The Asia Climate Finance Podcast

Ep44 How innovative financing is powering energy efficiency, ft Alexander Ablaza, Climargy

April 16, 2024 Joseph Jacobelli Episode 44
Ep44 How innovative financing is powering energy efficiency, ft Alexander Ablaza, Climargy
The Asia Climate Finance Podcast
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The Asia Climate Finance Podcast
Ep44 How innovative financing is powering energy efficiency, ft Alexander Ablaza, Climargy
Apr 16, 2024 Episode 44
Joseph Jacobelli

Topics? Guest ideas? Comments? Just text us, including reply details

Scaling up energy efficiency can for 11 per cent of cumulative emissions reductions by 2030 according to the IEA. In this episode energy industry veteran Alexander Ablaza, explains why energy efficiency the most important pieces of the energy transition although it is often unjustifiably ignored. He discusses in detail business and finance trends in the sector as well as examining the many investments opportunities, and the challenges, with energy efficiency in the Asia Pacific region.

ABOUT ALEXANDER: Alexander Ablaza is CEO of Climargy Inc. The last 23 years of his 38-year professional career have been dedicated to growing energy efficiency and other clean energy technology deployment in 14 Asian markets through the identification, due diligence and financial close of over $3 billion in direct investments, and also through catalytic market transformation, policy, regulatory, fund mobilization and transaction support interventions. He designed and established Climargy, a global pioneer private Super ESCO aggregator of ESCO project assets hosted by the C&I sector in Asian growth markets. He convened, founded, and chairs the Asia-Pacific ESCO Industry Alliance and the Philippine Energy Efficiency Alliance. He likewise co-founded and sits in the Advisory Board of the Global ESCO Network and co-chairs the Marketplace Taskforce of the global coalition, Mission Efficiency. He is armed with 35 years of project and corporate management experience, an aggregate 29 years of energy sector involvement, and an educational background in engineering (BSCE) and economics (MBE). 

HOST, PRODUCTION, ARTWORK: Joseph Jacobelli | MUSIC: Ep0-29 The Open Goldberg Variations, Kimiko Ishizaka Ep30- Orchestra Gli Armonici – Tomaso Albinoni, Op.07, Concerto 04 per archi in Sol - III. Allegro. | FEEDBACK:

Show Notes Transcript

Topics? Guest ideas? Comments? Just text us, including reply details

Scaling up energy efficiency can for 11 per cent of cumulative emissions reductions by 2030 according to the IEA. In this episode energy industry veteran Alexander Ablaza, explains why energy efficiency the most important pieces of the energy transition although it is often unjustifiably ignored. He discusses in detail business and finance trends in the sector as well as examining the many investments opportunities, and the challenges, with energy efficiency in the Asia Pacific region.

ABOUT ALEXANDER: Alexander Ablaza is CEO of Climargy Inc. The last 23 years of his 38-year professional career have been dedicated to growing energy efficiency and other clean energy technology deployment in 14 Asian markets through the identification, due diligence and financial close of over $3 billion in direct investments, and also through catalytic market transformation, policy, regulatory, fund mobilization and transaction support interventions. He designed and established Climargy, a global pioneer private Super ESCO aggregator of ESCO project assets hosted by the C&I sector in Asian growth markets. He convened, founded, and chairs the Asia-Pacific ESCO Industry Alliance and the Philippine Energy Efficiency Alliance. He likewise co-founded and sits in the Advisory Board of the Global ESCO Network and co-chairs the Marketplace Taskforce of the global coalition, Mission Efficiency. He is armed with 35 years of project and corporate management experience, an aggregate 29 years of energy sector involvement, and an educational background in engineering (BSCE) and economics (MBE). 

HOST, PRODUCTION, ARTWORK: Joseph Jacobelli | MUSIC: Ep0-29 The Open Goldberg Variations, Kimiko Ishizaka Ep30- Orchestra Gli Armonici – Tomaso Albinoni, Op.07, Concerto 04 per archi in Sol - III. Allegro. | FEEDBACK:

NOTE: You must not solely on this transcript as it automatically generated and may contain errors, only rely on the actual recording.

 Welcome to the Asia climate finance podcast, where our host and his guest discuss and evaluate climate business and climate finance issues and trends.  Please support us by liking and subscribing to the podcast.  Also, please note the disclaimers at the end of the show.  Here is your host, investor, analyst, and author, Joseph Jacobelli.

Hello there and welcome to the 44th episode of the Asia Climate Finance Podcast.  Today we're talking about energy efficiency and specifically about financing, energy efficiency projects or set of projects. Our guest is Alexander Ablaza. He's the Chief Executive Officer of climate.  a company pretty much focused on  energy efficiency projects. 

Alex is quite unique because he's been involved in the energy sector for about four decades, all Indonesia Pacific region. So he's very well placed to discuss the subject.  We first talk a little bit high level as to why  energy efficiency  often is  forgotten as a piece of the energy transition. puzzle. 

We talk about business models, and we talk about the outlook on equity and debt financing for energy efficiency projects.  I hope you enjoy the show.  Hello again, and welcome to episode 44  of the Asia Climate Finance Podcast, as introduced Earlier today, we have Alexander Ablaza from Clavigi  as a guest, and we're going to be chatting about energy efficiency.

Hello, Alex. How's everything in Manila? 

Hi. Hi, Joseph. Yes, it's   it's good to be back in Manila. I returned to Manila. I returned to the private sector over a decade ago. It's exciting years, especially building   So many non profit  advocacy groups and Climagee, which   I'm happy to  share about  today.

That's absolutely fantastic. Now, we've got your formal bio in the show notes, but perhaps we could  hear from you. A few words about your, your, your background in general. 

Well, it's a, what the short bio does not say is that I, I came from the construction industry, so I spent 14, 15 years in the engineering consulting world, and then I plunged purely into the world of energy efficiency across 14, maybe now 17 markets across Asia and the Middle East, I was a development banker, so I was the energy efficiency anchor of the Asian development bank.

And then I moved over to IFCs   the International Finance Corporation and they had a global climate finance team in Washington that led climate finance investments. And I was given  the task to lead the Asia investment portfolio  for that  out of Hong Kong. So, yeah, and then I returned to the private sector. 

Learning from the market gaps in the frustrations in, and sometimes the structural inability for multilateral lenders to fill in the gaps of energy efficiency. I tried to go to the front lines of the market and try to solve it with my own solutions.  

You're one of the very rare people. decarbonization experts in Asia  who has been in the business for nearly four decades. 

Could you just tell us before we get into the actual conversation, could you tell us two or three decarbonization related takeaways? What are the two or three positive surprises or developments that you've witnessed  during your career?  

Through most of the energy efficiency side of mercury, and that started more or less in the year 2000, so it's the last quarter century that I plunged deeply,  I've learned that energy efficiency is the,  is the, and should continue to be positioned as the first fuel.

So this is born out of initial studies of the International Energy Agency,  where  Eleven countries were modeled and they found out up to 65 percent of their total final energy demand could have been or was carved out by energy efficiency, making it the singular largest  energy resource above coal, above hydro, above nuclear, above all other renewables.

Of all other thermal sources. So it just, it just points the fact that the energy efficiency, the, the one  resource should continue to be  mobilized as the priority in first fuel, even ahead of other decarbonization  strategies such as renewable energy. And so it's, it's, it's really about  I think, I think the last   decade and two decades and a half.

We're about   how do we, how do we elevate that platform for energy efficiency? How do we scale it up? How do we play catch up to that other pillar called renewable energy?  I, I think those are the   it's, it's both a challenge, But at the same time, I, it, it, it really  solidified that calling for me to respond to that global need to  scale up energy efficiency deployment. 

Can we start our discussion, Alex, with a few very high level kind of questions.  I guess, you know, not everybody or not all listeners are a hundred percent familiar with the nitty gritties of the energy efficiency, so to speak. Now, what, what do you think? Energy efficiency may perhaps be one of the most important pieces in the energy transition puzzle. 

You know, I'm glad you asked that because  I had this   social media post  that said recently, why do over 95 percent of  energy transition and clean energy discussions   focus on renewable energy and  leave out energy efficiency as the priority dispatch or the first fuel of any economy. So it's, it's, it's the, clearly the.

Energy transition underdog   energy efficiency is, is not getting the attention. Maybe doesn't have the same   appeal and user appeal  policy  support, or does not have the same  investment  appeal. As renewable energy, and there are reasons for that. So it's it's it's it's really  it's really clear to all energy efficiency advocates and champions   around the world that the energy efficiency should be positioned ahead  in any energy transition pathway.

In any net zero scenario or roadmap   energy efficiency   should contribute. even more  emission reduction than renewable energy.  And that is done even more efficiently because you can bring, you can reduce more GHG to the dollar  through energy efficiency. Compared to the various forms of renewable energy.

So energy efficiency is   efficient, faster to deploy, but unfortunately it's just   it's not, the market is not giving it the same attention as it is   for renewable energy.  

Got it. And I guess for people not familiar with it, getting your head around of how to make money out of using less of something as opposed to using more of something.

But for those not familiar with the business and finance of energy efficiency, could you just very, very briefly high level offer some highlights as to the kind of more traditional business and finance energy efficiency models? 

Yeah, well, money. Let's let's talk about money first.  The IEA once estimated that the world needs to mobilize 24 and a half trillion dollars in energy efficiency investments  on the road to 2040. 

And I think that  two thirds of that, or at least 16 and a half trillion dollars will have to be done off balance sheet. Yeah.  Outside the balance sheet of the implementing entity called Energy Service Companies.  And even outside the balance sheet of the end user. And this is a way to accelerate behavioral change.

Energy efficiency at the end of the day is a, it's a behavioral shift. If you want to transform a market, you've got to change   behavior  behavior on energy utilization. So it's, it's, it's really about.  Shifting from the traditional business and energy efficiency financing models. And what are these?

These are the   self financed models. So if you're a large factory, if you're a large building  my chiller conks out or it's over, what, 20 years old.  And I save up  I use my internal    budget   budgetary resources  to finance the purchase of a new piece of equipment, which is going to be more efficient, then that's going to be the self finance model.

The  extension to that would be   debt finance. And I would run to the bank  and, and  get a loan for the new chiller, a new waste heat recovery plant.  A new   lighting retrofit, a new process line, just improve  energy  efficiency. So both debt finance   and self finance are what we call on balance sheet energy efficiency finance.

It, it, it remains on the balance sheet of the end user. And you can't grow that way because   there are other. There are other pressing needs of your business. I mean, you, you need, you need raw materials, you need more labor, you need expansion  area, you need   renovation of this part of your business.

So you, you have a higher priority needs, and this is where sometimes the chief energy officer, the chief  engineering    official  is in battle with the CFO  because   His request for an internal budget, a capital budget for new equipment   is brought down, down, down to a priority number 57, having to compete with 56 other priority disbursement.

So if a, if a chief engineer says, I need a new boiler this year  the soonest the, the,   the   CFO could program that would be what, okay  let's, let's, let's park that as a 2028  CapEx   under the 2028 CapEx program. So  it's, it's, it's, it's a five year, it's a five year delay of  of, of implementing   it's five years of absorbing high energy costs  just because of that delay in   And coming up and, and, and the same is true for debt finance.

Would the CFO prioritize the use of   the company's credit line for a low priority use such as energy efficiency?  There are higher priority needs for, for, for  those credit lines. And this is another reason why, even though they can borrow it, even if it can be internally financed, it, it competes with other.

Higher priority needs of the company.  And this is where innovative finance is needed.  Especially off balance sheet  capital flows to accelerate the implementation of  energy efficiency projects.  

Now,  could you perhaps provide a very high level, brief profiling as to where we are today with energy efficiency in some of the kind of maybe major economies?

In the Asia Pacific region,  

energy efficiency is moving at various velocities  across Asia Pacific. We've got  we've got  interesting  markets such as China, which is  is investing the most in, in, in energy efficiency right now. We've got mature escrow markets.  Such as   Japan, Korea, Malaysia  Thailand, Singapore and Philippines is just making it to that   category.

And, and, and the rest, there's a strong pull, there's a strong desire to build up    energy efficiency reforms and, and also build up an  an ESCO sector. for listening. A sector of energy service companies  with all  protocol performance contract templates in, in very responsive  accredited players  in, in the market.

So you, you, you, you see this high level of interest  in, in, in, in Southeast Asia, for example   there's a very strong pull from the likes of  Cambodia to have an ESCO industry for, for itself.   Indonesia is, is, is  desirous of  having also   to, to grow that energy efficiency  practice  and, and they're trying to   get that mainstream under an amended law.

So, you, you, you, you have this bits and pieces. In the meantime, energy efficiency, And the escrow market are growing across the Asia Pacific.  You, you, you see that in India, you see that in, in, in China  you see market maturity  in, in   half of the countries in Southeast Asia. You see that in East Asia, such as Japan, Korea.

Now, one of my interesting findings. And, and, and, and this, this actually surprised me is that there is no distinction  with, with, with the issue of access to finance for project capital of a typical energy service company or ESCO. There is no distinction between a market of a developing or emerging economy and that of a developed economy. 

So you could be a, an ESCO in Hong Kong and Singapore, you could be an ESCO in Japan and Korea,  and you could be an ESCO in Thailand, Malaysia, Philippines,  and still face that exact same problem of   lacking suitable access to debt finance from either state owned or commercial banks. And  the one finding that I have is that at least 98 percent of the Of ESCOs in Asia Pacific, regardless of whether they are in developing or emerging markets or they're in developed economies,  face that problem, they do not have suitable access to bank lending to pursue their true pipeline of energy saving performance contracts.

Yes, they can borrow. But they would typically max out their credit limit after three or four project loads because ESCOs in general, unless you're a large multinational ESCO, they do not have the kind of credit worthiness that would get them to access more debt finance  to pursue more projects.  Let's say they have 20, 30 projects in their pipeline beyond a four project loads.

They generally just have to wait for their credit limit. 10 year money, 15 year money to return to their treasury from the first three or four projects. So this is where, this is a, it's, it's, it's not just an Asia Pacific   phenomenon.  This is a, the lack of access, would stretch other, other regional ESCO markets as well.

So yes, even though we have a ESCO regulation, ESCO accreditation, ESCO performance contracts, large ESCO market delivering volume, we still have to solve the problem of growing  that or improving access  of, of ESCOs to  debt finance and not just debt finance.  Other sources of project capital, such as equity,  

so the major challenge for the growth of energy efficiency throughout the region, whether it's developed markets or developing markets. 

is really with, with the fundraising, both equity and debt financing due to the fact that typically these ESCO energy services companies are not, not huge.  And  I guess, you know, if you're aware of this problem, there's got to be either governments multilaterals like, you know, ADB and others AIB that are aware of this challenge.

So is the policy changing? Is this. Being addressed. And I guess the related question is,  which kind of is explained by this particular challenge is the lack of equity issuance by energy efficiency companies, or even energy efficiency focused bonds issued by, by, by energy efficiency players.  So, so what's the state of that?

I mean,  Is anybody out there trying to shake the tree?  

Well, yes  there are, I think the biggest barrier   to why certain markets have difficulty  fundraising. Is the clear lack of a, an aggregator energy efficiency projects are small. Okay. They're they're sub 3 million USD  sub 2 million in most cases, some are even less than half a million USD in project size  and, and this, at that scale.

Project finance from a commercial bank clearly would not work.  It's not like the case of a solar farm or a wind farm or an offshore wind     installation. So you, you have that sheer size and project finance  and, and just one set of contracts and counterparties are, are, are very clear. Here. You need an aggregator.

This is not an esco. In fact, there's been an abuse of the term esco. But  just to show that aggregation   potential, there's a, a, a public company called Energy Efficiency Service Limited in India or EESL. So it's, it does bulk procurement, it does bulk distribution. It does bulk installation, whether they be. 

irrigation pumps, whether they be LED streetlights, whether they be LED bulbs for households. So they, they, they have this mechanism where a government entity is able now to knock on the doors of  the likes of World Bank and ADB. And, and, and, and flow that, and, and, and use that aggregation vehicle right now to bring it down to the smaller  end users.

So this is, this is one aggregation model. The others are,   SuperESCO  SuperESCOs are  by far  government owned. So they're successful   super escrows in, in, in   in, in let's say three of the seven Emirates of UAE.  They have a couple in, in, in   Saudi Arabia. They have one in Bulgaria and Armenia.

And typically these are government owned and you have government doing it for public buildings or public schools are very, very focused on, on, on. changing how a certain class of end users  utilize energy. So you accelerate that shift in technology by using an aggregator. If an aggregator would buy all the The standard air conditioning units, heating units  LED bulbs  for a particular class of end users.

Then  it's that aggregation platform that again, that would be able to attract and access  project capital. And so it's, it's  it's, it's really about aggregation. Now there are, there are private sector  attempts   To   set up a super ESCO.  So  we, we, we, we have a climate in the Philippines set up  2020, and we have Sophia in Canada   as, as the second one, which was set up in 2021.

So it's still early days where   there are private sector attempts to mirror the early success of super ESCOs as aggregators. Because it's only in the aggregation of many small energy efficiency projects are able to attract not only equity at some point, even not that finance  

before talking about private sector examples like climate, which which I'm very interested in   just going back to my regional question.

I mean, isn't isn't it the job of a D. B. D. I. F. C. A. I. B. Etc.  Huh. To actually promote policy or to get governments to execute policies, which kind of promote energy efficiency, which help the escrows in in a variety of ways. I don't know, maybe interest free loans or whatever it is.  Isn't it the multilaterals that should be kind of act, be more active in this space? 

Yes, but you know, having come from the, from multilateral development banks, there are two sides of the coin. Of   M M MDBs. The World Bank has the, the IBRD side or what we call the World Bank for sovereign or, or, or government  borrowing.  And then it has the private sector investment ARB called, called IFC. 

Now, yes, it's the, typically it's the sovereign lending side. And ADBs operates the same way, although under the same brand of ADB. They have a private sector operations department and they, all the other departments are, are sovereign lending  or, or, or through, or through government. So you have the sovereign side of, of the MDBs   trying its best to influence policy, trying to  accelerate the energy efficiency market transformation through new  energy efficiency standards and tools for the market.

But to structure something in the private sector. It's not for them to do.  And then, and then, interestingly, there's this gray area  called the, the PPP. So   and I happen to be wearing my energy efficiency advisor hat. I was excited to be part of a team. That would   that's structured in design the, what was supposed to be Asia's first PPP for energy efficiency.

So this was for,   for, for over a hundred thousand  street lighting   assets  owned by the utility Tanaga National and for  local government unity  units or municipalities of the state of Malacca in Malaysia.   So I was, I was, I was happy to be part of that team. So I was by myself, the technical advisor and KPMG  was the financial advisor and Baker McKenzie was the   legal advisor.

And, and there, there were two things that killed it. Number one is the, the  because the electricity tariff was overly subsidized, there was a reluctance of the government to  put up   the federal government to put up a viability gap funding. But the, I think the more important   the more important  problem there was   there was a change in administration and the succeeding administration  typically  did not inherit even the beautiful projects that the previous administration    put up.

So,  beautiful projects  by, by, by, by politics. So, yes, it's, it's   but  all is not lost. Now, now I know that  PPPs can be structured.  It was interesting to see that   in the, there was an aspiration of that state to bundle up to 90 public buildings and do cooling and lighting retrofits just for those 90 buildings and put it up  for, for, for PPP    offers   from the private sector.

So it's, it's, it's, it's an interesting way of using private sector know how and private capital  to accelerate energy efficiency adoption in the public sector. So this is a, the gray area. So it's not, it's not pure public neither is it the pure private, but  more of these  PPPs should be explored  where, where possible.

Indonesia was also interested in using more PPP for, for energy efficiency, especially for municipal  street lighting. I just  have to check how much they have  replicated this.   But the one challenge, the one big challenge  in, in, in many Asia Pacific markets  I would say.  The, the energy subsidies is just delaying the   the flow or mobilization of   private capital to, to such markets and even public capital  because it only weakens The project economics  the, the equity returns   and, and just lengthens   all   investment returns of, of  any energy efficiency  investment.

There are only two markets in Southeast Asia, for example, that   have  succeeded in removing most of energy subsidies, largely because they're net importers, they're not oil and gas producers, and these are Singapore and the So they have. These are the two markets which reflect   very close to true cost of energy.

And  they, and in these two markets, you get the best  paybacks for a third party investor or even the  end user itself. So  it's you by, by subsidizing, you are, you are just  delaying the transformation of the energy efficiency market. By delaying the phase out of energy subsidies in all other markets where there are subsidized. 

That's, that's quite a key point because also applicable to   thermal power, right? To, to the way some countries still subsidizing  coal fired generation, in some cases even that, that  gas fired generation.   I want, I want to shift the conversation to, to your company, Climagy, because  it is a real world example of how we can mobilize financing for   Energy efficiency project.

So if I could ask you,  hopefully to cover three areas  Alex,  first is, you know, talking about the inception of, of ClimaG, how, how the idea came about. And secondly, what's the actual business model that ClimaG has. Adopted and, and finally, perhaps provide some example to listeners  to have a general feel of the emerging portfolio. 


Sure. Glad to.  So on, on the first  on the first  question, Clyburn, she came about  from that  frustration leaving the development banking world in  2013 and returning to the private sector. And it took me about eight years to understand, okay, if, if ESCOs, if 98 percent of the ESCOs do not enjoy the suitable access to debt finance from commercial banks, how  can we design something that could fill that gap?

So I, I  took me eight years to, to, to figure out, to test it in, I had even a, an entity called Blue Sky Energy.  In the Philippines  that, that   that tested the concept of before we, we, we, we put up a Clivergy  finally.   So it's, it's, it's, it's, it's really about  flowing project capital to guarantee  energy saving performance contracts.

Focus on the assets and not, not the ESCO. Use the talent of the ESCOs. You know, ESCOs, energy service companies, they have very good electrical and mechanical and energy engineering  talent.  So very good  electromechanical talent. They've got very good energy management, but they are lousy financial engineers.

But, but, but  they are unable to recapitalize and they're unable to   design a structure of vehicle that would able to access  more  project capital and pursue their pipeline. So I said, what if we take it off their balance sheet? If their balance sheets were not strong enough  then let's take it off their balance sheet and have, have  a different entity, this time a super ESCO  to invest in the assets Thank you very much.

Own the assets  operate, have the assets operated, maintain the assets, and then transfer it at the end of the contract. At the same time to hasten that decision   not have  the end user, what we call the host entity in the commercial or industrial sector  not participate in, in, in, in the   in raising CapEx for the project.

So it's, it's  because that will only delay. Like I say, three year, four year, five year delay until they, until they, they, they chip in, or if not by, by the total solution.  So you take that risk away. You take that burden away from both the ESCO and the end user by setting up a. A super ESCO that can put up up to 100 percent of project CAPEX  of a guaranteed energy efficiency measure or a bundle of measures.

We have projects where I'm even bundling two or more ESCO solutions for the same host entity in the industrial sector. So it's, it's   it's a good bundling mechanism. So, we are able now to  bring projects to the more desirable  sweet spot of 1 to 5 million USD by bundling solutions.  The second thing is we are typically able to cover  not only up to 100 percent of CAPEX, But for many projects, not all, we're able to cover typically 50 to 100 percent of O& M, what we call operatorship and maintenance expenses through the life of the contract. 

And a latest feature, a latest feature of Climergy is that we are even able to invest  in the project preparation and probably, I think the most expensive project preparation, which neither the ESCO nor the customer in the CNI sector is willing to cough up. And, and this is the cost of what we call a level three energy audit.

Sometimes we, we often call an investment grade audit. So it's   we're even able to   absorb that  take away  remove that burden from them by, by subsidizing the cost of a level three audit, because we will not make.  We will not make an investment decision based on a level one or level two audit.

We've got to get an investment grade audit or a level three audit as the basis of our investment decision. So this is, this is   how it came about. It's, it was, it was an eight, nine year journey.  We, we have, we came up with this super ESCO. Business model, the first privately owned  super ESCO  in the world.

And it happened to be  first  organized  and established   in the Philippines. So it's still a very unique business model. We have  an equity partner. So   in the Philippines, our   first  joint development partner is  Pi Energy, a wholly owned  subsidiary of   of the Lopez Group's  first Philippine holdings   as, as our first  partner.

At the time that we partnered with them, they had the largest installed renewable energy capacity. So among the local energy conglomerates in the Philippines, they were the first  energy conglomerate that understood that energy efficiency was a distinct And separate  energy asset class apart from renewable energy.

So it's a different risk profile. It had the different     different players.  This were not the same players as    although they're small over up, but this is basically not the same place as the rooftop solar market.  These are definitely not the same players. As those with the largest solar parks and wind farms.

So it's it's it's a it's a it's a different dynamic, a different market  segment. It's also a different policy and incentive structure. So you've got to recognize  you've got to recognize that energy efficiency is a distinct and separate asset class.  From that of the what is better known as renewable energy.

So it's it's  if you if you're the first energy corrupt, they got it. They understood they understood that this is new  and and   And that the risk profile is a totally different and they depended on the partnership with clibergy To to give comfort that we understood the risk And that we will help build up the investment profile, and we are here to combine not only our know how, not only our customer databases and networks, but also our capital in  project preparation resources to pursue what we estimate to be the first one terawatt hour of energy savings in the CNI sector in the next couple of years.

So it's, it's, it's just to give you a flavor.  So we we're, we're doing, we're doing  ma massive  replacement of  cooling systems, especially on the chiller side for one of the oldest and established   department store chains in the Philippines. We're one of the oldest  five star hotels. Which is changing thousands of   of rated tonnage of cooling capacity on, on, on the chiller pad.

I think chilled water plant replacements are, are very high  in, in, in our pipeline, we have   we have  also   power  quality improvement, which by the way, will also not only improve.  Harmonics in, in, in, in power factor, but in the end, at the end of the day  produce kilowatt hour savings for many  industrial players with huge  substation power   requirements.

So that's another, what's also evolving is a waste heat recovery. So we, we are seeing more heat intensive industry in the steel and cement   manufacturing sector   over them to recycle  back waste heat into a usable.  Heat or specially power for and cycle them back in and into the process. So we, we, we see that another thing that's emerging and, and   possibly following the footstep of Malaysia is   is getting more district cooling systems.

So if we link buildings in the tiller plants of   neighboring buildings, whether they be  shopping malls or office buildings, but the, the Looping them into district cooling systems is a a form of energy efficiency because we're able to shut down   up to 30 percent of installed capacity of those loop buildings  by, by, by   looping them as a, as, as one system.

So we, we have different   we have different technologies  compressed air is also  the project sizes may be small. But it's just the sheer sizes  compressed air and pumps would be an, also an interesting area to look at  by, by petroleum companies.  We have   privately owned   concessionaires or service providers for large water utilities needing better pump efficiencies.

We're, we're seeing that in, in, in our pipeline  right now, delivering very, very strong savings. And this is  largely because the energy efficiency law in, in the Philippines has very low consumption  thresholds.  Anyone consuming 50, 001 kilowatt hours in annual fuel electricity inherit a very long list of   obligations.

Of   of what we call designated establishments in the commercial, industrial and transport sector. So it's, it's, it's, it's interesting times when  end users now face obligations. It's, it's now part of their mandate to  to  cost change and take advantage of  third party capital such as  ESCO  finance  where possible.

A couple of follow up questions, if I could. Alex, one is,  given this is quite innovative, was the journey of raising equity in finance for the projects, for the company in general, quite, quite hard years and has, has this changed now? Is this, is it, is it easier now that that's my first follow up question. 

I think it'll get easier  the more   We, we   we show success on a project level.

It will become easier and easier, but initially it was  it was just difficult, it was just, it was, it was a difficult  dating game, right? So it was, it was finding, it was finding the right investor and partner to understand  how different this new asset class is.  Many say, Oh, we'll just  lump it in together with our rooftop solar assets, but it's not exactly the same.

So  I think the difficulty in finding the right partner was  those that   Those that wanted to grow not only because most of the energy conglomerates wanted to grow in the supply side business, right? So generation and distribution assets. But   I think, I think what the rooftop solar industry did. 

Was  they, they, they saw the potential of also growing in the demand side of markets behind the meter, right? And, and  it's just changing the, the asset class. So it's not the rooftop solar power systems anymore, but it's a, it's a new chiller system. It's a new compressed air system. It's a new boiler.

It's a new, so it's, it's, it's, it's other energy uses  in behind the meter and not, and not renewable energy behind the meter, so.  It's what the blessing that the rooftop solar industry did is   it, it  it attracted the energy conglomerates to a new space in the first one to understand that.  What became our partner and that is the  the Lopez group   spy energy,  

the second follow up is you mentioned that the returns can be quite attractive  within the.

Energy transition world, probably one of the most attractive returns on, on, on a dollar spent.  Could you expand a little bit on that?  

In, in markets where  energy prices, whether in, in, in   fossil fuels, petroleum products or electricity are, are not subsidized and are therefore reflecting through a cost of energy. 

You get better paybacks. So, for example, if I did a chiller plant upgrade for a five star hotel  in Manila,  I,  it would not be difficult for me to get, let's say    upward   mid teens, 13 to 15  percent  IRR after taxes.  If I did this, if you brought that building in Jakarta  and it would   it would be very difficult to get that into a double digit range.

So you get a single digit after tax IRR  if  given the rate that the building is paying PLN.    So you see energy subsidies still existing in, in Jakarta. And Indonesia through the PLN subsidies in Malaysia through  the TNB subsidies  EGAT  in Thailand, EVN in Vietnam. So these are only serving to delay.

Yes, many of them are, or have shown a little political will to accelerate the phase out, but it's not happening  fast enough. So if you want to attract  private capital, private investors,  Otherwise  your market will be just plainly on services, right? So you, you come in as a consultant and just be paid fees and, and, and not   be compensated  based on  on, on energy savings.

Right.  No,  but in, in, in the case of Singapore, in the case of the Philippines  you, you don't have that barrier and you, therefore it would be easier to get   mid deans  after tax IRR  for, for such returns because  you don't have that market distortion.  You don't have those price distortions and   you're getting the truer returns of an energy efficiency intervention. 

What about  I'm not sure if you, if you, well, I'm sure you are familiar with those markets, but what about   Japan and Australia, would that, would those markets also qualified as markets where you could get pretty attractive returns?  

Oh, Japan. Certainly. Yes.   They, they, they have   no subsidies.  They're one of the highest, not the highest  in, in, in, in, in the, in the region.  

Australia, it's, it's, it's, it's, same is true, but  I think it varies  from   one state to another because  like    Victoria would be just more, more aggressive  in, in energy efficiency  programs, for example.  Whether it's by the regulator, whether it's by the utility  so it's  very, very   area specific   in, in, in the case of Australia.

Although I'd like to see that more working across the other   states and geographies of Australia.  And, and it's, it's still early days, but  their, their focus, their heavy focus right now is  Renewable energy. They just had a clean energy summit in Melbourne a  few weeks ago, and  to my surprise, there was just no topic or session on energy efficiency, just purely on solar and wind.

So it's, it's  I think energy efficiency survives in Australia in certain pockets  in the private sector, they have   The Energy Efficiency Council. So there are certain champions, there are certain  governments, but  I, I just wish that  as a country, they, they just step up and, and, and be a, be a more aggressive supplier of technologies and solutions and services, if not capital to other Southeast Asian markets and other parts of Asia Pacific. 

Just like Japan is doing, right? So if Japan is doing it, I wish Australia could follow suit. Because they have a lot to offer.  

No, I  totally agree with that.  To just shift the conversation to a couple of final points. One is, what is your outlook, Alex? Any thoughts on the article for Energy Efficiency Financing?

You know, what do you see are the major trends over next? 10, 20, 30 years.  

Well, it's really about growing  the more innovative  off balance sheet models. So we talked about the ESCO performance contract. We talked a little bit about  PPP.  But there are other off balance sheet models.   I I'll give an example.

What if it's a large scale  government led   replacement   procurement and replacement program, similar to what ESL is doing in India. So   if you, in Mexico, the world bank assisted a certain program where they were replacing.  Window type air conditioners and   fixed speed refrigerators. So   people, households could swap them with   more energy efficient  inverter models.

So, what if we had more of that? So, you, again, you change behavior. You change behavior by keeping it outside the balance sheet of the end user, by asking someone else to pick up.  And recover such an investment.  So it's just a matter of  structuring  who can pick it up, who can recover under what mechanism and, and, and, and, and policy  can they recover  and recoup such investment.

So it's, it's  just thinking about more innovative  energy efficiency financing models than what we see today. But in the meantime, we have ESCO business model. It's still   we have not really saturated the potential. Not even if you're a Japan, not even if you're a Hong Kong or Singapore  there's still so much  an ESCO can do, or the ESCO sector can do for commercial industrial in  the second space is this, how can you connect the ESCO business model with the transport sector?

Right. So   so how do we retrofit  let's say   inter island ferry vessels in Indonesia and the Philippines.  How do, how do we hybridize, if not electrify, their, their  power plants?  So it's, it's, it's   it's also getting  ESCOs, let's say, to do EV refleting and putting up the charging infrastructure  for, for large  fleet owners.  

So it's, it's, it's really getting energy efficiency into not only commercial industrial, not only public buildings, but a, a, a, a, a very largely untouched space called the transport sector.  It's, it's interesting that in many, in many Asia Pacific markets, Philippines is one. where the largest energy use is the transport sector.   

So it's either we get them out away from their cars, it's either we demotorize the economy, it's either we bring them to use mass transit, or we use ESCOs for transition technologies. So to get  more hybrid and EV buses, for example.  So it's, it's, it's usually that ESCO business model. The next  wish in, in, in, in my outlook, the next wish is how do we employ the ESCO business model for supply side energy efficiency?

So we've been always been talking about in the last few minutes about demand side energy efficiency, but nobody about supply side energy efficiency. So how do we use the ESCO business model to cut generation losses in a power plant,  or how do we reduce  transmission losses? Right? In, in, in, in, in, in, in, in, in, in the backbone of the any grid, high voltage grid, or how do we reduce  distribution system losses, right?

Of a utility  let's say it, it could be simple stuff like   I'll just invest  in a relocated and much larger  substation.    So if, if, if I bring it closer to the load  and I do that outside the balance sheet of the utility  then, you know, I could do more  loss reduction, I could do more supply side energy efficiency again, would that accelerate production?

So the question I now have is   what, what the question I had 20 years ago, maybe it's time to start asking, what can we do in innovative finance to accelerate energy efficiency projects in the supply side of energy markets? So, and that includes also non power  let's say in, in, in the petroleum industry, for example,  how can we cut losses in, refining  in, in exploration and extraction.

in distribution of, of, of  petroleum products. So even though we're moving away from fossils, but  we can't remove that in the next two decades. So   what can we do to, to mitigate or reduce those losses? How can we use the ESCO business model to flow finance and accelerate those shifts?  So it's, it's  there's, there's many exciting stuff as far as   Energy efficiency financing.

There's so much innovation still waiting to be,   discovered and, and, and designed and established.  And, and  maybe, maybe Climage could also be one of the vehicles to start looking at those new areas eventually.  

So you're realistically optimistic, Alex?  

Oh, absolutely. Absolutely. There's no way but up.

It's just a matter of how fast.  How fast can this market change? How fast will the countries respond, right, to the call? You've seen that articulated in COP28, right? So people are saying, yes, you're tripling   renewable energy, but you have to double energy efficiency progress or the reduction of energy intensity in all economies.

So you could be, you know, You could be a Kenya in a Senegal. You could be a Japan or a U. S. or a China.  But anyone, large or small, any economy should just accelerate energy efficiency. It's just  the, the The rate of response just varies from, from one market to another.  Eventually everyone has to be part of it. 


great. Alex, really thankful for your time. I really, really enjoyed the conversation. It was really, really, and all of the insights, it was really enlightening. And   yeah, thank you very much for your time.  

My, my, my pleasure. And   it's  it's, it's a topic very close to my heart. So it was not, it was not effort.

It was   it was,  I was just breathing my, my, it was just my normal. It's as normal as the inhaling and exhaling. So, but thank you. Thank you for inviting me to this podcast.  Thank you, 

Alex. Thank you. 

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