Philippines - Energy conservation study

Joint UNDP / World Bank Energy Sector Management Assistance Programme C/O The World Bank 1818 H Street, N.W. Washington. D.C. 20433 . U.S.A. Philippines: Energy Conservation Study Results of a Joint Study by ESMAP and the Philippines Department of Energy August 1994 Power Development, Efficiency & Household Fuels Division Industry and Energy Department The World Bank 1818 H Street, N.W. Washington, D. C. 20433 Tbis document has restriacddistribution and may be used by mcipienu only in the perfomancc of their official duties. its contents . . e m a y not otherwise k disclosed without UNDP o r World Bank unhonzano ,  ACRONYMN - S AHAM Association of Home Appliance Manufacturers APP~ Appliance BPS Bureau of Products Standards CFL Compact Fluorescent Light DOE Department of Energy DO1 Department of Industry DSM Demand Side Management ESMAP Joint UNDPNI3 Energy Sector Management Assistance Programme ESCO Energy Service Companies FATL Fuels and Appliances Testing Laboratory ECP Industrial Energy Conservation Program NEA Administration National Electnf~cation NPC National Power Corporation OEA (former) Office of Energy Affairs PNOC Philippine National Oil Company PPS Product Performance Standard TACSAL Technical Assistance Component of Structural Adjustment Loan UNDP United Nations Development Programme WB The World Bank - International Bank for Reconstruction and Development a annum million GWh giga Watthour per m u m per Year J Joule; standard unit of energy tera Watthour MW mega Wan  FORWARD Thls report is the result of a study conducted between December 92- June 93 by the Joint UNDPI World Bank Energy Sector Management Assistance Program (ESMAP) and the Government of the Philippines. lhe study which was funded by the Government of Germany is to provide solutions to energy conservation impediments in the Philippines. The Philippines team participating in the study was jointly led by Mr. Charisse Tablante, Chief of Conservation Division, and Ms. Mirna Campanano, Chief of Fuel & Appliance Testing Laboratory. ESMAP team received valuable assistance from Dr. Albrecht Kaupp, Chief Technical Advisor, Industrial Energy Managing Consultancy and Training (UNIDO) and Mr. Peter van Bussel, Associate Expert, WNIDO. The ESMAP Team in this study comprised of Mr. K. Alavi (Task Manager), and consultants Messrs. P. Robillard (Product Performance Standard); J. Richey, B. Jamet, J. Jutsen, A. Santos (ESCO workshop); and R. Cascone (Industrial Efficiency). Mrs. Fides Gonzales was responsible for the word-processing of the report. The report was discussed with the Philippines counterparts Messrs. ...... ........ ..... ............................................ in ........ 1994. EXE- SUMMARY....................................................................................... i . I AN OVERVIEW OF THE ENERGY SECTOR......................................1 A . The Macroeconomic Context........................................................... 1 B. Energy Resources and Production................................................. 2 C Energy Demand ..................................................................................... 3 D. Institutional Framework, Coordination and Planning .......... 5 .. E Energy Pncing Policy.......................................................................... 6 II . ENERGY CONSERVATION IN THE PHILIPPINES THE STATE OF THE ART....................................................................... 7 A. Institutional Legislative and Regulatory Framework ..........7 B. Energy Conservation Programs...................................................10 C Achievements..................................................................................... 12 D. Energy Conservation Issues..........................................................14 E Priorities................................................................................................ 17 I11. FINDINGS A ... Industrial Sector . Energy Conservation ................................18 B. Residential and Commercial Sector: Energy Conservation....................................................................... -23 C Energy Service Companies (ESCOS)........................................... 29 IV . ACTIONS PLANS................................................................................. 3 1 A. Industrial Sector: Energy Conservation Program ..............31 B. Product Performance Standards................................................ 39 C ESCOs Promotion Program ............................................................ 43 V. ANNEXES Annex 1 Projections of Power and energy requirements in the Philippines Annex 2 Energy Management organization in the Philippines Annex 3 The First Energy Law prior to the Omnibus Law Annex 4 The Omnibus Law Annex 5 The Energy Conservation Act of 1991. Annex 6 Energy Conservation Programs of the Philippines Annex 7 TACSAL I1 Study evaluation of Potential energy Conservation in the industry Annex 8 Calculation of the Added Incentive Tax Break Analysis Annex 9 Energy Service Companies Workshop Report - 1. Executive Summary The purpose of ESMAP's study on energy codsmation in the philippine; is to assist the government of the Philippines to formulate a long-term policy for the implementation of energy conservation programs. The scope of the activity included the following tasks: a. A critical review of energy conservation programs and institutional framework in the Philippines based on ongoing projects and existing studies b. Assessment of technical and financial capabilities of the implementing agencies and companies c. Identification of obstacles and barriers to replication of successful energy conservation measures d Prioritization of identified issues. review of available options and recommendation of the most suitable ones for the Philippines. 2. The present study is one of two conducted by ESMAP that investigate energy conservation issues in different sectors of the Philippines' economy. The first. "ESMAPHousehold Energy Strategy," was a comprehensive study of the consumption patterns in urban households and identified the options for conservation of energy. The present study, which is funded by the German government. is intended to assist the government of the Philippines to prepare an energy conservation policy for energy-intensive sectors, (i.e. industrial and commercial), and to identify options and solutions. 3. This study is divided into two phases. The first phase is focused on helping the government formulate its energy conservation policy and review the obstacles to its implementation. The subactivities thus included following tasks: a. Review of the state of the art in energy conservation in the Philippines and identification of barrim and options for overcoming them b. Identification of diffmnt market accelerators, such as energy service companies and an energy conservation fund and recommendation of the most suitable solution c. Discussion of the options in a workshop with energy market players and incorporation of their inputs d Conceptual development of recommended options and definition of organizational structure and functions. 4. The second phase of the study which will be undertaken shortly after the completion of the present phase will focus on implementing concrete plans and energy conservation policies. Based on the recommendations of present study, the second phase will finalize workplans to overcome  medium- and long-term obstacles and develop a sustainable energy conservation policy. The implementation of the second phase of the study will reflect the commitment of the goverment to resolve the constraints in the development of the energy conservation market. Fieldwork 5. After review of the previous and ongoing projects, the fieldwork was divided into t h e subgroups. In the first, the energy patterns of the industrial sector were studied. and based on field survey of several large industries. an action plan for an energy conservation program for industry was prepared. The objective of this exercise was to identify alternative solutions to obstacles to implementation of energy conservation programs. The ultimate goal of these programs is to provide an environment for the government to fine-tune its energy conservation policies and revise the institutional and regulatory frameworks that affect them. 6. As the second subgroup of the fieldwork. a survey of the energy service companies (ESCOs) was conducted. To evaluate the capacity of ESCOs to function as a marketing and service delivery mechanism to the consumer, a two-day workshop was also conducted. The results of the workshop were formulated as a recommended program to promote the energy service companies, (see Technical Supplement). 7. The fieldwork of the commercial sector was the third subgroup of the study. In this fieldwork the focus of the study was identification of "building blocks" that would assist the implementation of sustainable energy conservation programs in this sector. The results of the fieldwork in commercial sector were also substantiated with data from studies in residential sector to ensure relevancy and adquacy of the outcomes. The fieldwork identified the barriers in participation of end- users and energy suppliers in the conservation program and recommended a product performance standard as a staging point for the implementation of demand-side efficiency programs in this sector. Findines 8. The Philippines is a prime example of a national energy conservation program that cannot flourish without a long-term strategy. Despite numerous demonstration programs, extensive foreign assistance, and government legislative actions, the energy conservation programs have not reached a sustainable level. In the absence of a clear agenda, the approach of conservation agencies to establishing priorities, allocating resources, and managing foreign technical assistance has been fragmented and disjointed. As a result. despite the success of individual energy conservation programs, they have failed to create the necessary infrastructure to activate and sustain the energy conservation market. 9. Demand-side energy efficiency programs that are created in response to the short- and medium-term needs of the energy sector are the best vehicles for addressing the energy conservation issues, evaluating policy alternatives, and fine-tuning the proposed solutions. The main objectives of these programs should be as follows:  a. Making use of and strengthening the established institutions b. Increasing information dissemination among consumers c. Promoting private sector participation d. Establishing the necessary support infrastructure for energy . conservation e. Improving the regulatory framework for energy conservation activities. The overall goal is to build capacity to develop and execute strategies to create an autonomous and sustainable energy conservation market active in energy-intensive sectors of the economy. 10. The climate for the implementation of large-scale energy conservation programs is appropriate. The high energy prices, the previous energy conservation programs, and the power crisis all provide right signals to the end-users to participate in the program. Development of an energy conservation infrastructure (i.e. ESCOs. information and technical centers) can speed the implementation of these programs. In parallel, the development of a new regulatory framework in the energy sector, combined with energy price reforms, will increase the rate of success of the programs. Thus, a new infrastructure. regulatory framework, and energy tariff regime can represent the building blocks of sustainable energy conservation programs. Attending to these priorities will put the demand- side efficiency program in a "win-win" situation. 11. The review of energy consumption, --especially the electricity demand- reveals that industrial and household sectors are the two key target areas in which to implement the energy conservation programs. The industrial sector, with its high concentration of large energy consumers, trained technical staff, and complicated energy efficiency technologies, presents one set of issues and problems. The commercial sector, with a large number of small consumers and simple technologies. represents the other end of the energy conservation spectrum. Preparation of programs for these two sectors -particularly their institutional, regulatory, and legislative network- will simplify and accelerate the implementation of the energy conservation programs in the other sectors. SectQt 12. The government of the Philippines has initiated free-tradepolicies in many subsectors of industry. As the result, many industries are planning rehabilitation and modernization projects to remain competitive in the market. Large and medium industrial units find the reduction of their fuel use, and particularly their electricity consumption. through energy conservation projects a complementary step to their other cost cutting measures. Furthermore, energy conservation projects can aid the industries' modernization efforts by identifying and replacing the outdated equipment and processes as well as energy- wasting practices. 13. Energy prices in the Philippines. --particularly for elecmcity-. are among the highest in ASEAN countries. Such price levels should provide a correct signal to industry to initiate energy conservation. Yet. despite the need for rehabilitation and the existence of proven energy conservation  methods, the independent adoption of energy conservation measures is negligible. The reluctance industries to conserve can be attributed to several impediments: (a) lack of financial strength, (b)lack of awareness among senior management about the profitability of energy conservation, (c) weakness of the energy service sector and poor efforts to assist industry in selection of the optidfis, (d) lack of reliable data on performance of conservation measures, (e) lack of availability of efficient technology in the local markets, and (f) lack of technical capacity in financial institutions to appraise and finance energy conservation projects. 14. Industries in general arc facing a shortage of financial resources. Long-term fixed-rate industrial loans are not readily available, and therefore industries arc hesitant to start the projects they may deein nonessential at the time. In the view of scarcity of financing, providing industrial loans with the conditionality of implementing energy conservation measures equivalent to 5 to 10% of the loan would motivate the cash-starved industries to implement energy conservation. A review of previous loans demonstrates the quick response of the industries to long-term loan packages. Furthermore, a survey of industrialists found that 5 to 10% additional investment would be acceptable given the positive cash flow from the energy savings. 15. There arc two approaches to the implementation of energy conservation in the industrial sector. The first option, the Industrial Energy Conservation Program (IECP), envisions a network of private and public agencies under the auspices of the DOE to implement energy conservation in tandem with a modernization and expansion project. For this, the energy conservation would be introduced as a conditionality of a restructuring loan package provided by the government or multilateral development banks. Availability of long-term. fixed-rate financing, and a small additional investment combined with technical advisory services should encourage the industries to take advantage of this program. The principal structure of the second alternative, Industrial Demand Side Management (JDSM), gives a central role to utilities to manage the program by procuring the equipment and distributing the incurred cost of program. In this scheme, all involved parties arc connected to the implementing unit of the utility, which acts as loan guarantor. This role will overcome the private banks' reservations in providing financing to energy conservation program. The financing of the program would be shouldered by the utilities, and therefore a supportive regulatory framework is necessary to allow cost recovery by the utilities. 16. Although there arc many similarities between these two approaches. the ESMAP study found the utilities, which would be the main players in IDSM, not supportive of the program. Their reluctance can be attributed to (a) the unresolved regulatory framework, (b) a lack of experience in energy conservation and industrial appliL.rions. and (c) a sense of urgency to end the country's power crisis by expanding supply. For these r h o n s . ESMAe recommends IECP as the p r e f e d approach. This, of course, dots not exclude the possibility of implementing demand side management programs  in the industry if and when the barriers to the participation of utilities are removed. However. at present the previous experiences in DOE in implementing the energy conservation programs and in Do1 in dispersing the restructuring loans will give them a better chance to execute the energy conservation program. Furthermore under IECP, utilities can also provide energy conservation serviccs.to industries. As modeled, under the direction of IECP,utilities will provide their expertise in the implementation of demand-side services such as load management and power factor correction schemes to volunteer industries. In this manner, utilities can participate in the energy conservation program and also avoid hampering administrative and managerial obstacles. The action plan and organizational set up of IECP are provided below; those of IDSM are presented in the main text. Ea! 17. At the center of IECP, the coordinating unit is responsible for ensuring the implementation of the policies of the Department of Energy. This unit also coordinates on the work plan and the program objectives with the other energy market players such as industrial customers, Department of Industry, ESCOs, and suppliers. The technical arm of the coordinating unit is the Technical Advisory Service Center (TAS). TAS is an intermediary body that evaluates the technical merit of the proposals prepared by Industrial customers and ESCOs. 18. To review tie proposals of the customers in a timely fashion, TAS should have access to the relevant infonnation about energy-efficient equipment and prices. To do so, TAS will need a strong data-base and direct contact with international ESCOs and laboratories. After reviewing them, TAS sends the proposals to the commercial banks for financial appraisal. In this manner. TAS relieves the commercial banks from the nted to evaluate the highly technical energy conservation component of the loans and thus limits the banks' role to conventional industrial loan appraisal. 19. To finance the IECP, it shall be linked to a restructuring industrial loan package. Industries that participate in the IECP program and incorporate the energy conservation measures into their expansion projects will be qualified to apply for the IECP financing. Given the shortage of industrial financing, the availability of additional financing would function as the motivating factor for implementation of the IECP. 20. The organizational setup of the IECP and the main functions of the involved players are illustrated in Figure 1. I Energy Suppliers II[I[II..--.-.. I IECP coordinating unit DOE Programs for Commercial Banks 4 -- ESCOs A j (4) Loan approval process 7 Technical Advisory ' Service Center Conduct demonstration projects Provide technical information (3) Conduct awareness campaign Provide technical information Approve design proposal (*) Train and monitor ESCOs Establish data base w Equip. Suppliers & ESCOs I I Consumer contact (1) Energy audits and assessmer C onstruction management Design modification w b. Industrial Investor i - ~ d l l l b Flgure 1 Organization of IECP 21. The potential of electricity conservation in the commercial sector is high. The sale of electricity to these sectors arc estimated at between 20 and 25% of the total sale and is expected to increase rapidly. However, this potential can not be tapped because of the lack of development of the energy market. The most important constraint in the implementation of energy conservation in the commercial sector is the lack of willing and experienced sponsors to conduct energy efficiency programs. DSM models of conservation programs that have been successful in other countries require active participation of the utilities, but in the Philippines, utilities face similar regulatory and marketing impediments in implementing the commercial DSM as they do in implementing industrial DSM. Moreover, the large number of customers and higher risk of failure of contracts with commercial customers makes utilities more reluctant to participate. Therefore, the ESMAP study recommends the implenuntations of infrmtructure development programs such ar "Product Performance Standard" and "ESCOs Promotion" as building blocks toward implementation of energy conservation in the commercial sector. Utilities can also benefit from these programs by simpliJ5ring their D S M orgMitariona1 stnuture. 22. Implementation of M u c t Performance Standards (FPS) is another step in the promotion and mass marketing of the efficient industrial hardware and household appliances. It is important to note that appliance and equipment testing, labeling, and minimum efficiency programs are already under way in many developed and developing countries. In fact, if the Philippines does not start to pursue these types of programs aggressively, there is a significant risk that the Philippines' market will become a dumping ground for inefficient appliances and equipment that can no longer be sold in the more closely regulated markets of the world. Furthermore, because of the relatively long life of most appliances and electrical equipment, each inefficient model installed today will embed economic and technical inefficiency within the Philippine economy for years and further impede the country's economic development. 23. The Product Performance Standard will pursue three objectives: providing reliable information on the energy consumption of appliances and industrial equipment, closing the market to the inferior goods by setting minimum standards, and promoting efficient quipment by introducing high-efficiency specifications. The initial goal of Product Performance Standards (PPS) is to prtpare the necessary institutional and regulatory framework to launch full-scale projects for five energy-intensive products by 1995. To this end. a new institutional framework to mitigate the impediments is required. 24. The development of a more efficient energy infrastructure. particularly Energy Service Companies (ESCOs), is a "no-regret option." In energy conservation and DSM programs. ESCOs play the role of intermediary between the end user and the program sponsors by providing the needed information and financial assistance to the end user. Industrial and commercial sector demand-side  energy conservation programs need a developed and strong group of ESCOs.to implement the programs. The other alternative to the promotion of ESCOs is a centrally based service company. Given the number of end users in the :Philippinesand their widely varying needs. a central company's chances of success seem slim. '25. The ESCO Promotion Program (EEP), which outlines the solutions to impediments and obstacles in the development of ESCOs, was discussed in a two-day workshop. The workshop summarized the enabling factors in the development of ESCOs indusuy as follows: a. High energy cost b. High level of awareness about energy issues c. Extensive experience with energy conservation program d Available and low-cost skilled human resources e. A viable market In the meantime. the main constraining factors in achieving a dependable ESCO industry were identified as: a. Lack of knowledge among senior management about profitability of energy b. efficient technology (EET) c. Lack of accessible financing for the purchase of EET d Lack of strong wholesale dismbution network of EET e. Lack of unbiased and reliable information about EET f. General low level of confidence in ESCOs. 26. The objective of the proposed EPP is to implement a series of activities concurrently with other energy conservation programs to enhance the capabilities of.ESCOs to participate actively in energy service market. The goals of the proposed program are to (a) provide technical and awareness support through training and demonstration program; (b) regulate the energy service market through certification of ESCOs and monitoring their activity; (c) advocate a new regulatory and institutional framework for energy conservation project to generate larger demand for ESCOs' services; and (d) provide financial assistance for ESCOs through financial intermediaries. 27. The success of EPP relies on its effectiveness to provide the necessary financial assistance to the developing ESCOs and to generate an initial market for the ESCOs. Therefore. the cooperation of this program with multilateral donor organizations and financial intermediaries as well as utilities and the Department of Energy is necessary. This program can provide a link between financing the ESCOs' initial investment for equipment and training and the viable energy conservation projects. Under such arrangement ESCOs can overcome the barriers and establish themselves as an independent player in the energy conservation market 28. The results of the study demonstrate that despite their high potential for energy conservation and some favorable conditions, the implementation of energy conservation programs still faces many financial and logistical barriers. The prospect of success of energy conservation programs under such conditions is small, and unless the infrastructure to support the program is developed further, the chance of sustaining the effort is negligible. The development of the energy conservation market can follow the following formats: (a) implementation of demand-side energy efficiency programs, such as IECP, to provide an environment to evaluate the policies and fine-tune the regulatory framework as well as to examine the financial-mechanisms. (b) implementation of a developmental program to complete the essential but missing energy market infrastructure, including as the "Product Performance Standard" and "ESCOs Promotion" programs. These programs, as "building blocks." will improve the environment for the implementation of demand-side energy efficiency programs. 29. Achieving a sustainable energy conservation market in the Philippines would take time and investment. Although the above-mentioned programs may not result in immediate. large energy savings, they do establish the necessary foundation on which large-scale national programs can be built. Only by setting its sights on the medium- to long-term targets, can the Philippines energy conservation market flourish.  AN OVERVIEW OF THE ENERGY SECTOR A. The Macroeconomic Context 1.1 The Philippines' economy has not yet stabilized after the turbulence and crisis of the mid-1980s. Following a substantial recovery in 1985 to 1990, which led to an average annual GNP growth of 5.1%, the country is again experiencing negative growth. These short cycles of growth and recession impede the government's endeavor to cany on long-term reform and structural adjustment programs intended to reduce distortions in commodity and factor markets as well as increase the Philippines' relative competitiveness in world markets. 1.2 Severe exogenous shocks (drought, earthquake, and the Gulf War) contributed to the economic slowdown in 1990 and negative growth in 1991. However, endogenous problems are the cause of sharp decline in overall investment growth; which fell from 24% in 1989 and , approximately 7% in 1990, to -19% in 1991. The fall in investment during these last years, especially in the energy sector, has hampered the ability of the energy sector to cope with the fast- growing demand. Electricity shortfall are acute in particular and - contribute to the reduction of industrial output in Luzon, Visayas, and Mindanao. 1.3 The Philippines' legal and institutional structures, which were developed after the Ministry of Energy was abolished, achieved noticeable progress in energy pricing and investment. However, the responsibilities of the different bodies were not clearly delineated, and this contributed to the propensity of the different entities to broaden their responsibilities. The weakness in sectoral coordination, coupled withe increasing power crisis, pressured the government to introduce a legislative bill targeting the creation of the Department of Energy in 1992. 1.4 To deal with the increasing power crisis, the government of the Philippines has embarked on a series of initiatives to restructure the energy sector. The government's institutional reform led to the creation of the Department of Energy in December 1992. This department is envisioned to provide coordination among all involved parties in the energy sector through formulation of strategic plans, adjustment of energy prices, deregulation of energy activities, and introduction of a new legislative framework to encourage participation by the . private sector. 1.5 The energy sector's ability to cope with the country's increasing demand while achieving stability and steady growth is questionable. The energy sector (and particularly the power sub sector) faces two major challenges: first, it must improve its technical and financial performance, both in terms of profitability and adequate capitalization. Second, it must promote the rational use of energy. It is therefore important to combine both supply- and demand- side options to meet the energy needs of the country in the most efficient way.  1.6 Unlike many of its ASEAN neighbors, the Philippines is not well endowed with indigenous energy that can be economically developed. After the energy price increases of the early 1970s,.amajor effort was made to explore and develop available resources. As a result, the country became a producer of geothermal steam (1978) and oil (1979). in addition to coal and hydropower. However, proven oil reserves amount to only 4 million tons, and oil production has been declining since 1983. Geothermal reserves have not yet been fully evaluated, but could e..reed 8,000 MW, from which only 1,640 MW have been proven so far. The tot& potential coal resource is estimated to be about 1,500 million tons, but most of it is low grade and relatively expensive to mine. Hydro resources are quite substantial, with a theoretical power potential in excess of 10,000 MW. However, the better sites are distant from the grid, and, thus, expensive to use. Non conventional energy sources such as agricultural wastes and biomass are plentiful, and the Philippines is in the forefront of international efforts to develop them. In fact 1991, non conventional energy supplied 38% of the Philippines' total energy use. 1.7 The Philippines has made great efforts to maintain its indigenous energy production at about 3,500 ktoe from 1984 to 1991, despite its relatively modest commercial energy endowment, decrease of hydroelectricity generation due to the drought, and decline of the oil production. The ratio of self-supply of commercial energy, which reached a maximum of 33% in 1986, has declined to 22% during the last two years. This trend can be explained by increasing demand and lower oil prices during the late 1980's (see Table 1.1). In 1991, for the first time, geothermal power generation surpassed hydropower electricity supply. Geothermal is the only indigenous resource that could be significantly developed in the future. Nonetheless, given the country's high energy demand projections, it is expected that the Philippines' dependence on energy imports will increase further . However, it should be noted that energy conservation could play a complementary role in reducing the dependence on energy imports.  -1.1: PRIMARY ENERGY PRODUCTION ('000 toe) Self-supply Coal Oil Hydro 8/ Geothermal d Total Ratio &I 1975' 36 560 5% 6 1980 23 490 877 517 1.861 15 1985 554 358 1.383 1.227 3.521 32 1986 593 423 1.498 1,140 3,654 33 1987 573 274 1.300 1.128 3.275 27 1988 642 257 1,553 1.210 3.662 25 1989 562 23 1 1,618 1.329 3,740 22 1990 5 13 207 1512 1.354 3,586 22 1991 698 140 1.280 1,428 3.546 22 a/ Conversion factor for electricity at the production level: I toe = 43.6 MWh. &I Total indigenous production as a Frcent of commercial primary energy requirements (i.e., including losses in transformation and distribution). d The decrease in hydropower production is consecutive to the drought which struck the country in 1990and 1991. Enerw Demand 1.8 During the 1980s, energy consumption in the Philippines was erratic (See Table 1.2): Commercial energy consumption fell to about 7 million toe in 1985 from more than 9 million toe in 1979, but it rebounded to about 10 million in 1990;before it slipped back to 9.5 million toe in 1991. This consumption pattern stems primarily from the apparent lack of regularity of .the economic development despite the government's efforts to achieve stabilization. However, it is important to note that the Philippines has made great efforts to increase energy consciousness, reduce wasteful energy consumption, and enhance the operational efficiency of the energy sector. These efforts contributed to cutting excessive energy use and significantly reduced the share of oil in the commercial energy supply from 90% in the 1970 to around 75% in the late 1980s.  Table:ENERGY CONSUMPTION a/ ('oootoe) Coal Oil Electricitv bl Total % Oil 81 Net domestic consumption. after transformation and distribution losses. kl Electricity conversion factor at the consumption level: 1 toe = 11.6 MWh. Table: DISIRlBUnOON OF ENERGY DEMAND. 1990 ('oootoe) Residential & Commercial Industrial Transport Other Total 5% Coal 586 586 6 Oil 1.334 2.402 3.734 209 7.679 75 Electricity 1,011 870 2 92 1.975 19 Total 2.345 3,858 3.736 301 10.240 100 Percent 23 38 36 3 100 a/ Conversion factor for electricity: 1 toe = 11.6 MWh. 1.9 Table 1.3 presents the distribution of energy demand in 1990. (a) The industrial sector accounts for 38% of total commercial energy demand (down from 51% in 1987), closely followed by the transport sector (36% in 1990, up from about 32% in 1987), and finally the commercial and residential sectors (23% in 1990, up from about 14% in 1987); (b) Electricity provides 19% of the total commercial energy demand. It accounts for 43% of the commercial energy consumption of the residential and commercial sector (down from 56% in 1987) and for 19% of that of the industrial sector (up from 11% in 1987).  5 It is premature to infer structural changes in the energy demand, but it is clear that the energy demand of the commercial and residential sectors is growing at a higher rate than that of industrial sector. This pattern suggests an increase in the Philippines' dependency on imported,oil. 1.10 Based on optimistic projections of stabilization and economic recovery (6.2% growth rate of GDP from 1991 to 2000),the energy plan forecasts a constant growth of the energy demand at 7.2% per year from 1992 to the year 2000. Such a growing demand cannot be met without significant resource mobilization and promotion of the rational use of energy. It is therefore important to combine supply-side and demand-side options to meet the energy needs of the country with the least adverse impact to the environment. 1.1 1 ' In response to the power crisis, the government and National Power Corporation (NPC) have studied the medium-term demand and generation shortfalls. Based on these studies, the Luzon Grid 70% capacity expansion and the upgrade of transmission facilities will require an estimated US$lO billion by the year 2000. The magnitude of this investment, which would undeniably strain Government resources, underlines the importance of implementing specific energy efficiency schemes. Annex 1 provides the projections of power demand and generation requirements for this decade. 1.12 Prior to the establishment of the Department of Energy, policy formulation and planning in the energy sector were the responsibilities of the Office of Energy Affairs (OEA), an agency established in mid-1987 to take over the functions formerly carried out by the abolished Ministry of Energy. The OEA reported to the Office of the President but lacked the authority to carry out its coordination and decision-making functions for the sector. Other key sectoral institutions are the Philippines National Oil Company (PNOC), responsible for developing indigenous hydrocarbon and geothermal resources; the National Power Corporation (NPC), responsible for power generation and transmission; the Manila Electric Company (MERALCO), a private company supplying electricity to the Metro Manila area; the state-owned Sernirara Coal Corporation (SCC), the major coal producer; and the National Electrification Administration (NEA), responsible for rural electrification. 1.13 The Energy Coordination Council (ECC) is responsible for coordinating the sector policies and ensuring the coherence of energy development plans. The 1992-2000 energy plan points out, however, that "the current difficulties in the country's energy situation are largely traced to the lack of a central coordinating body." In December 1992, to remedy this situation, the creation of the DOE was signed into law. The mandates of the DOE are to "ensure a continuous, adequate and economic supply of energy" and to "rationalize, integrate and coordinate the various government programs toward self- efficiency and enhance productivity in power and energy." Another agency coordinating energy sector policies is the Energy Regulatory Board (ERB). This board, which in its mandates, structure, and duties is similar to a typical U.S.state public utility determines the prudence of energy sector investments and plans. The board reviews all proposals related to expansion of energy supply and proposes regulatory action such as tariff restructuring if and when it sees fit to support new projects. Beginning in 1993 the Energy Regulatory Board received a mandate to review and regulate  electricity prices. Different government departments; such as energy, industry, and finance as well AS energy companies such as NPC, are represented in the ERB. . Energv Pricing Policv 1.14 The government of the Philippines (GOP) has made considerable progress in implementing the following appropriate energy pricing policies: (a) The consumer prices of petroleum products are periodically adjusted to cover CIF prices, distribution costs, and taxes. The tax structure is a good compromise between fiscal, social, and efficiency objectives. However, the functioning of the Oil Price Stabilization Fund is still impeded by some technical problems and political pressures for price adjustments. Steps have been taken to make the OPSF more responsive to market conditions. (b) In 1990 the residential electricity tariffs were increased, reducing the subsidized residential consumption of electricity from 200 kWh/month to 50 kWh/month, which resulted in substantial declines in industrial (-27% on average) and commercial rates ( -23% on average). This move can therefore be considered as a first step toward an economically efficient electricity pricing policy. 1.15 In 1989, the President directed NPC, NEDA, and OEA "to define the structure of electricity tariff, based upon the principle of pricing according to marginal cost." Given the different responsibility of price-setting bodies (ERB, NEA, NPC) in the old system, the government presented a draft legislative bill to Congress and gave ERB the mandate to regulate electricity prices of all entities providing electricity beginning in 1993. 1.16 The centralized decisionmaking process in the ERB has already demonstrated results. The ERB has approved several rate adjustments based on adjusted rate-of-return criteria. Moreover, the ERB allowed the implementation of technical standards for NPC and the distribution utilities. The intent of this policy is to encourage the utility to work toward meeting allowable limits and to lower losses to a preferred level. In the meantime, utilities will recover a fixed system loss through generation charge. This way, utilities stand to gain if the losses are to go lower than system loss. n. ENERGY CONSERVATION IN THE PHILIPPINES: THE STATE OF THE ART 2.1 This chapter focuses on the institutions involved in energy conservation programs, the laws promulgated by the Philippines government to reduce wasteful energy consumption and promote energy policy rationale, the manner of implementation of conservation legislation, and the acceptance and enforcement of conservation measures. 2.2 The Department of Energy (DOE) has the primary responsibility of planning, developing, and implementing energy programs and for formulating energy conservation programs. The DOE provides advice to the president on policy issues concerning energy and its conservation. The DOE has also direct responsibility for monitoring and auditing energy use in the country 2.3 These functions are carried out mainly within the DOE by the Energy Utilization Management Bureau (EUMB), Energy Planning and Monitoring Bureau (EPMB), and the Fuel and Appliance Testing Laboratory (FATL). The EUMB monitors consumption of energy-intensive users and carries out energy audits, information campaigns, and training courses. The main responsibility of EUMB is to implement foreign-assisted energy conservation projects and provide assistance to EPMB in developing and implementing special conservation and information dissemination programs that target various subsectors. 2.4 The FATL, as a division of DOE, provides support services to the energy conservation activities. By providing research and development activities for the industry and calibration of instrument and monitoring devices for manufacturers, FATL is in close contact with energy end users. The cooperation of this division with other two division of DOE has resulted in information campaigns for the end users. FATL has organized more than a hundred seminars and training courses for industrial and commercial mangers. The other main task of FATL is to provide planning and execution for the Product Standard and Labeling Program. FATL has initiated the planning of household appliance testing and labeling as well. 2.5 The Department of Energy cooperates with other government and nongovernmental agencies in developing and canying out energy conservation programs. ERB; BPS; the Board of Investment (B01); the Philippines Council for Industry; Energy Research and Development (PCIERD);and the Energy Research and Development Center of PNOC (ERDCPNOC) are the principal other government agencies directly involved in regulating and enforcing energy conservation policies. 2.6 The relevant functions of these agencies to the energy conservation policl~sand programs of DOE are as follows: (a) The ERB is the regulating body and responsible for determining the viability of financial investments in energy efficiency projects and for setting up the regulatory framework for their implementation. (b) The BPS is responsible for designing and setting standards for various goods produced or imported into the Philippines. Recommendations for setting standards are made by technical committees, in which all concerned parties are represented. (c) The BOI, attached to the Ministry of Trade and Industry, sets import duties, tax credits, and tax deductions on domestic capital equipment, this affects the price of energy conservation equipment and provides users with incentives to conserve energy. (d) The PCIERD provides funding for energy conservation projects implemented by DOE from contributions by the government budget or donor agencies. (e) The ERDC, attached to The PNOC, carries out energy audits and other services for The PNOC and its subsidiaries or as a subcontractor for the DOE. 2.7 Numerous nongovernmental agencies, industry associations, and educational entities are involved in promoting energy conservation in the Philippines. The most active are the Energy Management Association of the Philippines (ENMAP); the Energy Development and Utilization Foundation, Inc.; (EDUFI); the Cebu Chamber of Commerce and Industry (CCCI); the University of Mindanao; and the National Engineering Qnter (NEC). 2.8 Annex 2 provides a summary of the capabilities and cunrent activities of these institutions. Energv Conservation Laws 2.9 Numerous energy laws and regulations have been passed in the Philippines during the past 15 years. Their objective is to encourage coordinator of energy related functions such as creating or organizing government agencies involved in promoting energy conservation, regulating or prohibiting wasteful energy uses, or providing incentives for implementing energy conservation projects. However, the most important and broadest law, the "Omnibus Energy Conservation Law" (see par. 2.13)- lapsed in June 1990. A new law, the "Energy Conservation Act of 1991," was approved by the House of Representatives but is still under consideration by the Senate. Several important provisions of the Energy Conservation Act were later included in the DOE provisions and signed into law in December 1992 (see par. 2.16). 2.10 The First Energy Conservation Laws (1975-79). Several laws. regulations. and rules governing energy conservation were promulgated following the first oil price increase. The first legislation for energy conservation was embodied in Instruction No. 328, promulgated on October 27, 1975, znd was known as the Energy Conservation Prograin. It prescribed a reduction in energy consumption by at least 10% in government offices, entities, and agencies, including government corporations. In this program, private industries and commercial establishments, which consumed at least one million pesos worth of commercial energy, were required to submit an energy conservation audit and establish a program for conserving energy. 2.11 The advent of the second oil price increase in 1979 led to windfall profits for some private businesses. This promoted the enactment of legislation penalizing illegal trading, hoarding, and overpricing of petroleum products. Emergency measures even included a ban on speed racing. This was followed by Instruction no. 1018 in 1980, which required all government offices to reduce their electricity consumption to 90% of the 1979 level. The idea behind this instruction was to demonstrate the government's leadership in conserving energy with the intention that the private sector would~followsuit (see Annex 3). 2.12 Omnibus Energy Conservation Law, 1980. The continuing oil and energy crisis of the 1979 led to the enactment of broader energy legislation in 1980, specifically designed for a 10-year span. The Omnibus Energy Conservation Law, Batas Pambansa Bilang 73 and related Letters of Instruction, placed greater emphasis .on implementation and were more broadly construed. Public hearings were held prior to setting rules and regulations in early 1982. The law was amended by Batas Pambansa Bilang 872. The main provisions are presented in Annex 4. The 1980 law required industrial, commercial and transport establishments consuming in excess of one million fuel-oil-equivalent (FOE) liters of energy annually to submit fuel and electricity consumption as well as production and sales statistics. Establishments consuming more than 2 million FOE liters annually were also required to employ accredited energy managers, undergo energy audits, and enact energy conservation programs. The 1980 law also promulgated several emergency measures. These included limiting the daily period of lighting for commercial advertising, reducing use of lighting in hotels and shopping complexes, and limiting the use of vehicles. This law also included limits on the importation, manufacture, and assembly of cars with more than 2,800 cc engines and 1,500 kg curb weight, and the establishment of programs for fuel allocation and rationing during shortages, regulating the use of air-conditioners and government vehicles, as well as staggering of work hours. Most of these changes have not been sustained, since the oil prices eased during the 1980s. However, traffic congestion has led to several companies to set staggered work hours in Manila. This has had the effect of easing traffic flow, increasing average vehicle speed, and thus improving unit fuel consumption. 2.13 The Energy Conservation Act of 1991. The Omnibus law expired in June 1990, and OEA proposed a new law that maintains and strengthens the its principal features. This Act was passed by the lower house of Congress; however, it was later combined with the DOE law in 1992. In December 1992, the DOE law was signed. In it, Congress required the DOE to submit a comprehensive legislation for a new energy conservation act to amend the DOE law. The energy conservation act of 1991, which :ablishes the ground rules of energy conservation is prgsented in Annex 5. 2.14 Since the late 1970s and early 1980s, major energy conservation programs were undertaken to reduce wasteful use of energy, promote the adoption of energy conservation technology, provide efficiency information, and assist industrial and commercial energy users in implementing energy conservation measures. This section does not intend to be all-encompassing rather; it focuses on the main programs, and especially the foreign-assisted ones implemented the Ministry of Energy and, subsequently, by the Office of Energy Affairs. 2.15 The initial objective of this GTZ-supported project was to assist the OEA in increasing and improving its energy auditing capability by providing a mobile measurement and advisory center (the "energy bus"). The project, started in 1987 for five years, was extended toward the end of 1992, to finalize ongoing activities. From 1987 to 1989, the project contracted the local design of the energy bus and familiarization of local staff with measuring equipment. After preliminary preparations, it canied out about 50 energy audits per year. Starting in 1990, the direction of the program significantly shifted toward commercialization of selected energy management services (EMS)and increased involvement of the private sector in eneigy conservation activities. Six private entities were selected to test different services related to energy conservation: a private consultant, a software company, a manufacturer of boilers, a private university, and a chamber of commerce. In addition, the program supported a pilot project aimed at replacing electric kilns by locally designed high efficiency LPG kilns. The efficient LPG kilns have been well received in the Philippines and have been exported to Thailand. 2.16 The success of the program has been in creating a business relationship and network with the audited industries. Through this network, many industries consult with the DOE on technical and energy-related issues. The Technoloev Transfer for Energv Management fITEM1 2.17 The primary purpose of the ?TEM project was to promote and accelerate the adoption of innovative energy-efficient technologies and operational practices by industrial and commercial establishments. Secondarily, the proiect sought to establish a strong institutional capacity to undertake and manage :mservation- related investments and programs, especially in private sector engineering f m s , industrial and commercial facilities, equipment vendors, and other service-related firms. ITEM'S overall goal was to increase the energy efficiency of conventional industrial and commercial energy use through widespread adoption of energy- efficient technologies, thereby reducing dependence on imported oil, conserving  11 foreign exchange, and improving the overall economic and financial position of the Philippines firms. 2.18 The TTEM was designed to overcome inherent barriers 'to energy conservation that exist within the Philippines. The main barriers as identified in the project paper are as follows: (a) The lack of widespread information on the technical and economic feasibility of innovative energy efficient technologies; (b) The lack of training and experience of local Philippine technical expertise in this area; and (c) The lack of available capital for energy conservation investments due to competition with more traditional investments, such as industrial capacity expansion. 2.19 In the five-year period 1987 to 1991, 'ITEM established a Demonstration Loan Fund (DLF) program to provide loans, in pesos with no exchange risk, to 21 energy conservation projects. The capital funds for the loans were provided by a USAID grant of approximately US$5 million and channeled to borrowers through nine private financial institutions trained in administering DLF loans. The program also developed and implemented activities in technical assistance, training, and information dissemination of energy conservation technologies. Management Promam 2.20 The first phase of the project, launched in 1982, concentrated on detailed energy audits, including engineering design, in 18 companies from the glass, cement, steel, and power sectors. In addition, assistance was provided in setting up an energy data bank to store and analyze energy data of some 400 companies. 2.21 The second phase of the project ,which was funded with a US$1.3 million UNDP grant and a US$240,000 government contribution (1989-1993), is mainly dedicated to setting up the Fuels and Appliance Testing Laboratory (FATL). FATL is now involved in testing energy appliances and supporting the Bureau of Product Standards (BPS) in setting standards for household appliances. Following a recommendation of the ESMAP Household Energy Strategy Study 1991, BPS and FATL took the first step toward adopting a minimum standard for air- conditioners and designed labels to be placed on the new units. Achievements 2.22 Since 1980, the OEA, with the assistance of foreign donors, has initiated the implementation of more than U S 1 4 million in energy conservation programs (see Annex 6) These programs have been successful in increasing public awareness of energy saving potential and the financial viability of energy efficiency measures; it has also helped to contain energy waste through implementation of energy audits and low -cost house-keeping measures. 1 These paragraphs have been extracted from the executive summary of the evaluation of the program carried out by the Resource Management Associates of Madison, Inc. , 2.23 The studies conducted as part of World Bank technical assistance component of a Structural Adjustment Loan (TACSAL) provided assessment of the potential savings, number of feasible projects, and total required investment in eight industrial subsectors. The energy audits conducted in the food, cement, steel, textile, sugar, chemical, pulp and Paper, and glass industries demonstrated an annual potential saving equivalent to 770,000 TOE, or 22% of total industrial fuel consumption. The study also identified 453 projects using low-technical-risk technologies such as combustion control, waste heat recovery, and cogeneration (see Annex 7) 2.24 The implemented programs have had the most pronounced effect on increasing the general awareness about the available energy efficiency options. The OEA has conducted seminars for the energy mangers of approximately 120 industrial and commercial establishments, and it has trained and certified them in the implementation of energy conservation programs. In this manner, OEA has emerged as a point of contact for dissemination of information about energy management activities. 2.25 Enterprises with monthly energy expenditures in the excess of 2 million pesos are required by the law to hire energy manager and report their energy consumption to OEA. In this way, about 40% of large industrial customers are in continuous dialogue with the OEA through energy reports, energy audits, and special energy advisory services. The results of such energy conservation efforts in some of the targeted subsectors have been impressive. In cement industries, the energy conservation schemes, including process improvement projects, have resulted in a downward trend in the specific energy consumption. Although the accuracy of the individual report could not be verified, the general trend can agree with the numbers for energy sales to industry. Figure 2.1 demonstrates the trend of specific energy consumption for the cement industry from 1982 to 1991. L SPECIFIC ENERGY CONSUMPTION TREND'. CEMENT INDUSTRY 13 UNITS WET PROCESS 5 DRY PROCESS 6 7- SEMI- DRY 2 - -8- AVE. INTL N 0 d m (D b (D 0, 0 ? (D (D (D Q Q aD (D (D m 0) Note: The wet. dry, and semidry process plants have a combined capacities of 8.142. 11,220, and 3.144 MT per day respectively. Source: DOE energy report data base. Figure 2.1 Specific Energy Consumption Trend Cement Industry  14 2.26 The Philippines is one of the few developing countries that has taken initial steps to implement a testing nd labeling program for the house-hold appliances (par. 3.23). OEA and FA'. ,. with the cooperation of BPS, have been successful in establishing the regula~oryframework to implement the minimum energy efficiency program for household appliances. Their approach uses Minimum Performance Standard (MPS) and labeling programs to sensitize the consumer about energy cost, and it pressures manufacturers to market more energy-efficient goods. In the past two years, as the foreign assistance to t h s program drew to close, the future of MPS and the commitment of government to support FATL became questionable. Unfortunately, this has led to a significant drop in the progress and enforcement of MPS components. Enerw Conservation Issues Issues and Strateep - 2.27 The Philippines is a prime example of a national energy conservation program that can not flourish without a long-term strategy. Despite numerous demonstration programs, extensive foreign assistance, and government legislative actions, the energy conservation programs have not reached a sustainable level. In the absence of a clear agenda, the approach of conservation agencies to establishing priorities, allocating the resources, and managing the foreign technical assistance has been fragmented and disorganized. As a result, despite the success of individual energy conservation programs, they have failed to create the necessary infrastructure to activate and sustain the energy conservation market. 2.28 A new strategy should be prepared for energy conservation programs that will put them in step with energy sector reforms advocating fair and economical pricing, deregulation, and privatization. This new conservation strategy should create all necessary support structures to provide transition from a demonstration phase to a sustainable national energy conservation program. Furthermore, the strategy should address the main issues in the energy sector and other sectors that affect the development of energy conservation market. The review of previous energy conservation programs and the result of present ESMAP study reveal the following issues as the main impediments to development of the market. 2.29 As part of the restructuring of the energy sector institutions and the creation of the DOE, the organizational setup of the energy conservation division is also being transformed (see section 2.2). Presently, this division is responsible for the collection and maintenance of the energy reports, plant audits, and information dissemination as well as planning and program development. The main weakness here is the lack of sufficient resources to address the variety of the conservation division's functions properly. The situation does not allow a focused approach to the tasks at hand and a comprehensive planning process for new ideas and projects. In the same time, DOE lacks a dynamic link with other involved parties in energy conservation to transfer some of the administrative and executing functions to them. Therefore, the limited resources of the energy conservation division are devoted to performing of secondary tasks rather than the more important work of planning and managing programs.  15 The other weakness in the organizational setup of energy conservation institutions is their lack of long-term perspective. Most of the components and programs of these institutions are project specific and do not include the capacity-building measures for future programs. This situation is largely caused by ebe lack of financial resources and long-term planning, which should be addressed by DOE strategy. Need for Revision in Regulatory Framework 2.30 The regulatory framework for the participation of utility companies in the energy conservation and DSM programs needs to be developed. As energy providers, utilities have access to large managerial, financial, and technical resources that should be utilized in energy conservation programs. However, under present conditions, the utilities do not have any financial mechanism to recover their investments in such programs. Furthermore, the tariff structure does not provide the necessary incentive for the distribution companies to participate in conservation programs. In the meantime, restructuring the tariff rates and establishing new tariffs such as demand charge and Time-Of-Day (TOD) charges are essential to accelerate the implementation of energy conservation projects. The Energy Regulatory Board, as the lead agency, would be responsible for implementation of appropriate changes. 2.31 One of the objectives of previous energy conservation activities has been to provide an enabling environment by regulating the interaction of energy market participants. The government decree, known as the Department of Energy Law, includes provisions for a regulatory framework for both energy supply and end use. The DOE Law reiterates the need for energy conservation and spells out the necessary actions by end users to comply with minimum energy conservation efforts. Unfortunately, the DOE Law does not cover a wide range of legal and regulatory issues, such as taxes and duties on energy-efficient equipment and the framework of cooperation between energy market players and participation and promotion of private sector. Such shortcomings impede the implementation of large-scale energy conservation programs. Passage of a new law to complement the provisions of the DOE Law and emphasize the commitment of government to energy conservation is an important aspect of accelerating energy conservation activities. 2.32 One of the obstacles in the promotion of energy efficiency is still the lack of accessible and unbiased information about energy conservation methods and technology. In most cases, the only source of information for industry and consumers is the suppliers' claims, and no means are available to verify them. Some consumers refer to the DOE for consultation and information about energy efficient technology; however, DOE is neither equipped nor staffed to respond to these questions. In other countries, public and private companies provide technical information and assessments for energy conservation program for a nominal fee; this scheme could be promoted as a plan of action to establish a mechanism for information dissemination in the Philippines. Financial Im~ediments 2.33 In the cash-strapped industrial sector of the Philippines, €be energy conservation projects must compete with more conventional industrial expansion or renovation projects. The energy conservation projects are perceived as risky and less profitable by many industrial entrepreneurs. To overcome the reluctance of industries to invest in energy conservation, the government had offered special financial benefits in the past. Unfortunately, these incentives are discontinued, and no financial assistance is presently available to encourage investment by making the energy conservation projects more attractive. Furthermore, banks are generally unwilling to appraise and finance the energy conservation projects. Their reluctance, which is due to their lack of expertise to assess the project, places an additional burden on small- and medium-sized enterprises, which need the banks to finance their energy conservation projects . 2.34 Energy service companies (ESCOs) can be an alternative source of financing for energy efficiency projects by providing equipment leasing and turnkey services. However, the lack of financing on favorable terms is a major obstacle to the expansion of ESCOs. At present, the only loan packages available all c a y variable rates and require large collateral and equity. These packages are not suitable for small startup companies, such as ESCOs. Under these situations, the capability of ESCOs to obtain the necessary seed money to expand their business becomes very limited. Providing special fixed-term loans and credits for purchase of equipment should be investigated as an approach toward mitigating the problem. Barriers to Private Sector Participation 2.35 The private sector can play a vital role in dissemination of information and transfer of technology to energy end-users in form of ESCOs. The ESCOs can provide a marketing and technical link between participants in the energy market such as utilities, end-users, and suppliers. So far, ESCOs have been neglected by the government-sponsored programs. Of $14 million in government energy conservation programs, only $ 0.2 million has been contracted to private companies. Furthermore, ESCOs as a special group have not been targeted for training and information programs. The DOE is now modifying its priorities to allow more effective involvement of ESCOs in its programs. 2.36 Another main barrier in the participation of the private sector in the formation of ESCOs is the perceived lack of credibility of ESCOs among consumers. Given the current economic and social uncertainty, industrial customers want assurance of the competency and long-term commitment of ESCOs. On the one hand, industrial customers prefer to deal with well-established companies that will be around to back up their designs and to provide long-term services, On the other hand, established private consulting companies are reluctant to enter into energy advisory field because of the high level of required investment in training and equipment. In general, private companies need assurance that market demand is adequate and that their services will be paid for promptly. Implementation of programs by government and utilities, which provide administrative, technical, and financial backing to ESCOs, will mitigate this obstacle. Priorities 2.37 To mitigate and resolve the issues discussed in the previous section, the implementation of a series of pilot and large-scale energy conservation programs is a main priority. These programs and studies will assist planners identifying the necessary mechanisms to promote energy efficiency while targeting the immediate needs of energy end users. The other objective of these programs is to provide an enabling environment to develop a complete informational, regulatory, and legislative network to respond to impeding energy conservation issues. 2.38 Energy conservation and demand side management (DSM) programs that are created in response to the short- and medium-term needs of the energy sector are the best vehicles for addressing the energy conservation issues and testing and fine-tuning the proposed solutions. The main objectives of these programs should be as follows: (a) Making use and strengthening of the established institutions; (b) Increasing information dissemination among consumers; (c) Promoting private sector participation; (d) Establishing necessary, but missing, support infrastructure for energy conservation; (e) Improving the regulatory framework for energy conservation activities. Energy conservation programs should also prepare the necessary background to enable the energy conservation institutions to spin off a part or all of their operation as private entities as soon as possible. the administrative plan for the programs would serve the eventual goal of reaching a sustainable energy conservation apparatus or infrastructure. 2.39 The review of energy consumption, and especially of electricity demand reveals that the industrial and household sectors are the key target sectors for implementing an energy conservation program. Industrial sector is notable for high concentration of large energy consumers, and the household sector is distinguished by its large number of small consumers; together, the two represent both ends of the spectrum energy conservation should cover. Preparation of programs for these two sectors-particularly their institutional, regulatory and legislative networks-will simplify and accelerate the implementation of the energy conservation programs in the other sectors of the Philippines.  18 111. Findings A. - Industrial Sector Energv Conservation 3.01 The government of the Philippines has initiated free trade policies in many subsectors of industry. As result, many industries are planning rehabilitation and modernization projects to remain competitive in the market. Large and medium 'industrial units find the reduction of their fuel, particularly of electricity consumption, through energy conservation projects a complementary step to their cost-cutting measures. Furthermore, energy conservation projects can aid the industries' modernization efforts by identifying and replacing outdated equipment and processes as well as by curbing energy- wasting practices. 3.02 The limited number of industrial units with large energy consumption, along with the trained and experienced technical staff and proven energy conservation technology and practices, makes industrial sector a choice target for implementation of national programs. As noted in chapter 2, a national program would prepare the regulatory and institutional framework for implementation of energy conservation programs in other sectors. Table 3-1 Philippines Industrial Energy Consumption 1991 GWh Food ,Beverage, Tobacco 82 1 Chemical (plastic, rubber, 748 industrial) Textiles 688 Fabrication (electrical, metals, 615 transportation, and machinery) Nonmetallic (cement, glass, 456 pottery, and other) Total ( Key industries) 3027 Source: Meralco 1991 industrial sales data  - Potential Fner~v-Savine 3.03 In 1990, the energy consumption of the industrial sector totaled 3.858 million TOE, from which the total amount of electricity is estimated at about 10,000 GWh. This number is supported by Meralco's data for sales for the five major subsectors that roughly constituted 50% of industrial consumption in 1991. In recent years the sale of electricity to Philippines industry has declined because of power shortages and the shift of large industrial units to on-site generation. Nonetheless, the conservation of the electricity remains a major priority to ease the present power crisis. 3.04 The potential for the development of energy conservation programs in industrial sector is positive. The DOE has implemented more than $15 million in industrial conservation programs. Many of these programs, as discussed in chapter 2, have shown excellent results. As one example, the TACSAL II project, which studied energy-saving potential in eight different sectors of industry has demonstrated a 22% annual saving equivalent to 770,000 TOE, achievable through implementation of financially viable measures. This study focused on the conservation of the fuel through implementation of combustion control, waste heat recovery. and cogeneration. 3.05 The analysis of the saving potential of motor- driven industrial processes provided in Table 2-2 shows parallel results with that of TACSAL II. The estimates for Philippines energy- and demand-saving opportunities are tabulated based on the projections and proportions of U.S. industry. As a starting point, a conservative approach ( using potential savings for minimum efficiency standards rather than for motors with high efficiency) is used. Then the saving opportunities are estimated based on the ratio of the U.S. savings. In this way, a potential saving in the range of 600 to 1,600 GWh and 135 to 350 MW demand is calculated. Impeding Issues 3.06 Despite the need for rehabilitation projects and existence of proven energy conservation methods, the independent replication of energy conservation measures is negligible. The reluctance of the industry can be attributed to several imr-diments: (a) lack of financial strength, (b) lack of awareness among senior management about the profitability of energy conservation, (c) weakness of the energy service sector to assist industry in selection of the options, (d) lack of reliable data on performance of conservation measures, (e) lack of availability of efficient technology in local markets. and (f) lack of technical capacity in financial institutions to appraise and finance the energy conservation projects.  20 TABLE 3.2 Savings Potential: Motor-Driven Industrial Processes Potential (TWh) Potential (GWh) Potential (MW) High-efficiency motor 59 140 30 Correct rewind damage 15 38 8 Electrical tune- ups 14-72 36- 184 20 75-298 192-763 42- 167 I Source: Nadel 1991 and ESMAPfield study, 1993. 3.07 Industries in general are facing a shortage of financial resources. Long- term fixed-rate industrial loans are not readily available, and therefore industries are hesitant to start the projects that they may deem nonessential at the time. In view of the scarcity of financing, industrial loans with a conditionality of implementing energy conservation equivalent to 5 to 10% of the loan would motivate the cash-starved industries to begin energy conservation. The review of previous loans demonstrate the quick response of the industries to long-term loan packages. Furthermore, the industrialists surveyed found 5 to 10% additional investment acceptable given the positive cash flow from the energy savings. 3.08 Furthermore, industries should be convinced that their incremental investments on high-efficiency equipment are profitable. Industrial customers are typically reluctant to use their scarce internal financial resources for energy projects unless the returns are attractive and the payback periods are short (say less than two years). Targeting high-energy-consuming equipment and offering financial incentives such as tax breaks would ensure high returns on investments. Furthermore, implementation of energy conservation schemes in coordination with expansion and modernization projects will reduce the incurred overheads and improve the financial viability of energy efficiency options.  21 and Processes Tarpet Eaui~ment 3.09 The review of industrial restructuring loans provided by World Bank and by the OECD funds dispersed in 1989-1990 reveals the investment patterns of the industrial customers particularly during renovation and rehabilitation'projects. The survey of invoices for $87 million in approved subloans by 58 applicants provided the following information on the type of fuel consumed by the equipment purchased by the industry: Type of fuel Million US$ Percentage Electricity 24 69 Petroleum Products 9 ' 26 Coal 1 3 Gaseous 0.4 I Energy Conservation Devices 0.4 I TOTAL 34.8 100 Source: ESMAP Field Survey, 1992. Investments related to energy-consuming equipment amounted to approximately 40% of the total subloans. These figures can be further analyzed to separate the high-consuming equipment and processes from low-energy-intensive systems. 3.10 The ratio of annual energy cost to the annualized cost of investment (E/ I) is a useful indicator of the energy intensiveness of an industrial processes. The replacement or retrofits in industrial processes with ratios over 1 would provide a larger percentage of energy saving compared to the increase in their initial cost. For example if a genset with a ratio of 14 is replaced by a unit that is 10% more efficient, then the replacement unit, at price levels up to 140%. would generate equivalent cash outlays in comparison to the original unit. Given the general rule of thumb that 15% to 20% higher efficiency is attainable a with 25% to 35% cost increase, the equipment with El I > 1.2 would be a financially viable candidate for replacement. 3.11 The key targets for industrial energy conservation are the processes and equipment with high (E/ I) ratios. The question is whether there are sufficient numbers of these processes and equipment in the renovation and rehabilitation project to have a large impact on the energy consumption of the industrial unit. Once again, the survey of some representative loans (about 25%) establishes the categories of equipment purchased in each subloan (see Table 3.4). Table 3.4 Classification of Equipment Purchased by Fuel Intensity Equipment Investment in Annualized Annual Cost Average El I Percentage Group Each Group Cost of Invest Of Energy Ratio of the of Total in US $ in U.S.$ in U.S.$ Group Invest 646,000 154,080 3,705,850 67 7 1) 89260 2 1,280 3 16,420 15 1 414,700 98,900 779,240 7 5 m) Source: ESMAP field study, 1992. The survey demonstrates approximately 40 percent of the equipment and processes will have larger annual energy savings than cost increments due to replacement. The potential for targeting them in process engineering and replacement schemes is quite large. Furthermore, this potential would be expected to increase as the industrial energy conservation directly targets the rehabilitation and modernization projects. 3.12 Among the target group of equipment and processes, approximately 70% are motor-driven systems. This gives a high priority to focus on the promotion of high-efficiency motors and special controlling devices such as adjustable speed drives, and cogged V and Synchronous Belts. 3.13 ESMAP fieldwork studied the impact of establishing a minimum standard for the industrial motors. Based on the preliminary study, the annual sales of motors is approximately 20,000 to 25,000 units, imported from several countries such as United States, Brazil, China, and Japan. Unfortunately there are no accurate data on the sale distribution by size of motors. However, the collected data from motor suppliers provides a rough distribution by size of motors, which is proportional to the distribution of motors in Thailand. 3.14 Based on the weighted average unit saving and 10 year expected service life and 3,500 hour annual operation, the cumulative savings potential of energy, capacity, and C 0 2 reduction are calculated. The cost of saved energy, which includes incremental cost of new motors and program cost, remains very low at $0.026 (US$/kWh) compared with $.093 (US$/kWh), the estimated cost of energy supplied at base capacity.  Table 3.5 Summary of Potential Energy and Capacity Savings A.C. Induction Motor( 1- 200 h ~ ) Reduction CO2 Source: ESMAP fieldwork. 1992. Promam Outline 3.15 There are two approaches to the implementation of energy conservation in industrial sector. The first option, an industrial energy conservation program (IECP), envisions a network of private and public agencies under the auspices of the DOE to implement the energy conservation in tandem with a modernization and expansion project. For this, the energy conservation program would be introduced as a conditionality of a restructuring loan package provided by the government or by multilateral development banks. Availability of long-term, fixed-rate financing, and a small additional investment, combined with technical advisory services should encourage the industries to take advantage of this program. The principal structure of the second alternative, industrial demand side management (IDSM), gives a central role to utilities to manage the program by procuring the equipment and distributing the incurred cost of program. In this scheme, all involved parties are connected to implementing unit of utility, which acts as loan guarantor. Such an arrangement will help to overcome the private banks' reservations about providing financing for the energy conservation program. The financing of the program is shouldered by utilities; therefore, a supportive regulatory framework to allow cost recovery to the utilities is also necessary. Although there are many similarities between theses two approaches, the ESMAP study found the utilities, the main players of IDSM, were not supportive of the program. The reluctance of the utility can be attributed to (a) unresolved regulatory frcmework, (b) the lack of experience in energy conservation and industrial applications, and (c) the sense of urgency to end power crisis by expanding supply. On the other hand, IECP is recommended as the preferred approach because of its direct approach to energy conservation by using the existing institutions involved in energy conservation such as DOE and DOI. Furthermore, previous experience in DO1 in disbursing the restructuring loans will provide a better chance £or success for the program. 2 Carbon dioxide reduction varies widely depending on the power plant efficiency and the fuels used. Nonetheless, an average 733 kg/MWh C02 emission is used for the calculation. B. Commercial and Residential Sectors: Enerw Conservation 3.16 In 1990-91, ESMAP in cooperation with the Office of Energy Affairs, performed a detailed study on the potential of energy conservation in the residential sector. The main goal of the study was to evaluate the consumption patterns both in the urban and the rural areas. The results of survey were published in September 1992, and the study contains a list of regulatory and institutional recommendations as well as individual steps to accelerate the implementation of the energy conservation programs. The present ESMAP study has examined some of the more promising recommendations of the previous study. Furthermore, the focus of this current study was the conservation of electricity, which was not covered thoroughly in the previous studies. The report of this segment thus deals with energy efficiency in lighting through demand-side management programs and introduction of Product Performance Standards (PPS) as a infrastructure development program. 3.17 The sale of electricity in the residential sector increased rapidly at a pace of approximately 23% annually between 1980 and 1990. The total electricity sales in residential sectors are estimated at about 3 to 3.5 TWh by DOE and the utilities. The detailed studies by the Household Energy Consumption Survey (HECS) in 1991 provide data on the end-use applications of electricity in residential sector. According to these studies, the lighting, refrigeration, and air conditioning are the major energy consuming household applications (see Table 3.6). 3.18 In the commercial sector the consumption of the electricity remained steady in late 19801s,when the annual sales of electricity ranged from 3 to 3.7 TWh. However, there is no a valid estimate of electricity sales and consumption in commercial sector during the past four years because of brownouts and the vast usage of on-site generation. Audits of 50 commercial buildings by the DOE provide an estimate of the end-use consumption in the commercial sector. Table 3.6 shows a breakdown of consumption. Table 3.6 Distribution of End-Use Application by Sector 1 Residential Sector 1) 1 c[ Application Air Condition g l Refri eration Li hting Buildin s Commercial . Offices 60.4 * 19.3 Sector Hotels 61.9 * 22.5 Buildings Hospitals 65.5 * 16.3 Others 40.7 20.3 15.6 18.2 Total 100 100.0 100.0 - in the commercial survey. 3.19 As both surveys show, lighting is the major load, contributing to both the duration and the level of peak demand. To evaluate the potential for the conservation of electricity by large-scale promotion of more efficient lamps and ballasts, the financial and economic assessment of a efficient hardware has been prepared. In the Philippines, about 32 million incandescent bulbs, 4 million fluorescent tubes, and 2 million fluorescent ballasts are sold annually. The ESMAP study analyzed the potential of using efficient lighting in a demand-side magement program for residential and commercial sectors as well as the impact of a Product Performance Standards on fluorescent lamps and ballasts (see section 3.23). 3.20 To evaluate the financial and economic viability of energy conservation scenarios several replacement options were studied. In one analysis, the replacement of a 75W incandescent lamp with an 18 W CFL for an annual usage of 2,000 hours and 4,000 hours was considered. The second group consisted of replacement of four common fluorescent lamps and their regular ballasts with three high-efficiency T-8 fluorescent lamps and electronic ballasts as well as similar incandescent1CFL replacement. This replacement scenario is targeted for the commercial establishments with 3,500- 4,500 hours of lighting. In all analyses, the following assumptions were made: (a) The prices of incandescent and regular fluorescent lamps were surveyed from the market. For new hardware, the average price of the local and international market was used to indicate the average prices for large- scale purchases. (b) The technical loss is assumed 6%, and the plant availability factor is taken at 60%. (c) The LRMC at the consumer post is assumed to be 2.65 peso/KWh. (d) The investment cost of generating capacity (ICGC) is taken at 50,000 PESOS1 kW. (e) Peak coincidence factor for lighting is taken at 70%. 3.2 1 To verify the economic viability of the replacement options, two indicators were computed: cost of conserved electricity (CCE) and cost of avoided peak installed capacity (CAPIC). CCE is the ratio of net annual cost of new lighting technology (annualized cost of new lighting system less the .avoided cost of conventional technology) to annual electricity saved at the generation end. CAPIC is the ratio of present value of net annual cost of new lighting technology (over the economic life of peak generating capacity) to the supplier's avoided peak. The units for CCE and CAPIC are Pesokwh and PesokW. Table 3.7 shows that lighting improvement options are economically viable when compared to the LRMC and ICGC, particularly from the utilities' view point. In the financial analysis, the comparison of average cost of conserved energy with the average residential and commercial electricity tariff shows that these options are still 40 to 50% higher and therefore not financially viable (residential tariff range between 0.6 and 0.8 Pesos1 kwh) However, the higher cost of on-site generation of electricity should encourage the commercial entities to invest in these conservation options. 3.22 Based on the above results, the potential for DSM projects, particularly in commercial sector exists. Presently, many commercial establishments have initiated replacement of their high-wattage incandescent lamps with CFLs and high efficiency fluorescent lamps and electronic ballasts. However, as mentioned in 3.15, utilities are not presently ready to participate in DSM programs. In particular the larger number of customers and higher risks of failure make utilities reluctant to implement the program. Therefore the ESMAP study concludes that DSM program for the residentiaVcornrnercial sector is not an appropriate solution at thii time. Table 3.7 Lighting Improvement Options In Residential and Commercial Sectors S I l + Electronic 3 T8 F Source : ESMAP Studies. 1993.  3.23 Implementation of Product Performance Standards (PPS) is another step in the promotion and mass marketing of efficient industrial hardware and household appliances. It is important to note that appliance and equipment testing, labeling, and minimum efficiency programs are already underway in many developed and developing countries. In fact, if the Philippines does not start to pursue these types of programs aggressively, there is a significant risk that the Philippines market will b ame a dumping ground for inefficient appliances and equipment that can no longer be sold in the more carefully regulated markets of the world. Furthermore, the relatively long life of most appliances and electrical equipment, mean that each inefficient model that is installed today will embed economic and technical inefficiency within the Philippine economy for many years further impeding the country's economic development. 3.24 The assessment of ESMAP of the achievable savings associated with implementation of the PPS program for several different types of equipment is given in Table 3.8. The results should be interpreted as a reasonable estimate of the level of accumulated savings that could be expected during a 10-year period after minimum eficiency standards are established for five products in 1995. In calculating the avoided investment cost, the investment cost for peak and base generation were estimated as 700,000 and 1,500,000 US$/MW, respectively, per information provided by DOE. Table 3.8 Achievable Energy and Capacity Savings TOTAL DEMAND AVOIDED INVEST Source: ESMAP preliminary report on Household Appliance Minimum Performance Program January 1993. 3.25 The economic and financial analysis of the PPS program demonstrates its viability. The cost of saved energy is approximately $0.015 to $0.038, less than  28 40% of the estimated cost of supplying the same units of electricity through construction of new generation. Furthermore, as an additional benefit of the proposed program, the Philippines would realize a cumulative C02 emission reduction of approximately 1.2 million tons by the year 2000. The overall benefit and cost of the program to the society and individual consumers, taking into account the program implementation cost, for individual products are also computed. The customer and society benefitlcost ratio of the proposed programs for the five priority products are calculated using, respectively, 15% and 7% discount rates. 3.26 In the proposed program, both voluntary and mandatory efficiency compliance and labeling are conceived. Typically, mandatory methods are more effective in realizing savings but require a greater level of resources to mobilize. Given the difficulties associated with the enforcement of mandatory measures, voluntary compliance at the initial stages is recommended. On the development of the components of the program, such as information promotion, and monitoring and enforcement, minimum performance standards can be made mandatory .  Table 3.9 BenefitKost Analysis Economic Summary Source: ESMAP field work 1992. 3.27 The main impediments to the implementation of PPS programs are as follows: (a) lack of a central agency authorized to plan, negotiate, and implement the programs; (b) lack of cooperation by manufacturers and suppliers, who expect to lose their market share to better-quality products; (c) lack of consumer sensitivity to "invisible" operating costs; and (c) difficulty of enforcement due to the large and dispersed pool of target products. 3.28 Presently, the Bureau of Product Standards has the responsibility for negotiating the terms of programs with the industry. Meanwhile, FATL, within the DOE, has the responsibility for testing and monitoring the products. This separation in authorities has caused delay in the implementation of the programs. Considering the impact of PPS programs on energy conservation programs, particularly awareness and information campaigns, it is most appropriate to centralize the PPS programs in DOE. In this manner, the coordination of PPS programs with DSM and energy conservation programs will be better ensured. 3.29 The Bureau of Product Standards has several laboratories' that test the safety and the quality of products, particularly electrical appliances and lamps. Expansion and modernization of these facilities, in parallel with installation of new testing labs in FATL headquarters. would facilitate the implementation of the program. The preliminary estimate for such expansion project amounts to $ 1.1 million over a three-year period. 3.30 To establish a basis for a Product Performance Standard, it is recommended to begin developing the technical expertise by drafting testing requirements and efficiency standard levels. In the meantime, a unifoni product labeling requirement and enforcement procedure should be devised with the consultation of industries and suppliers. These two components of the program can be developed through the assistance of foreign experts to expedite the implementation of the program. (ESCOs) Energv Service Com~anies 3.31 Energy servic,ecompanies as a marketing and service delivery mechanism to energy consumers have a vital role in the implementation of energy conservation measures. ESCOs, as a link between end-user and energy conservation organizations, communicate information about available services and options while identifying the most suitable cases (clients) for admission into energy conservation programs. To evaluate the capacity of ESCOs to play this major function, ESMAP conducted a field survey of companies that culminated in a two-day workshop. The goals of this exercise were to (a) identify the eligible ESCOs and gather their views on the impediments in the development of their business, and (b) formulate a series of programs to mitigate the obstacles and strengthen the capacity of ESCOs. 3.32 Overall there are 36 energy service companies with eligible background presently doing business in Philippines. The main characteristics of these companies are as follows: The majority of the businesses do not depend on energy services as the main source of income. Normally consulting servlces or equipment supply and sales generate the main part of the business for these companies. Many of ESCOs have had hands-on experience with the audit and measurement of energy consumption; however, all companies lack the necessary equipment to monitor energy consumption over a long period. All companies requested assistance in this matter. ESCOs have been more successful in implementing projects in the commercial sector. Recent brownouts have increased the demand for energy conservation schemes in lighting and air conditioning to reduce the size and the cost of backup generators. Progress of the ESCOs' marketing efforts in the industrial sector has been slow. This can be attributed to the lack of sufficient capital, equipment, and credibility of ESCOs. Industrial managers are generally hesitant to risk the dependability of their production line to small, startup companies.  31 3.33 Based on the findings of the survey and the outcome of the workshop, it is apparent that the energy service market of Philippines is not sufficiently developed to provide a predictable and stable environment for the growth of ESCOs. To remove the obstacles and create an enabling environment for the growth of ESCOs, the main impediments must be addressed by following programs. 3.34 Under the present volatile market situation, ESCOs are reluctant to invest in the zxpansion of their services. As a solution, government-funded energy conservation and DSM programs would provide the necessary vehicle to expand the market and generate the demand for ESCOs. The structured organization of DSM or conservation programs in which the framework of cooperation between all involved parties is defined and the setup of the programs is identified would ensure long-term assignments in an enabling environment for ESCOs. 3.35 Another major barrier in the promotion of ESCOs is their lack of technical capacity and understanding of marketing and financial skills. To provide guidance to ESCOs on selection of energy conservation technology, establishment of a technical advisory service center seems necessary. This center would assist ESCOs in convincing the industrial and commercial end-users of the prudence of the selected options and economic feasibility of the recommendations. Therefore, this centcr u .uld : *t as an ir; Itpendent information source that can confirm the quality of ESCc)s' ser\.ices. 3.36 The lack of financing with favorable terms is still another major obstacle to the expansion of ESCOs. At present, loan packages available for energy efficiency projects all carry variable rates and require large collateral and equities. These packages are not suitable for small startup companies such as ESCOs. Moreover, equipment leasing and performance contracting, which assist companies without strong financial backing to land projects, are not frequently practiced. Under these circumstances, the capability of ESCOs to obtain the necessary investment money to expand the business becomes very limited. Special loans for equipment purchase, deferred payment, and equipment leasing are among the options that can be exercised to provide incentives for ESCOs to expand their services. 3.37 The development of ESCOr is a "110-regret option." In energy conservation and DSM programs, ESC 3 s play ;he role of intermediary between the end user and the program sponsors. In other words, demand-side efficiency programs in industry and household sectors need a developed and strong group of ESCOs to implement the programs. The alternative to the promotion of ESCOs in DSM programs is a central, utility-based service company. Yet given the number of industries in the Philippines and their widely varying needs, the chance of success of a central company seems slim. The ESCO Promotion Program, which outlines the solutions to impediments and obstacles in the development of ESCOs, is provided in chapter 4.  Action Plans 4.01 The objective of the following action plans is to create an environment to transform the energy conservation efforts of the Philippines into active and sustainable programs while addressing the immediate and long-term the needs of energy sector. Implementation of these programs requires time, resource, and commitment. Allocation of an appropriate budget for the implementing institutions and full involvement of government in removing the regulatory impehments would accelerate the pace of progress and would send encouraging signals to the energy market. The action plans proposed in the following sections contajn many common components and are generally interdependent. As more elements and programs are activated, the effectiveness of each action plan would increase. Therefore, although implementation of some elements would require time, their full execution is necessary to complete a support network. In another words, the recommended programs and their component constitute a set of interconnected elements which will ensure the development of energy conservation market and its long-term success . A. Industrial Sector: Energy Conservation Program 4.02 The government's free trade policy has generated increasing demand for investment in rehabilitation and modernization projects. The incorporation of an energy conservation activity into the rehabilitation and modernization programs is the core of the proposed energy conservation program. The objective of the program is to set up a model structure to combine the investment needs of energy conservation with the priorities of the affected industries and to establish financing, delivery, and monitoring mechanisms to sustain future programs. To succeed, the proposed program should mitigate barriers such as the shortage of loan capital on favorable terms, lack of conservation awareness among industrial consumers, and reluctance of banks to appraise and finance energy conservation projects. 4.03 The Technology Transfer Energy Management (TTEM) project was successful in initiating a comprehensive approach to appraising energy conservation potential in the industrial sector. Moreover, TTEM demonstration projects have shown very attractive financial returns (see para. 2.30). Therefore, the proposed industrial energy conservation program should draw on the experience gained from TTEM. The evaluation of TTEM's results and identification of its weaknesses are the main priority of the new program. 4.04 To set up the industrial energy conservation, two program models were considered. The first, Industrial Energy Conservation Program (IECP), is an agency-based model under auspices of DOE that is intended to promote conservation through incorporation of equipment replacement and process engineering techniques in industrial projects. The second, a demand-side management model, leaves the central role for planning and implementation of the program to the utilities. This option, Industrial Demand Side Management (IDSM) uses financing and marketing resources of the utilities to mobilize the consumers.  Detailed descriptions of these model programs and a comparison of the two are given in the following sections. 4.05 At the center of IECP model is a coordinating unit that interacts with the energy market players either directly or through IECP intermediary agencies see FIG 4-1. The main role of the coordinating unit is to ensure the policies and plans of the Department of Industry and the Department of Energy are incorporated into the work program of IECP. Furthermore, the coordinating unit, as the highest decisionmaking body of the IECP, sets the regulations, fiscal incentives, and program guidelines. The interaction of the coordinating unit with the industrial customers and ESCOs is through the technical center of the program, the Technical Advisory Service (TAS) center. 4.06 The IECP program would evaluate the expansion or renovation plans of the industrial units, which include the recommendations of are ESCO about the improvement of equipment and processes. This evaluation will be performed in the Technical Advisory Service center and will cover the viability and appropriateness of the design proposal. This technical evaluation of energy efficiency aspects of design will simplify the review process by the financial institutions (step 3, Figure 4.1). 4.07 ESCOs that are competent to provide energy assessment of industrial plans and prepare efficiency improvement proposal are necessary to deliver the program. The IECP therefore will assist DOE to prepare a training and certification program for ESCOs and will monitor the quality of their service ( step 2, Figure 4-1). Furthermore, IECP will pay the cost of initial assessment and design work of ESCOs from its operational fund. In this manner, ESCOs will overcome two of the major impediments in their expansion: their lack of credibility, and of an established market. 4.08 Based on the TTEM project and the experiences of other audits and studies, it is recommended that IECP concentrate on the implementation of three or four conservation technologies. this limitation in the scope of activity is necessary so that TAS and the related ESCO could deliver the technical design in a timely fashion. The conservation technologies can be agreed upon when the TAS is established. Energy eficiency improvement in boiler and steam systems, monitoring and control systems, motors and drives .and cogeneration are good candidatesfor this program and are recommended. 4.09 Approval by the TAS is an intermediate step that will be taken separately before an application for loan is sent to banks. Although this might appear cumbersome, the separate step will benefit industries in the review of the equipment selection and process engineering be~ause TAS will provide expert assessment of the energy conservation portion of design and assess the viability of plans. The presence of the TAS as an autonomous entity will ensure quality work by the ESCOs and equipment suppliers, which are concerns for the industry. 4.10 In the proposed plan the role of banks will remain the same. As lending institutions they are responsible to review the financial feasibility of the plans and ensure of the appropriateness of the terms and conditions of each loan request. The presence of TAS and ESCOs, which will evaluate the. financial viability of energy conservation component of the loan, will relieve the'financial institutions of having special technical capacity to appraise conservation component of loan applications. 4.1 1 The success of the IECP relies on the effectiveness of TAS in on-time dissemination of technical information and prompt evaluation of loan proposals. To this end, establishment of a extensive data base on the target equipment is necessary. TAS should create an information network with international independent equipment laboratories and foreign ESCOs to be able to respond to the needs of the industrial consumers. Moreover, nontechnical information such as data on customer decisionmaking criteria, equipment importer and vendor network and marketing practices, and process design and equipment specification practices should be compiled in advance to support the TAS decisionmaking process. To fine-tune the operational procedures, it is recommended that a series of pilot demonstration projects should be implemented in cooperation with other DOE programs (see chapter 4, section C.) This exercise will prepare the TAS to become fully operational before the disbursement of IECP loans. 4.12 To finance the IECP, it shall be linked to a restructuring industrial loan package. Industries that participate in the IECP program and incorporate energy conservation measures into their expansion projects will be qualified to apply for the IECP restructuring loan. Given the shortage of industrial financing, the availability of a restructuring loan would function as the motivating factor for implementation of the IECP. 4.13 The industrial investors generally prefer to keep their liabilities as low as possible and to avoid additional investments if possible. Therefore, the incementa1 cost of investment in energy conservation for IECP loans would be kept below 10%. The idea is to target the most energy-intensive equipment to gain the highest energy saving with the smallest investment increase. The analysis of the latest industrial restructuring project (IRP) by the world Bank shows that energy-intensive equipment accounts for 38% of total equipment purchased and 94.5% of the energy consumption. Given 30% premium for the price of more efficient equipment, the incremental cost of efficient equipment is estimated at about 10%-which closely matches the IECP target. 4.14 The lack of technical awareness among industrial managers of the latest technologies and equipment is a barrier to implementation of the conservation program. In rehabilitation and modernization projects, industrial mangers who are not independently knowledgeable about energy conservation can only rely on the advice of the vendors and suppliers and often do not have access to impartial third-party appraisal IECP, by providing free consultations for industry through ESCOs, removes this barrier. In this manner, industries would have an independent input from ESCOs on the energy assessment and energy conservation requirements of their establishment (step 1, Figure 4.1). 4.15 In the initial phase, the operational expenses of TAS can be financed by a technical grant from the government or a foreign donor. The estimated expenses of TAS, which include technical evaluation, data base preparation, and assistance  35 to ESCOs. should not exceed 10 to 15% of the project expenses. This estimate is based on - :.e ongoing rate for industrial consulting services in the Philippines and abroad. Lpon attainment of successful results by the program, TAS can shift its operation to full recovery of cost by offering its services as an independent consulting service to the industries and the ESCOs. 4.16 In IECP model, energy supply companies also provide their expert services to the industry. Under the direction of the IECP coordinating unit, utilities will participate in programs such as load management and power factor correction programs and will be paid directly by the industrial investor through the IECP loan financing. In this manner, utilities can participate in the energy conservation programs and also avoid hampering managerial and administrative obstacles.  .............. coordinating unit DOE Programs for Commercial Banks 4 - ESCOS A (4) Loan approval process ? Technical Advisory Service Center Conduct demonstration projects Provide technical information (3) Conduct awareness campaign Provide technical information Approve design proposal (*) Train and monitor ESCOs Establish data base w Equip. Suppliers 4 & ESCOs Consumer contact (1) Energy audits and assessmer Construction management Design modification b Industrial Investor -.......................................................................... "..IIIIc- Flgure 4.1 Organization of IECP  Industrial Demand Side Management (IDSM) 4.17 Given the same evaluation of the industrial setting and its constraints as that posed for the IECP, the industrial demand side management (1DSM)'prograrn proposes a different alternative to accelerate the implementation of large-scale industrial conservation programs. In the IDSM model the utility will function as the main guarantor in the transaction between industrial customer, ESCOs and private banks (see Figure 4.2). In this scenario, an ESCO, would provide audit services and technical advice on process improvement to an industrial customer. Afterward, the design is sent to the utility for evaluation and appraisal. 4.18 The role of the utility as a guarantor is crucial to overcome the banks' concerns (which stem from their lack of technical capacity to evaluate the project) that the electricity savings might not provide sufficient cash flow to satisfy loan payment. Furthermore, the utility's guarantee encourages the industrial customer to participate in the program. To offer the savings guarantee, the utility would assume the title to the equipment and lease it back to the customer with the promise that the.measured electricity bill saving will exceed the lease payment. In this manner, the leasing arrangement provides the assurance of a positive cash flow that will encourage the industries to participate in the program. 4.19 The Philippine national utility system as a whole would benefit from an energy efficiency project by avoiding fuel purchases and investments in new generation, transmission, and distribution capacity. In the IDSM scenario, the distributing companies would lose money from the reduced kilowatt hour sales while assuming the project's financial risk. To balance the situation, an incentive in form of a payment or wholesale rate credit for the DSM resource is needed. the National Power Company is theoretically at a position to provide this, and in return the distribution utility would guarantee the avoided fuel costs and capacity investments. 4.20 In theory, the utilities could benefit whenever they could invest in IDSM activities for less than the cost of avoided supply-side resources. However, under the present regulatory framework it is unclear how the utilities would recover their cost. Therefore it is utmost important to develop a supportive regulatory framework to allow implementation of the program. A supportive regulation would compensate the utility company for the financial risk and its revenue loss by allowing a higher rates for wholesale and retail electricity sales. 4.21 Under such a supportive regulatory framework, an alternative scenario for IDSM and the benefits to each involve party would be as follows: Action: NPC sets IDSM purchase price less than NPC avoided costs; Distribution utility offers-enforceable and bill saving contracts to industrial customers; DOE establishes protocol for independent saving verification; ERB regulates IDSM- induced rate adjustments to wholesale and retail rates; Customer process provides project site for IDSM savings.  Benefits: NPC expenditures cost less than avoided capacity and energy investments; Distribution utility is compensated for the financial risk and revenue loss by NPC payments; Customer is guaranteed positive cash flow without bearing financial burden; ESCOs receive increased business activity; Banks receive loan guarantee from well- capitalized company; Nation benefits from increased availability of investment capital and reduced emissions. Conclusions 4.22 Both IECP and IDSM models presented here have many common elements. In both programs (a) an independent verification of ESCO design and assessment is performed; (b) banks do not participate in the appraisal of the energy conservation component of the loan; and (c) industrial customers are given incentives in form of positive cash flow and tax breaks. The ESMAP study found that utilities, who would be the main players in the IDSM model, are not sufficiently supportive of the program. Their reluctance can be attributed to the unresolved regulatory framework and their own lack of experience in energy conservation and industrial projects. Furthermore, there is a sense of urgency to end the power crisis, and herefore the commitment to demand-side conservation is not very high. On the other hand, IECP provides a more direct approach to energy conservation by using the existing institutions such as the DOE and the DOI. The previous experience of DOE and easier financing procedures of this method will ensure its success. IECP will establish the necessary infrastructure, which could be used in future programs based on other models.  B. Product Performance Standards 4.23 The objective of the Product Performance Standard (PPS) *fogram is threefold:(a) it provides reliable information on the energy cost of household appliances and industrial products; (b) sets minimum performance standards to close the market to the inferior products; and (c) establishes high-efficiency specifications to promote use of efficient products in DSM and energy conservation programs. 4.24 The initial goal of PPS is to prepare the necessary institutional and regulatory framework to launch full-scale projects for five energy-intensive products by the 1995 (see para. 3.23 ). To this end, a review of the impediments in the implementation of the ongoing work on testing and labeling of air conditioners and refrigerators is necessary. 4.25 The main impediment in the implementation of PPS is the slow response of the industry and the suppliers to the requests and requirements of the Bureau of Product Standards (BPS). Under the present framework, manufacturers and suppliers do not have direct incentive to strive for better performance standards. Furthermore, some manufacturers will lose their market share when the higher minimum standards become effective. To remedy the situation, a series of direct incentives, such as free advertisement and rebates for more efficient products seems necessary3. 4.26 The Fuel and Appliance Testing Laboratory (FATL), as the principal agency responsible for the testing and setting product standards, should have organizational authority to discuss, negotiate, and finalize energy efficiency levels with the manufacturers and suppliers. Presently, manufacturers have many options to appeal the program targets set by FATL. The BPS and Department of Industry, as regulatory agencies with overlapping authorities, can postpone the target dates for achievement of established standards. It is recommended that to improve the coordination between FATL, BPS and DO1 and set up a coordination unit to establish realistic program targets well in advance. Furthermore, shortening the hearing and review process for the testing and labeling program would accelerate the implementation of the program. 4.27 For the FATL to play its lead role in the implementation of PPS, several organizational changes seem necessary. The most urgent is the need for stronger management and effective representation by the DOE. The FATL lacks the leadership of a high-level senior management in its negotiations with other agencies and industrial organizations. Appointment of a senior manager to supervise FATL would increase its effectiveness in pursuing PPS goals. Second, the technical capacity of the FATL should be expanded to include testing facilities for all energy-intensive appliances and industrial equipment. There are several laboratories under jurisdiction of PBS that can be consolidated into FATL for 3 This refers to a rebate to industries that first reach a defined high-performance standards, as is prachced in many qountries with PPS programs. The rebate is intended partially to cover the incremental cost of retooling and product modification. This program is known as the Golden Carrot rebate in California PPS program.  41 more effective utilization of resources. Finally, twinning arrangements should be made with international standard institutions to exchange information and receive technical support ;this would facilitate the expansion of the FATL. 4.28 The PPS programs consist of three distinctive segments: (a) testing and performance certification, (b) voluntary labeling and information promotion, and (c) mandatory labeling and enforcement. a. The purpose of testing and performance certification is to identify the efficiency of the products in accredited laboratories under standard testing conditions. The development and implementation of this portion is the main responsibility of the FATL (steps 1-3, Figure 4.3). b. The second portion of PPS programs is information promotion and voluntary product labeling. In this phase, the information compiled in the previous tests is provided to the consumers. The main goal of an information campaign is to convey to consumers the message that "the first cost is not the last cost" and to give them the tool to measure the "invisible" operating cost. Voluntary labels on products, and advertisement of energy consumption and energy cost of appliances form the main avenues of the consumer campaign. The DOE in cooperation with PBS, would be responsible for implementing this segment of program in tandem with other energy conservation information dissemination projects. c. Upon successful startup of the above phases, the PPS program can develop the mandatory product labeling and performance standards. Two approaches are available: minimum performance standards to take the most inefficient products off the market, and high-efficiency standards to promote the use of higher-efficiency products. In the first approach, industry is always concerned about the possibility of losing its market share to cheaper or "illegal" products. In general, the success of this approach depends more on the success of the prior voluntary labeling phase and on the effectiveness of monitoring and enforcement mechanisms. The PBS and DOE should.decide on the appropriateness of this approach, as the voluntary program approaches its optimum effectiveness (see steps 5B, 6B, Figure 4.3). In the second approach, a high efficiency level for target products is defined. This method relies on the incentive mechanism to convince manufacturers and the suppliers to market higher-efficiency products. "High efficiency" program conducted by PPS will also benefit DSM and conservation programs, which require preidentified products for promotion. The DOE and FATL can start preparation of this segment of the program as soon as the data from the testing and certification process becomes available. The establishment of a "high efficiency" level and financial incentives to achieve it will depend on the individual DSM and conservation programs and their objectives. 4.29 PPS is an essential monitoring mechanism for the energy conservation market; however, its implementation is both costly and time-consuming. It is estimated that PPS will take three to five years to become fully operational and enter the mandatory labeling phase. The cost associated with setting up the test facilities will exceed $1.1 million. The annual operational expenses and information campaigns, which depend on the extent of program, would range from $ 1.5 to $2.5 million. As the PPS program enters the mandatory phase, it is possible to make provisions for partial recovery the cost of the program.  42 Industries can be required to pay for testing of their products for safety and efficiency inspection.  1. Identification of Priority Products test Standards I 3. Product testing & Performance Certification 4B.Mandator-y product 4A. Voluntary product labeling labeling - ' I v 5B. Define Minimum 5A. Define high Efficiency Efficiency I ' I ' I ' 6B. Monitoring and Enforcement 6A. Information Promotion P 7. Financial promotion: rebates, tax exemptions Figure 4.3 Product Perormance Standard Program ,  - E 4.30 The objective of ESCOs Promotion Program (EPP) is to implement a series of activities concurrently with other energy conservation programs to enhance the capabilities of ESCOs to participate actively in energy service market. The goals of the proposed program are to (a) provide technical and awareness support through training and demonstration program; (b) regulate the energy service market through certification of ESCOs and monitoring their activity; (c) advocate a new regulatory and institutional framework for energy conservation project to generate larger demand for ESCOs' services; and (d) provide financial assistance to ESCOs through financial intermediaries. 4.31 Providing information and technical assistance to end users requires vast resources, which are beyond the individual capacity of many companies. ESCOs need unbiased information to substantiate their design proposals and technical recommendations. Programs such as the Technical Advisory Service of IECP (para. 4.1 1) and Product Performance Standard (para. 4.22) can contribute to the development of a comprehensive information network for ESCOs to overcome this barrier. The EPP should use the services of such programs and integrate them into technical and information programs directed toward ESCOs and their clients. 4.32 The credibility of ESCOs is a major issue among end users. Consumers require assurance of the quality of service and stability of ESCOs before they will trust them with design services. Providing training and certification for ESCOs and regulation of the energy services industry are the solutions to this problem. EPP should prepare training classes on the application of new technologies and provide on-site demonstrations to enhance the capabilities of ESCOs. Successful completion of training classes, in combination with the growing experience and stability of companies, would establish the main criteria for certification of ESCOs. The EPP, with cooperation of ESCOs, energy end users, and energy providers, will set up a complete guidelines for the certification process. 4.33 Another major challenge in expansion of the ESCOs is the reluctance of the end users to buy new and "unproved" equipment. Although information campaigns and technical advisory services can provide some assurance to consumers, EPP should complement these efforts by conducting demonstration programs. Establishing a permanent exhibition of energy conservation technologies where the actual energy savings can be monitored would assist ESCOs in marketing and popularizing energy conservation technology. 4.34 The best vehicle for the promotion of ESCOs is the implementation of DSM and energy conservation programs. Such structured activities with well- defined regulatory and institutional frameworks will enable the ESCOs to focus on expanding their business to serve energy end users. Energy conservation and DSM programs, by creating a market share for ESCOs' services and by providing financial incentives, mitigate the main impediments to the development of ESCOs. The EPP should examine the available regulatory options to increase and secure the market share of ESCOs in the energy conservation programs. 4.35 The EPP will establish links with financial intermediaries to provide the necessary initial investment for the ESCOs. The high initial cost of equipment,  45 training and marketing is one of the major obstacles in the growth of ESCOs. By linking the financing of the initial investment with viable energy conservation projects, the EPP mitigate this constraint. 4.36 To organize the activities associated with the ESCOs promotiodprogram, the Energy Utilization Bureau of the DOE can play a central role. The familiarity of this bureau with the implementation of energy conservation programs, particularly its hands-on experience in training and information campaigns, will be an asset to development of EPP programs. It is recommended to set up a steering committee comprising representatives from DOE, industrial and commercial associations, equipment suppliers, and ESCOs to review the functions of the Energy Utilization Bureau and to identify common objectives for cooperation. 4.37 To centralize the activities of the proposed program it is recommended to establish an Energy Conservation Center to conduct the training and information programs as well as .to demonstrate the energy conservation technology. This center will function as a permanent exhibition center for commercial-scale equipment to provide a realistic understanding of the application of the equipment and their energy savings. In this manner, Energy Conservation Center will be a suitable place to examine the technical viability of new technology, particularly with respect to the Philippines' special working conditions. The Product Performance Standard and Technical Advisory Services will provide the complementary services to this center. Therefore, joint programming of the functions of these three entities is necessary to avoid replication of functions . 4.38 The cost of implementing the ESCOs Promotion Program consists of two main categories: training programs and information demonstration activities. It is hoped that the activities of this center could be self-sustaining after an initial investment by the government, of about $ 0.8 to 1.0 million, assuming availability of a suitable building. The training programs for ESCOs, which would be organized around the popular topics, can be revenue-neutral activity. Income for the center could come from charging a minimum fee to offset the operating cost, that would enable these training programs to maintain sustainable operation. On In addition, the cost of training ESCOs for special projects should be paid by the interested parties as revenue-enhancing propositions. The expenses of the demonstration programs are expected to be covered by the equipment suppliers, and by industry support.  A Utilities Industrial & Commercial Energy Consrvation Association Center ESCOs Representatives Suppliers Representative I Marketing & 4 ) Technical & Informatio 1 Demonstration L Programs Programs - L v v Show case Training Activities Demonstration Consumer Awareness Campaigns Certification Program - Product performance Standards 4 Figure 4.4 ESCOs Promotion Program  ANNEX 1 Page 1 of 1 Pro1ection of the Pomr Demmd In the Philippine8 Netu 1890 1882 1884 1898 1888 2000 Vur Sam:DOE NFC Raoom a# n 1uWa(d bu* Stdos. 1 002-93 l h nrtiorul nmork iniomaion a m i s c of thB h w n Un mai r ngi ~ d in Nor(heul. V m y island. in Un middo. and Miuuo in thB soulh. I I Projection of the Gonormtion Requirement8 the Phllippi Network 1980 1882 1984 1006 1898 2000 vnr  ANNEX 2 PAGE 1 OF 2 ENERGY MANAGEMENT ORGANIZATIONS IN THE PHILIPPINES Organlza tlons ActlvlHes Energy Audlt Capablllty of Permanent Technical Equipment and Facllltles Personnel and Fundlng for Actlvllles I. Department of Energy (former I. 1 Conduct energy management I. I One Energy Bus. I . I Eight (8) years experience in Office of Energy Affairs) training courses. 1.2 Several sets of energy audit energy management. - Conservation Division 1.2 Extend energy audit services. equipment. 1.2 Attended various trainings both in- - Fuel and Appliance Testing 1.3 Monitor energy consumption of 1.3 Fuel and Industrial Water country and abroad. Laboratory energy intensive companies. Laboratory. 1.3 Funding comes from government 1.4 Implement foreign-assisted 1.4 Calibration equipment. budget and donor support. projects. 1.5 Appliance Efficiency Testing 1.5 Fuel 8 industrial water samples Modules. testing. 1.6 Calibration of industrial instruments. 1.7 Appliance. 1.8 Energy Labeling. 2. Cebu Chamber of Commerce and 2.1 Energy audit services. 2.1 One Energy Bus leased from OEA. 2.1 Two years experience on energy Industry (CCCI) 2.2 Set of energy audit instruments audit services. (industry association) leased from OEA. 2.2 On-the-job training at OEA. 2.3 Funding comes from donor support and member fees. Income of P 170.000 in 1991. 3. PNOC - Energy Research and 3.1 Limited number of energy audit 3.1 Has limited equipment. Arranges 3.1 Two years of energy audit service Development Center PNOC-ERDC services to PNOC subsidiaries and joint energy audit service activities experience through a sub-contract (government corporation) Petron Corporation clients with OEA. from OEA. 3.2 Funding comes from corporate funds and support fmm government and donors. 4. Energy Management Association of 4.1 Conduct energy management None. 4.1 No permanent technical stafL the Philippines (ENMAP) workshosps/conventions. There is however possibiliti of 4.2 Arranges foreign expert assistance. drawing technical staff from 4.3 Cooperates with OEA in giving association members on part-time annual achievement awards in basis. energy conservation. 4.2 Funding comes from membership fees and minimal donor support.  PAGE 2 OF 2 ENERGY MANAGEMENT ORGANIZATIONS M THE PHILIPPINES Organizations Activities Energy Audit Capability of Permanent Technical Equipment and Faciiiles Personnel and Funding for Actlvltles 5. National Engineering Center (NEC) 5.1 Cooperates with OEA in the None. 5.1 No technical staff to conduct (government agency) conduct of energy management energy audits but can provide training courses. lecturers. 5.2 Funding comes from training fees and government support. 6. Philippine Council for Industry. 6.1 Provides funding for energy None. 6.1 Handles only administratration of Energy Research and Development conservation projects implemented funding for others. (PCIERD) (government agency) by OEA. 6.2 Funding comes from government budget and from donors. 7. University of Mindanao (RUE- 7.1 Offers Energy Conservation and 7.1 Set of energy audit instruments 7.1 One university professor has DAVAO) Resource Management Course as a leased from OEA. undergone on-the-job training at subject at the university level. OEA. 7.2 Extend limited number of energy 7.2 Funding comes from donor audit service to industrial support. Facilities are provided by companies. university. Obtain some income from energy audits. 8. Energy Development and 8.1 Coordinate joint private- None. 8.1 There is an Executive Director that Utilization Foundation, Inc. government energy programs. currently implements activities of (EDUFI) (semi-private foundation) the foundation. The foundation intends to draw personnel from existing organizations to implement its activities. 8.2 Funding comes from government support, contributions by industry associations and from donors. 9. Board of Investments (BOI) 9.1 Includes energy conervation None. 9.1 Technical personnel are able to projects in the Investment evaluate energy conservation Priorities Plan (IPP) upon request projects applied for incentives. of interested parties. Listing in 9.2 Funding comes from government IPP (annual) enables projects to budget. obtain fiscal incentives. *  ANNEX 3 PAGE 1 OF 1 THE FIRST ENERGY CONSERVATION LAWS BEFORE THE OMNIBUS LAW LawslRegulatlons Date Approved Provlslons I . Presidential Decree No. 1026 as amended by October 6, 1977 Empowered the Bureau of Energy Utilization (now Office of Energy Affairs) Presidential Decree No. 1573 to: Law creating the Department of Energy I. Formulate, develop and periodically review the national energy conservation program. 2. Conduct energy audit of energy-consumingestablishment to develop and help improve energy utilization efficiency. 3. Develop and adopt energy utilization standards. 4. Require energy-intensiveprojects and establishments to submit an energy impact assessment. 2. Letter of lnslruction No. 825 March 16. 1979 Requiring all industry plants, factories and commercial establishments consuming at least P 3,000,000 worth of fuel and power per annum to submit energy conservation program and quarterly energy consumption reports. 3. Batas Pambansa Blg. 36 Energy Tax on Electric September 7. 1979 An energy tax was incorporated in the electric charges of residential Power Consumption customers consuming more than 650 kwh per month. 4. Letter of Instruction No. 1 152 April 10,1980 Directing the Board of Investments to include Energy Conservation Projects in the Investment Priorities Plan and to extend the incentives under the Omnibus Investment Code. 5. Letter of Instruction No. 1018 May 9, 1980 Requiring all government offices and government corporations to institute energy conservation measures to reduce their electricity consumption to 90% of the 1979 level.  ANNEX 4 PAGE 1 OF 2 THE OMNIBUS L A W (Batas Pambansa Blg. 73) I Date Approved I P~OV~S~OM 1. Batas Pambansa (B.P.) Blg. 73 as amended by B.P. June l I, 1980 I. Prohibition o f the importation, manufacture of assembling of gasoline- Blg. 872 "Omnibus Energy Conservation Law" powered passenger cars with engine displacement of over 2800 cc or curb (effective from June II,1980 to June 10, 1990) weight exceeding 1500 k g including accessories. 2. Prohibition of the use of neon and electric lights for commercial advertising earlier than 6:00 p.m. and beyond 9:00 p.m. and, except during the Christmas season and Ramadan, the deliberate and excessive lighting i n hotels, shopping complexes, buildings and commercial establishments. 3. Requiring industrial, commercial and transport establishments to collect waste oil for recycling as fuel or lubricating oil. 4. Requiring industrial, commercial and transport establishments consuming more than one million fuel oil equivalent liters of energy annually to submit fuel and electric consumption, production and sale statistics. 5. Requiring industrial, commercial and transport establishments consuming more than two million fuel oil equivalent liters o f energy annually to employ qualified engineers to act as energy managers, and to submit conservation programs and energy audits. I6 . Regulating the use o f air-conditioners i n offices. as well as in commercial I I andindusirial establishmenls, including the setting o f thinnostats to temperatures that will conserve but still assure reasonable convenience to users. 7. Requiring manufacturersand dealers of oil and electric-consuming devices, equipment, appliances, and vehicles manufacturedor sold i n the Philippines to show their product's energy requirements and consumption efficiency. I 8. Prohibiting the use o f government vehicles for purposes other th& official business. 9. Establishment and administration of a fuel allocation and rationing program, as well as fixing oil refineries' production yields and qualities during period o f tight supply.  PAGE 2 OF 2 THE OMNIBUS LAW (Balas Pambansa Blg. 73) LawslRegulallons Provlslons 10. Requiring distribution and sale of alcohoVgasoline (alcogas) or other energy blends in order o increase the use of domestic energy resources. I I . Setting standards of energy consumption for oil-powered or electric- driven machinery, equipment, appliances, devices and vehicles imported into. manufactured. assembled or sold in the Philippines. 12. Setting energy use standards for industrial, commercial and transport establishments. 13. Staggering working and school hours to conserve energy and ease the traffic situation. 14. Prescribing the study of energy conservation in appropriate grades or levels in school. 15. Setting standards in the use of building materials and in the designs for private offices, as well as commercial and industrial buildings, which will promote the ends of energy conservation. 6. Limiting and fixing operating hours of business and entertainment establishments. 7. Regulating the use of motor vehicles to include: restricting the use of  ANNEX 5 PAGE 1 of 4 THE ENERGY CONSERVATION ACT OF 1991 Descrlptions Comments 1.0 Title: "Energy Conservation Act of 1991" 3.0 Pertinent Provisions: 3.1 The Office of Energy Affairs i s empowered to: (a) Plan, develop and implement overall national energy Restated the mandate of the Office of Energy Affairs (Executive Order No. 193) conservation measures, programs and activities. i n more specific terms. technical and economic limitations involved. etc.). I t i s envisioned that data can be used to set energy use standards or norms for industrial, commercial and transport establishments. establishments, taking account the technical and economic found i t difficult to implement the provision i n the last 10 years. With the limitations involved. establishment of the Energy Data Base for quarterly energy reports, it i s hoped that OEA can start a pioneering effort i n the field of energy use standards setting. Admittedly, this would be a long-term program.  Page 2 of 4 THE ENERGY CONSERVATION ACT OF 1991 Descriptions Comments (f) Require industrial, commercial and transport establishments Compliance in the provision through Batas Pambansa Blg. 73 had been very consuming more than 2 million fuel oil equivalent liters of satisfactory. About 120 covered establishments have registered their energy energy annually to employ qualified engineers to act as energy managers with OEA. These energy managers have coordinated closely with managers and to submit energy conservation programs. OEA in the implementation of their establishments' energy conservation program. (g) Regulate in consultation with the Department of Trade and Industry. the use of air conditioners in offices and in commercial and industrial establishments, including but not limited to requiring the use of thermostats, and setting them to certain temperatures that will conserve energy but still assure reasonable convenience to the users thereof. (h) Require industrial, commercial and transport entities or The presence of re-refining companies and waste oil recycles had beneficial establishments to collect or cause the collection of waste oil for effect in assuring compliance with the provision. Establishments have ready recycling as fuel or lubricating oil. market for their collected waste oil. (i) Launch a nationwide information campaign in coordination with OEA information dissemination efforts had been previously limited to the the Philippine Information Agency and the Office of the Press conduct of energy management training courses, energy briefings, and Secretary on energy conservation. distribution of brochures. journals and posters. The participation of government information agencies in the effort will enable OEA to access the mass media in promoting the energy conservation ethic among the populace. (j) Administer the activities of Technology Transfer for Energy This provision will enable OEA to access funds amounting to P 54 million Management ('ITEM) Project. For this purpose. all funds, (US$ 2 million) for re-lending to industrial and commercial establishments to monies, interests, reflows and properties outstanding and encourage implementation of energy conservation projects. accruing from the ITEM Project upon its termination shall continue to be utilized by the Office of Energy Affairs for the following purposes: I . finance energy conservation projects of industrial and commercial establishments; 2. monitor implemented subprojects and document the actual energy savings generated; and 3. disseminate information on implemented subprojects through case studies and seminars/workshops to encourage replication by other industrial and commercial establishments.  Page 3 of 4 THE ENERGY CONSERVATION ACT OF 1991 3.2 Functions of other government agencies conservation projects. (b) The Department of Education, Culture and Sports shall This provision intends to develop the energy conservation ethic among the incorporate in the curricula of elementary, high school and young and eventually future workers of the Philippine industry. college levels the awareness, applicable technologies and Implementation of the provision would require supplementary training for City, Philippines. Results have been favorable with average of 250 enrollees with the technologies deemed appropriate and projects included in the Investment Priorities Plan of the Department of Trade and or appropriate Iechnologies in their respective plants, buildings  Page 4 of 4 THE ENERGY CONSERVATION ACT OF 1991 4.0 Contingency Powers of the President of the Philippines as recommended by the Office of Energy Affairs to the President. The supply of fuel and power to vital industries and services during periods of of more stringent energy conservation measures, including but not limited to powerlfuel allocation or rationing, limitation of operating hours of commercial, industrial and similar establishments, restrictions on use of government and private motor vehicles, staggering or limiting working hours in both public and private sectors and temporary closure of fuel intensive industries. 5.0 Penal Provision the provisions of this Act and duly published as herein provided shall be illegal. Such failure or unjustified refusal shall, upon conviction be published by a fine of not less than ten thousand pesos (P 10.000) or by imprisonment of not less than six months, or both, at the discretion of the court provided that, if the violation is committed by a juridical person, the penalty herein provided shall be imposed upon the official andor employee thereof responsible for the violation. Provided, further. that if the violation is committed by a government official or employee, including those in government-owned or controlled corporations. he shall, in addition to the penalty provided above, be subject to  ANNEX 6 PAGE 1 OF 4 Enerev Conservation Programs of the Phlli~oines . Program Start End Funds Funds US$ Implementing MaJor Activities US$ Donor Counterpart Agency 1 . Industrial Energy 1982 1983 650,000 20,000 Bureau of Energy I . Conduct energy audits to 70 Audits and Asian Utilization plants Conservation Development (now Office of Energy Program for the Bank Affairs) 2. Estimate the potential for Philippines industrial energy Conserva- tion in the Philippines. 3. Review the existing situation, and identify the major b a r r i ~ ~ tos energy conservation. 4. Identify government policies and programs that could help the Philippines realize the potential for energy conservation. 5. Provide for counterpart training largely through on the job training. 2. Industrial Energy 1983 1987 1,578,250 320,000 Office of Energy 1. Preliminary and detailed energy Management United Affairs audit of industrial and commercial Consultancy and Nations establishments. Training Phase I Development Program 2. Construction of a Fuel and Appliance Testing Laboratory 3. Training of OEA Personnel 4. Development of inergy Data base  PAGE 2 OF 4 Program Start End Funds Funds US$ Implementing Major Activities US$ Donor Counterpart Agency 3. ASEAN- 1984 1987 173,000 27,000 Office of Energy 1. Conduct research on vehicle Australia Non- AIDAB Affairs efficiency and traffic Management. Conventional Project on 2. Introduction of Second Law Energy Analysis, Linhoff Analysis and Conservation Thermal Energy System Optimization (TESO) in a Philippine Petroleum Refinery. 3. Conduct Study on the applicability of Australian computer aided design and energy analysis of new and retrofit commercial building in the Philippines 4. ASEAN-US 1985 1990 600,000 15,000 Office of Energy Development of cost effective Project on USAID Affairs "Building Energy Use Standards" Energy for incorporation into the National Conservation in Building Code Buildings 5. World Bank 1986 1989 657,000 None Office of Energy 1. Establishment of 10 sectoral TAC - SAL I1 Affairs energy audit teams. 2. Procurement of basic energy audit instruments. 3. Energy Audit Training . 4. Conduct of abo4 50 energy audits 5. Development of National Implementation Program  PAGE 3 OF 4 Program Start End Funds Funds US$ Implementing Major Actlvltles US$ Donor Counterpart Agency 6. Technology 1987 1990 4,500,000 630,000 Office of Energy 1 Information Disse-mination. Transfer for U.S. Agency Affairs Energy for 2. Training of industry personnel Management International , on energy conservation Development technologies. 3. Financing program for Energy Conservation Demonstration Projects. 7. Philippine - West 1987 1992 1,855,000 100,000 Office of Energy 1. Energy Management Ad-visory Germany Affairs Service through the "ENERGY Technical BUS PROGRAM' Cooperation Agreement on 2. Introduction of Energy the Rational Conservation and Resource Utilization of Management Courses in local Energy universities. 3. Support for the CEBU-Energy Bus Program 4. Demonstration Projects for LPG -Fired Energy Efficient Ceramic Kiln 8. Industrial Energy 1989 1992 1,245,000 220,000 Office of Energy 1. Detailed Energy audit of 20 Management United Affairs energy intensive companies. , Consultancy and Nations Training, Phase Development 2. Energy Database Development I1 Programme 3. Enhancement of thi capabilities of the Fuel and Testing Laboratory (FATL)  PAGE 4 OF 4 Program Start End Funds Funds US$ Implementing M a j o r Actlvltles US$ Donor Counterpart Agency 9. Swedpower- 1990 1994 1,972,000 80,000 Office of Energy 1. Conduct Cogeneration Potential Industrial BITS Affairs Study for National Capital Region. Combined Heat and Power 2. Demonstration Project for 1,000 Systems KW Cogeneration System Development 10. ASEAN- 1990 1994 183,000 3 1,000 Office of Energy 1. Detailed energy audit of chemical AUSTRALIA Affairs and coconut vegetable oil PROJECT P2- companies. Energy Conservation for 2. Implementation of at least 4 Industrial energy conservtion demonstration Equipment and projects Processes 11. ASEAN- 1990 1994 179,000 A$ 30,000 Office of Energy 1. Detailed energy audit of AUSTRALIA AIDAB Affairs buildings. PROJECT P2- ENERGY 2. Implementation of at least 3 Analysis and energy conservation demonstration Modelling of projects in buildings. Buildings TOTAL 13,592,250 1,473,000  Annex 8 Page 1 of 1 Calculation of the Added Incentive Ta x Break Analysis Assuming 100 units investment: IRP Values Calculation & Value Total Investment 100% 100 Equipment Investment 40% 100x40%= 40 Energy Intensive Equipment 38% 40x38%= 15.2 Premuim on Energy 30% 15.2~30%= 4.5 Eficiency Equipment Tax Break on Total Investment 3-5% lOOX(3-5%)=3-5 Recommended