Thailand

TH-7:ESCO Fund

Policy Description

Thailand’s ESCO Fund was established by the Department of Alternative Energy Development and Efficiency (DEDE) under the Ministry of Energy. It receives grant support from the ENCON Fund (TH-5) and aims to encourage energy efficiency and renewable energy project investments. The ESCO Fund also facilitates the energy efficiency and renewable energy owners and investors to sell Certified Carbon Reduction (CERs) credits on the international carbon market.

Description

Thailand’s ESCO Fund was established by the Department of Alternative Energy Development and Efficiency (DEDE) under the Ministry of Energy. It receives grant support from the ENCON Fund (TH-5) and aims to encourage energy efficiency and renewable energy project investments. The ESCO Fund also facilitates the energy efficiency and renewable energy owners and investors to sell Certified Carbon Reduction (CERs) credits on the international carbon market. The ESCO Fund aims to address the issue of the lack of equity capital for SMEs who develop the energy efficiency and renewable energy projects. This Fund encourages investments in energy efficiency and renewable energy projects through various channels, for instance equity investments, venture capital, equipment leasing, carbon markets, technical assistance and credit guarantee facilities. The fund provides up to 50 % of total equity. In the case of very small projects, it will provide support through equipment leasing. The ESCO fund had initial capital of THB 500 million from the ENCON Fund.

 

Objective of the ESCO Fund

  • To foster the expansion of the energy service market (ESCO)
  • To stimulate private investment in energy efficiency and renewable energy projects
  • To encourage enterprises to develop energy efficiency and renewable energy projects
  • To facilitate the enterprises to reduce energy costs and gain potential benefits from carbon reduction revenue through global carbon market
  • To increase financial institutions’ confidence in financing energy efficiency and renewable energy projects
  • Encourage energy savings and reduce the dependence on energy imports

 

Governance of the ESCO Fund

There are two main levels of management of the ESCO Fund: the first one is the investment committee to set policy and criteria, project approval and progress supervision. It is consists of DEDE, Energy Policy & Planning Office under Ministry of Energy (EPPO), Department of Industrial Works (DIW), Ministry of Industry (DIW), Federation of Thai Industry, and energy and finance experts.

The second one is the Fund managers, which are appointed by the investment committee. The Fund Managers are responsible for marketing and project development, appraisal of projects, due diligence, coordination with financial institutes, funds and other investors, the signing contractual agreements, advice to project clients, and portfolio and risk management.

DEDE appointed two entities to manage the Fund: The Energy Conservation of Thailand Foundation (ECFT) and The Energy for Environment Foundation (E for E). When enterprises apply for an ESCO fund, the typical process is as follows:

  • Enterprises, ESCOs or investors submit their application to the Fund Manager;
  • The Fund Manager proposes the project to the ESCO Investment Committee for approval;
  • The project appraisal / due diligence is conducted by the Fund Manager;
  • Once the project is approved, the Fund Manager signs the contract with  the enterprise, ESCO  or investor, provides advice to the project owner and supervises the project;
  • The Fund Manager reports to the Investment Committee on the progress of the project every three months.
  • The Fund Manager reports to the Investment Committee on the progress of the project in every three months.

 

Implementation Overview

There have been two implementation phases of the Fund so far: Phase I ran from October 2008 – September 2010 and Phase II runs from October 2010 to September 2012. In phase I, THB 250 million was allocated for each fund manager; and in phase II, THB 300 million was allocated to E for E, while ECFT was allocated THB 200 million. As of August 2010, there are 33 projects, with total investment of around THB 328 million from the ESCO Fund through the two Fund Managers (*1). This Fund has been used to leverage the investment of over 15 billion THB by 2010.

 

Investment Channels from ESCO Fund

The ESCO Fund invests in energy efficiency and renewable energy projects through various channels. Below is an illustration of these major ESCO Fund investment channels and services (*1).

  • Equity investments are available for energy efficiency or renewable energy projects, according to the following process:
    • Size of equity investment: 10%-50% of total investment cost but limited to 50 Million THB per project.
    • Investment period 5-7 years.
    • Exit method:
      • Share sell-back to the entrepreneur, or
      • Find new strategic partners, or
      • List in the Stock Exchange of Thailand MAI/SET
    • Exit price: Market price (negotiable)
  • ESCO Venture Capital is available to Energy Service Companies (ESCO) according to the following process:
    • Size of equity investment: 30% of registered capital but limited to 50 Million THB per project.
    • Investment period 5-7 years
    • Exit method:
      • Share sell-back to the entrepreneur, or
      • Find the new strategic partners, or
      • List in MAI/SET
    • Exit price: Market price (negotiable)
  • Equipment Leasing process:
    • Amount 100% of equipment cost but limited to 10 Million THB per project.
    • Repayment duration: 5 years
    • Interest rate: 4% per annum
  • Carbon Credit Facility – the ESCO Fund can facilitate project owners in developing CDM documents, Project Idea Notes (PIN) and Project Design Documents (PDD). It can also help owners of small projects enter the carbon credit markets by bundling projects so that they have higher chances of selling credits.
  • Credit Guarantee Facility – the ESCO Fund cooperates with financial institutions or credit guarantee agencies to assist entrepreneurs in accessing long-term loans from banks by providing credit guarantees depending on the project risk and limited to 10 Million THB at low premium rates.
  • Technical Assistance – the ESCO fund provides financial support for technical assistance, e.g. energy audits and feasibility studies. The support is limited to 100,000 THB per project and this fee must be reimbursed to the ESCO Fund if the proposed technical solutions have not been implemented. However, the ESCO companies usually offer free audit services, with technical support under the ESCO fund barely implemented.

Policy Information Expand this section for information on the key features of the policy, such as its date of introduction, categorization, main objective(s) and linkages with other policies.

Policy Categorisation

Policy Instrument Type: Economic, Incentives & Subsidies

Position in the Pyramid

About Us

Participation: Voluntary

Period

Start Date: 2008

End Date: 2012

Policy Linkages

Supports Energy Conservation Promotion (ENCON) Act Effort Defining
Supports Energy Conservation (ENCON) Program Effort Defining
Supported By Energy Conservation Promotion Fund (ENCON Fund) Supporting Measure
Complements Tax incentives Supporting Measure
Complements Energy Efficiency Revolving Fund (EERF) Supporting Measure

Agencies Responsible

Ministry of Energy: Department of Alternative Energy Development and Efficiency (DEDE)
Energy Conservation Foundation of Thailand (ECFT)
Energy for Environment Foundation (EforE)

Primary Objective: Energy

Objective

• To foster the expansion of the energy service market (ESCO) • To stimulate private investment in energy efficiency and renewable energy projects • To encourage enterprises to develop energy efficiency and renewable energy projects • To facilitate the enterprises to reduce the energy cost and gain potential benefits from carbon reduction revenue through global carbon market • To increase financial institutions’ confidence in financing energy efficiency and renewable energy projects • Encourage energy savings and reduce the dependence on energy imports

Target Group

Primary Targets:  SMEs, including the service and industrial sectors especially those in energy intensive industries  Energy Service Companies (ESCO) as co‐investors, project developers, or technical partners  Domestic and international investors in energy efficiency and renewable energy sectors Secondary Targets:  Financial institutions as partners providing loans for the project participants  Credit Guarantee Agencies e.g. insurance companies

Driver of energy consumption or emissions affected by policy: Total energy use / Total emissions / Specific energy consumption / Carbon intensity / Relative efficiency / Technology implementation rate / Institutional capacity

Implementation Information Expand this section for information on targets, monitoring, verification and enforcement regimes, and implementation requirements and tools.

Coverage

SME's

Quantitative Target? yes

Target: • In Phase one: to support at least 20 projects • Longer term plan: to double the size of the fund and to privatize the fund [3], [4]

Progress Monitored? yes

Verification Required? yes

Enforced? yes

Sanctions: No

Requirements on the Target Group

  • To obtain the products and services provided by the Fund, potential energy efficiency or renewable energy projects resulting in reducing energy consumption, increasing energy efficiency, fuel switching, or renewable energy businesses must meet the following criteria:
    • Equity Investment; 10-50 % maximum of 50 Million THB; 3-7 years
    • ESCO Venture Capital; 10-30 % of registered capital; maximum of 50 Million THB; 3-7 years
    • Equipment Leasing; maximum of 10 Million THB; payback within 5 years
    • Carbon Credit;
    • Technical Assistance;
    • Guarantee Facility
  • For equity investment, the primary conditions for considering the projects:
    • Obtained the long term fuel supply guarantees
    • Technological reliability
    • Good financial profile of investors and reasonable return of project
    • Obtaining government license / permit for power plant / community acceptance or related license according to regulations
  •  For equipment leasing, the primary conditions are:
    • Reliability of technology and equipment
    • Guarantee saving and equipment performance guarantee contract
    • Reliability of entrepreneurs / company financial statement
    • Personal guarantee / bank guarantee

Support by Government

N.A.

Implementation Toolbox

  • Two fund managers provide technical and financial advisory services
  • Fund Managers provide knowledge, information and outreach services and policy study
  • Fund Manager markets and promotes the projects

Complexity of Implementation

Government

ESCO fund is efficiently operated as a market mechanism.

Target Group

As long as the target group is qualified, it is eligible to receive financial support from the ESCO Fund.

Impacts, Costs & Benefits Expand this section to find information on policy effectiveness and efficiency.

Impact Quantitative Estimate Qualitative Estimate
Estimated effect on energy consumption or emissions During Phase I, Energy for Environment Foundation (EforE) had approved 8 EE projects with 190 toe /year /project of energy savings and THB 6.4 million per year of financial savings. The Energy Conservation Foundation of Thailand (ECFT) had approved 14 EE projects with total 815 toe /year /project of energy savings.
Estimated costs/benefits for industry Energy for Environment Foundation (EforE) has invested THB 27 million during ESCO Fund Phase I.
Estimated cost for government THB 53 million during ESCO Fund Phase I.

References & Footnotes

References

[1] APERC (Asia Pacific Energy Research Centre), 2011. Compendium of Energy Efficiency Policies of APEC Economies - Thailand. Tokyo. Available at: http://www.ieej.or.jp/aperc/CEEP/Thailand.pdf.

[2] UNIDO Industrial Energy Efficiency Policy Database, http://ieep.unido.org/ProjectDetails.aspx?PID=137

[3] Sinsukprasert, P, 2010. Energy Efficiency and Renewable Energy Financing Measures: Thailand, 1st Expert Group Meeting Global Energy Efficiency 21, Geneva, Switzerland

[4] Krairit Nilkuha, Energy Efficiency Promotion Policy and Activities in Thailand, DEDE, the SETatWork workshop

[5] Sorawit Nunt-Jaruwong, Thailand’s new and renewable energy programs and policies, Aug. 2011, 37th APEC-EGNRET Meeting

[6] APEC, 2010, Peer Review of Energy Efficiency in Thailand, Report for the APEC Energy Working Group. Available at: http://www.ieej.or.jp/aperc/PREE/PREE_Thailand.pdf

[7] http://www.efe.or.th/escofund.php

[8] Energy for Environmental Foundation (E for E), Investment Promtoion-in Energy Efficiency and Renewable Energy Projects under ESCO Fund, Available at: http://www.efe.or.th/datacenter/ckupload/files/ESCO_Fund_ENG_Completed%20Version_final_291111%20[Compatibility%20Mode].pdf

[9] http://www.ecft.org/home/index.php?option=com_content&view=section&id=8&Itemid=88&lang=en

Footnotes

(*1) Energy for Environmental Foundation (E for E), Investment Promotion-in Energy Efficiency and Renewable Energy Projects under ESCO Fund