Financial Mechanisms in ASEAN
Many ASEAN countries provide financial assistance and grants to renewable energy developers, and at the same time established funds to support renewable energy development. Many of these funds raised are not mainly intended for renewable energy development but for rural electrification, environmental protection, energy conservation and social obligations (Table 2).
Table 2. Funds to support RE Development
| Cambodia Rural Electrification Fund -
Part of the Rural Electrification and Transmission Project funded by the World Bank and Asian Development Bank. -
Provides grant to private developers. The grant is expected to contribute 25% of the total project investment costs: REF grant (25%); private equity (25%); bank loan (50%). |
| Malaysia Malaysia Electricity Supply Industry Trust Account (MESITA Fund) (1997) -
Independent power producers and Tenaga Nasional Berhad Generation contribute 1% of their annual audited revenue to the fund. -
The Fund has been providing financial assistance to rural electrification, energy efficiency and renewable energy projects. Renewable Energy Business Fund -
To support the financial requirement of the full scale model projects (FSM) that would be established under BioGen Programme. -
Funding will come from Bank Industry Teknologi Malaysia Berhad (RM 14 million), GEF (RM 9 million) and MESITA fund (RM 5 million). |
| Philippines Energy Regulation 1-94 -
ER 1-94 directs the power producers or energy resource developers to provide monetary and/or non-monetary benefits to host and affected communities. -
Generating companies are required to set aside PhP 0.01 per kWh of electricity sales as benefit to host communities. In non-highly urbanized region, fifty percent of these benefits (PhP 0.005/kWh) are allocated to electrification fund (EF) while the remaining benefits are allocated to development and livelihood fund (DLF) and reforestation, watershed management, health and/or environment enhancement fund (RWMHEEF), PhP 0.0025/kWh each. In highly urbanized cities, the grant allocations are the following: PhP0.075/kWh for EF; and PhP0.00125/kWh each for DLF and RWMHEEF. Universal Charge Development Bank of the Philippines Financing Programmes Capacity Building to Remove Barriers to Renewable Energy (CBRED) Project Financing Mechanisms |
| Singapore Innovation for Environmental Sustainability Fund, $20 million (2001-2006) |
| Thailand Energy Conservation Promotion Fund (ENCON Fund) -
The ENCON Fund was established in 1995. The fund revenues are derived from a levy on petroleum products sold domestically. Since October 1998, the premium rate has been adjusted from 0.01 to 0.04 Baht/litre and imposed on gasoline, diesel, kerosene and fuel oil. -
The ENCON Fund provides renewable energy “Project Owners” with financial assistance or grants. “Project Owners” must be government agencies, state-enterprises, educational institutions, or non-profit organizations. Private entities can join as “Project Participants” of individual Project Owners. Proposed projects of “Project Participants” must have a higher Economic Internal Rate of Return (EIRR) than the minimum rate set by the ENCON Fund Committee. At the initial stage, the minimum rate is set at 9%. -
SPP Subsidy (2001). Request for Proposals (RFP) was issued in July 2001 inviting private investors and SPPs to submit a proposal for subsidy on energy payment on top of EGAT’s energy payment under the SPP contract. A budget of 2060 million Baht was allocated from the ENCON Fund for the energy payment subsidy. The RFP calls for viable projects that require additional incentive of no more than 0.36 Baht/kWh for a period of up to 5 years. -
Energy Conservation Revolving Fund. The fund is managed by 6 commercial banks. Provide low interest loans (fixed at 4%) to energy conservation and renewable energy projects. Proponents can borrow up to US$1 million per project, and payable within 7 years. |
| Vietnam Remote Area Renewable Energy Fund |
Sources: Cambodia – Ministry of Industry, Mines and Energy (2004);
Malaysia – Pusat Tenaga Malaysia (2004); Philippines – Department of Energy (2005 and 2004),
Singapore – National Environment Agency (2004);
Thailand – NEPO (2002), DEDE (2004); Vietnam – ESMAP (2001).
Cambodia is establishing the Rural Electrification Fund with financing from the World Bank (IDA) and Global Environment Facility. The Fund is a component of the Rural Electrification and Transmission project jointly funded by the World Bank and Asian Development Bank. The Fund provides a financial grant of up to 25% of the total project costs to renewable energy projects for rural electrification.
Malaysia’s MESITA Fund is a social obligation fund contributed by power generators. Each utility puts in 1% of their annual audited revenue to the fund and this is being used to assist government projects and studies on rural electrification, energy efficiency and renewable energy. Recently, the government launched the Renewable Energy Business Fund to be used mainly for financing full-scale biomass energy demonstration projects. The Fund could provide financing of up to 80% of the total project cost. Funding will be sourced from the Bank Teknologi Malaysia, GEF and MESITA Funds with total amount of RM28 million.
The Philippines has two sources of financial support intended for rural electrification projects including renewable energies. The Energy Regulation 1-94 (ER 1-94) mandates power generators to set aside PhP 0.01 per kWh of electricity sales to be used for financing projects that benefit the host communities such as rural electrification, watershed management and livelihood programs. The second source is the Universal Charge, a non by-passable charge sanctioned by Electric Power Industry Reform Act (RA 9136). At present the missionary electrification subsidy and environmental charge are levied to the ratepayers through the universal charge. To provide assistance to project developers, the Development Bank of the Philippines (DBP), has established financing programmes providing low interest loans for new and renewable energy and rural power projects. The programme is funded by various overseas development assistance (ODA) funds and the World Bank. Moreover, the current GEF project ‘Capacity Building to Remove Barriers to Renewable Energy Development’ also established 3 funding portfolios to support projects that promote and apply innovative strategies and delivery mechanisms. These are project preparation fund, loan guarantee fund and micro-finance fund.
Thailand’s Energy Conservation Fund (ENCON Fund) is a fund generated from the levy imposed on domestically sold petroleum products. The Fund mainly provides assistance on energy efficiency projects though part of it is used to support renewable energy development: i) as financial assistance to renewable energy project developers; and ii) as subsidy to small renewable energy power producers. More recently the Energy Conservation Revolving Fund, which is initially designed to provide financial assistance to energy conservation projects, has opened up to renewable energy projects. The Fund, managed by 6 commercial banks (Siam City bank, Bangkok Bank PCL, Industrial Finance Corporation of Thailand, Thai Military bank, Bank Thai and Sri Ayutthaya Bank), provides low interest loans at a fixed rate of 4%. The maximum amount set for lending per project is US$1 million. The government also plans to use the ENCON fund for the financial incentives being developed under the Strategic Plan for Renewable Energy Development.
The Innovation for Environmental Sustainability (IES) Fund of Singapore provides assistance through grants to project developers who undertake innovative environmental projects (including renewable energy projects) that satisfy the government’s objective of environmental sustainability. The assistance is based on the various levels of support for different components of allowable cost, up to a maximum of S$2 million for each project.
The Remote Area Renewable Energy Fund of Vietnam is established to support the Renewable Energy Action Plan. Some funds from GEF and IDAs are placed into this account to support rural electrification projects in remote communities using renewable energies.
RE Market Deployment in ASEAN
The increase of renewable energy supply in developed countries since the 1970s is, to a large extent, the combined result of various policy instruments implemented over the years. New renewable energy technologies such as solar, wind and some biomass technologies have also been growing rapidly since the 1980s. The deployment of these new renewable energy technologies was largely due to the combined effect of various policy measures adopted in these countries such as investment incentives, fiscal incentives, incentive tariffs and obligations.
Private sector investments on renewable energies in ASEAN are, in a similar manner, driven by grid access programmes and various policy measures (Table 3). Among the countries in the region, Thailand has so far attracted significant private investments on renewables. Its Small Power Producers (SPP) programme and Power Purchase Agreements (PPA) coupled with investment incentives and production subsidies generated significant capacity additions. The subsidy programme initially budgeted a subsidy payment for around 300 MW capacity but it generated project proposals with more than 700 MW capacity. Even the country’s Very Small Power Producers (VSPP) programme has attracted interests from various agro-industries with the potential of generating small power capacities. The newly adopted Renewable Portfolio Standard (RPS) supported by various incentives (currently being developed by the government) is expected to create capacity additions in the medium term.
Malaysia’s Small Renewable Energy Producers (SREP) programme has also created strong interest from the private sector, as indicated by the number of proposals approved by the government. However, only 12 MW capacity has been added at the beginning of 2005 which is far below the Programme’s target of 500 MW capacity addition at the end of 2005. The Malaysian government needs to modify the current Renewable Energy Power Purchase Agreement (REPPA) in order to attract private investments on renewables. Improvements proposed include the following: increase of the power purchase rate from the cap of RM 0.17/kWh to RM0.22/kWh to provide reasonable returns to investors, and standardization of REPPA to include performance flexibility and improved bank ability provisions in order to attract investment financing.
Table 3. RE Market Deployment in ASEAN
| Indonesia Small Scale Distributed Power Generation (PSK Tersebar) |
| Malaysia Small Renewable Energy Producers (SREP) Program |
| Philippines Minihydro Incentives Geothermal Incentives Wind Power Incentives |
| Thailand Small Power Producers (SPP) Programme -
For the period 1992-2002 - 50 projects with total capacity of 3.5 GW, of which 23 projects with capacity of 509 MW were renewable energy-based. -
Status in 2004 - total of 38 RE projects with total capacity of 914 MW. SPP Subsidy results in 2002 -
The programme targeted around 300 MW capacity additions through subsidy. -
31 projects were proposed with total capacity of 511 MW. -
14 projects were selected in 2003 with aggregate capacity of 194 MW. Very Small Power Producers (VSPP) Programme |
Sources: Indonesia – DGEEU (2005); Malaysia – Pusat Tenaga Malaysia (2005);
Philippines – Department of Energy (2005); Thailand – DEDE (2005).
Indonesia’s Small-scale Distributed Power Generation Programme has also generated various interests from community-based projects. The results so far are modest and the programme is fraught with issues such as the following: i) the power purchase agreement stands only for one year which needs to be renewed annually; ii) many projects are not bankable and have difficulty in securing funding from financial institutions; iii) programme participation procedure is not transparent; iv) non-uniform tariff for each renewable energy which is based on the local production cost of the state utility PLN; and v) investment required to build a 1 MW power plant is too high for small businesses and communities. Proposals to increase investments on distributed power distribution include the following: i) development of long-term power purchase agreement; ii) increase of capacity limit to 5 or 10 MW; and iii) devolution of licensing and business permission to local governments.
The Philippines’ fiscal and non-fiscal incentives for geothermal, mini-hydro, and OSW (ocean, solar and wind) also engendered interests from the private sector. Private investments on geothermal energy are significant as manifested by past capacity additions and proposed project developments in the medium term. The incentives for mini-hydropower development were introduced more than 10 years ago but it only generated modest investments from the private sector. The wind energy development incentives appear to attract more interest from the private sector as the government is aggressively opening areas with high wind power potential for development concessions. To enhance private investments, the government must formulate new frameworks and mechanisms that are consistent with the emerging competitive electricity market.
