate data it is difficult to target and develop appropriate energy efficiency policies. Governments should support the IEA and others involved in energy efficiency indicator analysis by ensuring that accurate energy intensity time series data is reported regularly for all major industrial sectors (Mollet, 2008).

The wider adoption of industrial energy' efficiency management practices, technologies and measures will depend critically on a number of factors, including increased management attention to industrial energy> efficiency, the wider dissemination of industrial energy efficiency information and tools, an increased number of people skilled in the assessment and implementation of industrial energy' efficiency practices, technologies, and measures, the creation of essential policy supporting institutions and an efficient industrial energy- efficiency investment climate.

B. Policies and Programmes to Promote Industrial Energy Efficiency

Since the 1970s, a wide range of energy efficiency policies and programmes have been implemented in many countries around the world. Effective industrial sector policies and programmes are essential to increase the adoption of energy-efficient practices by overcoming informational, institutional, policy, regulatory, and market-related barriers. They also need to provide enabling environments for industrial enterprises more easily to implement energy- efficient technologies, practices, and measures. Lessons learned from these programmes can be used to identify successful elements that can be more widely disseminated. These can be used to develop potential amendments to, or supplementary, GHG mitigation mechanisms. The VISA fund described in Appendix A is one example of the sort of wider institutional change that can emerge from such an analysis.

The IEA’s Energy Efficiency Database contains details of 170 industrial energy efficiency policies and measures introduced at local, regional, and national levels in 32 countries and the EU (IEA, 2008c). The IEA’s World Energy Outlook Policy Database includes 530 entries for policies and programmes in the industrial sector, drawn from information from the IEA Climate Change Mitigation Database, the IEA Energy Efficiency Database, the IEA Global Renewable Energy Policies and Measures Database, the European Conference of Ministers of Transport, and contacts in industry and government (IEA, 20086).

Furthermore, the IEA has prepared 25 energy efficiency recommendations across 7 sectors for the G8 summit in Japan in 2008. Four of these recommendations relate to industry (IEA, 2008(f):

  • • collection of high qirality energy efficiency data for industry (development and application of energy indicators);
  • • energy performance of electric motors (performance standards for motors, barriers busting for motor systems optimization);
  • • assistance hr developing energy management capability (energy management systems for large industry, support tools and capacity building for energy management, compulsory efficiency reporting systems);
  • • policy packages to promote energy efficiency in small and medium sized enterprises (information, audits, benchmarking, incentives for life cycle costing).

One review of twelve industrialised nations and the EU identified progr ammes that provided more than 30 types of energy efficiency product and sendee which were disseminated to industry through a wide range of delivery channels. These included reports, guide books, case studies, fact sheets, profiles, tools, demonstrations, roadmaps and benchmarking data and sendees. Delivery mechanisms included customer information centers and websites, conferences and trade shows, workshops and other training mechanisms, financial assistance programmes, voluntary agreements, newsletters, publicity, assessments, tax and subsidy schemes and working groups (Galitsky et al., 2004).

One example of an effective industrial energy efficiency programme in a developing country is the Kenyan programme on the Removal of Banders to Energy Efficiency and Conservation in Small and Medium Scale Enterprises (SME), financed by the Global Environmental Facility (GEF) and managed by the Kenya Association of Manufacturers (Kirai, 2008). This programme has shown that publicly initiated programmes, including those with social and/ or environmental objectives, can attract private sector participation if they are effectively linked to the economic and business motives of the private sector. A sound institutional framework and the active participation of pr ivate sector top management are fundamental to sirccess. Demonstration projects and exper ience sharing have been shown to be powerful tools for increasing confidence and for spreading and replicating the programme (Kirai, 2008).

1. Industrial Energy Efficiency Target-Setting, Voluntary Agreements, and Voluntary Actions

One of the banders to the adoption of energy-efficient technologies, practices, and measures is a corporate culture that understandably focuses more on production rather than on energy efficiency. Policies and programmes need to raise awareness of the importance of energy efficiency as a means of achieving and sustaining competitiveness in global markets. Successful energy efficiency policies and programmes depend heavily on top management commitment to energy efficiency.

Establishing appropriate and ambitious energy efficiency or GHG emissions reduction targets can provide a strong incentive for the adoption of energy- efficient technologies, practices, and measures. These can be legally mandated through government programmes or they can be adopted by high-level corporate management as a matter of company policy. Examples of national- level target-setting programmes inchrde the GHG emissions reduction targets established through the Kyoto Protocol, country-specific energy efficiency or GHG emissions reduction targets such as those established in the United Kingdom, and China’s goal to reduce energy consumption per unit of gross domestic product by 20% between 2005 and 2010 (Price et oh, 2008(7).

Examples of corporate targets include programmes at Dow Chemical, DuPont, and BP (see Box 1). Other companies have engaged in company- specific programmes having been stimulated to do so by government or nongovernmental organisation (NGO) programmes such as those run by the Carbon Trust hr the United Kingdom, the Business Environmental Leadership Coirncil of the Pew Center on Global Climate Change, the World Wildlife Fimd for Nature's Climate Savers Programme, or through government programmes such as the United States Environmental Protection Agency’s Climate Leaders programme (US EPA, 2008a). Voluntary actions of this kind can spur information exchange between companies, put pressure on poor performing companies to meet indirstry averages, provide awareness-raising and encoirrage the deployment of improved technology (Bernstein, 2008). Although some early programmes performed poorly, corporate programmes since 2000 have shown positive benefits.

Box 1: Examples of corporate energy efficiency or ghg mitigation targets

  • • Dow Chemical set itself a target to reduce energy intensity (energy use/unit product) from 1994-2005 by 20%. The company actually achieved a 22% energy intensity reduction, saving US$ 4 billion. Dow Chemical’s energy intensity reduction goal for 2005 to 2015 is 25% (Foster, 2006).
  • • DuPont set itself a target to reduce GHG emissions by 65% from its 1990 levels by 2010. The company lias, as a result, achieved USS 2 billion in energy savings since 1990 and reduced its GHG emissions by over 72%, by increasing output while holding its energy use at 1990 levels (DuPont, 2002; McFarland, 2005).
  • • BP’s target to reduce GHG emissions by 10% in 2010 compared to a 1990 baseline was reached nine years early, in 2001 (BP, 2003; BP, 2005).
  • • Hasbro, Inc. achieved an internal emissions reduction goal by reducing total GHG emissions by 43% from 2000 to 2007 for its U.S. manufacturing facilities (US EPA, 2008u)-
  • • In 2005, 3M reduced absolute GHG emissions in its U.S. facilities by 37% from a 2002 base year (U.S. EPA, 2008u)Target-setting, voluntary and negotiated agreements, have been used by a number of governments as a mechanism for promoting energy efficiency within the industrial sector. A recent survey identified 23 energy efficiency or GHG emissions reduction voluntary agreement programmes in 18 countries (Price, 2005). International experience of such programmes suggests that they work best when they are supported by the establishment of a co-ordinated set of policies that provide strong economic incentives as well as technical and financial support to the participating industries. Effective target-setting agreement programmes are typically based on signed, legally-binding agreements with realistic long-term (typically 5-10 year) targets. They require facility or company level implementation plans for reaching the targets and the annual monitoring and reporting of progress toward those targets, coupled with a real threat of increased government regulation or energy/GHG taxes if the targets are not achieved. And they in parallel provide effective supporting programmes to assist industry in reaching the goals outlined in the agr eements. The key elements of such a programme are:
  • • the target-setting process;
  • • the identification of energy efficiency technologies and measures thr ough benchmarking and energy efficiency audits;
  • • the development of an energy efficiency action plan;
  • • the development and implementation of energy management protocols;
  • • the development of financial incentives and supporting policies;
  • • monitoring progress toward targets; and
  • • programme evaluation (Price et ah, 2008a).

An example of such a programme can be seen in the Climate Change Agreements (CCA) programme implemented by the United Kingdom (see Box 2).

Box 2: Climate Change Agreements in the UK

The UK has a Kyoto Protocol target of 12.5% reduction in GHG emissions by 2008- 2012 relative to 1990. It also has a national goal to reduce C02 emissions by 20% by 2010 relative to a 1990 baseline (DEFRA, 2006).

The UK established a Climate Change Programme in 2000 to address both goals through the application of an energy tax-the Climate Change Levy-applicable to industry, commerce, agriculture, and the public sector as well as through the implementation of Climate Change Agreements (CCAs) with energy-intensive industrial sectors. Through the CCAs, industry agrees to meet energy targets in exchange for an 80% reduction in the Climate Change Levy (DEFRA, 2004). The programme has established agreements with over 50 different industry sectors covering 10,000 sites. The agreements are attractive to industry because of the tax reduction. Participating industries must meet targets every two years to benefit from the tax.... and risk of losing the tax reduction is sufficient to ensure real energy- reducing actions are taken. The CCAs include a baseline and a credit emissions trading scheme in which, if targets are missed, companies can buy a owances and, if targets are beaten, companies can sell allowances targets through the UK Emissions Trading Scheme (DEFRA, 2005a; Pender, 2008).

Companies that sign CCAs commit to either absolute or relative energy-reduction targets for 2010. Sectors did better than expected, even though they genuinely believed they were already energy-efficient, because the CCAs brought new rigour to the measurement and management of energy use that identified additional opportunities and led to higher reductions. In addition, finance directors took an interest and authorised spending because a tax reduction was available (Pender. 2008).

As a result of the CCA programme, CO-, emission reductions were nearly three times higher than the target (Table 2.4) (Pender, 2004) during the first target period (2001-2002), more than double the target set by the government during the second target period, and almost double the target during the third target period.

Table 2.4: Results of The UK climate change agreements: periods 1-3

Absolute Savings from Baseline

Actual Savings (MtC02/ year)

Target (MtC02 year)

Actual minus Target (MtC02/year)

Target Period 1 (2001-2002)

16.4

6.0

10.4

Target Period 2 (2003-2004)

14..4

5.5

8.9

Target Period 3 (2005-2006)

16.4

9.1

7.3

Sources: DEFRA, 2005b; Future Energy Solutions, 2005; DEFRA, 2007, Pender, 2008)

As a result of the CCA programme, energy has become a board level issue, op management is alert to the importance of ensuring they meet their targets and maintain their levy reductions. Industry is saving over £1.5 billion (US$ 2.23 billion) a year on energy costs as well as the savings it is achieving by avoiding the Climate Change Levy itself (£350m or US$ 520 million). Overall, the CCAs improve efficiency and so improve competitiveness (Pender, 2008; Barker et al., 2007).

Another example is the China’s 11th Five Year Plan, announced in 2005, which established an ambitious goal for reducing energy consumption per unit of gross domestic product by 20% between 2005 and 2010. One of the main vehicles for realising this energy intensity reduction goal is the Top-1000 Energy Consuming Enterprises programme (Top-1000 programme). This has set energy reduction targets for China’s 1000 highest energy consuming enterprises. The participating enterprises are from nine energy- intensive sectors (iron and steel, nonferrous metals, chemicals, petroleum/ petrochemicals, power generation, construction materials, coal mining, paper, and textiles) that jointly consumed 33% of national energy consumption and 47% of industrial energy consumption in 2004 (Kan, 2008; Price et al., 2008b).

The Top-1000 programme, launched in April, 2006 (NDRC, 2006), set the goal that energy intensity (energy used per unit of production) should in all enterprises reach the level of advanced domestic prodirction and in some enterprises either international or industry advanced levels of energy intensity. The Top-1000 enterprises were each given individual goals which, taken together, soirght to achieve a reduction in annual energy use of 100 Mtce (2.9 EJ) by 2010 (Price et я/., Article in Press). Financial support for the programme has been provided by the national and provincial governments as well as through international projects, such as the China End Use Energy Efficiency Project funded at US$ 17 million for three years through the World Bank’s Global Environment Facility and the EU-China Energy and Environment Progr amme funded at a level of EUR 42 million (Kan, 2008).

The repotted energy itse reductions for the first year of the programme (2006) indicate that it is on track to achieve the goal of reducing energy use by 100 Mtce in 2010. Progress reported rn 2007 suggests that the programme may even surpass this goal. Depending on the GDP growth rate, the programme could contribute between 10% and 25% of the savings required for China to meet a 20% reduction in energy use per unit of GDP by 2010 (Price et al., 2008b).

2. Industrial Energy Management Standards

Once targets have been established and/or corporate management has made a commitment to improve energy efficiency or reduce GHG emissions, it is essential to institutionalize energy management in a wider cultiue for sustained improvement. Energy management standards can provide a useful organizing framework for accomplishing this in industrial facilities.

Energy management standards seek to provide firms with the guidance and tools they needs to integrate energy efficiency into their management practices, inchrding into the fine-tunrng of production processes and steps to improve the energy efficiency of industrial systems. Energy management seeks to apply to energy use the same culture of continuous improvement that has successfully stimulated industrial films to improve their own quality and safety practices. Energy management standards have an important role to play in industry, but are equally applicable to commercial, medical, and government operations.

Table 2.5 compares the elements of the energy management standards in a range of countries and regions with existing energy management standards or specifications, two sets of standards under development, and one country for which energy management is a legislated practice for many industries. In all instances, the standards have been developed to be compatible with the International Organization for Standardization (ISO) quality management (ISO: 9001 : 2008) and environmental management (ISO: 14001 : 2004) standards.

Typical features of an energy management standard require the organization to put in place:

  • • an energy management plan that requires measurement, management, and documentation for the continuous improvement for energy efficiency;
  • • a cross-divisional management team led by a representative who reports directly to management and is responsible for overseeing the implementation of the energy management plan;
  • • policies and procedures to address all aspects of energy purchase, use, and disposal;
  • • action plans or projects to demonstrate continuous improvement in energy efficiency;
  • • the creation of an Energy Manual, a living document that evolves over tune as additional energy use reducing projects and policies are undertaken and documented;
  • • the identification of energy performance indicators, unique to the company, that are tracked to measure progress; and
  • • periodic reporting of progress to management based on these measurements.

A successful programme in energy management begins with a strong corporate commitment to the continuous improvement of energy performance through energy efficiency and energy conservation and the increased use of renewable energy. A first step once the organizational structure has been established is to conduct an assessment of the major energy uses in the facility to develop a baseline of energy use and set targets for improvement. The selection of energy performance indicators, targets and objectives help to shape the development and implementation of action plans. An important element in ensuring the effectiveness of an action plan is involving personnel throughout the organization. Personnel at all levels shoirld be aware of the organization’s energy use and its targets for improving energy performance. Staff need to be trained both in skills and in general approaches to energy efficiency in day-to-day practices. In addition, performance should be regularly evaluated and communicated to all personnel, with appropriate recognition for high achievement. The emergence over the past decade of better integrated and more robust control systems can play an important role in energy management and hr redircing energy use.

In March, 2007, UNIDO hosted a meeting of experts, including representatives from the ISO Central Secretariat and the nations that have adopted energy management standards. That meeting led to submission of a UNIDO communication to the ISO Central Secretariat requesting that ISO consider undertaking work on an international energy management standard. In February, 2008, the ISO approved a proposal from the American National Standards Institute (ANSI) and the Associacao Brasileira demas Tecnicas (ABNT) to lead development of this standard (ISO, 2008).

The ISO has recognized energy management as one of its top five global priorities through the initiation of work on “ISO 50001: Energy management systems-Requirements with guidance for use” (ISO: 2008). ISO: 50001 is due to be published in early 2011.

The emergence of ISO: 50001 is expected to have far-reaching effects in stimulating greater energy efficiency in industry when it is published. This will be especially true in developing countries and emerging economies, where indications are that it will become a significant factor in international trade, as ISO: 9001 has become.

3. Capacity Building for Energy Management and Energy Efficiency Sendees

Capacity Building for Energy' Management

Experience in countries with energy management standards or specifications has shown that the appropriate application of energy management standards requir es significant training and skills. The implementation of an energy management standard within a company or an industrial facility requires a change in existing institutional approaches to the use of energy, a process that may benefit from technical assistance from experts outside the organization. There is a need to build not only internal capacity within the organizations seeking to apply the standard, but also external capacity from knowledgeable experts to help establish an effective implementation structure.

The core of any energy management standard involves the development of an energy management system. Organizations already familiar with other management systems, such as ISO: 90001 (quality) and ISO: 14001 (environmental management), will recognise a number of parallels in the implementation of an energy management system. For these organizations, the need for outside assistance may be limited to an orientation period and initial coaching. For organizations without such experience, varying degrees of technical support will likely be required for several years until the energy management plan is well-established.

The suite of skills required to provide the technical assistance needed for energy management is unique, since it combines both management systems and energy efficiency. Individuals and firms familial' with management systems for quality, safety, and environmental management typically have little or no expertise in energy efficiency. Industrial energy efficiency experts are highly specialized in energy efficiency, but are likely to be less familiar with broader management system approaches. Globally, the need for energy management experts is expected to increase rapidly once ISO:50001is published in early, 2011. C apacity building is lugently needed now to meet the growing demand for high quality energy management expertise.

UNIDO is continuing its interest and support for energy management through the inclusion of capacity building as part of its regional and national programmes in a number of countries in Southeast Asia, Russia, and Turkey. Since system optimization is not taught in universities or technical colleges, these programmes also include modules on system optimization, based on a successful model developed for a pilot programme in China.

Capacity Building for System Optimization

The optimization of industr ial systems and processes can make a significant contribution to improving energy efficiency in many industrial contexts. But it requires skills that are not learned in many existing programmes.

For example, as part of the UNIDO China Motor System Energy Conservation Programme, 22 engineers were trained in system optimization techniques in Jiangsu and Shanghai provinces. The trainees were a mix of plant and consulting engineers. Within two years of completing then training, these experts had conducted 38 industrial plant assessments and identified nearly 40 million kWh of savings in energy use. Typical system optimization projects identified through this initiative are summarized in Table 2.5.

Table 2.5: Reduced energy use From system Improvements (china pilot programme)

System/Facility

Total Cost (USD)

Energy Use Reductions (kWh/year)

Payback Period (years)

Compressed air/forge plant

18,600

150,000

1.5

Compressed air/machinery plant

32,400

310,800

1.3

Compressed air/tobacco industry

23,900

150,000

2

Pump system/hospital

18,600

77,000

2

Pump system/pharmaceuticals

150,000

1.05 million

1.8

Motor systems/petrochemicals*

393,000

14.1 million

0.5

* Note that this was an extremely large facility Source: Williams, ef a/., 2005

The goal in this respect is to create a cadre of highly skilled system optimisation experts. Careful selection is needed of individuals with prior training in mechanical, electrical or related process engineering, who have an interest and the opportunity to apply their training to develop projects. This training is intensive and system-specific. Experts may come from a variety of backgrounds, including government sponsored energy centres, factories, consulting companies, equipment manufacturers and engineering services companies. International experts in pumping systems, compressed air systems, ventilating systems, motors and steam systems are used to develop local experts.

Ideally, the completion of the intensive training programme is coupled with formal recognition for the competency of the trained local experts. Testing of skills through the successful completion of at least one system optimization assessment and preparation of a written report with recommendations that demonstrates the ability to apply system optimization skills should be a prerequisite for such recognition.

Trained local experts can also be used to offer awareness level training to factoiy operating personnel on ways of recognizing system optimization opportunities. This awareness training can be used to build interest in and demand for local system optimization services.

4. Delivery of Industrial Energy Efficiency Products and Services

Most industrial plant managers are focused on production levels. They have neither the time nor the incentive thoroughly to investigate and evaluate the many ways in which energy use could be reduced. Industrial energy efficiency information programmes aim to make it easier for them to do so by creating and disseminating relevant technical information through energy efficiency assessment and self-auditing tools, case studies, reports, guidebooks and benchmarking tools (Galitsky, et al., 2004). Industrial energy efficiency products and sendees can be provided by governments, utilities, consulting engineers, equipment manufacturers or vendors, or by ESCOs.

Government Programmes

Energy audits or assessments can help plant managers to understand their energy use patterns and identify opportunities to improve efficiency. In the mid-1990s, the IE A convened an expert group on industrial energy audits and initiated a project on Energy Audit Management Procedures. These procedures provide information on training, authorisation, quality control, monitoring, evaluation, energy audit models, and auditor tools based on auditing programmes in 16 European countries (Vaisanen, et al., 2003). Such project allowed for discussing a variety of auditing tools used within European auditing programmes (Ademe, 2002), and describing energy auditor training, authorisation of energy auditors, and quality control of energy audits. The US DOE’s Industrial Technologies Programme (ITP) provides energy assessments for industrial facilities through the Industrial Assessment Center (IAC) and the Save Energy Now initiative. US DOE has also developed a software tool called the Quick Plant Energy Profiler that characterises a plant’s energy consumption and provides industrial plant personnel with a range of relevant information on energy use and costs, opportunities to reduce energy use, and a list of recommended actions, including the use of ITP software tools for specific systems (U.S. DOE, 2008a). ITP has also developed a number of software tools focused on assessment of technologies and systems that are found in many industrial facilities and are thus not industry-specific. These include motors, pumps, compressed air systems, and process heating and steam systems.

Other auditing or assessment approaches include:

  • • energy audits conducted as part of the Dutch Long Term Agreements (Nuijen, 2002);
  • • the Danish C00 Tax Rebate Scheme for Energy-Intensive Industries (Ezban etah, 1994);

Participating countries

Par

ticipating

countries

Develop energy management plan

Establish energy use baseline

Manage

ment

appointed

energy

represen

tative

Establish cross- divisional Implementation Team

Emphasis on continuous Improvement

Docu

ment

energy

savings

Establish performance Indicators and energy saving Targets

Document and Train employees on procedural/ operational changes

Specified Interval for re-evaluating performance Targets

Reporting to public entity required

Energy savings externally validated or certified

Year

Initially

pub

lished

Approx market penetration by Industrial energy use

Existing

Denmark

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

sugests

annual

Yes

Optional'

2001

60%2

Ireland

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Industry sets own

Yes

Optional'

2005

25%

Japan3

Yes

Yes

Yes

Icensed

implied

Yes

Yes

Yes

Yes

Yes, annually

Yes

Yes

1979

90%

Korea

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes, annually

Yes

Optional4

2007

data not yet avail

Netherand5

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Optional'

2000

20-90%s

Sweden

Yes

Yes

Yes

Yes

unclear

Yes

Yes

Yes

Yes

Yes'

Yes

Optional'

2003

50% elect

Thailand

Yes

Yes

Yes

Yes

implied

Yes

Yes

Yes

Yes

Industry sets own

Yes

evaluatin

plan

2004

not known7

(Contd...)

limited States

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

annula

recomm

no

no8

2000

5%8

Under

Development

CEN (EU)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Industry sets own

National

schemes

National

schemes

China

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Industry sets own

not avail

not avail

  • 1 Certification is required for companies participating in voluntary agreements (also specified interval in Sweden) In Denmark, Netherlands and Sweden linked to tax relief eligibility
  • 2 As of 2002, latest date for which data is available.
  • 3 Japan has the Act Concerning the Rational Use of Energy, which includes a requirement for energy management
  • 4 Korea invites large companies that agree to share information to join a peer-to peer networking scheme and receive technical assistance and incentives.
  • 5 Netherlands has an Energy Management System, not a standard, per se, developed in 1998 and linked to Long Term Agreements in 2000
  • 6 800 companies representing 20% of energy use have LTAs and must use the Energy Management System. The 150 most energy intensive companies, representing 70% of the energy use, have a separate, more stringent, bench marking covenant and are typically ISO: 14000 certified, but are not required to use the EM System.
  • 7 Thailand has made the energy management standard is mandatory for large companies, linked it to existing ISO-related program activities, coupled with tax relief; program evaluation not yet available.
  • 8 To date, the US government has encouraged energy management practices, but not use of the standard A program was initiated in 2008 to address this which also includes validation; program evaluation results anticipated in 2011.

Note National standards and specifications were used as source documents.

Source McKane et al, 2007 as updated by the author in 2008

  • • Taiwan’s energy auditing programme in which 314 industrial firms were audited between 2000 and 2004 (Chan et al., 2007); and
  • • the IFC’s industrial audit programme (Shah, 2008).

In 2006, the Ministry of Trade and Industry in Finland held a 3 day workshop on energy auditing and issued the Lahti Declaration in which 39 countries and 8 international organizations emphasised the importance of energy auditing and established the International Energy Audit Programme (IEAP) (Lahti Declaration, 2006).

Case studies documenting the use of specific industrial energy efficiency technologies and measures can provide plant managers with insights into the implementation costs, energy savings, and experiences of other industrial facilities. The U.S. DOE provides case studies that describe energy efficiency demonstration projects in industrial facilities in the aluminium, chemicals, forest products, glass, metal casting, mining, petroleum, steel, cement, textiles, and other sectors and tip sheets, technical fact sheets and handbooks, and market assessments for industrial systems. Case studies providing information on commercial energy-saving technologies for a number of industrial sectors are also provided by the Centre for Analysis and Dissemination of Demonstrated Energy Technologies (CADDET).

Reports or guidebooks can provide more comprehensive information on the many industrial energy efficiency technologies and measures that are available for specific end-use sectors or for specific energy-consuming systems.

Benchmarking can be used to compare a facility’s energy use to that of other similar facilities or to national or international best practice energy use levels. Canada’s Office of Energy Efficiency has benchmarked the energy use of ammonia, cement, fertiliser, food and beverage, mining, oil sands, petroleum products, pulp and paper, steel, textiles, and transportation manufacturing facilities. In the Netherlands, Benchmarking Covenants encourage participating industrial companies to benchmark themselves to their peers and to coimnit to becoming among the top 10% most energy-efficient plants in the world or one of the three most efficient regions (Commissie Benchmarking, 1999). The U.S. ENERGY STAR has developed a benchmarking tool called the energy performance indicator (EPI) for the cement, com refining, and motor vehicle assembly industries that ranks a facility among its peers based on norms for the energy use of specific activities or on factors that influence energy use. Lawrence Berkeley National Laboratory has developed the BEST:

Benchmarking and Energy Saving Tool for industry to use to benchmark a plant's energy intensity against international best practice and to identify energy efficiency options that can be implemented. BEST has been developed for the cement and steel industries in China (Price et al., 2003) and in the California wine industry (Galitsky et al., 2005).

The sharing of information about energy efficiency technologies and measures between industrial organisation is a key element of the United States Environmental Protection Agency’s (U.S. EPA) Energy Star for Industry programme, the second phase of the Dutch Long-Term Agreements (LTA- 2), and the Carbon Trust’s work in the UK. The Energy Star for Industry programme convenes focus groups for a number of major industrial sectors. These groups meet regularly to discuss barriers to energy efficiency and share energy management techniques (U.S. EPA, 2008b).

Under the LTA-2 programme, knowledge networks have been established by Senter Novem, an agency of the Dutch Ministry of Economic Affairs, in the areas of bio-based business, process engineering, sustainable product chains, heat exchangers, separation technology, drying processes, process intensification, and water technology. A website has been established for companies, institutions and consultants interested in sharing their knowledge and experience. The knowledge networks organise several meetings a year that provide an opportunity for members to make presentations and to discuss recent developments, research findings, and new applications in the network area. They maintain a website with surveys of the main organisations involved in the field as well as recent articles and other publications. They also support new projects, maintain contacts with similar networks and researchers in other countries and develop roadmaps related to the network area (Senter Novem, 2008).

There are several measures which help reduce emissions from industrial energy use. As industrial energy efficiency is prominent among these it is often promoted via carbon reduction actions. The UK’s Carbon Trust is a government-funded independent entity set up to help businesses and the public sector to reduce their carbon emissions by 60% by 2050 (UK DTI, 2003). The Carbon Trust identifies carbon emissions reduction opportunities, provides resources and tools, provides interest-free loans to small and medium sized enterprises, funds a local authority energy financing scheme, and promotes the government’s Enhanced Capital Allowance Scheme. It also has a venture capital team that invests in early-stage carbon reduction technologies as well as management teams that can deliver low carbon technologies (Carbon Trust, 2008).

5. Industrial Equipment and System Assessment Standards

Equipment Standards

Motors are very widely used in industry. Most motors perform at levels well below those of the high efficiency motors available today. Improving motor efficiency would offer a significant opportunity for energy savings.

High efficiency motors cost 10% to 25% more than standard motors. But they offer motor losses 20% to 30% lower. So, depending on then' hours of operation, the additional cost of a high efficiency motor can often be recovered in less than three years.

When motors fail, they are frequently repaired rather than replaced. A typical industrial motor will be repaired 3 to 5 times over its life. The quality of the repair is the most important factor in maintaining the efficiency of the repaired motor. In general, quality repairs will reduce energy efficiency by 0.5% or less, while poor repairs can reduce efficiency by 3% or more. When future operating costs are taken into account, it is usually more cost effective to replace standard motors with more energy efficient ones rather than to repair them. Under some conditions, it can be more cost effective even to replace a fiilly functioning motor with a more energy efficient one (Nadel, et al, 2002).

The adoption of minimum efficiency performance standards (MEPS) has been shown to be the most effective way generally to improve the energy efficiency of motors in industry. Where standards for high efficiency motors have been mandatory for some time, such as in the United States and Canada, high- efficiency motors make itp about 70% of the current stock. Where they are not mandatory, such as in the European Union, more than 90% of all industrial motors operate at or below standard efficiency (Table 2.7). Australia’s MEPS for electric motors has also been shown to have helped to protect its market from a flood of lower efficiency imported motors from Asian suppliers (Ryan, et ah, 2005).

System Assessment Standards

Systems, as distinct from components, can also be the source of very significant industrial energy inefficiencies. Providers of system assessment sendees can help industrial facilities both to reduce operating costs and increase reliability.

Table 2.7: Motor efficiency performance standards and the market Penetration of energy efficient motors

Efficiency

Level*

Designations based on test method

Minimum energy performs standards (estimated in country% market share

IEC 34-2

ICEE/CSA

Mandatory

Voluntary

Premium

NEMA

Premium

Australia (10%) Canada, U.S. (16%) China - 2010

High

EFF 1

EPAct the level, JIS C 4212

Australia - 2006 Brazil - 2009 Canada, US (54%) China - 2010 Maxco

Australia (32%) Brazil (15%) China 91%)

EU (7%)

India (2%) Japan (1%)

Standard

EFF 2

Standard

Australia (58%) Brazil (85% > 20 after 2009) China (99%) Canada, U.S.- 30% exempt

EU (66 non- CEMEP, 85 of CEMEP agreement members)

India (48%)

Japan (99%)

Below Standard

EFF 3

Eu (28% non- CEMP, 8 CEMEP) India 59%)

Source: IEA, 2007a

But it is difficult for plant personnel to easily identify quality sendees at competitive prices. The lack of market definition also creates challenges for the providers of quality system assessment sendees to distinguish their offerings from others that are either inadequate to identify energy efficiency opportunities or merely thinly-veiled equipment marketing approaches.

There is also very little reliable data on system performance, in particular on accurate operational measurements of the performance of motor, steam, and process heating systems. Measur ing the energy efficiency of components (motors, furnaces, borlers) is reasonably straight forward and well documented, although the treatment of some losses in the measurement process for motors is inconsistent and the efficacy of testing techniques for installed boilers and furnaces can vary substantially. But the measurement of system energy efficiencies, where most of the energy efficiency potential exists, is far less well developed.

Few industr ial facilities can quantify the energy efficiency of motor, steam, or process heating systems without the assistance of a systems expert. Even system experts can fail to identify large savings potentials if variations in loading patterns are not adequately considered in the assessment measurement plan. And even where permanently installed instruments such as flow meters and pressure gauges are present, they are often non-functioning or inaccurate. It is not uncommon to find orifice plates or other devices designed to measure flow actually restricting flow as they age.

A large pool of expert knowledge exists on the most effective way to conduct energy efficiency assessments of industrial systems such as compressed air, fan, pumps, motorstor/drive, process heating, and steam systems. A body of literature, primarily from the United States, UK and Canada, has been developed in the past fifteen years to identify these best practices. These assessment techniques have been further refined in recent years in the United States. Best practices that contribute to system optimization are system specific, but generally include:

  • • evaluating work requirements and matching system supply to them;
  • • eliminating or reconfiguring inefficient uses and practices such as throttling or open blowing;
  • • changing or supplementing existing equipment (motors, fans, pumps, boilers, compressors) better to match work requirements and increase operating efficiency;
  • • applying sophisticated control strategies and speed control devices that allow gr eater flexibility to match supply with demand;
  • • identifying and correcting maintenance problems; and
  • • upgrading and documenting regular maintenance practices.

The system assessment standards define, on the basis of current expert knowledge and techniqires, a common framework for assessing the energy efficiency of industrial systems. This will help define the market both for users and for the providers of these services. By establishing minimum requirements and providing guidance on questions of scope, measurement, and reporting, these standards will provide assurance to plant managers, financiers, and other non-technical decision-makers that a particular assessment represents a recognized threshold for accuracy and completeness. The system assessment standards will also assist in training graduate engineers and others who want to increase their skills hi optimizing the energy efficiency of industrial systems (Sheaffer and McKane, 2008).

To assist industrial firms in identifying individuals with the necessary skills properly to apply the system assessment standards, the United States initiative will also include the creation of a professional credential for Certified Practitioners in each system type. This programme will be administered by an organisation with experience in managing these types of professional technical credentials and is expected to become available in late 2010.

6. Certification and Labelling of Energy Efficiency Performance

The U.S. DOE has been developing and offering an extensive array of technical training and publications since 1993 to assist industrial facilities in becoming more energy efficient. Although the United States has had energy management standard since 2000, participation in the standard has not been widespread (McKane et al, 2007). In 2007, the U.S. DOE supported the formation of the Superior Energy Performance (SEP) partnership, a collaboration of industry, government, and non-profit organizations that seeks to improve the energy intensity of manufacturing through a series of initiatives, most notably, by developing a market-based Plant Certification programme.

Proposed Plant Certification Framework Source

Fig. 2.20 Proposed Plant Certification Framework Source: U.S. DOE, 2008

Another programme that focuses on the certification of energy management systems is the Programme for Improving Energy Efficiency in Energy Intensive Industries (PFE), managed by the Swedish Energy Agency (SEA). This programme offers reduced taxes for companies that introduce and secure certification of a standardised energy management system and undertake electrical energy efficiency improvements (Bjorkman, 2008). The programme requires a five-year initial commitment, with a requirement to report the achievement of specific milestones by the end of two years, as follows:

• implementation of the energy management standard that is certified by an accredited certification body;

  • • completion of an in-depth energy audit and analysis to baseline use and identify improvement opportunities. A list of measures identified in the energy audit with a payback of three years or less must be submitted to the SEA;
  • • establish procurement procedures that favour energy efficient equipment; and
  • • establish procedures for project planning and implementation.

By the end of five years, the company must implement the listed measures, demonstrate continued application of the energy management standard and procurement procedures, and assess the effects of project planning procedures. As of May, 2009, 124 companies had signed up to participate in PFE, representing approximately 50% of all Sweden’s industrial electricity use.

7. Demand Side Management

Energy users do not demand energy at the same time each day nor each season of the year (More heating may be required in winter, cooling in summer, lighting at night, etc.). By managing the “demand-side” the profile of energy use can be changed. Various Demand Side Management (DSM) options exist. Sometimes the demand for energy can be shifted, with so called “load shifting” measures. Peak demand can be changed by, amongst other tilings, improving the efficiency of appliances that contribute to peak demand.

The energy supplier may have various motivations for implementing DSM, such as providing services at a lower cost, increasing his market share, reaching more customers without expanding his supply infrastructure, and mitigating the need to build more plant consequently limiting the cost of increases of supply.

By changing the load profile of consumers, to one that is flatter, utilities get to run theft supply infrastructure more during the year. The higher utilization of this infrastructure, the lower the per-imit cost of supply.

In recent decades Utilities (electric, gas and others) or ESCOs have been miming DSM programs. A key element of these programs has been the deployment of energy efficiency measures. These programs can be voluntary or legislated.

8. Utility Programmes

Many utility companies, especially those whose profits have been decoupled from sales and/or who have dedicated funding for energy efficiency through a public benefits charge, have demand-side management programmes for industry. In the United States, 18 states have energy efficiency programmes funded through public benefits charges (Kushler et ah, 2004). Such programmes are based on the ability of utilities to provide the financial, organizational, and technical resources needed to implement energy efficiency investments. In some cases, utilities can collect the repayment of loans for energy efficiency investments through electricity bills (Taylor et al, 2008). Utility-based industrial energy efficiency programmes typically include energy assessments, payments for large energy efficiency projects through standard offer programmes, and rebate programmes for less complex measures (see Box 3) (China U.S. Energy Efficiency Alliance, 2008).

Box 3: Primary Elements of Utility-based Industrial Energy Efficiency Programmes

Standard offer programmes offer to purchase energy savings from a list of preapproved measures at a fixed price for each unit of energy avoided. Contractors and facility owners can develop projects that conform to the programme requirements. The offer price can vary by measure type, region, size of project, or any other parameter that helps to improve the programme’s potential to succeed. Standard offer programmes can also accept customised measures not on the pre-approved list. Project developers submit a description of the measure with estimated savings and costs, and the programme manager calculates an offer price specific to the proposal. Standard offer programmes leverage existing contractor or distributor relationships and facility owners’ knowledge about their own operations. Energy audit programmes provide technical experts to assess energy efficiency opportunities in facilities within a target market. The audit results in a report submitted to the facility that describes how energy is currently being used, investigates promising energy efficiency measures, and recommends measures that will result in cost- effective savings while maintaining or improving service levels. Audits are usually linked to an implementation programme (rebate, standard offer, etc.) so that the recommended measures can be installed. Audit programmes also serve to educate the facility operations staff and increase awareness of the demand side management portfolio. Rebate programmes operate by offering cash to offset the purchase of a high-efficiency device such as a motor or refrigerator. The cash is usually paid directly to the purchaser, who submits a proof-of-purchase receipt. The cash can also be paid to wholesalers and distribution centers, typically requiring proof-of- sale to a retail customer. Rebate programmes are simple to deploy and operate, and their immediate availability helps to promote relatively simple energy efficiency opportunities that might otherwise be overlooked. But they do not generally result in comprehensive projects.

Excerpted from China-U.S. Energy’ Efficiency Alliance (2008)

9. Energy Service Companies

ESCOs are entities that provide services to end-users related to the development, installation, and financing of energy efficiency improvements. They help to overcome informational, technical, and financial barriers by providing skilled personnel and identifying financing options for the facility owner. ESCO projects are usually performance based and often use an energy performance contract (EPC) in which the performance of an energy efficiency investment in the client’s facilities is usually guaranteed in some way by the ESCO and creates financial consequences for it (Taylor el al., 2008).

There are two primary financing models for ESCOs. In the shared savings model, the ESCO undertakes all aspects of the project, including its financing, and shares in the value of the energy savings over a designated time period. In the guaranteed savings model, the ESCO undertakes all aspects of the project except the financing, although it may assist in arranging finance, and provides a guarantee to the client of a certain level of energy savings over a designated time period (see Fig. 2.21).

Shared Savings and Guaranteed Savings Energy Performance Contract Models

Fig. 2.21 Shared Savings and Guaranteed Savings Energy Performance Contract Models.

Source: Taylor et al., 2008.

A 2002 survey identified 38 countries with ESCOs, many of which were created in the 1980s and 1990s. The ESCOs typically focused on the commercial, industrial, and municipal sectors (Vine, 2005). In the United States, the ESCO industry is relatively mature but has had limited impact on the industrial sector. A database of almost 1,500 energy efficiency projects indicates that ESCO revenues had grown at an average rate of 24% during the 1990s and were between US$ 1.8 and 2.1 billion in 2001 (Goldman et al., 2002). But few ESCOs in the United States have penetrated the market in industrial applications. Rather, they tend to concentrate on measures such as lighting and heating, ventilating, and air conditioning in commercial buildings. This misses most of the much larger energy savings that are likely to be available at industrial sites.

In recent years, suppliers of industrial system equipment have begun providing value added sendees that may include everything from sophisticated controls, drives, valves, treatment equipment, filters, drains, etc. to complete management of the industrial system as an outsourced provider. Their success appears to be attributable to their specialised level of systems skill and familiarity with their industrial customers’ plant operations and needs (Elliott, 2002, IEA 2007ft).

The World Bank’s GEF introduced the ESC О concept to China in 1997 through three demonstration ESCOs in Beijing, Liaoning, and Shandong which were funded jointly by a GEF giant, an International Bank for Reconstruction and Development (IBRD) loan, and financing from the EU. At the end of 2006, the three ESCOs participating in the China Energy Conservation Project (CECP) had under taken about 350 energy performance contracting projects, representing investments of about US$ 170 million, mostly for building renovation, boiler/cogeneration, kiln/fumace, and waste heat/gas recovery projects. The Second CECP, designed to increase China’s ESCO business, was initiated in 2003 with additional GEF grant funding. This project is focused on development of a national loan guarantee programme to assist ESCOs in obtaining loans from local banks (Taylor et al, 2008). China now has a large ESCO industry, with an estimated 212 ESCOs involved in contracts valued at RMB 1.89 billion (US$ 277 million) in 2006 (Zhao, 2007).

It should however be noted that the success of ESCOs has often been constrained to particular types of end user and varies by country, making general replication not straight forward. Many focus on buildings, HVAC and refrigeration services, or specialize in energy intensive industry (Motiva, 2005). It is often difficult for ESCOs in markets or settings where energy efficiency practices are not common or the potential for reducing costs by energy management is not known or is unfamiliar. The service being supplied by the ESCO is regularly treated with suspicion. So too are the (novel) financing structures required to support the services provided. This leads to high perceived risk. That is often compounded where there is the added perception that ESCO services may interfere with the energy used for production, and therefore may interfere in an unwanted way with that industry’s output.

10. Financing Mechanisms and Incentives for Industrial Energy Efficiency Investments

The following section focuses on international bodies and finance. In general, industrial energy efficiency projects find it difficult to access capital, even in carbon finance markets such as the Clean Development Mechanism (CDM) and other project based emissions trading markets. Energy efficiency projects are often small and dispersed, creating larger transaction costs than more traditional investments in energy supply. Investors and financiers often do not have an adequate understanding of the potential financial returns from such investments and, along with project managers at industrial facilities, do not have adequate training in the preparation of industrial energy efficiency project loan documents. In addition, the risk associated with assessing and securitising the revenues generated through energy savings needs to be reduced. Although the returns associated with energy efficiency projects may be high, their volumes can be low and thus less attractive than larger investments.

A number of financing mechanisms and incentives have been developed to overcome barriers and to promote the adoption of industrial energy efficiency opportunities. The CDM was designed specifically to promote sustainable development and cost-effective climate change mitigation in developing countries and transition economies. Energy efficiency projects can promote sustainable development as well as reduce GHG emissions. But some methodological and CDM-process related challenges will have to be addressed if end-use energy efficiency projects are to be given proper credit. The World Bank and many UN agencies have also established energy efficiency financing projects. In addition, a number of governments have promoted investment in industrial energy efficiency through various financial instruments such as taxes, subsidies, and programmes that improve access to capital.

Clean Development Mechanism Financing and demand side efficiency projects in industry

To date, the CDM has not catalysed significant investment in industrial end-use energy efficiency projects, although some progress has been made following various efforts to address the problem. As of 1 October, 2009, only 3% of the 1834 registered CDM projects were described as addressing industrial energy efficiency. Another 7% fell under the general categoiy of “energy efficiency, own generation”; these may include some industrial energy efficiency projects. And another 1% fell under the cement sector (Fenliann, 2009). Other energy efficiency categories play a minor role, with energy efficiency supply projects forming only 1% to the total, and energy efficiency in households and in sendees being far below 1%.

The CDM project-based framework, in which each project is subject to stringent and complex baseline, additionality, and monitoring requirements, is not well suited to energy efficiency projects. Transaction and carbon credit development costs tend to be the same whether a project is large or small. As the majority of energy efficiency projects generate only small or medium scale emission reductions, they are not developed (Tiktinsky, 2008). Industrial energy efficiency projects also typically have a favour-able rate of return, making it difficult to meet the CDM additionality requirements. It can also be cumbersome to quantify emissions reductions for small, dispersed actions implemented under industrial energy efficiency programmes. And the approved project methodologies do not particularly suit the circumstances of those energy efficiency programmes that are likely to have the greatest impact (Arquit-Niederberger, 2007).

Recognising the low number of approved demand-side energy efficiency methodologies and projects, the CDM Executive Board commissioned a study to provide recommendations to address the barriers faced by these projects. The study proposed the development of a number of energy efficiency tools and provided guidance on energy efficiency methodologies. The proposed tools include a tool on baseline load-efficiency function and a tool on energy benchmarking. Guidance will be provided related to best practices for sampling and surveys for energy efficiency project activities and the determination of equipment lifetime. In addition, although the CDM Executive Board views the CDM Programme of Activities (PoAs) as a means to accelerate energy efficiency (Rajhansa, 2008), methodologies are still lacking. Their development is difficult, time-consuming, and will probably require excessive monitoring and baselining (Tiktinsky, 2008). In order to increase the uptake of energy efficiency improvements through the CDM, there would need to be less focus on project-by-project approaches, and more use of benchmarks for additionality testing. The designated operational entities need to be strengthened and capacity needs to be built among the CDM participants (Rajhansa, 2008).

Drawing on the lessons outlined above, UNIDO has developed an outline proposal for mainstreaming industrial energy efficiency with a view specifically to delivering CO, reductions and addressing the need for capacity building. This proposal is set out in Appendix В to this paper.

Financing for Developing Countries and Countries in Transition

As the financial mechanism of the UN Framework Convention on Climate Change (UNFCCC), the World Bank’s GEF provides support for climate change and industrial energy efficiency projects. The GEF-4 climate change strategy includes a programme to promote industrial energy efficiency. Most of these projects are implemented with the UN Development Programme (UNDP), World Bank, and UNIDO. UNDP’s approach includes capacity building, developing policies and regulations, implementing voluntary agreements, technology demonstration, encouraging the setting up of ESCOs, and creating revolving funds. The World Bank Group’s International Finance Corporation (IFC) focuses on energy service companies (ESCOs), partial risk guarantees, revolving funds, on-lending, and technical assistance. UNIDO works in the areas of energy management standards, system optimisation, demonstration projects, the training of enterprise energy managers, and benchmarking (Zhang, 2008).

The IFC provides loans, equity, structured finance and risk management products, and advisory sendees to build the private sector in developing countries. The IFC has a programme to train their investment officers around the world in the development of energy efficiency projects (Shah, 2008), as well as to provide marketing, engineering, project development, and equipment financing sendees to banks, project developers, and suppliers of energy efficiency products and sendees.

The IFC’s China Utility-based Energy Efficiency Programme (CHUEE) provides a sustainable financing mechanism for energy efficiency investments by establishing a risk-sharing fund with the Industrial Bank of China (IBC), which in turn provides energy efficiency loans. Dining the first phase of this programme, IFC provided up to USS 25 million to IBC which then provided USS 126 million in financing for 46 energy efficiency and GHG mitigation projects, mostly for small and medium enterprises to retrofit industrial boilers, recover waste heat for cogeneration, reduce electricity use and optimise overall industrial energy use. For the second phase of the project, IFC will provide USS 100 million for risk-sharing to the IBC, which in turn will provide US$ 210 million in energy efficiency loans (IFC, 2008).

The UN Environment Programme (UNEP) set up a World Bank-Energy Sector Management Assistance Programme (ESMAP) multi-year technical assistance project on “Developing Financial Intermediation Mechanisms for Energy Efficiency Projects in Brazil, China, and India” (also known as the Three Country Energy Efficiency Project). This was funded by the UNF and ESMAP. The goal of this project was to generate innovative ideas and approaches for energy efficiency financing schemes. Such financing schemes included loan financing schemes and partial loan guarantee schemes, ESCO or third party financing, and utility demand-side management programmes. The major conclusion from the Three Country Energy Efficiency Project is that the institutional framework and customised solutions are the keys to success (Monari, 2008; Taylor el al., 2008).

The United Nations Economic Commission for Europe (UNECE) has initiated a new programme on Financing Energy Efficiency Investments for Climate Change Mitigation to assist Southeast European and Eastern Europe, Caucasus and Central Asia (EECCA) countries to enhance their energy efficiency, reduce fuel poverty from economic transition, and meet international enviromnental treaty obligations under the UNFCCC and the UNECE. The programme will:

  • • provide a pipeline of new and existing projects for public private partnership investment funds that can provide up to USS 500 million of debt or equity or both to project sponsors;
  • • establish a network of selected municipalities linked with international partners to transfer information on policy reforms, financing and energy management;
  • • initiate case study investment projects in renewable energy technologies, electric power and clean coal technologies;
  • • develop the skills of the private and public sectors at the local level to identify, develop and implement energy efficiency and renewable energy investment projects;
  • • provide assistance to municipal authorities and national administrations to introduce economic, institutional and regulatory reforms needed to support these investment projects; and
  • • provide opportunities for banks and commercial companies to invest in these projects through professionally managed investment funds.

The goal of the programme is to promote a self-sustaining investment environment for cost-effective energy efficiency projects for carbon emissions trading under the UNFCCC Kyoto Protocol (Sambucini, 2008).

Developed Country Experiences with Industrial Energy Efficiency Financing Mechanisms and Incentives

Integrated policies that combine a variety of industrial energy efficiency financing mechanisms and incentives in a national-level energy or GHG emissions mitigation programme are found in a number of countries. These policies operate either through increasing the costs associated with energy use to stimulate energy efficiency or by reducing the costs associated with energy efficiency investments.

Incentives for investing in energy efficiency technologies and measures include targeted giants or subsidies, tax relief, and loans for investments in energy efficiency. Grants or subsidies are public funds given directly to the party implementing an energy efficiency project. A recent survey found that 28 countries provide some sort of grant or subsidy for industrial energy efficiency projects (WEC, 2004). In Denmark, energy-intensive industries and companies participating in voluntary agreements were given priority in the distribution of giants and subsidies (DEA, 2000). The Netherlands BSET Programme covered up to 25% of the costs for specific energy efficiency technologies adopted by small or medium sized industrial enterprises (Kraemer et al. ,1997).

Energy efficiency loans can be subsidised by public funding or can be offered at interest rates below market rates. Innovative loan mechanisms include energy performance contracts through ESCOs, guarantee funds, revolving funds, and the use of venture capital. Many countries have guarantee funds, but these national funds are generally not adequate to support financing for energy efficiency projects and most of them have ceilings on the guarantees. With revolving funds, the reimbursement of the loans is recycled back into the fund to support new projects. These funds generally require public or national subsidisation of interest rates or of the principal investment.

Tax relief for the purchase of energy-efficient technologies can be provide through accelerated depreciation (where purchasers of qualifying equipment can depreciate the equipment cost more rapidly than standard equipment), tax reduction (where purchasers can deduct a percentage of the investment cost associated with the equipment from annual profits), or tax exemptions (where purchasers are exempt from paying customs taxes on imported energy- efficient equipment) (Price et al., 2005).

In Canada, taxpayers are allowed an accelerated write-off of 30% for specified energy efficiency and renewable energy equipment mstead of the standard annual rates of 4% to 20% (Canada, DoF, 2004; Government of Canada, 1998). A programme in The Netherlands allows an investor more rapidly to depreciate its investment in environmentally-friendly machinery (USD, 1994; SenterNovem, 2005<7).

Japan’s Energy Conservation and Recycling Assistance Law provides a corporate tax rebate of 7% of the purchase price of energy-efficient equipment for small and medium sized firms (WEC, 2001). In South Korea, a 5% income tax credit is available for energy efficiency investments such as the replacement of old industrial kilns, boilers, and furnaces (UNESCAP, 2000). In The Netherlands, a percentage of the annual investment costs of energysaving equipment can be deducted from profits in the calendar year in which the equipment was procured, up to a maximum of EUR 107 million. This was originally 40% and has now been raised to 55% (Aalbers, et al., 2004; SenterNovem 20056). The UK’s Enhanced Capital Allowance Scheme allows businesses to claim 100% first-year tax relief on their spending on energy saving technologies specified in an Energy Technology List (HM Revenue and Customs, n.d.; Carbon Trust, 2005).

In Sweden, companies that cany out an energy audit of their facilities, apply an energy management system, establish and apply routines for purchasing and planning, and cany out energy efficiency measures through Sweden’s PFE programme are exempted from the electricity tax of EUR 0.5/MWli. Based on improvements planned for implementation by 2009 in 98 Swedish companies, tax exemptions of about €17 million will be realised by these companies through their participation in this programme (Swedish Energy Agency, 2007).

 
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