GI o b a I E n v i r o n m e n t F a c i ty 247112 The GEF Enrgy-Effident t _ Emerging Experience and Lessons SaMrna INrner Eric Martnot Monitoring and lEvauation Working Paper 9 JuGy 2002 The GEF Energy-Efficient Product Portfolio: Emerging Experience and Lessons Sabrina Birner Eric Martinot Monitoring and Evaluation Working Paper 9 July 2002 GEF Corporate Monitoring and Evaluation Team 1818 H Street, NW Washington, DC 20433, USA Telephone: (202) 458-2548 Fax: (202) 522-3240 E-mail: geflessons@gefweb.org Web: http://www.gefweb.org http://www.gefweb.org/Resultsandlmpact/Monitoring_Evaluation/monitoring-evaluation.html Published 2002 Global Environment Facility This paper may be reproduced in whole or in part and in any form for educational or nonprofit uses, without special permission, provided acknowledgment of the source is made. The Global Environment Facility secretariat would appreciate receiving a copy of any publication that uses this paper as a source. Copies may be sent to GEF secretariat, 1818 H Street NW, Washington, DC 20433. No use of this paper may be made for resale or other commercial purpose without prior written consent of the Global Environment Facility secretariat. The designations of geographic entities in this document, and the presentation of materials, do not imply the expression of any opinion whatsoever on the part of the GEF concerning the legal status of any country, territory, or area, or its authorities, or concerning the delimitation of its frontiers or boundaries. The views expressed in this paper are not necessarily those of the GEF or its associated agencies. ISBN 1-884122-78-7 ISSN 1020-0894 ii Acknowledgements This report is based on missions to China, Mexico, Poland and Thailand, along with written project evalua- tions, unpublished reports, and interviews with project managers and other project stakeholders. The authors wish to thank the governments of these countries for their assistance, as well as numerous individuals for their contributions to the study: Alexander Ablaza (Iberpacific, Philippines), Chris Baker (Department of Environment, Transport, and the Regions, UK), Nils Borg (Borg & Co., Sweden), Mirka della Cava (Lawrence Berkeley National Laboratory, USA), Laura Chapa (Independent consultant, Mexico), Jens Demuth (Danish Power Consult, Denmark), Anna Engleryd (Centre International de Recherche sur l'Environnement et le Development, France), Ted Flanigan (California Energy Coalition, USA), David Fridley (Lawrence Berkeley National Laboratory, USA), Rafael Friedman (Pacific Gas & Electric, USA), Chris Granda (Alewife Energy Associates, USA), Andrzej Jarosz (BEE, Poland), Marco Kavelaars (Novem, Netherlands), Sam Keller (International Finance Corporation), Mar- tin Krause (UN Development Program), Li Junfeng (Center for Renewable Energy Development, China)Yves Lemoine (Yves Lemoine Consulting, Australia), Steve Meyers (Lawrence Berkeley National Laboratory, USA), Carol Mulholland (Academy for Educational Development, USA), Fiona Mullins (Environmental Resource Management, UK), Benoit Lebot (International Energy Agency), Hans Nilson (Intemational Energy Agency), Peng Zhengyou (China State Environmental Protection Administration), Peter du Pont (Danish Energy Man- agement, Thailand), Napapom Phumaraphand (Electricity Generation Authority of Thailand), Anat Prapaswad (Industrial Finance Corporation of Thailand), Bob Price (International Institute for Energy Conservation, South Africa), Wanna Rodratana (Department of Industrial Works, Thailand), Vemey Ryan (Building Research Estab- lishment, UK), Sergio Sanchez (Independent consultant, Mexico), Lee Schipper (Intemational Energy Agency), Jas Singh (World Bank), Russell Sturm (International Finance Corporation), Manida Unkulvasapaul (World Bank Resident Mission in Bangkok), Viraj Vithoontien (World Bank), Wang Dun En (China State Administra- tion of Machinery Industry), Hans Westling (Promandat AB, Sweden), Greg Wickler (Global Energy Partners, USA), Steven Wiel (Lawrence Berkeley National Laboratory, USA), Dana Younger (International Finance Corporation), Dawson Zhu (Guangzhou Hualing Electrical Household Appliance Enterprise Ltd., China). This report was produced under the auspices of the Climate Change Program Study that was carried out in 2000-2001 by the Monitoring and Evaluation Unit of the GEF Secretariat, and was task-managed by Ramesh Ramankutty, GEF Monitoring and Evaluation Team. The program study received guidance from a steering committee comprised of Dennis Anderson, GEF Scientific and Technical Advisory Panel; Jarle Harstad and Ramesh Ramankutty, GEF Monitoring and Evaluation Team; Richard Hosier, UN Development Program; Eric Martinot and Alan Miller, GEF Climate Program; and Ravi Sharma, UN Environment Program. The authors take full responsibility for any errors or omissions that may appear in the report. List of Acronyms CFL compact fluorescent lamp DIW Thai Department of Industrial Works DSM demand-side management EBRD European Bank for Reconstruction and Development EGAT Electricity Generation Authority of Thailand ELI Efficient Lighting Initiative ESCO energy services company EU European Union GEF Global Environment Facility GWh gigawatt-hour HEECP Hungarian Energy Efficiency Co-financing Program IDB Inter-American Development Bank IEA International Energy Agency IFC International Finance Corporation IFCT Industrial Finance Corporation of Thailand M&E monitoring and evaluation NGO non-governmental organization ODA Overseas Development Assistance PELP Poland Efficient Lighting Project SME Small and Medium-sized Enterprise UN United Nations UNDP United Nations Development Programme UNEP United Nations Environment Programme USAID United States Agency for International Development USDOE United States Department of Energy I Table of Contents Executive Summaryx............................................................................................................................................ix 1. Introduction ..................................................................... 2. Project Designs and Approaches .....................................................................4 Supply-Side Approaches .....................................................................5 Demand-Side Approaches ...................................................................6 Efficient Lighting Initiative "Toolkit" of Market Transformation Approaches .................... ..........................8 3. Emerging Experience and Lessons .....................................................................11 Mexico High Efficiency Lighting Project ................................................................... 11 Thailand Promotion of Electricity Energy Efficiency Project .................................................................... 13 Poland Efficient Lighting Project .................................................................... 15 China Efficient Industrial Boilers Project ................................................................... 17 China Energy-Efficient CFC-Free Refrigerators Project ............................................... .................... 19 Multicountry Efficient Lighting Initiative ................................................................... 21 Thailand Building Chiller Replacement Project .................... ............................................... 22 4. Project Impacts, Sustainability, and Replication .................... ............................................... 25 Conclusions and Recommendations .................................................................... 29 Annex A: Market Transformation History and Global Trends ................................................................... 31 Annex B: Stakeholder Involvement .................................................................... 38 References .................................................................... 43 Figures Figure 1: The Poland Lighting Project and Efficient Lighting Initiative "Green Leaf" Logo ............ .................6 Tables Table 1: GEF Efficient-Products Portfolio (as of 2001) ........................... ..........................................2 Table 2: Supply-Side Market Transformation Approaches ................................................................... 10 Table 3: Demand-Side Market Transformation Approaches . .................................................................... 10 Table 4: Participation of Stakeholders in GEF Projects for Energy-Efficient-Products .................................... 39 vii viii Executive Summary From 1991 to 2000, the GEF approved eight projects the toolkit to national circumstances. During project designed to stimulate markets for energy-efficient execution, extensive monitoring and evaluation and products-lights, refrigerators, industrial boilers, and management reporting will allow the project to dy- building chillers-in 12 developing and transitional namically adapt to changes in market circumstances. countries. Project costs for this portfolio are about half a billion dollars, with GEF contributions of over $90 Individual projects in the portfolio suggest many les- million leveraging additional co-financing of $430 sons for future project design and implementation. million from other sources. Many of these projects For example, the Mexico lighting project suggests that take so-called "market transformation" approaches, (1) DSM programs can deliver a large number of which gained favor in developed countries in the compact fluorescent lamps (CFLs); (2) distribution 1990s. In general, market transformation programs through utility offices and consumer on-the-bill credit aim to change market structure or function through is feasible; (3) bulk procurement can lower retail both "supply push" and "demand pull" in order to costs; and (4) large programs can spur replication by sustainably increase the adoption of energy-efficient attracting the attention of policymakers and utility products, services, and practices. managers. The Thailand DSM project suggests that (I) voluntary agreements with suppliers can be highly The GEF projects reviewed in this report use a effective; (2) well-designed and extensive marketing combination of approaches to remove supply-side can achieve significant energy savings at relatively and demand-side barriers to markets for energy- low costs; and (3) appliance labeling can achieve efficient products. Supply-side strategies include large market shifts when done properly. The Thailand providing technical assistance and know-how transfer project also offers many instructive lessons on how to to manufacturers to upgrade their product designs, design utility DSM programs. supporting minimum efficiency standards and regula- tory mechanisms, facilitating voluntary agreements Programs oriented towards the private sector, such as with manufacturers and distributors, piloting new the Poland efficient lighting project, have also been distribution mechanisms through retailers or electric effective at transforming markets. That project dem- utilities, providing financial incentives to producers, onstrated that educational and labeling campaigns providing quality testing, and providing financing with a single and straightforward message could for manufacturing upgrades. Demand-side strategies significantly increase demand for efficient lighting. It include educating consumers and professionals about also demonstrated high leverage in using subsidies to the characteristics, costs, and benefits of the energy- reduce retail prices. Through competitively selected efficient technology; running media campaigns to agreements with manufacturers, GEF subsidies of increase consumer awareness; reducing retail prices $2.6 million leveraged total retail price reductions of technology through rebates, subsidies, or bulk pur- worth $7.2 million on 1.2 million CFLs. chases; providing consumer financing; and offering buy-back/recycling programs. The China efficient refrigerators and efficient boilers projects, although in early phases of implementation, One of the most recent projects, the IFC/GEF Effi- are suggesting lessons related to technical assistance cient Lighting Initiative, has developed a "toolkit" of and know-how transfer to domestic manufacturers. In market transformation approaches, including public the efficient boilers project, the technology transfer education, standards and labeling, electric utility pro- process was slowed by technical incompatibilities, grams, financing mechanisms, targeted subsidies, and insufficient budgeted resources, and lengthy license market aggregation. Project teams in seven countries procurement due to lack of bidder response. The ef- conducted detailed market research to apply and tailor ficient refrigerators project suggests that technical ix know-how transfer through study tours and other ex- pressure on the market for efficient refrigerators and changes between Chinese manufacturers and foreign we are already responding." New product standards manufacturers are not feasible because of foreign were also a factor, arising in part from earlier bilateral manufacturers' competitiveness concems. donor assistance. Project impacts from the portfolio are becoming Evidence is emerging that the market changes brought significant. Three projects in Thailand, Mexico, and about by GEF-supported efficient-products projects Poland have resulted in installation of more than 4.6 are sustainable. For example, retail price reductions million CFLs and annual electricity savings of at least for CFLs have been sustained after projects com- 3,500 GWh. Sustained retail price reductions in the pleted. High-efficiency refrigerators and florescent CFL markets in those three countries of 30-35 percent lights are now the norm in Thailand, and the units were also achieved. The Thailand project resulted in with the highest level of efficiency for these products the compete transformation of the fluorescent-light dominate the market. In fact, surveys show that a va- market, representing 20 million lights sold annually; riety of energy-efficient appliances promoted through market share of the more efficient lights went from the Thailand project have sustained markets, although 40 to 100 percent during the project. In Poland, the some programs, like the labeling program for air con- share of households with CFLs increased from 12 to ditioners, appear to have been less effective at achiev- 20 percent. In Thailand, the market share of efficient ing sustainable changes. Sustainability is difficult to refrigerators went from 12 to 96 percent, and the assess in some projects because of the lack of estab- share of efficient air conditioners went from 19 to 38 lished baselines and surveys of non-participants. percent. Large changes in consumer awareness and understanding have accompanied these projects. Experience from GEF market transformation projects is catalyzing similar activities locally and in other New institutions and regulatory changes are also im- countries. The three completed projects in the port- portant project outcomes. In Thailand, a demand-side folio are all being replicated in some form. The clear- management office was created within the national est example of replication is in Mexico, where the utility; that office successfully negotiated voluntary original GEF-supported utility DSM program led to agreements with the private sector, conducted bulk further energy efficiency programs for lighting, with procurement and distribution of CFLs, promoted almost five million additional CFLs sold, as well as public awareness, and instituted appliance labeling, to programs for building insulation and air condition- among many other achievements. In Mexico, new ing. The seven-country Efficient Lighting Initiative DSM programs have been established since the origi- was developed in response to requests from countries nal GEF project and new CFL standards enacted. In that had heard of the Poland lighting project. And Sri China, new energy-efficiency standards for refrigera- Lanka and Vietnam are incorporating lessons from tors were enacted. the Thailand DSM project into their own programs. Market impacts appeared even before formal project An analysis of market indicators shows that the implementation in at least three GEF projects. In- GEF's market transformation programs have indeed creased expectations of future markets for efficient managed to transform markets for energy-efficient products, heightened awareness of energy savings products, and in so doing, have already achieved potential, and greater understanding of market trans- significant C02 emissions reductions or are dem- formation approaches can be enough by themselves onstrating highly cost-effective potentials for doing to affect markets. It appears that early project prepa- so-down to less than $1 per ton of carbon. Changes ration activities and GEF's commitment to undertake in private sector markets for lights, refrigerators, air such projects have encouraged market players to conditioners, and building chillers offer large potential believe that that increased investment and publicity for energy savings. Less potential may exist now for will occur, motivating them to increase their market DSM programs as utilities continue to privatize and presence, develop prototypes, and act to position their lose public-interest mandates or oversight. However, products to take advantage of the project. For ex- experience suggests that even private utilities can be ample, early in the China efficient refrigerators proj- willing and interested partners in market transforma- ect, one Chinese refrigerator manufacturer said that tion programs in some national contexts. Projects that "because of the GEF project, we have seen increased attempt technical assistance and know-how transfer x to manufacturers may face difficult hurdles but are still building codes; (7) allocate a portion of the program's worthwhile. Overall, it is very clear that the GEF can budget for activities that support replication and the and should continue to conduct market transformation dissemination of results; and (8) begin monitoring and approaches. evaluation early to measure pre-program baselines. We recommend eight principles for designers of future Well-designed market transformation programs de- projects: (1) make sure to target both supply and de- pend on "market-based" thinking, which is not usu- mand sides of a market; (2) take a holistic view of the ally part of the traditional toolset of the engineers and market by carefully examining all stages of the supply economists who design energy efficiency programs. and demand chain; (3) leverage competitive market As a result, certain design strategies and program tools forces whenever possible; (4) build flexibility into can be overlooked. A program team should consider program design so that program activities can respond hiring staff or consultants with experience in market- effectively and rapidly to changing market dynam- ing, public relations, finance, and business planning. ics; (5) carefully consider what vehicles for technical Market research takes on particular importance in a assistance and technical know-how transfer will be market transformation program. workable; (6) emphasize on standards, labeling, and xi 1. Introduction From 1991 to 2000, the GEF approved eight projects changes should in turn lead to sustained increases in designed to promote markets for energy-efficient the adoption of energy efficiency products, services, products-lights, refrigerators, industrial boilers, and and practices (see Annex A for a brief review of global building chillers (see Table 1). Total project costs for experience with market transformation). The similar- this portfolio are about $520 million, with GEF contri- ity between the GEF energy efficiency program and butions totaling $90 million and additional co-financ- market transformation approaches is no coincidence. ing of $430 million from other sources. The portfolio When the GEF adopted long-term operational pro- includes activities in Asia (China, Philippines, and grams in 1997, a wide variety of so-called "bar- Thailand), Latin America (Argentina, Mexico, and rier-removal" activities were designated as legitimate Peru), Eastern Europe (Czech Republic, Hungary, "incremental costs" for the GEF.3 Existing thinking Latvia, and Poland), and Africa (South Africa). Five about market transformation programs contributed to of the eight projects are partially or exclusively the design of GEF's energy efficiency program and lighting projects.' Two projects are intended to spur barrier-removal approaches. Even projects designed technology innovation for more efficient designs by before 1997 have had market transformation goals domestic manufacturers (China industrial boilers and and impacts. refrigerators), one project helps domestic manufac- turers improve product quality (China lighting), and The term "market transformation" first appeared in almost all seek to accelerate diffusion of technologies the energy efficiency literature around 1990. Analysts that already exists in these markets. Four of the proj- of electric utilities' demand-side management (DSM) ects are implemented by the World Bank, two by the programs observed that certain DSM programs were Intemational Finance Corporation (IFC), and two by producing sustained changes in the marketplace that the UN Development Programme.2 persisted beyond the programs' ends. For example, the Bonneville Power Administration, a public utility Many of these projects have similarities to the so- in the United States, discovered that its 4-year incen- called "market transformation" approaches that gained tive program to replace inefficient streetlights had favor in developed countries in the 1990s. In general, captured so much of the Northwest U.S. market that market transformation programs make strategic efforts private distributors no longer even stocked inefficient to intervene in particular markets to cause beneficial, fixtures. From its early roots, market transformation lasting changes in the structure or function of the blossomed into an energy efficiency approach widely market-on both the supply and demand sides. These sanctioned as effective and low-cost. In fact, market One may well ask why so many of the GEF projects have promoted energy-efficient lighting, and particularly, CFLs. There are several answers to this question: - CFLs offer very high level of savings - they reduce energy consumption by 75-80%. As lighting use is often peak-coincident, utilities facing peak capacity constraints appreciate the kW reduction benefits of CFLs. Lighting is a service used by. all electrified homes, and the potential for increasing CFL usage in GEF client countries remains high. 2 The IFC is the private-sector affiliate of the World Bank Group. 3 See Martinot and McDoom (2000) for a description of the GEF energy efficiency program and incremental costs. Table 1: GEF Efficient-Products Portfolio (as of 2001) Project (date Implementing approved by Agency & Description GEF Council) Budget (US$) Mexico High Efficiency World Bank Pilot a utility DSM program to sell CFLs to Lighting Pilot (1991) $10 million GEE residential consumers $23 million total Conduct a 5-year utility DSM program by the Thailand Promotion of World Bank national electric utility responsible for power Electricity Energy $9.5 million GEF generation (EGAT); pilot different market Efficiency (1991) $190 million total intervention strategies that demonstrate on a large scale the potential for electric efficiency Poland Efficient Lighting IFC Stimulate the national market for energy-efficient Project (1994) $5 million GEF lighting in Poland, particularly for CeLs $5 million total Develop affordable, energy-efficient, and cleaner China Efficient Industrial World Bank industrial boiler designs; mass produce and Boilers (1996) $33 million GEF market these designs; and disseminate more $101 million total energy-efficient and cleaner boiler technologies throughout China China Barrier Removal Assist a selected group of Chinese refrigerator for the Widespread UNDP manufacturers to design, produce, and market Commercialization of $9.9 million GEF efficient refrigerator models, and provide Energy-Efficient CFC-Free $41 million total consumer education, marketing, incentives, Refrigerators (1998) and product labeling to stimulate demand for Refrigerators (1998) ~~~~~efficient models Mutio r .Efficient Lighting IFC Promote market expansion for energy-efficient Munticountry ( 998 $15 million GEF lighting in Argentina, Czech Republic, Hungary, Initiative (1998) $50 million total Latvia, Peru, Philippines, and South Africa Thailand Building Chiller World Bank Remove barriers to widespread replacement of Replacement Program $2.5 million GEF low-energy efficiency chillers with new, high- (1998) $5 million total efficiency, non-CFC chillers China Barrier Removal for UNDP Promote efficient lighting by assisting Chinese Efficient Lighting Products $8.1 million GEF manufacturers to upgrade designs of lighting and Systems (2000) $26 million total products, educating consumers, lowering costs, and conducting market promotion activities 2 transformation is now a widely accepted energy ef- By 2000, enough experience and emerging lessons ficiency policy in Europe, North America, and Austra- from the GEF portfolio had accumulated that the lia, and among international organizations such as the GEF Secretariat decided to review and assess that International Energy Agency (1EA).4 experience.5 Research conducted in 2000 and 2001 by the authors is summarized in this report.6 We first In developing countries, market transformation pro- review GEF project designs and approaches, then grams have made some inroads, but not on the scale analyze the emerging experience from each individ- found in developed countries. Countries with notable ual project and the project-specific lessons suggested programs beyond those supported by the GEF include by that experience. Based on individual project ex- Brazil, China, Philippines, South Africa, and Thai- perience, we assess overall portfolio impacts and land. Still, GEF support for efficient products has rep- describe how project impacts are being sustained and resented a significant share of market transformation project designs are being replicated. Finally, we at- efforts in developing countries, with other support tempt a synthesis of overall lessons and implications coming from country governments, bilateral donors, for future GEF strategies. Given the global interest in and foundations. market transformation, GEF approaches and experi- ence from its portfolio of efficient-products projects should help to inform effective global progress with energy-efficient products, as well as further GEF projects and strategies. 4 In particular, the UK has established a Market Transformation Program under the Department of the Environment, Transport, and the Regions, Australia's response to climate change includes market transformation efforts on energy-efficient motors and lighting, and the IEA supports a Market Transformation Working Group. 5 This review was conducted as part of a larger effort to assess the entire climate change portfolio, which took place during 2000-2001; see GEF (2002). The authors did not review experience from the most recent addition to the portfolio, the China efficient lighting project, because that project had not yet started implementation at the time of the study; see GEF (2001 b). 6 Research sources included interviews with project managers and stakeholders, country visits to China, Mexico, Poland, and Thailand, GEF project documents (available at www.gefweb.org), unpublished project supervision and completion reports by the GEF implementing agencies, and published literature (see the list of references at the end of the report and individual citations throughout). 3 2. Project Designs and Approaches An effective market transformation program acts as a Standards and labels, in particular, have been advocat- catalyst to enhance existing market forces. It typically ed by many as the comerstone of a balanced portfolio provides both "supply push" and "demand pull" for a of energy efficiency programs. When designed well, particular technology. Market research, information, they can produce large energy savings, are hugely technology promotion, and technical assistance can cost-effective, and are a very effective way to limit all boost market demand for more efficient products energy growth without limiting economic growth. while simultaneously increasing the willingness of Furthermore, their benefits are relatively simple to suppliers to produce them. Technical and marketing quantify, they require modified behavior from a man- assistance to manufacturers can help them overcome ageable number of manufacturers rather than the total the one-time costs of converting to production and consuming public, and the resulting savings are gen- sales of more efficient products. Simultaneously ad- erally assured, comparatively simple to quantify, and dressing both supply and demand is often necessary easily verifiable (Wiel et al. 2001). Revising building to jump-start "stuck" markets, which occur when codes is another approach that has a large potential in producers are unwilling to produce efficient products developing countries.7 because no established market exists while consumers are not demanding these products because they are not The designs of GEF's energy-efficient products proj- produced or marketed. ects incorporate many elements of market transforma- tion approaches, such as:8 The principal approaches to transform markets for en- ergy efficiency goods, services, and practices around * Market transformation activities are devised in di- the world are well known. Many market transforma- rect response to identified market barriers. One can't tion programs consist of combinations of these ap- design an effective market transformation program proaches: without first understanding the barriers or problems the program is intended to address. * Regulated product standards or product labeling * Regulated building codes (for performance * Sustainability is built into the program design or materials) from the start. Instead of saving energy building by * Public procurement building or product by product, a successful market * Public financing transformation approach changes the entire market, so * Financial incentives (i.e., reduced taxes or rebates) that efficient products become the norm and no longer * Voluntary agreements by the private sector require incentives. * Information and marketing. 7 The GEF has one project for energy-efficient building codes, in Senegal and Cote d'Ivoire, which is not covered in this report. See Martinot and McDoom (2000). 8 See Nadel and Latham 1998 and Nadel and Geller 1996. 4 * Market transformation establishes new products, arranged as part of the project. The China lighting services, or practices within existing market frame- project surveys raw material and component input works that can support the new products or services. quality problems among manufacturers, assists with This is consistent with GEF principles of incremental- mitigating such problems, and conducts manufactur- ity and replication. ing technology retrofit demonstrations. * Market transformation programs leverage pri- (b) Support development of minimum efficiency vate capital and ingenuity-and competitive market standards and regulatory mechanisms. Minimum forces-to improve the efficiency of energy-using efficiency standards help remove the least efficient products. This is consistent with the GEF's goal of products from the market, and "push" manufactur- leveraging its funds to maximize cost effectiveness. ers to retool to provide more efficient products. The China projects for refrigerators, industrial boilers, and * Because many stakeholders can influence a market, lighting all allocate funds for developing minimum market transformation programs emphasize partner- energy efficiency standards. The China lighting proj- ships between government, the private sector, NGOs, ect also develops design standards for six categories and other stakeholders, an approach consistent with of buildings to assist architects with efficient lighting GEF's goal to maximize stakeholder participation. designs. The Thailand DSM project has also devel- oped efficiency standards for selected equipment. The GEF projects use differing approaches to remove Thai government will consider the experience of the supply-side and demand-side barriers to markets for Thailand chillers project in its planned revision of energy-efficient products. Tables 2 and 3 provide a chiller performance standards. topology of the market transformation approaches used in the GEF portfolio, separated according to (c) Facilitate voluntary agreements with manufactur- supply-side and demand-side approaches. The fol- ers, dealers, and distributors. An excellent example of lowing sections list each approach, and illustrate how market transformation comes from the Thai DSM pro- the projects apply them. gram, where a neutral third party acted as an "honest broker" to facilitate change in the marketplace. The Supply-Side Approaches Thai fluorescent lighting market was dominated by less efficient, thick (T-12) fluorescent tubes. Manufac- The main supply-side approaches found in projects turers were hesitant to produce the thinner, more ef- include: ficient (T-8) tubes because of a popular perception that the thick tubes produced more light. EGAT negotiated (a) Provide technical assistance and technical a voluntary agreement with all five Thai manufactur- know-how transfer to manufacturers to upgrade ers and the sole importer of T-12 fluorescent tubes to their product designs or improve quality; provide switch from producing and importing T-12 tubes to assistance in improving business strategies. In order T-8 tubes. In exchange for their commitments, EGAT to introduce more efficient technology, the China in- offered a large-scale advertising campaign for the thin dustrial boilers project provides technical know-how tubes. As a result, the Thai market was completely transfer and technical assistance to nine competitively "washed" free of the less efficient (T-12) technology. selected boiler manufacturers to allow them to de- velop high-efficiency boiler models. Similarly, the (d) Pilot new distribution mechanisms through retail- China refrigerators project provides technical assis- ers, dealers, or electric utilities. In the Mexico light- tance and training for compressor and refrigerator ing project, the electric utility distributed CFLs through manufacturers to produce more efficient designs. utility offices. In cooperation with the program, certain Targeting compressor manufacturers is especially im- private companies offered their employees the oppor- portant, because virtually all Chinese refrigerators use tunity to make installment payments on a CFL purchase Chinese-produced compressors, and compressor de- through a monthly paycheck deduction. The Thailand signs are less efficient than they could be. The project DSM project introduced lamp distribution through a features specific incentives for these manufacturers to chain of 7-11 convenience stores, a new distribution modify their product designs and convert production mechanism in that market. In Latvia, the Efficient lines. In both projects, the actual costs of conversion Lighting Initiative is running a pilot CFL program in are financed from commercial or government sources which municipalities distribute lamps to their citizens. 5 Table 2: Supply-Side Market Transformation Approaches Mexico Thailand Poland China China Multi- Thailand China lihig DSM lighting industrial refrig- country building lgtn lighting ~ ~ ~~9 boilers erators lighting chillers lgtn (a) Technical assistance and technical know- yes yes yes yes how transfer (b) Development of standards and yes yes yes yes yes regulatory mechanisms (c) Voluntary agreements by private yes yes sector (d) Incentives for yes yes producers and dealers (e) New distribution yes yes yes yes mechanisms (f) Quality testing yes yes yes yes yes (g) Financing for manufacturing yes yes upgrades Table 3: Demand-Side Market Transformation Approaches Mexico Thailand Poland China China Multi- Thailand China industrial refrig- country building lighting DSM lighting boilers erators lighting chillers lighting (a) Consumer education yes yes yes yes yes yes yes yes (b) Media campaigns to increase awareness yes yes yes yes yes yes among consumers (c) Professional yes yes yes yes yes yes education (d) Retail price decreases (subsidies, yes yes yes rebates, etc.) (e) Bulk purchases or procurement by public yes yes yes yes yes agencies (f) Consumer financing (through banks, utility yes yes yes yes yes yes bills, etc.) (g) Buy-back/recycling yes programs 6 (e) Provide financial incentives to producers and Demand-Side Approaches dealers. Two programs offer financial incentives to dealers to encourage them to actively stock and sell The main demand-side approaches found in projects more efficient refrigerators: the China refrigerators include: project and the Thailand DSM program, which used dealer incentives in an effort to spur sales of high- (a) Educate consumers about the characteristics, efficiency air conditioners. The China refrigerators costs, and benefits of the energy-efficient technology. project also provides financial incentives to producers, GEF market transformation programs typically oper- in the form of a design competition with a one-million ate in markets where consumers are poorly informed Yuan prize (equivalent to US$150,000) awarded to about the advantages of energy-efficient products. the producer with the best efficient-refrigerator design Therefore, all programs include a consumer education (similar to the "Golden Carrot" refrigerator program component. One commonly used tool is an energy ef- in the United States). ficiency label. The Thailand DSM project supported the development of an energy efficiency label, which (fl Provide quality testing. Perceived and actual rates refrigerators and air conditioners on a scale from problems with quality can be a strong deterrent to one to five. Similarly, the China refrigerators project the purchase of an energy-efficient technology. When supports a national refrigerator labeling program a new technology is introduced to a market, there is to educate consumers at the point of sale. Both the often a perception that "it won't work here." Con- Poland lighting project and the Efficient Lighting Ini- temporary CFL markets in particular have products tiative take a slightly different approach. Rather than of widely varying quality. Quality testing is one way use a government-sponsored energy efficiency label, to overcome misperceptions and provide consumers they promote a "green leaf" product logo to identify with credible quality information. For example, the high-quality and environmentally friendly products Thailand DSM project has established test proce- (see Figure 1). The logo appears on all products dures and provides testing capabilities and efficiency supported by the two programs. The Poland lighting certification for selected equipment types, including project also conducted an energy and environmental fluorescent tube lamps and refrigerators. The Thailand education program in primary and secondary public chillers project dispels perceived risk by providing a schools. The Efficient Lighting Initiative is running performance guarantee for each chiller that is backed a similar program. In China, consumer education is up by independent on-site testing. The Poland lighting fostered through retailer displays and other materials, project conducted random testing of CFLs to ensure product labels, a "green lights" web page, and a series that off-the-shelf products lived up to the quality of books on efficient lighting design for households commitments made by manufacturers. The Efficient and small businesses. Lighting Initiative has developed quality specifica- tions for a range of lighting products, including CFLs Figure 1: The Poland Lighting and ballasts; the initiative will only promote products Project and Efficient Lighting that meet these quality criteria and will randomly test Initiative "Green Leaf" Logo off-the-shelf products in all seven participating coun- tries. The China lighting project assists national test laboratories to improve their procedures and ensure (b) Run media campaigns to raise consumer aware- testing consistency among laboratories; it also pro- ness of energy-efficient technology and increase its vides a product certification program. mass appeal. While it's essential to raise consumer understanding of energy-efficient technology through (g) Provide financing for manufacturing upgrades. educational efforts, it is also important to raise con- Both the China refrigerators and China industrial boil- sumers' awareness of a technology and increase the ers projects include commercial or government loans popularity of energy-efficient products, particularly to manufacturers to convert production facilities for when promoting a mass-market technology such as producing more efficient models. These loans are lighting. Thus all projects in the portfolio related to provided in conjunction with technical assistance and consumer and commercial products contain mass- technical know-how transfer to design the products media campaigns. As part of its voluntary agreement themselves and upgrade production facilities. with manufacturers to "wash the market" of T-12 lamps, the Thailand DSM program allocated $8 mil- 7 lion for an awareness campaign. In addition to plac- DSM project, Mexico efficient lighting project, China ing ads in national media, including television, radio, efficient lighting project, and the Efficient Lighting and print media, EGAT gave local demonstrations in Initiative also substantially lower retail prices by rely- city halls and schools and organized local seminars ing on the economies of bulk purchases from manu- and schoolchildren marches. The national and local facturers.9 The Poland lighting project took a unique elements of the campaign reinforced each other. In approach to subsidies by obtaining subsidy contribu- the Philippines, the Efficient Lighting Initiative ran a tions from lighting manufacturers. Manufacturers large media campaign for CFLs, featuring one of the competed to provide the largest guaranteed sales at the nation's most popular comedians. The Poland lighting lowest project subsidy cost, providing subsidies them- project relied on a media campaign to promote CFLs selves on a contractual basis that specified wholesale and develop consumer awareness of the "green leaf' and retail prices. This subsidy program allowed large logo. In the Mexico lighting project, consumer out- retail price reductions with smaller project subsidies reach was conducted primarily through utility offices, because of the manufacturer contributions, as well as which is where most customers pay their bills. the multiplier effects of value added taxes (VATs) and retail markups. In the industrial sector, the Thailand (c) Educate professionals about the characteristics, DSM project offers rebates to purchasers of new, costs, and benefits of the energy-efficient technology. more efficient motors and offers free audits to encour- Energy professionals often have little information on age replacement of existing inefficient motors. the benefits of energy-efficient equipment; this situa- tion discourages them from specifying or purchasing (fJ) Provide consumer financing. Even though energy-efficient equipment. As professionals such as energy-efficient products save money in the long architects and facilities managers make decisions on run, their purchase cost is often higher than that of a daily basis about end-use equipment that is likely standard products. Financing can help overcome this to be in place in 5 to 20 years, professional education "first-cost" barrier, especially in developing coun- is an important element in a market transformation tries, where capital constraints are high. GEF mar- strategy. The China industrial boilers project provides ket transformation projects provide financing to the technical assistance and training for industrial enter- residential sector as well as to the commercial, prises to help them understand, procure, and operate industrial, and public sectors. On the residential side, the higher efficiency boilers. In Thailand, high-level the Mexico lighting project enabled consumers to fi- seminars, to educate chiller owners about the ad- nance the purchase of CFLs through monthly install- vantages of replacing their existing equipment with ments on their electricity bills. The Thailand DSM high-efficiency models, have been the key to opening program worked with local credit card companies up the Thai chiller replacement market. The Thailand to offer interest-free loans for the incremental cost DSM program publicized pilot projects in the build- of highest efficiency air conditioners. The Thailand ing sector. Both the Poland lighting project and the chillers project supports chiller purchases through a Efficient Lighting Initiative sponsor education events customer loan and performance guarantee. The Po- (seminars, workshops) for lighting professionals. land lighting project conducted a pilot program to of- The China lighting project educates building design fer consumers small loans to pay for CFLs (although professionals about efficient lighting designs and that pilot proved unsuccessful, as no one took those assists service firms, such as installation contractors loans). The China lighting project pilots new financ- and building maintenance firms, to develop services ing models, such as leasing, for efficient lighting in- related to efficient lighting. vestments on behalf of utilities and lighting product manufacturers.,. The China lighting project also sup- (d) and(e) Reduce retailprices oftechnology through ports the energy service company industry in China rebates or subsidies and conduct bulk purchases and to finance lighting projects and add efficient lighting procurements. GEF projects to develop CFL markets to existing services. have used different mechanisms to reduce retail prices. PELP and Ilumex provide per-unit subsidies (g) Offer buy-back/recycling programs. The China for CFLs on the order of several dollars. The Thailand refrigerators project gives purchasers of efficient re- 9 The purchase specifications included quality criteria that led to the widespread use in Mexico of lamps with increased resistance to voltage fluctuations. 8 frigerators the opportunity to sell their old refrigerator reforms introduced by ELI to further promote utility back to the shop where the new one was purchased investments in efficient lighting. In Argentina and for destruction and recycling. This provision was con- Peru, electric utilities are expanding the traditional sidered important because otherwise consumers might distribution channels for efficient lighting products by not bother to dispose of the old refrigerator. Rather, selling CFLs in their payment centers. the project supposed consumers would run both the new and the old refrigerators simultaneously (perhaps Public Education, Marketing, Training, and Stan- keeping one in the basement), thus negating energy dards. Public education and marketing activities are savings from the new purchase. (Of course, consum- proceeding in all seven countries. In the Philippines, ers have a choice, but the buy-back/recycling program ELI founded a national advisory council on energy- encourages them to make the environmentally respon- efficient lighting whose board includes utility CEOs sible choice.) and launched a high-profile advertising campaign fea- turing a national celebrity as the ELI spokesperson. In Efficient Lighting Initiative "Toolkit" of Argentina, educational programs in primary and sec- Market Transformation Approaches ondary schools and professional university courses for architects and engineers are planned. In Hungary, ELI The design of the seven-country Efficient Lighting offers courses on energy-efficient lighting to licensed Initiative (ELI) is perhaps the most instructive and electricians (who often specify lighting equipment comprehensive approach to market transformation yet without have received specialized training). ELI will seen in the GEF portfolio. Early in the project, based also form advisory committees with representatives of on the results of a detailed market assessment in each NGOs, government agencies, industry, and technical country, local implementing teams finalized program professions. strategies, defined project activities, and allocated project resources tailored to the situation in each Financing Mechanisms. ELI leverages program country. This program design process was guided by funds through innovative credit structures. For exam- an ELI "toolkit" of five basic market transformation ple, in Latvia, ELI initiated a pilot program with mu- approaches.'0 Allocations among the five different nicipal governments to provide no-interest financing approaches were made according to several factors: for CFL purchases through monthly electricity bills. the maturity of local markets, the relative benefits to In Czech Republic, Hungary, Philippines, and South be derived by focusing on different sectors and tech- Africa, ELI is promoting energy service companies nologies, opportunities to leverage other activities and other financial vehicles such as project bundling and financing, and the basic orientation, experience, to address commercial-sector financing barriers. and capability of the local implementers. The five basic approaches, with examples of activities defined Targeted Subsidies. Targeted subsidies are being through this process and the stakeholders who have considered for a CFL promotion campaign in South become involved, are as follows: Africa, an electronic ballast promotion in Peru, and public lighting projects in Hungary, where the sub- Electric Utility Programs. ELI is partnering with elec- sidies, awarded on a competitive basis to projects tric utilities in South Africa, Philippines, Argentina, that meet certain goals, are expected to have a and Peru to promote investments in energy-efficient snowball effect, generating many more lighting proj- lighting. In South Africa, ELI is developing a modular ects. Such subsidies, used as one element of selected CFL luminaire suited to newly electrified homes. ELI short-term promotions and market aggregation activi- will help the national utility ESKOM and local dis- ties, can help support public education efforts, draw tribution utilities to provide subsidized luminaires to attention to efficient lighting, and overcome initial newly electrified customers in new or existing homes. cost barriers. In the Philippines, utilities have committed to develop pilot CFL leasing programs in cooperation with ELI, and regulatory authorities have supported regulatory 10 The "toolkit" drew upon experience from previous GEF-supported energy-efficient lighting programs in Poland, Mexico, Jamaica, and Thailand, as well as non-GEF-funded activities other countries. 9 Market Aggregation. ELI activities in several coun- 2. Detailed market research in each country greatly tries will pool together the purchasing power of large helps to define effective approaches tailored to spe- organizations, such as electric utilities in Argentina, cific national circumstances. The market assessment Peru, Philippines, or South Africa, to lower prices for process, which took about 6 months to complete, efficient lighting products and strengthen delivery included stakeholder consultations as well as surveys mechanisms. In Argentina, the project has begun to defined by the local implementers and contracted out work with architects and contractors so that ELI- to local market research firms. This process increased qualified products are specified in new commercial local "ownership," and, as it tailored the program to buildings. local conditions, it should enhance an approach's ef- fectiveness in each country. Project Design Lessons Suggested by ELI 3. The implementation team for market transforma- 1. Program designs can and should remain flexible tion efforts should include staff or consultants with enough to respond effectively to changing market experience in dealing with marketing and public dynamics. Countless political, economic, or tech- relations firms. A good marketing and public educa- nological changes can affect the implementation of tion campaign is generally a cost-effective investment a market transformation program. In response, IFC of program resources. Energy efficiency projects has sought to create among ELI implementers a cul- are often implemented by engineers who may not ture that emphasizes flexibility and responsibility for have marketing experience. Available technical skills results, rather than a culture that encourages strict ad- should be complemented by a marketing or public herence to a plan. In each country, the implementation relations specialist. work plan is dynamic." The quarterly reporting form allows for deviations from the work plan in response 4. Beginning monitoring and evaluation activities to market changes. Evaluation results were designed early in the project can provide valuable market to be quickly fed back to the program managers, en- assessment data for implementation decisions and abling analysis and a rapid response. So far, these ar- program design. Early start-up of monitoring and rangements are proving viable. This flexibility comes evaluation enabled the ELI evaluation team to mea- at a price, however; it requires attentive oversight and sure market baselines before program implementation additional project management resources. began and has afforded close coordination and feed- back between M&E and implementation. For exam- ple, early on, the M&E team identified data needs for the program and collected baseline data. The baseline market data in tum allowed the implementation team to refine the program design. 1 Indeed, the first task of implementation was to conduct a market assessment whose results would refine the program activities initially proposed in the appraisal document. 10 3. Emerging Experience and Lessons Mexico High-Efficiency Lighting Project food. In an effort to maintain high sales, the program expanded beyond the initial two target cities. Mexi- Project Experience'2 cans usually pay electricity bills in CFE offices so, initially, lamps were sold only through utility offices. Under this project, the national electric utility They were also sold at special booths placed in facto- (Comision Federal de Electricidad, or CFE) set up in- ries, where workers could buy the lamps and then pay dependent trust funds to purchase CFLs and circular for them through salary deductions. This approach fluorescent lamps and sell them directly to consum- was devised in response to lower-than-expected sales ers. The utility purchased the lamps in bulk from among low-income customers. manufacturers through a competitive procurement. This mechanism enabled the utility to purchase high- Customers could pay for the lamps in full or in install- quality products at a significant discount relative to re- ments through a leasing arrangement with the utility. tail prices and pass those savings along to consumers. Customers who opted to buy on credit would pay for As a result of economies from bulk procurement and a the lamps over 2 years, in 12 bimonthly installments. utility subsidy of about $7-10 per lamp, the consumer The rebate was calculated so that for customers pay- price for a high-quality lamp was reduced to about ing the tariff of 75 kWh per month, the bimonthly $5-8 (compared with a market price of up to $25 or payments would result in a 2-year payback through more). The procurement also allowed the utility to savings in their electricity bill, assuming certain set specific performance criteria, which ensured high characteristics of customer tariff class, CFL wattage, quality and allowed the utility to introduce lamps with original incandescent wattage, and hours of use. Cus- features new to the Mexican mass market, at prices tomers with higher tariffs had a faster payback. Tariffs comparable to those of lower quality products. were modified in the course of the program, and ad- justed by inflation and international energy prices, so The project took place primarily in two Mexican the actual payback period varied. states, Nuevo Leon (capital: Monterrey) and Jalisco (capital: Guadalajara). The program was advertised Ilumex got underway in April 1995, in the midst of through mass media outlets. Initially, sales were the worst economic depression in recent Mexican limited to the capital cities. Because of the economic history. The economic downtum was accompanied crisis, sales volumes were lower than expected: by frequent bank repossessions on unpaid loans for Middle-income households that were willing to pur- homes, cars, and household appliances. This had the chase or lease CFLs becante saturated faster than effect of making Mexicans hesitant to take out loans, predicted, and fewer low-income homes were able even the modest pay-on-the-bill CFL loans offered to participate, as they needed all available income for by CFE. Initially, the project targeted low-income 12 See GEF (1994), Sathaye et al. (1994), Friedmann et al. (1995), Martinot and Borg (1998), and Krause et al. (2001) for more published information on this project. A country visit in January 2001 contributed to this section. 1 Personal communication, Rafael Friedman, October 2000. consumers because of the large subsidy the utility GEF-supported project. A media campaign promotes paid for electricity sold to these consumers. However, CFLs in a particular city for a period of 6-9 months, evidence suggests that the economic situation made it during which CFLs can be bought or leased at CFE difficult for the program to achieve high sales within offices. After the campaign ends, CFLs will be sold this customer class. only in retail outlets. CFL manufacturers plan their own advertising campaigns around the timetable and CFL distributors and retailers initially feared that these locations of FIDE's campaign. In all cities where this new distribution methods would lead to a loss in their program is being implemented, FIDE is collecting own market share. However, they have found that, M&E data. overall, Ilumex has increased their sales (presumably because the program has led to greater awareness of Lessons Suggested by Experience the benefits of CFLs). 1. DSM programs can deliver a targeted number of The Mexican utility sold 2.5 million CFLs in 2-1/2 CFLs. Ilumex proved that in a developing country years. This high figure is all the more remarkable context, a DSM program can achieve a high level of given that the devaluation of the peso took place 4 CFL sales. This lesson served as part of the justifica- months before the start of CFL sales. The initial proj- tion for future CFL programs in developing countries, ect analysis had anticipated a load factor of 4 hours including PELP and ELI. per day, but in the end, due to the increased number of lamps per home, the load factor ended up being 2. Bulk purchases by a centralized agency can lower about 3.1 hours per day. This somewhat decreased the retail costs to consumers and increase product qual- expected CO2 savings per lamp, but this was compen- ity. Ilumex showed that a large bulk purchase can sated by sales of CFLs that exceeded the 1.7 million catalyze manufacturer delivery of better or cheaper initially targeted. The ongoing conversion of fuel-oil products than those currently available on the market. power plants to natural gas (to address local air pollu- The Ilumex technical specifications required manu- tion issues) may also have diminished CO2 emission facturers to deliver CFLs equipped with an internal reduction impacts. thermal protector that would turn the lamps off if they overheated. This feature, which did not previously Although market transformation was not an explicit exist in the Mexican market, would allow the lamps project goal, a great variety of CFL lamp models ap- to withstand potential voltage fluctuations. Ilumex's peared in retail stores after completion of the project, technical specifications allowed CFE to introduce a and average CFL prices have fallen by about 30 per- higher quality CFL into the Mexican mass market, at cent. This could be interpreted as a clear indication prices that were competitive with lower quality mod- of market transformation. An interesting question is els. (Sturm 2000) whether the apparent market transformation would have taken place without Ilumex. The answer from all 3. Utility offices can serve as sales outlets for large stakeholders interviewed during a January 2001 GEF numbers of CFLs. CFLs promoted through Ilumex mission to Mexico is that the project definitely accel- were only sold through CFE offices or through dedi- erated the pace of market transformation. Changes in cated shops established by CFE. These sales outlets, the market may have been taken place anyway, but despite being outside typical retail channels, gener- would have been much slower. ated a significant sales flow (2.5 million units over 2-1/2 years) in an efficient, low-cost, and expeditious Finally, it is worth mentioning that, in 1998, based on manner. This worked because most customers are experience gained during the project, CFE and FIDE, used to paying their bills at CFE offices. a public/private non-profit, undertook a follow-on lighting project, without subsidies and with reduced 4. The development of institutional capacity con- administrative costs. Within 2 years, the FIDE tributed to significant replication within Mexico. project sold 4.8 million CFLs nationwide'4 in both FIDE, the public/private non-profit involved in the retail outlets and CFE offices. This new project is implementation of Ilumex, reports that Ilumex en- using the same delivery mechanisms as the original hanced its institutional capacity, both in terms of 14 The FIDE program is not active in the two Ilumex cities (Monterrey and Guadalajara). 12 delivering efficient lighting programs and accessing sumer information campaign, which explained that international support for DSM activities. FIDE's new thin tubes produce more light for the money. This lighting project, which uses the same delivery mecha- agreement effectively and completely eliminated the nism as Ilumex, sold 4.8 million CFLs during its first less efficient T-12 tubes from the Thai market, esti- 2 years of implementation.15 FIDE has also obtained mated at 20 million tubes per year. In 1994, when the IDB funds for an efficient motor project. program began, efficient T-8 tubes had a 40 percent market share. By the end of 1995, the efficient T-8 5. Monitoring and evaluation should be built into the tubes had achieved a 100 percent market share. program from the start. CFE did not begin to gather certain evaluation data until the last year of project Refrigerator labeling. In 1994, EGAT negotiated with implementation, and final results were not known un- manufacturers a voluntary labeling scheme for refrig- til after the project closing date. The findings showed erators. The scheme awards refrigerators a label rated that the peak capacity savings from Ilumex were from 1-5, with 5 indicating the most efficient model. In lower than expected. Had this problem been noticed conjunction with the scheme, EGAT sponsored a large earlier, CFE could have attempted to address it. If advertising campaign to promote the label, and part- monitoring and evaluation are built into the program nered with the Thailand Industrial Standards Institute from the start, and take place in a timely manner, then to test domestically available refrigerators. In 1998, such problems can be avoided. the label scheme was made mandatory, and in 1999, EGAT reached an agreement with the manufacturers Thailand Promotion of Electricity Energy to increase by 20 percent the efficiency requirements Efficiency (Thai DSM) for each label level. Program impacts for the labeling scheme were slower than with the fluorescent tubes, Project Experience'6 but no less dramatic. In 1994, only one single-door model and 2 percent of double-door models qualified This project was a comprehensive 5-year utility DSM as a Level 5. By 2000, 100 percent of single door and program by the national electric utility responsible for 60 percent of two-door models met the Level 5 re- power generation (EGAT). The project created a new quirements. The EGAT DSM office estimated that the DSM office and supported that office in developing program has contributed to a 21 percent reduction in and implementing a number of different market inter- overall refrigerator energy consumption. vention strategies for energy efficiency, including the four market transformation efforts described below. Air conditioner labeling. In 1995, EGAT also sought EGAT was very keen to avoid subsidy programs, to develop a labeling scheme for air conditioners. and instead pursued voluntary agreements, market However, in contrast to the small number of fluores- mechanisms, and intensive publicity and public edu- cent tube and refrigerator manufacturers, the Thai air cation campaigns. The project undertook a number of conditioner industry is more diverse and fragmented, important activities: with over 55 different manufacturers, many of which are small, local assembly operations. And, the incre- Market switching from thick (T-12) to thin (T-8) mental cost for more efficient air conditioners was fluorescent tubes. Thin T-8 tubes use less energy and significant. Therefore, EGAT worked with local are cheaper to manufacture than thick T- 12 tubes. But credit card companies to offer interest-free loans for manufacturers were reluctant to sell them because of a the incremental cost of Level 5 units, and also offered common consumer perception that "a thick tube gives rebates to shop owners who sold Level 5 models dur- more light than a thin one." EGAT negotiated a vol- ing promotional summer periods. EGAT has been untary agreement with all five Thai manufacturers and unable to reach agreement with the air conditioner the sole importer of the less efficient T-12 fluorescent industry on a suitable timetable for mandatory labels tubes to switch from producing and importing T-12 or increased requirements for each level of the label tubes to the more efficient T8-.tubes. In retum, EGAT scheme. Without this agreement, it is unclear how fur- supported the manufacturers with an $8 million con- ther efficiency gains or energy savings impacts can be achieved under this program. 5 See Krause et al. (2001). 16 See GEF (1993), Martinot and Borg (1998), Singh and Mulholland (2000), and Sulyma et al. (2000) for more published information on this project. 13 CFL bulkpurchases. EGAT purchased CFLs in bulk the fluorescent tube market underwent a complete and re-sold them through a distribution network of changeover to efficient models. Impacts of the refrig- 7-11 convenience stores. EGAT tested and labeled erator program were slower but no less dramatic: In lamps to ensure consistent quality and also paid for 1994, only one model qualified for the highest effi- advertising costs. Bulk distribution and partnership ciency rating, but by 2000, 100 percent of single-door with franchised retail outlets allowed substantial re- and 60 percent of the two-door models received the duction in transaction costs. Over 900,000 CFLs were highest efficiency rating. sold as of early 2000, at 40 percent below the prevail- ing market price. 3. Market research points to the most effective ap- proaches. EGAT's most effective initiatives were In addition to these major activities, EGAT undertook implemented using a Thai approach of combining programs targeting the following sectors or end uses manufacturer collaboration and public promotions. as part of the project: new and existing commercial Local cultural aspects are also crucial to ensure high buildings, industrial facilities, small and medium en- consumer acceptance and participation in such mea- terprises (SMEs), the agricultural sector, streetlight- sures. It may be more useful to limit outside expertise ing, high-efficiency motors, and low-loss ballasts. The to discrete assignments and training activities, leav- programs included developing ESCOs and creating a ing local implementation staff to design the programs general positive attitude towards energy efficiency. based on market research as well as internally devel- oped strategies. Lessons Suggested by Experience 4. Lack of financing can be a serious barrier for The lessons presented below are drawn from a recent commercial and industrial programs. EGAT had World Bank review of the Thai DSM program by limited success in its commercial and industrial sec- Singh and Mulholland (2000). These lessons provide tor programs, largely due to a lack of viable financing useful insight into issues related to utility implementa- sources. Thailand's future DSM efforts, and programs tion of market transformation programs. elsewhere, should actively address this barrier and arrange for complementary financing programs to 1. In a market where there are few suppliers and support industrial and commercial energy audit good relationships exist between the program imple- programs, ESCO development, and non-residential menter and the suppliers, voluntary agreements end-use programs, such as motors and chillers. Where with suppliers can be effective. The Thailand T- 12 viable financing and other programs for energy effi- to T-8 conversion is a successful example of market ciency exist, such as government support for energy transformation, in which virtually the entire market efficiency, clear links should be established between in Thailand switched to a more efficient product in utility DSM programs and other government efforts a relatively short time period. This case shows that to ensure adequate coordination and complementarity successful voluntary negotiations and agreements between initiatives. with manufacturers and importers can be conducted on a comprehensive market-wide basis in a short 5. Mandatory labeling has clear advantages over vol- period of time, provided that suppliers are few in untary labels. The contrast between project results in number and the utility has a good relationship with the refrigerator program, with mandatory labels, and the private sector. the air conditioner program, with voluntary labels, suggests the importance of making labels mandatory. 2. Well-designed and extensive marketing can help In particular, voluntary labels are not effective as rat- programs achieve significant savings impacts at ing mechanisms, since they provide no incentives for relatively low costs. EGAT's promotions of energy- manufacturers to label lower efficiency models. efficient fluorescent tubes and refrigerators consisted largely of voluntary agreements with manufacturers, 6. DSM programs require strong management and twinned with utility-sponsored marketing campaigns. leadership. Without the strong proactive approach tak- These programs increased demand by simultaneously en by the second director of EGAT's DSM Office, it is increasing the supply of high-efficiency products and unlikely that EGAT's program would have developed educating consumers on the advantages of these prod- and grown over the years. DSM programs require ucts. This approach proved effective: Within 1 year, strong management and marketing, to both utility 14 management and the public, ensuring that programs 10. If distribution utilities have better access to end receive the support needed to meet their objectives. users, DSM programs may be better based within Utilities should also seek measures to help insulate distribution utilities than national generation utili- DSM operations from periodic management changes. ties. Some of EGAT's programs were partially con- strained because EGAT does not sell directly to end 7. DSM programs should initially focus on skills users and, therefore, did not have previous relation- development and pilots before activities are scaled ships with consumers. In many cases, distribution up. EGAT's experience demonstrates the importance utilities may be a more appropriate home for most of implementing programs using a phased approach, DSM programs. In those countries that still have ver- although this could have been further strengthened by tically integrated utilities, any introduction of DSM timely evaluation and program redesign. It is prefer- efforts should explicitly involve the distribution staff able to implement pilot initiatives, and then evaluate and, as reforms progress, should provide for gradually and refine them before expanding and scaling up shifting appropriate DSM program responsibilities to implementation efforts. A second advantage of this distribution utilities to make use of their established approach, in countries and utilities new to DSM, is and unique customer relationships. that it allows staff to gradually build their competency and improve their program design and analysis skills. Poland Efficient Lighting Project 8. DSM programs should have clearly defined ob- Project Experience jectives from the start. EGAT continually confronted competing objectives, e.g., public purpose or com- This project offered specially priced CFLs during two mercial, and EGAT management commitment to DSM winter "lighting seasons," roughly October through wavered, particularly in the face of capacity surpluses March, when sales of residential lighting products in after the 1997 financial crisis. An important lesson northern hemisphere countries tend to be at their peak. is that DSM objectives should be clearly defined up In an effort to encourage the development of Polish front and have long-term in addition to shorter term CFL manufacturers, the subsidy was only available objectives to help maintain continuity in operations. to manufacturers with facilities in Poland. During the These objectives should address the primary goals winter of 1995-1996, four manufacturers of CFLs on which a project is focused, such issues as public qualified for participation. One manufacturer encoun- purpose or commercial, load management or energy tered problems with the availability of components, conservation, economic/environmental benefits or and so used only a small amount of subsidies, and financial gains, sectoral priorities, etc. The priorities another had difficulties meeting Polish government identified will drive how programs develop. electrical safety regulations and was unable to par- ticipate. The subsidy allocations initially made to the 9. The possibility of future utility privatization two non-performing manufacturers were reallocated should be factored into DSM program design at the to their more successful competitors. start. EGAT's eventual privatization was not consid- ered when the DSM program was established. Poten- During the winter of 1996-1997, three manufacturers tial privatization and restructuring, tariff reforms, etc., participated, and the two that were successful during should be taken into consideration as DSM programs the first season were once again able to take the fullest are being considered and an appropriate framework advantage of the subsidies. The average subsidy per designed. Program financing, a key component of this CFL during the second season decreased by more than framework, should be able to accommodate eventual 25 percent relative to the first season because prices pricing reforms and include appropriate regulation, for both subsidized and unsubsidized CFLs on the oversight, and institutional and incentive schemes, Polish market had decreased, and because consumer e.g., DSM operational expenses and lost revenue cost demand had increased. recovery schemes. 1' See GEF (1996b), Martinot and Borg (1999), Navigant Consulting (1999), and Granda et al. (2000) for more published information on this project. 15 The public education component of the project two projections represents the total increase in energy promoted the CFL subsidy program to the public savings resulting from PELP, including installation of by providing general consumer information on the CFLs during and after the program that were not sub- benefits of energy-efficient lighting from a trusted, sidized by PELP ("free drivers"). The analysis sug- non-industry source. The project's "green leaf' logo, gests that PELP accelerated the growth of the Polish developed by a Polish advertising firm, was promoted CFL market by about 3 years. This is consistent with as a consumer brand connoting energy efficiency and views expressed by CFL manufacturers that partici- high quality (see page 7). In the generic advertising pated in the program. developed by PELP, the PELP logo appeared along- side the names and logos of widely respected Polish Lessons Suggested by Experience organizations: the Polish Consumer Federation, the Polish Ecological Club, the Polish Energy Conserva- 1. The GEF was able to have a significant market tion Agency (KAPE), and the Polish Foundation for transformation impact on the Polish CFL market. Energy Efficiency (FEWE). The project's goal was to transform the CFL market by altering the status quo of low demand and high The logo was used on posters, in project publications, prices. A manufacturer subsidy lowered CFL prices, and in promotions in the Polish press that included while a mass media campaign increased demand. a short television spot and printed media advertise- This two-pronged approach led to a decline in CFL ments. Articles on the project and on energy-efficient prices by 34 percent in real terms from 1995 to 1998. lighting, written by project contractors and by profes- In addition, the percentage of Polish households using sional joumalists who attended the project's two press CFLs increased from one in 10 to one in three. New events, were also published in leading Polish newspa- manufacturers entered the Polish market, increasing pers and magazines.'8 competition, and the total number of CFLs in use increased to about 1.6 million units in 1996, up from Choosing from over 40 different models offered by 600,000 in 1994. retailers, consumers bought a total of 1.2 million CFLs through the project, half within the first month 2. The CFL subsidy showed that a high-profile CFL of each promotion. This program was easy to man- promotion program could be operated at a reason- age, was considered cost-effective, and allowed use able cost using private sector delivery channels of available distribution channels. At every step of the and approaches in a country with a restructuring project, an open and competitive process was used economy. The project's reliance on manufacturers and the GEF implementing agency (IFC) went to con- as the delivery mechanism allowed the program to siderable lengths to avoid any conflicts of interest in remain close to the market and maximize use of exist- administering the program. ing distribution channels. This structure encouraged manufactures to compete for and intelligently apply An evaluation of PELP's total program impacts, tak- the available subsidies, thereby enhancing competi- ing into account the overall market transformation tive forces in the market. impacts of the program, was built into PELP's project design. A program analysis projected increased CFL 3. Wholesale price discounts by manufacturers, sales in Poland resulting from PELP from the start representing competitive manufacturer "subsidies" of the program until several years in the future. This to the project, resulted in high leverage of GEF projection was then compared to a baseline estimate funds. Manufacturers competitively bid wholesale of what Polish CFL sales would have been had there price reductions in their proposals to participate in been no PELP. The baseline was based on aggregate the project. These wholesale price reductions gave the CFL sales data from Central and Eastern Europe (mi- GEF subsidies additional leverage, providing a final nus Polish CFL sales). The difference between the retail price decrease of $2.80 for every dollar of GEF 18It is interesting to note that media coverage of CFLs changed over time, from a simple introduction of the product to more elaborate discussion of the best models for various home applications. This evolution in the way the press covered CFLs mirrors the evolution of Polish perception of CFLs from an unfamiliar product to a more familiar one, and is a good indicator of market transformation. 16 subsidy, once avoided VAT and retailer mark-ups are China Efficient Industrial Boilers included. Overall, GEF subsidies of $2.6 million lev- eraged total retail price reductions worth $7.2 million Project Experience'9 on over 1.2 million CFLs. This translates into an av- erage retail price reduction of about $6 per CFL from Chinese boiler technology still lags substantially an average GEF subsidy of $2.10 per CFL. The GEF behind international levels in terms of efficiency and subsidy induced an average consumer investment of performance. The Efficient Industrial Boilers project around $10 per CFL. represents the first large-scale infusion of internation- al boiler technology to China since the 1940s, when 4. GEF can coordinate different interested parties technologies were transferred from Russia, according behind a single, easily recognized campaign with a to Bank staff. Started in 1994, this project had by straightforward message. Several parties, each with 2000 finally entered the technical know-how transfer different interests, were involved with PELP. CFL stage, whereby Chinese boiler manufacturers began to manufacturers supported PELP because they wanted upgrade the technical designs of their boiler models. to sell more products. Environmental NGOs, as well Project delays partly resulted from technology trans- as the Polish Energy Efficiency Agency (KAPE), sup- fer complications and insufficient project resources. ported PELP because of its potential to reduce local and global pollution. A consumer NGO supported Technology licenses for the nine boiler manufacturers the program because it could help Poles save money and auxiliary equipment manufacturers were signed on their energy bills. PELP's media campaign pre- during the period of 1997-2000.2o One of the reasons sented Polish consumers with a single message about for the long delay between project start-up and the CFLs, in which the interests of these diverse parties signing of the licenses is that the project had to en- converged. gage in several rounds of international competitive bidding for technology licenses. Initially, pre-quali- 5. Restricting participation to Polish manufacturers fication of foreign suppliers of technology transfer did not prove to be an effective way to strengthen licenses focused on large foreign companies. After local mnanufacturers. The "Polish content" require- initial discussions and outreach, letters of intent to bid ment did not appear to benefit any parties. Rather, this were received from 18 such companies. But during a requirement excluded the second largest manufacturer first round of bidding, some of the technology licenses of CFLs serving Poland (OSRAM), thereby limiting received no response from any bidder, and others re- consumer choice. Related to this, the program cannot ceived a response from only one bidder. As a result, be said to have provided strong benefits to small and only one license was awarded during this first round. medium enterprises (SMEs). Although every effort The project managers speculated that suppliers who was made to encourage SME participation through initially expressed interest in bidding were dissuaded widespread outreach and targeted negotiations, mar- when they saw the limited project resources available ket conditions worked against their full involvement. to pay for licenses. About $17 million was available The SMEs who initially participated in PELP were for nine technology licenses, and foreign suppliers did either consolidated into larger partners or chose to not think a contract of $1-2 million would be worth exit the market. It may be unrealistic for market trans- their trouble. In addition, some suppliers could not formation programs to expect to accomplish "mixed comply with the requirement that boilers be able to agendas" (such as supporting local manufacturers) burn raw coal (for which boilers outside of China are in addition to their primary objective of accelerating not normally designed). technology diffusion. So the project engaged in a second round of license bidding, this time identifying smaller foreign suppli- ers and identifying two to four specific suppliers for 19 See GEF (1996a) and GEF STAP (2001) for more published information on this project. The material in this section is based in part on country visits to China in September 1999 and November 2000 (meetings with Project Management Office. Wuxi Boiler Works). 20 One auxiliary equipment contact remained to be signed by 2000. '7 each of the nine licenses to be procured, or about 20 The project has indirectly accelerated industry-wide suppliers total (some supplier candidates overlapped efforts to improve boiler efficiencies to some degree. across the nine licenses). Even then, some licenses Every year, the government suspends production of had the same trouble as in the first round, or others certain boiler models that feature the lowest effi- were awarded but the supplier subsequently withdrew ciency. The World Bank/GEF project has accelerated from signed contracts. Eventually, after a lengthy and this process. The government is developing minimum time-consuming procurement process, all nine tech- energy efficiency standards, and the project has rec- nology licenses were contracted. ommended more stringent emissions standards to the State Environmental Protection Administration Of the nine licenses, six are making incremental (SEPA). technology improvements in the efficiency of existing boiler designs, and three are adapting technology for Lessons Suggested by Experience completely new boiler designs. The one license from the first bidding round was the only technology pack- 1. The existence of the project, prior to any efficient- age for an entirely new boiler design-a circulating boiler production by participating manufacturers, fluidized bed (CFB) boiler-at a cost of $2.9 million. has had an indirect effect on China's industrial In addition, some include transfers of more general boiler market. Stagnant for decades, the Chinese design methodologies and analytical tools that will boiler industry has begun to consider higher effi- allow the Chinese manufacturers to improve their ciencies. Before the project, some non-participating design capabilities. A total of $15.3 million has been manufacturers had begun to develop high-efficiency spent on the nine licenses, and if auxiliary equipment boilers, but over the course of project implementa- technology transfer and equipment purchase are in- tion, manufacturers' motivation has increased and cluded, the total amounts to $20.8 million. The boiler work is proceeding faster. For example, one of the technologies, obtained in 1999, are essentially those non-participating boiler manufacturers decided to planned back in 1996; the project did not reevaluate initiate some technology improvements on its own. technology needs despite the several years of elapsed This manufacturer credits exposure to the project for time between initial project conception and final its decision. bidding of the licenses. However, in response to the evolving market needs, the final technology transfer 2. Technical incompatibilities, insufficient budgeted contracts incorporated changes in the design and ca- resources, World Bank admninistrative procedures, pacity of the boilers. and lack of experience with license contracting pro- cedures slowed the technology transfer process. Not The subprojects have been small partly because Chi- many countries have coal-fired boiler technology that nese manufacturers couldn't afford large cost sharing. Chinese firms can use. Firms have found some foreign The project required cost sharing in a 2:1 ratio, and technology but it is still difficult to combine foreign the ability of manufacturers to contribute co-financing technologies with Chinese conditions, and this has has limited the size of total funds. delayed project progress. There are not many coal- burned boiler manufacturers in the world that are will- Interesting provisions for replicating the technology ing and interested in transferring boiler technology to licenses have been included in the license contracts. China. Even with the interested few, the problems The technology licenses formally belong to the State of meeting the technical performance criteria using Economic and Trade Commission (SETC). This Chinese coal and complying with the commercial agency has the option of selecting an additional two terms offered by the Chinese were often the sources to three Chinese enterprises to receive each license. of negotiation breakdowns. In addition, the strict and The foreign technology supplier must agree to the complex approaches and rules of contracting pro- selection, after which it receives royalties, paid either curement and project management under the World over a 15-year period in decreasing amounts, or as a Bank exacerbated the difficulties of implementing single lump-sum licensing fee. Thus many additional the project. While technology transfer normally fol- manufacturers can potentially benefit from the li- lows a certain "business as usual" procedure, project censes once their usefulness is proved by the original disbursements required several layers of approval by manufacturers participating in the project. the PMO, the World Bank, and the Chinese govern- 18 ment. This, coupled with unfamiliarity in the contract 5. The level of funds necessary for technology pro- procedures either in the Chinese environment or, in curement was underestimated. Since the project is some cases, the international practice (such as letters divided into many subprojects, covering nine types of guarantee), all contributed to the delays in finaliz- of boilers and auxiliary equipment, the amount of ing technology transfer contracts. funds allocated for each subproject is relatively small (around $2 million) for such technology procurement. 3. Over the project's long implementation period As a result, many potential technology sources lost in- (7 years), exogenous factors may have damvpened terest in project deals, leaving only a narrow selection the project's potential impacts. Boiler markets are of technologies to choose from. Given budget limita- changing more rapidly now than when the project was tions, most of the GEF grant was used for the purchase conceived. Several exogenous factors may limit the of the technologies themselves, making fewer funds project's potential long-term impact. It is becoming available for capacity building to support the technol- easier for boiler makers to contemplate selling higher ogy transfers. The low budget also resulted in rather priced, high-efficiency boilers because the price of strict limitations being placed on the technology trans- coal has been rising and, with it, demand for effi- fer agreements: The technology purchases were on a cient boilers has risen. Environmental pressures, and one-time buy and sell basis, and further improvements stricter enforcement of environmental legislation, are to and upgrading of the transferred technology was also increasing demand. Emerging boiler technology not included. needs, such as for large-scale, coal-fired boilers, have overtaken the original project plan. Although energy policies that penalize coal-fired boilers are starting 6. The project design should have considered de- to appear, especially in larger cities like Beijing, the mand-s de barriers and allocatedefunds to them. The demand elsewhere is expected to remain large enough new boilers, at least in the demonstration period, are to support the market for coal-fired industrial boilers more expensive than the current products, and users in the short and medium term. do not yet recognize their advantages. It is not easy to persuade potential buyers to take the technology r isk. 4. The time period requiredfor the preparation and The manufacturers involved in the project face strong imnplementation of the project is too long. More than competition from old products with lower production 8 years have already passed since the preparation costs. It would have been helpful if the project design stage began. During this period, all Chinese parties had incorporated possible demand-side barriers and involved in the project, including units undertaking allocated funds for them (in this case, funds for dem- sub-projects, the PMO, and even the former Ministry onstrations and case studies). of Machinery Industry as an administrative depart- China Barrier Removal for the Widespread ment of Chinese government, have experienced sig- Commer ion of En er Wiespread nificant staff or organizational changes. The relevant Commercialization of EnergyaEfficient, CFC market situation, policies, and regulations have also Free Refrigerators in China had certain changes. Two more years will be needed to complete the project as designed. The time needed Project Experience for further relevant activities, such as widely market- ing and spreading the new technologies, are not even This project began implementation in 2000, but before included. A 2001 review of this project by the GEF then had achieved substantial results through the proj- Scientific and Technical Advisory Panel concluded ect development process.w i Most notably, the project that the overall project period is too long, to the point helped establish new national energy-efficiency stan- of having a negative impact on the project overall dards for refrigerators. Other early impacts resulted (GEF STAP 2001). from increased contacts with foreign manufacturers 21 See GEF (1999a) for more published information on this project. The material in this section is based in part on a country visit to China in November 2000 (meetings with the Project Management Office, SEPA, Hualin refrigerator manufacturer, and a design institute of Guangzhou Refrigeration Company, a compressor manufacturer). 22 The project development process was a multiyear process, to which various funders, such as USAID and EPA, contributcd. The GEF proposal was one of the outcomes of years of research and project development efforts in the China refrigerator arena with the help of such bilateral assistance. 19 and increased awareness among govemment officials be brought forward in the schedule, according project and manufacturers that efficient models were "an idea consultants, rather than waiting until the original tim- whose time has come." For example, in 2000, three ing specified in the project plan. large refrigerator manufacturers (Haier, Kelong, and Xinfei) displayed prototypes of efficient models at an Smaller manufacturers can still benefit from training intemational exhibition. These prototypes benefited and design tools, provided they survive. In fact, the from acquisition of foreign technology based on the project assistance may help them survive. "What has early project preparation stages. Smaller manufactur- overtaken the project are the market leaders," said one ers also displayed prototypes; in all, manufacturers market observer when asked whether the market had representing about 80 percent of market share had overtaken the project. new prototypes. But full manufacturing versions had yet to be produced. In 1997, total domestic production from all 24 manu- facturers was 8.8 million units, and this increased to In 2000, the project sponsored several study tours 11 million in 1999. There is still serious overcapacity, abroad and focused on technical assistance and train- so the business has become very competitive. Repre- ing activities. Compressor manufacturers wanted to senting about one-quarter of total production, exports gain exposure to international experience and then continued to grow while domestic demand remained decide what types of project activities would be most flat. There appears to have been a slight downturn in useful to them. The study tours focused on foreign 2000, with only 10 million units produced as a result universities and research centers, but were unable to of the slowing of the economy and consumer spend- gain access to foreign manufacturers. ing. Also, electricity prices have fallen, reducing in- centives to conserve electricity. The project also established an information dissemi- nation center with the existing Chinese Household Interestingly, demand for refrigerators in rural areas Electrical Appliance Association (CHEAA; now an is increasing, while demand in urban areas is declin- independent association with 300 existing members) ing. This trend should result in a greater influence on and a national testing agency with the existing Chi- purchases of efficient refrigerators, as electricity rates nese Household Electric Appliance Research Institute are higher in rural areas than urban. On the other hand, (CHEARI). more consumer education programs are required in dispersed rural areas, where they are likely to be more In 2000, the project announced a competition for man- expensive and time-consuming than in concentrated ufacturers to innovate with energy-efficient designs, urban areas. with a one million Yuan prize (worth about $150,000). This attracted considerable media attention and in- Lessons Suggested by Experience creased the exposure of consumers to energy-efficient refrigerator publicity. 1. Project-sponsored manufacturer incentives are complicated by partialforeign ownership of Chinese There are now 24 refrigerator manufacturers in the manufacturers. A manufacturer design competition Chinese market, with an annual production capacity has been initiated with a prize of one million Yuan of about 20 million units. The 16 manufacturers par- (equivalent to about $150,000). But in administering ticipating in the project represent about 95 percent of the competition, the project has faced the dilemma the market share of the domestic market. Five of these of whether to allow foreign subsidiaries or joint 16 are joint ventures. With serious consolidation in the ventures with substantial foreign ownership to partici- past few years, the industry is down from 60 manufac- pate. What is the maximum allowable foreign owner- turers prior to the project. There also was no foreign ship? How can foreign ownership share be determined participation prior to the project. So the industry has when financial statements may not give a clear por- changed drastically since the project was initially con- trait, or the situation keeps changing from day to ceived in 1996, and manufacturers are larger and have day? Partial foreign ownership is growing among the more foreign resources. This means that the project leading enterprises in the industry, and thus becomes will probably prove of greater utility on the demand an impractical criterion for excluding participants in side and of declining utility on the supply side. For ex- the competition. ample, some demand-side activities like labels need to 20 2. Technical know-how transfer through visits by dards, enacted during the project development phase, Chinese manufacturers to foreign manufacturers also contributed to the future market. has proven unfeasible. The original project plan called for Chinese manufacturers to take foreign 4. Manufacturers are already responding to future study tours that included visits to foreign manu- expectations about the market. As one example, facturers. But requests to four foreign companies the share of efficient refrigerators (consumption of were turned down. The foreign companies said they less than 75 percent of the current standard) of one would only allow Chinese academics to visit them participating manufacturer went from 2 percent in (even delegations with policymakers were refused, 1997 to 10 percent in 1999. These efficient models presumably because there was no way to ensure they are sold with bright, door-affixed labels proclaiming weren't manufacturers in disguise). So, during study their energy consumption at 30 percent below Chi- tours, the Chinese manufacturers visited only foreign nese standards. Prior to 1997, technological change academic institutions and concluded that such visits was relatively stagnant, but has increased rapidly in generated limited practical knowledge. Similarly, the past few years. "We have to get on this train," said foreign manufacturers have refused to come to China the manufacturer. to train domestic manufacturers, so the project has had to hire foreign academics and retirees to come 5. The marketfor energy-efficient refrigerators faces to China rather than people active in industry. But an uphill battle for price competition not envisioned Chinese manufacturers need the concrete know-how in the project design. There was a 30 percent decline that can be gained only from other manufacturers. in the prices of ordinary-efficiency refrigerators from Besides technical know-how, "we need to see how the 1997-2000 as manufacturers reduced their profits and technologies are marketed and sold," said one Chi- cut costs in response to increased competition. Thus nese manufacturer. In addition, foreign compressor the "gap" in price between ordinary and energy- manufacturers, concerned about international compe- efficient refrigerators has increased to about 20 per- tition from Chinese compressor manufacturers, have cent, higher than expected in the project design. been willing to conduct training workshops in China to present their products and experience to Chinese 6. Manufacturers appreciate both marketing and refrigerator manufacturers (as potential customers) technology assistance from the GEF. One refrigera- only; they were unwilling to conduct workshops if tor manufacturer said that the main value of the GEF Chinese compressor manufacturers were present. project is the increased consumer awareness produced by the project's awareness campaigns. This makes the 3. Project preparation and approval activities have, marketing job of energy-efficient product producers by themselves, had a large influence on the market easier. Manufacturers also have appreciated access to for energy-efficient refrigerators. Even before proj- foreign expertise in technology and business and the ect activities started, future expectations changed as facilitation of government-to-government technology a result of the project being prepared and approved. transfers under the project. "Because of the GEF project, we have seen increased pressure on the market for efficient refrigerators and Multicountry Efficient Lighting Initiative (ELI) we are responding," said one participating refrigerator manufacturer. China's potential entry into the WTO Project Experience23 is another contributing factor (and a reorientation of production for exports), along with increased foreign The IFC/GEF Efficient Lighting Initiative started competition in domestic markets (which is less sig- implementation during 1999-2000 in a phased ap- nificant, given the huge hurdles that foreign firms face proach across seven countries. ELI's experience in to operate in China). But the Chinese government has its seven countries of operation was presented earlier told manufacturers that "with UN [UNDP/GEF] help, on page 9. Along with greatly increased interest in efficient refrigerators are the way it's going to be," efficient lighting and dialogue among a variety of according to one manufacturer. New refrigerator stan- stakeholders in the countries concerned, ELI has also 23 See GEF (1 999b) for more published information on this project. The material in this section is based in part on interviews and discussions with project managers and stakeholders. 21 obtained results on a global level in the promulga- consumer finance. However, depending on utility tion of technical specifications and qualification of partners can be risky given the electric utility cor- products. Early in project implementation, ELI de- porate culture, which is often characterized by slow veloped technical specifications for a wide range of decision making, political influence and uncertainties, energy-efficient lighting products in order to forestall and an emphasis on maximizing electricity sales. the potential "market spoiling effect" of low-quality lighting products. Products meeting specifications are 2. A multicountry program approach has led to the allowed to bear a special ELI logo as "ELI-qualified involvement of a greater number of manufacturers products" and are eligible for ELI support. In mid- and to a potentially larger program impact. In small, 2000, ELI sent notice, through its database of lighting non-competitive markets, the barriers to entry, and the manufacturers, that ELI technical specifications were ratio between cost of entry and the retums, can deter available on the ELI website. By early 2001, over 16 manufacturers. ELI is lowering the barriers to entry manufacturers from more than six countries had sub- by providing a single entry point into seven country mitted requests for ELI qualification, resulting in 98 markets, supported by a credible logo that can help a products being qualified. new market entrant gain consumer trust. For example, as a result of early ELI activities, a U.S. manufacturer Lessons Suggested by Experience entered the Argentine market, and was planning to establish local manufacturing facilities there. The The lessons suggested by experience will be appar- 16 manufacturers requesting ELI qualification in ent upon further project implementation and impacts, response to ELI technical specifications is another although a number of important project design lessons example of the supplier "pull" of a multicountry pro- were highlighted in the design and preparation pro- gram approach. cess (see page 10). Other lessons that can be drawn now include: 3. The tension between product quality and cost, and its implications for effective program approaches, 1. Utilities can be willing and interested partners in has become apparent in early project activities. market transformation programs, at least in certain To ensure high quality, ELI technical specifications national circumstances. The interest of utilities in require a minimum product lifetime of 6,000 hours. several ELI countries suggests that utility demand- However, such lamps generally cost at least twice as side management programs incorporating efficient much as a lamp with a lifetime of 3,000 hours or less. lighting continue to be viable in developing coun- Although lamps with short lifetimes are still cost- tries. Utility partnerships with ELI have taken place effective for consumers, there is concern that lower where sufficient motivation exists for the utility to quality lamps may have a "market spoiling effect." be interested in a lighting DSM program-be it for The extent of this effect is not known. ELI may be peak reduction, demand reduction, or public relations promoting a level of quality that some people in ELI reasons. In some cases, national circumstances limit countries cannot afford. The project is considering utilities' interest in DSM; for example, in the Czech ways to modify the standards to allow lower quality, Republic and Hungary, where the very survival of lower cost products. local utilities is threatened by pending market liberal- ization, utilities were not interesting in investing sig- Thailand Building Chiller Replacement nificant resources in DSM. However, utility partners Program are not essential for effecting market transformation. Rather, the manufacturers, distributors, and retailers Project Experience24 of the technology being promoted are the key part- ners. Nevertheless, where utilities would benefit from The World Bank/GEF Thai Building Chiller Replace- the intended market transformation, they can be valu- ment Program is the most recent addition to the GEF able partners with the means to efficiently reach the portfolio of market transformation projects. Imple- end user, facilitate consumer education, and provide mentation was expected to start in 2001. Nevertheless, 24 See GEF (200 1 a) for more published informnation on this project. The material in this section is based in part on a country visit in February 2001 (meetings with the Department of Industrial Works, IFCT, the World Bank, EGAT, manufacturers, and potential program participants). 22 lessons are already emerging from the considerable and invite applications for participation in the project. work that went into project preparation. Of 56 applicants, IFCT was able to meet its goal of identifying 24that met the project's technical criteria Chillers are very large air conditioning units that cool and also satisfied IFCT's financial due diligence. the air and reduce humidity in big facilities such as factories, hotels, or shopping centers. Approximately The GEF-supported project has already raised expec- 1,400 chillers in Thailand are inefficient models tations and produced commitments to further repli- that still require CFCs. The typical chiller lifetime cation of pilot results. If the demonstration project is between 25-30 years, and about two-thirds of the (replacing 24 existing chillers) is successful, the gov- inefficient chillers are less than 15 years old. Today's ernment plans to expand it to replace an additional 400 models are 30-40 percent more efficient than those chillers, resulting in a 57MW reduction in electricity manufactured before 1993, and can pay for them- demand. Such replication might be financed from the selves in 4-5 years. However, replacing an existing Thai Energy Conservation Fund. The Ministry of In- chiller with a new, more efficient model is not com- dustry and the Ministry of Science, Technology, and mon practice in Thailand. Reasons for this include Environment have already expressed their support for lack of awareness of the benefits of efficient chillers, a follow-on project. the high up-front investment new chillers require (over $100,000), a perceived technology risk, and Lessons Suggested by Experience limited technical capacity. The Thai Chiller Replace- ment Project is designed to remove these barriers. 1. The project approach to replacing existing chillers has generated enthusiasm among chiller suppliers In the initial project brief submitted to the GEF in and chiller purchasers; in particular, soft loans can 1998, the Electricity Generating Authority of Thailand be an effective means of stimulating the market. In- (EGAT) was to have implemented the project. When terviews and surveys suggest that chiller buyers like its privatization was subsequently announced, EGAT the project because a low-interest loan allows them was no longer in a position to be a suitable imple- to spread the first cost of a new chiller over several menter.25 The World Bank therefore proposed as its years. Other reasons cited include: (a) a performance implementing partner the Industrial Finance Corpo- guarantee shelters them from the risk of poor chiller ration of Thailand (IFCT), a Thai development bank performance, (b) a new chiller reduces their electric- partly owned by the government. This change caused ity costs, and (c) the project teaches them about new some delays, partly because the project needed to be chiller technology and their own energy consumption. restructured from a utility program to a financial pro- Chiller suppliers like the project because it has opened gram, and partly because of negotiating difficulties. up a new market for them (the retrofit market), helped the customer overcome the first-cost barrier, and IFCT and the project's owner, the Thai Department promises to provide good public relations because of of Industrial Works (DIW, housed in the Ministry of the project's case studies, which rely on an indepen- Industry), designed the project in close cooperation dent evaluation of chiller performance. with chiller owners, manufacturers, government de- partments, and other parties.26 In 2000, as part of the 2. Documents and approaches developed through appraisal process, IFCT organized a series of work- this project have the potential to be replicated. It is shops under the auspices of the DIW to inform chiller likely that other tropical developing countries could owners of the advantages of energy-efficient chillers benefit from a chiller replacement program. Tech- 25 The Thai Government introduced EGAT's privatization as a consequence of the country's financial crisis. It seemed likely that by the time of the project's closing, EGAT would no longer be a government entity, and that any government guarantee provided for a loan scheme would therefore no longer be valid. Therefore, it was deemed appropriate to find another partner for implementation. EGAT is now running its own chiller program, which is complementary to the GEF project because its primary target is the public sector. The EGAT program does not offer a technical shortfall guarantee or independent verification of results, and does not plan to issue detailed case studies. 26 These included the Ministry of Finance, the National Energy policy Office, and EGAT. Also, as part of its technical assistance responsibilities under the Montreal Protocol, UNEP worked with the DIW to assemble technical material related to chiller replacement. 23 nologies and barriers (low awareness, high first cost, 4. When a financial institution plays an imnportant the difficulty of obtaining a loan, aversion to tech- role in a project, the project design team should in- nological and financial risk) are likely to be similar clude afinance specialist. For historical reasons, the in other countries. While actual program design and project development team at the Department of Indus- implementation would vary according to local barri- trial Works was largely staffed by ozone specialists ers and institutional capacities, the extensive technical and did not include a finance specialist. This caused materials that IFCT and DIW have developed as part difficulties when program implementation was re-as- of the appraisal process could easily be adapted for signed from a utility (EGAT) to a financial institution use in other countries. (IFCT). The cooperation between DIW and IFCT would have been easier had a finance staff person 3. The project appraisal process has already had an been included on DIW's team. impact on the chiller market. As part of the appraisal process, IFCT organized seminars to inform chiller 5. GEF implementing agencies should allow suf- owners about the advantages of efficient CFC-free ficient flexibility when working with SMEs and chillers and solicit applications for participation in financial intermediaries. Negotiations between the the program. As a result, chiller owners are better World Bank and the project's implementor (IFCT), a informed about energy efficiency and ozone issues. financial institution with partial government owner- They are aware that the pilot is taking place. As a ship, were unusually protracted. Both parties agree result of the program's informational activities, at that a principal cause of the difficulties was the World least two chiller owners with multinational parent Bank's procurement and disbursement policies; as companies have undertaken chiller retrofits on their these arise from the Bank's traditional involvement own; in this case, the parent company has enough in very large loans to governments, they are not well cash to cover the up-front costs without a loan. Most suited for the swift approval of smaller projects, in importantly, the appraisal process for this pilot project particular, projects implemented through financial has stimulated the Minister of Industry to announce intermediary institutions. The slow pace of approval support for a second phase of the project (assuming frustrated many participants, and may even have dis- the pilot is successful). couraged some potential participants. 24 4. Impacts, Sustainability, and Replication Program Impacts and Indicators 2. Costs per technology unit or measure installed. The three completed projects clearly decreased prices The GEF has developed seven indicators to measure of the technologies they targeted. The Poland project the impact of its climate change programs (GEF resulted in a sustainable price decrease for CFLs of 2000): at least 35 percent. In fact, one of the project's key impacts was the lowering of CFL prices. In Thailand, 1. Energy production or savings and installed sales of low-price CFLs increased in part because of capacities the widespread publicity campaign promoting the 2. Costs per technology unit or measure installed benefits of CFLs sold at 7-11 convenience stores 3. Business and supporting services development nationwide, which were offered at lower prices due 4. Financing availability and mechanisms to bulk purchases by the national electric utility. Bulk 5. Policy development procurement in the Mexico project, coupled with 6. Awareness and understanding of technologies utility-provided subsidies, reduced consumer prices 7. Energy consumption, fuel-use patterns, and to $5-8, from pre-project prices of up to $25. Since impacts on end users project completion, average CFL prices have further declined, by up to 30 percent, and the project is cred- Three projects in the portfolio were completed by ited with accelerating price reductions that would 2001 (Mexico, Poland, and Thailand). Project evalu- have happened more slowly otherwise. ations, field visits, and other evidence suggest the fol- lowing impacts, primarily from these three projects, 3. Business and supporting services development. categorized using the above seven indicators. Several projects have been instrumental in strength- ening supporting institutions for energy efficiency. As 1. Energy production or savings and installed capac- part of the Thailand DSM Project, the national electric ities. Three projects in Thailand, Mexico, and Poland utility (EGAT) created a demand-side management have resulted in installation of more than 4.6 million office. This office successfully negotiated the volun- compact fluorescent lamps (CFLs) and annual elec- tary T-12 to T-8 lamp changeovers, conducted bulk tricity savings of at least 3,500 GWh (equivalent to procurement and distribution of CFLs through conve- several months' output from a 1,000 MW coal power nience stores nationwide, led campaigns to promote plant). Other energy consumption reductions were public awareness of energy efficiency and conserva- achieved through industrial, comnmercial, and residen- tion, promoted awareness of appliance energy labels, tial energy-efficiency improvements in the Thailand and disseminated classroom educational materials. project. One of the most notable achievements of that The experience that the Mexican utility CFE gained project was the compete transfonnation of the fluores- during the Mexico project has allowed it to proceed cent light market, representing 20 million lights sold with additional DSM programs without GEF support, annually, in which virtually all sales of less-efficient including the sale of an additional 4 million CFLs. T-12 lights were replaced with sales of T-8 lights that The China Efficient Refrigerators Project resulted are 10 percent more efficient. in the enactment of new energy efficiency standards 25 for refrigerators. The China Industrial Boilers Proj- variety of CFL models. Print media coverage of CFLs ect has provided nine Chinese boiler manufacturers increased and shifted from describing CFLs to ex- with technology licenses from foreign suppliers for plaining where and how to best use them. The Minis- upgraded or new industrial coal-fired boiler technolo- try of Education wrote, "It is apparent that as a result gies that are more efficient. of the project, large numbers of students and teachers have gained useful insight into the use of energy and 4. Financing availability and mechanisms. The its impact on the environment." The Thailand project Poland project established an innovative subsidy conducted a major public awareness campaign that mechanism whereby an overall GEF subsidy of $2.6 made 87 percent of Thais aware of energy efficiency million leveraged a total CFL retail price reduction issues, particularly the advantages of energy-efficient worth $7.2 million through competitively solicited lighting, refrigerators, and air conditioners. manufacturer wholesale price cuts as well as the mul- tiplier effects on price cuts from value-added taxes 7. Energy consumption, fuel use patterns, and im- and retail markups. The Mexico project introduced pacts on end users. The Poland project increased two new mechanisms for consumer financing of the percentage of households with CFLs from 11.5 CFLs: pay-on-the-bill financing, whereby the price percent to 19.6 percent. The Thailand project also of the lamp is deducted off of a customer's electricity had significant impacts on market shares: An air bill in installments, and a similar procedure managed conditioner program increased the market share of by employers, in which an employee's investment in energy-efficient air conditioners from 19 percent in CFLs is made through paycheck deductions. Both of 1996 to 38 percent in 1998, and a refrigerator pro- these financing approaches are still being used after gram transformed the single-door refrigerator market, the completion of the project. increasing the market share of the most efficient units from 12 percent in 1995 to 96 percent in 1998. One of 5. Policy development. Policy development has the most notable achievements of that project was the focused on national codes and standards for energy- compete transformation of the fluorescent light mar- efficient equipment. In the Mexico project, the devel- ket, representing 20 million in annual sales, in which opment of national CFL quality standards began in the virtually all sales of less-efficient T- 12 lights were early stages of project development. The standards replaced with sales of T-8 lights that are 10 percent were then launched and enforced during the project. more efficient. An increasing number of CFL models are being sold and labeled according to these standards. In the Thai- Sustainability land project, EGAT's DSM Office worked with the Thai Consumer Protection Agency to make energy ef- Evidence is emerging that the market changes brought ficiency labeling mandatory on single-door refrigera- about by GEF-supported efficient-products projects tors. In the China project, national energy efficiency are sustainable. For example, 2 years after the close standards for refrigerators were enacted. of the Poland Efficient Lighting Project, the market changes resulting from the project were still in place. 6. Awareness and understanding of technologies. Retail prices of CFLs in Poland decreased by 34 per- The Poland project has produced the most data of cent in real terms, and Polish CFL market experts and any project on changes in awareness and understand- manufacturers agree that the project was largely re- ing of technologies, in this case, of CFLs.37 Before sponsible for this dramatic price decrease. The project the project began, only one in 10 Polish households helped increase sales volumes and manufacturer com- owned at least one CFL. This increased to one in petition, and the public education campaigns helped three households a year after the program. Also, about increase consumer demand to the point at which the 97 percent of the CFL purchasers surveyed intend to price decrease was sustainable. replace their existing CFLs with new CFLs after they bum out. After the project, a larger number and wider In Thailand, a refrigerator program appears to have variety of stores (from small shops to supermarkets) sustainably transformed the refrigerator market. High- began to sell CFLs. Stores also began to carry a wider efficiency refrigerators are now the norm, and the unit 27 A comprehensive monitoring and evaluation program was designed and effectively implemented for the Poland Efficient Lighting Project. 26 with the highest level of efficiency dominated the mar- Part of the difficulty is that EGAT is negotiating with ket as early as the program's second year. In fact, sur- over 55 air conditioner manufacturers. veys show that a variety of energy-efficient appliances promoted through the Thailand project have sustained The sustainability of EGAT's DSM office remains markets. Customers have been highly satisfied with questionable in view of the planned privatization of the reliability of the energy-efficient products, which EGAT. However, despite the end of the GEF project suggests that the gains from the market transfornation and depletion of grant funds, the DSM office was con- programs are not likely to be reversed. tinuing to operate in 2000, and its 176 staff positions remained. With the anticipated availability of the Thai The Thailand DSM market transformation programs government's Energy Conservation Fund to support for fluorescent tubes also had sustainable impacts future operation, it is expected that the DSM programs on the market. In particular, the voluntary agree- initiated under the project will be sustained and new ment concluded between EGAT and fluorescent tube programs will be launched, at least until EGAT is manufacturers effectively and completely "washed" privatized. The longer term institutional fate of the the Thai market clear of inefficient T-12 fluorescent DSM office remains uncertain. tubes. In 1994, when the program began, efficient tubes had a 40 percent market share, and by the end of Sustainability is difficult to assess in some projects. 1995, the efficient tubes had achieved a 100 percent such as the Mexico lighting project, because of the market share. lack of established baselines and surveys of non- participants. However, it is possible to say with some The Thailand DSM CFL program and the labeling for confidence that average CFL prices in Mexico have air conditioners appear to have been less effective at dropped by about 30 percent since the completion of achieving sustainable changes. Through advertising that project, and the variety of available models has campaigns, the CFL program successfully addressed significantly increased. People familiar with the proj- consumer information barriers and, through bulk pur- ect agree that while the market may have eventually chases, it ensured that CFLs remained in the market evolved on its own, the project definitely accelerated during an economic downturn. The program reached the pace of the CFL price drop and increased the avai l- only a small proportion of consumers, primarily ability and variety of models. because conventional lighting distributors were ex- cluded from the program, but also because only two Replication sizes of CFLs were promoted (IIW and 13W). An unintended impact was the increase in sales of lower Experience from GEF market transformation projects priced, lower quality CFLs. Unfortunately, consum- is catalyzing similar activities locally and in other ers familiar with the poor performance of the lower countries-in the same technologies as the original priced, lower quality CFLs may assume that higher project or in different technologies. All of the com- priced, higher quality CFLs are also unreliable. pleted projects (Ilumex, PELP, and Thai DSM) are being replicated in some form. The clearest example It remains to be seen whether the air conditioner la- of replication is when the implementing organization beling component of the Thailand DSM program will continues to run the program after all GEF funds have lead to sustainable changes. Customer awareness and been disbursed. This has been the case in Mexico. knowledge of labeled energy-efficient air conditioners FIDE is a public/private non-profit involved in the has increased, the market share for energy-efficient implementation of the efficient lighting project. Its units has increased, and peak demand and energy positive experience with the project led it to run an savings have been realized. But EGAT has not been ambitious follow-on program. Between 1998 and able to establish a mandatory labeling agreement, and 2000, the new FIDE program sold 4.8 million CFLs manufacturers of lower efficiency products have been all over the country both in retail outlets and through reluctant to apply a voluntary label to their products. CFE offices.28 Thanks to experience gained through 28 The promotions run for 6-9 months in selected cities. Manufacturers are coordinating their advertising campaigns with the FIDE campaign. The sales campaign is accompanied by an advertisement campaign (local TV, radio, posters, etc.). At the end of each city's campaign, CFLs are no longer sold through CFE, but only through retail outlets. In all cities where this program is imlplemented, informationI is being collected to assess what was the situation before, during and after the project starting. 27 the original project, the new program was able to run strategies. Sometimes replication may be in the form without subsidies, with reduced administrative costs, of follow-on GEF projects, as was the case with the and with shorter terms for CFL repayment (4 months). Efficient Lighting Initiative (ELI). During the imple- CFE staff indicated that their experience with the mentation of the Poland lighting project, IFC received original project played an important role in the design requests from numerous countries wishing to host a of subsequent nationwide energy saving programs, similar CFL promotion program; these requests particularly by: (a) establishing internal management prompted IFC to design ELI. Although ELI is being units, (b) formulating technical specifications and implemented in seven countries (Argentina, Czech laboratory tests, and (c) undertaking periodic technical Republic, Hungary, Latvia, Peru, Philippines, and and financial reviews. South Africa), IFC received expressions of interest in replicating the Poland experience from many other The Mexico efficient lighting project has also in- countries, including Brazil, Bulgaria, Egypt, India, spired other Mexican organizations to conduct energy Lithuania, and Russia. Organizations from Botswana, efficiency programs. For example, the trust fund for Mozambique, and Zimbabwe have approached ELI thermal insulation in the Mexican state of Mexicali team members to get advice on how to run similar (FIPATERM) has developed Ahorro Sistematico In- lighting programs locally. The implementation team tegral (systematic integrated savings), a household ef- has floated ideas about exporting ELI to other coun- ficiency program that integrates air conditioning, roof tries in the region. and wall insulation, and weatherstripping to reduce summer electricity consumption. This program fol- Another example of international replication comes lows the lighting project's commercialization scheme, from the Thailand DSM project. The experience and aimed to introduce 500,000 CFLs over 5 years, gained by EGAT in its early years implementing that starting in 1998 (Friedmann 2000). project contributed to improving the designs of the IDA/GEF-assisted DSM component of the Sri Lanka In Thailand, the original DSM program was expanded Energy Services Delivery Project and a Swedish In- in 1997 to include the Bangkok distribution utility, ternational Development Agency (SIDA)-sponsored MEA. Under the World Bank-supported Metropolitan DSM Project in Vietnam. It should be noted, how- Distribution Reinforcement project, a portion of proj- ever, that the broader GEF goal of encouraging other ect funds were allocated to MEA to help them initi- countries to undertake large-scale, utility-based DSM ate their own DSM programs, which complemented programs was only marginally achieved. A major EGAT's efforts. constraint has been the fact that many utilities in the region are undergoing an unbundling and privatiza- Replication of GEF-supported projects in other tion process, which is altering the rationale for utilities countries beyond the original project locations is to undertake such initiatives. also occurring-a key goal of the GEF's long-term 28 Conclusions and Recommendations An analysis of market indicators shows that GEF It is interesting to note that increased expectations support has indeed managed to transform markets of future markets for efficient products, increased for energy-efficient products. The GEF has already awareness of energy savings potential, and increased achieved significant CO2 emissions reductions and understanding of market transformation approaches is demonstrating highly cost-effective potentials for can have early indirect effects on the target market. doing so-to less than $1 per ton of carbon. Many of These effects may occur even before a program starts the lighting programs have resulted in cost-effective- formal implementation. Appraisal of a GEF project ness in the $5-10 per ton range. Replacing existing suggests to market players that increased investment building chillers before the end of their useful life also and publicity are likely to occur. This motivates man- appears to be particularly cost-effective because chill- ufacturers to increase their market presence, develop ers last about 25-30 years. Replacing existing Thai prototypes, and take other actions that put them in a chillers with more efficient models pays back within good position to take advantage of the project. This 4-5 years and can reduce CO2 emissions at less than phenomenon has been observed in at least three GEF $1 per ton of carbon, and at a cost of only half that in projects. One Chinese refrigerator manufacturer said GEF funds per ton, given the project leverage of other in the very early stages of the GEF efficient refrigera- financing sources. tors project: "Because of the GEF project, we have seen increased pressure on the market for efficient There appears to be no single prescriptive approach refrigerators and we are already responding." that guarantees the success of a market transforma- tion program. The variety of approaches used reflects It is very clear that the GEF can and should continue the barriers and opportunities in each target market, as to conduct market transformation approaches. In well as the capacity and creativity of each program de- fact, given the effectiveness of such approaches in sign and implementation team. Some notable program achieving global environmental objectives as well as schemes include the voluntary agreements negotiated domestic economic and environmental benefits, it is between the Thai electric utility and Thai importers surprising that GEF implementing agencies have not and manufacturers of fluorescent tubes, in which made greater efforts to support developing countries EGAT funded a massive education campaign on the with these approaches. benefits of more efficient "thin" tubes, in exchange for a complete production changeover to thin tubes; Changes in private sector markets for lights, refrigera- the Poland lighting project's per-lamp price subsidy, tors, air conditioners, and building chillers offer large competitively allocated at the manufacturer level, potential for energy savings. Less potential may exist which led to a subsidy multiplier effect at the retail now for DSM programs as utilities continue to priva- level; and the Thailand chillers project's combination tize and lose public interest mandates or oversight. of low-cost loans and performance guarantees, which However, experience suggests that even private utili- have been met with enthusiasm by both manufacturers ties can be willing and interested partners in market and potential purchasers. transformation programs in some national contexts. 29 Projects that go beyond accelerating an existing mar- 5. Carefully consider the vehicles for technical ket to creating an entirely new market, such as the assistance and technical know-how transfer that Thailand chiller retrofit project, may provide some of will be workable, and realistically appraise the costs the largest gains. Projects that attempt technical as- of such efforts (perhaps with pilot activities prior to sistance and know-how transfer to manufacturers may final cost estimation). Added flexibility also may be face particularly difficult hurdles, but such hurdles important. Emerging experience suggests that the are worthwhile if know-how transfer will ultimately costs and challenges associated with technical know- improve domestic innovation and lower costs in the how transfer may be high or, at minimum, difficult to recipient firms and countries. estimate in advance. Based on the emerging experience and lessons, we 6. Emphasize standards, labeling, and building can recommend eight fundamental design principles codes. Building codes and minimum energy efficien- for future projects: cy standards and labeling are among the most power- ful tools for transforming a market, as they remove the 1. Target both supply and demand sides of a least efficient products from the market and encourage market. Increased supply by itself may not result in the purchase of higher efficiency products. increased purchasing by consumers, unless demand is also stimulated. Conversely, greater awareness 7. Allocate a portion of the program's budget for and understanding of technologies by consumers is activities that support replication and the dis- ineffective unless they have opportunity, credit, and semination of results, including preparing papers, quality products available. conducting workshops, making project documenta- tion accessible (i.e., on the Web), and actively sharing 2. Take a holistic view of the market by carefully experience and supporting outside stakeholders who examining all stages of the supply and demand chain are considering or initiating similar approaches. before designing the program. This may require ex- tensive market research. 8. Begin monitoring and evaluation early, so as to measure pre-program baselines. Early start-up of 3. Leverage competitive market forces whenever M&E offers another important benefit: By tracking possible. The Poland lighting project provided a good relevant indicators in parallel with program imple- model of this principle, although other approaches are mentation, the M&E can provide real-time feedback feasible. Leveraging competitive market forces will on market conditions that can be used to refine the both make a program more cost-effective, and perhaps program design. more importantly will limit market distortions caused by subsidies. Above all, market transformation programs depend on "market-based" thinking that is not usually part of 4. Build flexibility into program design so that the traditional toolset of the engineers and economists program activities can be modified effectively and who typically design energy efficiency programs. As rapidly based on changing market dynamics. Inevita- a result, they may overlook certain design strategies bly, exogenous political, economic, or technological and program tools. The program team should con- changes will affect the implementation of a market sider staff or consultants with experience in market- transformation program. In response, program man- ing, public relations, finance, and business planning. agers should create a culture that emphasizes flex- Market research takes on particular importance in a ibility and responsibility for results, rather than strict market transformation programs. Future programs adherence to a plan. that seek to increase the penetration of an energy-ef- ficient technology can benefit from guidance, such as that contained in this report, based on emerging expe- rience and lessons, design principles, programmatic tools, and management practices associated with ef- fective market transformation programs. 30 Annex A: Market Transformation History and Global Trends Historical Background as the conference of record of the energy efficiency community (Keating et al. 1998). At that time, the Historically, the concept of market transformation term market transformation was introduced to de- grew out of utility demand-side management (DSM) scribe programs in which market actors, such as experience in North America and Sweden in the l980s utilities, govemment, industry, and public interest and early 1990s. Utility-run DSM programs had used organizations, were working together to create lasting audits, information, rebates, and other tools to achieve changes in the market so as to increase the penetration a target penetration of energy-efficient products. These of energy-efficient goods and services. programs typically sought to meet short-term energy efficiency objectives, such as a target kWh level of After the 1992 Summer Study, some energy effi- savings per year. They did not explicitly address the ciency program designers began to put into practice underlying market barriers that hinder the long-term the new concept of market transformation. From these adoption of energy-efficient products and practices early roots, market transformation blossomed into an (Nadel and Latham 1998). In these early days of energy efficiency approach widely sanctioned as ef- energy efficiency programs, the term and concept of fective and low-cost. Market transformation is now "market transformation" did not yet exist. a staple energy efficiency policy in several European countries, in North America, and among international At the beginning of the 1990s, DSM analysts observed organizations such as the European Union (EU) and with interest that certain DSM programs were produc- the International Energy Agency (IEA). Several an- ing sustained changes in the marketplace: the changes nual conferences are dedicated to the topic. Several that were brought about by the program persisted be- developing countries have adopted market transfor- yond the program's closing (Keating et al. 1998). For mation practices, most notably Thailand, with support example, the Bonneville Power Administration in the from the World Bank/GEF Thailand Promotion of United States discovered that its 4-year incentive pro- Electricity Energy Efficiency (Thai DSM) project. gram to replace inefficient streetlights had captured so much of the Northwest market that distributors no lon- Because of the complex nature of markets, no orga- ger stocked inefficient fixtures. Utilities were not the nization can single-handedly catalyze a market trans- only actors behind these early market transformation formation. Different types of organizations have each initiatives. Through its procurements, the Swedish played different roles historically: National Board for Industrial and Technical Develop- ment (NUTEK) introduced high-efficiency products Governments can enact legislation, such as man- that remained on the market long after the conclusion datory standards or labeling, that leads to market of the procurement. transformation. They can initiate voluntary programs, such South Africa's Green Buildings for Africa. They The first formal and explicit presentation of market can use their influence as a large-scale purchaser to transformation as a theory took place at the 1992 help create a demand for a product or service (South Summer Study of the American Council for an En- Africa's Energy Star computers). They can enact reg- ergy-Efficient Economy, which is widely recognized ulations that support the introduction of market trans- 31 formation programs (the Thai Energy Conservation initiate a market transformation effort themselves, Promotion Act), or set aside funds to support market have an important role to play as program allies. transformation (the Thai Energy Conservation Pro- motion Fund). Governments can also allocate funds * Local and foreign NGOs often act as catalysts for to support industry directly (China Green Lights). market transformation by putting pressure on their governments to act, by as acting honest brokers who Electric utilities have proven to be effective bring partners together and facilitate discussion, or by agents for market transformation when they have a implementing program elements. For example, Polish strong motivation to reduce electricity consumption. NGOs played important roles in PELP, conducting Certainly, North American and European utilities background research, implementing elements of the have run successful market transformation programs program, and preparing publicity material for a range (B.C. Hydro motors program, Danish utilities' CFL of local media outlets. The International Institute for programs). The Thai DSM programs were all run by Energy Conservation (HEC) and the Alliance to Save EGAT, the national utility. Utilities are also involved Energy are American NGOs with field offices in GEF in other GEF market transformation programs in client countries. These NGOs have been longstand- Mexico (Ilumex), South Africa (ELI) and the Philip- ing "motors" behind the implementation of market pines (ELI). transformation in GEF client countries. IIEC played a role in initiating or supporting Ilumex, PELP, Green International assistance agencies such as USAID Buildings for Africa, the Philippines Green Buildings provide valuable support for market transformation. Program, and the EBRD's support to ESCOs in Cen- Through their selection of projects to fund, they also tral and Eastern Europe. influence the types of projects undertaken. The GEF is the funding agency responsible for the largest num- * Energy efficiency business councils have been ber of market transformation programs in developing established in India and Hungary. In the Philippines, and transitional countries. Other significant funders ELI has established a National Advisory Council on of market transformation include USAID (support for Energy-Efficient Lighting. These organizations can standards and labeling, and for voluntary programs play a role in lobbying for and implementing market such as the Philippines Green Buildings Program), transformation programs. UNDP (the China Green Lights Program), the UN Foundation (support for standards and labeling via * Transnational organizations such as the IEA, the Collaborative Labeling and Appliance Standards APEC, or MERCOSUR are well placed to conduct Program--CLASP29), and private grant-making foun- surveys of market transformation activities like the dations such as the Energy Foundation. establishment of standards that have international trade implications, to act as a conduit for information, * International financial institutions such as the and to convene market players at conferences where World Bank, the IFC, and UNDP have acted as they can share information (as is done by the Climate implementing agents for GEF market transforma- Technology Initiative of the IEA). tion projects. Funding from the European Bank for Reconstruction and Development (EBRD) to ESCOs Global Experience with Market has had a market transformation impact, supporting Transformation Interventions the growth of ESCOs in Central and Eastern Europe. The IFC too is involved in funding ESCOs. For ex- The following is a brief survey of the application ample, BEE is a Polish street lighting ESCO that of market transformation practices throughout the the IFC funded through a small sum left over at the world. The survey draws upon a vast body of mar- end of PELP. ket transformation experience throughout the world, and is illustrated by examples from both developed * Manufacturers, wholesalers, retailers, and in- and developing countries. Measures used to catalyze dustry associations, though they are not likely to market transfornmation include standards and labeling, 29 CLASP was founded in 1999 by the Intemational Institute for Energy Conservation (IIEC), the Alliance to Save Energy, and Lawrence Berkeley National Laboratory, and is supported by USAID, the UN Foundation, the Energy Foundation, and U.S. Department of Energy. 32 building codes, procurement, voluntary agreements, standards or labeling. Countries that have adopted (or financial incentives, financing, and information. From are in the process of adopting) mandatory or voluntary the inherent complexity of markets, it follows that no standards include Brazil, Bulgaria, China, Colombia, single policy instrument can deliver all of the potential Costa Rica, Czech Republic, Ecuador, India, Indo- for market transformation.30 nesia, Iran, Korea, Malaysia, Mexico, Philippines, Poland, Russia, Taiwan, and Vietnam. Countries that Standards and Labeling have, so far, only implemented labeling programs include Lithuania, Romania, Singapore, and Thailand Product performance standards define a minimum (IEA 2000a, Wikler 2000, Dasek 1999, Gabriello and legal efficiency level for a particular product class, Prias 2000, Marin and Sanchez 2000, Balseca 2000). such as refrigerators, and eliminate from the market all products that do not meet this minimum efficiency There is potential for further adoption of standards level. Typically, product standards-a supply-side and labels in developing and transitional economies measure that pushes energy-efficient products onto and for assisting those countries in the process of the market-are supported by legislation requiring adopting standards. In recognition of this situation, manufacturers to place an energy efficiency label on two NGOs and a research laboratory joined forces to all products for sale-a demand-side measure that create CLASP (see footnote 29). CLASP's mission is creates consumer pull towards energy efficiency. to promote efficiency standards and labels in devel- oping and transitional countries through partnerships Mandatory labeling and standards can affect most with agencies, stakeholders, and relevant institutions of the energy that will be used in a building 2 in those countries. CLASP is currently supporting the decades from now. Labels and standards deserve to participation of an international standards and label- be the cornerstone of a balanced portfolio of energy ing expert in GEF's China refrigerators projects. In efficiency programs: When designed well, they can Ghana, CLASP is working with the national govern- produce large energy savings, they are hugely cost- ment to estimate the potential savings from energy effective, they are a very effective way to limit en- efficiency standards and labeling programs. ergy growth without limiting economic growth, their benefits are relatively simple to quantify, they require Building Codes change in the behavior of a manageable number of manufacturers rather than the total consuming pub- While standards address the efficiency level of indi- lic, and the resulting savings are generally ensured, vidual products, building codes address the energy comparatively simple to quantify, and can be easily use of entire buildings or of building systems such verified (Wiel et al. 2001). as heating, ventilation, and air conditioning. Building codes are often set through a consensus or political As part of an effort to help promote the wider use process, so code requirements are generally limited of standards and labeling for home appliances, the to measures that are already well accepted. Once International Energy Agency (IEA) has documented institutionalized, a code can be revised to strengthen the use of standards and labels for home appliances. the standards of efficiency and encourage more wide- It found that 22 industrialized countries have enacted spread use of energy-efficient equipment and design energy efficiency standards (IEA 2000a).A Devel- practices (Meyers 1998). oping and transitional economies are also adopting 30 There is a wealth of market transformation information available on the web. Examples include sites for the International Energy Agency DSM implementing agreements (http://dsm.iea.org), the American Council for an Energy-Efficient Economy (www.aceee.org), the Alliance to Save Energy (www.ase.org), CLASP activities on standards and labeling (www.clasponline.org), European refrigerator procurement (www.efficientlighting.net/html/links), European lighting market transformation efforts (www.etsu.com/eulightdesign/marketing), Green Buildings for Africa (www.greenbuildings.co.za/showcase), general market transformation links (www.energy-plus.org/English), UK market transformation programs (www.mtprog.com), and proceedings of the SAVE Conference for an Energy Efficiency Millenium, Graz, Austria November 1999 (www.eva.wrs.ac.at/save-conference/ programmes/htm). 31 The 22 countries are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Italy, Ireland, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, and the United States. The 15 members of the European Union (EU) have enacted certain EU-wide standards, e.g., for refrigerators. 33 The use of building codes is widespread in developed Beginning in the 1980s, Sweden pioneered the use of countries. In developing countries, they are less com- procurement as a tool to improve energy efficiency. mon, and their effectiveness is particularly dependent To date, Sweden has run over 30 procurements, for on enforcement. From 1982 to 1992, USAID support- such residential and commercial equipment as com- ed the development of codes in five Asian countries. bination refrigerator/freezers, heat pumps, windows, Each country has implemented and enforced the codes high-frequency lighting ballasts, and visual display with a different degree of rigor. In Singapore, the code units (computer screens). The winning models of is strictly enforced. In the Philippines, the code has the heat pump procurement, which ran from 1993 to been issued, but it is not enforced. Thailand made its 1995, were 30 percent more efficient and 30 percent code mandatory in 1997. In Malaysia and Indonesia, cheaper than heat pumps prior to the competition. the codes are voluntary, and provide guidelines that Within a year, these models were firmly implanted in building designers are encouraged to use. Transitional the Swedish market, and even began to generate inter- countries often have building codes in place as a est in other European countries (IEA 1997). legacy from the Soviet era, but countries have been slow to update these codes to reflect modem perfor- Procurement is now being used in other countries, mance standards; rather, codes still rely on specifying such as Finland and the United Kingdom (which has individual building materials, some of which may no established a Market Transformation Program under longer exist. the Department of the Environment, Transport, and the Regions), and by groups of developed countries, Procurement under the auspices of the EU or the IEA.32 Over 90 European organizations are participating in "En- Procurement is a non-regulatory approach to trans- ergy-plus," a procurement program for a refrigerator forming a market. A simple bulk procurement can whose energy performance significantly exceeds that reduce the price and increase the availability of exist- required by the current "A" (best) label of the EU. ing products; a technology procurement seeks to go Starting in December 2000, seven refrigerators quali- one step further and catalyze the appearance of new fied by Energy-plus will be commercially available.33 features in an existing product (e.g., higher energy Energy-plus is a good example of procurement being efficiency levels, lower standby power consumption). used to pull the market even further beyond the com- Procurement works as follows: A large buyer, or a mon practice brought about by standards and labels. coordinated group of smaller buyers, plans a purchase large enough to interest manufacturers. The buyers' Procurement is also being used in developing coun- group formulates requirements for energy efficiency, tries. In February 2000, the South African govem- price, quality, and other features of the product in ment issued a one-million-Rand (about $150,000) question. Interested manufacturers submit tenders; the tender for computers, which specified that all models buyers' group evaluates the tenders and selects one or purchased must be delivered with the Energy Star more winning manufacturers. feature enabled (IIEC 2000). The GEF Mexico High Efficiency Lighting Project used procurement to bring The initial purchase creates a "demand pull" that is down the price of CFLs, and to introduce certain prod- meant ultimately to influence all manufacturers (not uct features new to the Mexican mass market. The just the winners) to supply products meeting the GEF Efficient Lighting Initiative (ELI) is also using bid criteria. The market transformation impact of procurement to bring down CFL prices. procurement is usually further enhanced by support- ing activities such as rebates, information, labeling, Voluntary Commitment and Recognition awards, etc. As procurement programs are based on voluntary actions, they are usually faster to implement Another non-regulatory approach for transforming than regulatory standards (Engleryd 2000, Engleryd markets is to obtain voluntary commitments from and Ofverholm 1999, IEA 2000c). companies to improve their energy efficiency practic- es. Such commitments can be used on the supply side, 32 See http://www.mtprog.com, http://dsm.iea.org, and http://www.motiva.fi. 33 See http://energy-plus.org. 34 to accelerate the introduction of new technologies, or product availability, and by increasing sales volume, on the demand side, to increase the penetration of en- can bring prices down in the long term. ergy-efficient goods, services, and practices. The relative merits of these approaches vary depending The EPA's Green Lights program and its successor, on the market niche and the program goals. Consumer the Energy Star Buildings program, approach markets incentive programs can give the program sponsor from the demand side. Organizations sign a Memo- direct contact with consumers and an opportunity to randum of Understanding committing them to audit educate consumers regarding efficient energy use. their facilities and then implement upgrades to light- Manufacturer incentives have the benefit of less pa- ing and other equipment (cooling, windows, etc). The perwork and lower administrative costs. When manu- organizations only implement upgrades which meet facturers are required to pass the incentive in full onto an agreed-upon minimum payback criterion. In 2000, their customers, manufacturer incentives also result in the European Union launched a similar program, a larger reduction in the retail product price for the called GreenLight.34 same level of incentive, because distributor and dealer markups and value-added taxes are also reduced. Green Lights and Energy Star Buildings have been replicated in several developing countries. The Phil- The Poland Efficient Lighting Project (PELP) used ippines now has a Green Buildings/Resorts program manufacturer incentives to increase the leverage of in place, which received funding from USAID and GEF funds. A $1 GEF subsidy resulted in a $2.80 is partially modeled on the Green Lights program retail price reduction by the time the product reached (Verdote et al. 2000). The program's goal is to con- the end of the distribution chain. The subsidies were vince building owners to invest in sustainable energy allocated on a competitive basis; manufacturers that technologies. The program is run by an intemational offered the GEF the highest CO2 emissions reduction NGO with offices in the Philippines; participants per dollar of subsidy received the largest subsidies for include utilities, government agencies, suppliers their sales. As an additional motivation to manufactur- and manufacturers of energy-efficient products and ers, their performance was assessed halfway through services, foundations, professional organizations, en- the program, and subsidies were reallocated in favor vironmental NGOs, and the corporations that commit of those manufacturers with the highest sales. to upgrading their facilities. South Africa has also ini- tiated a similar program, named Green Buildings for To stimulate adoption of high-efficiency motors, Africa. As a flagship demonstration site, the facilities B.C. Hydro had been offering an information-only of the South African utility (ESKOM) were the first program, which was not proving effective. After buildings to be upgraded under the program.35 extensive research, the utility identified two barriers that reinforced each other: both vendor stocks and Financial Incentives consumer demand were low. In order to reduce these barriers, B.C. Hydro decided to offer an incentive Markettransformationprogramsusedifferentfinancial to both purchasers and vendors of high-efficiency incentive mechanisms to reduce the price of energy- motors. As a result, high-efficiency motors became efficient equipment, and thereby reduce the first-cost a standard vendor stock item, leading to a natural barrier (Meyers 1998). The most common incentives decrease in their price; B.C. Hydro was able to gradu- are price rebates or grants, though tax credits and no- ally eliminate the incentive without adverse effects cost direct installation have also been used. In most (Henriques 1993). cases, financial incentives have been directly offered to end users. Another approach is to offer incentives to Incentives also have a role to play at the supply source. manufacturers or builders to encourage them to sup- Special-purpose funds can help manufacturers retool ply more efficient products, with the assumption that to provide more efficient products. The China Green most of the incentive will be reflected in a lower price Lights program includes low-interest loans and grants for the product. Vendor incentives can help increase to finance capacity expansion for domestic manufac- 34 See http://www.eu greenlight.org. 35 See http://www.greenbuildings.co.za. 35 turers of CFLs. The GEF China refrigerators project estate market: ELI is working with financial institu- will provide incentives for energy-efficient product tions to develop product financing and home mort- design and conversion of factory production lines. gage products that either provide consumer financing for energy-efficient lighting or grant a lower mortgage Financing of Energy Efficiency Investments interest rate to housing with energy-efficient lighting. Actions that improve energy efficiency often require Information and Marketing a significant initial investment of capital in exchange for future savings in energy costs. The provision of For most energy-efficient products, lack of informa- financing overcomes the barrier of lack of capital tion on the product's advantages (or existence) is a and also spreads the end user's payments over time, strong barrier to sales. Therefore, providing informa- creating the potential for a positive cash flow (Meyers tion is a pillar of any market transformation program. 1998). Voluntary programs such as the U.S. Green Lights and Energy Star Buildings programs are essentially infor- Pay-on-the-bill financing for the residential sector mation programs. They provide information on the is effective because it requires little or no action on financial benefits of energy efficiency, technologies the part of the customer. The use of this tool depends appropriate for different applications, local contrac- on a country's customs and legal systems. European tors that can install the technologies, decision support and North American utilities have had much experi- tools for analyzing upgrade options, and sources of ence with pay-on-bill programs. Experience among grants or loans for the upgrades. The Green Buildings GEF client countries is less widespread. Utilities in for Africa and Philippines Green Buildings programs Peru sent low-income customers a coupon that they operate in a similar way. could redeem for a CFL; the customer reimbursed the utility for the cost of the lamp through a 24-month, Often, information is part of a strategy that includes pay-on-the-bill scheme. In Poland, however, utility other approaches as well. The GEF Thai fluorescent regulations effectively prohibited utilities to engage lighting program used an $8 million nationwide in pay-on-the-bill schemes, and so PELP was unable advertising campaign to promote the replacement to make use of this financing strategy. In South Africa of T-12 fluorescent lamps with energy-efficient T-8 and the Philippines, ELI will work with the utilities to models; the promise of such a large advertising cam- arrange a pay-on-the-bill scheme for newly electrified paign helped lure manufacturers into signing volun- residential customers. tary agreements to eliminate T-12 lamps in favor of T-8 lamps. The nationwide advertising campaign in On the non-residential side, energy service compa- PELP was timed to accompany a temporary CFL price nies (ESCOs) are a powerful force for transforming reduction. The campaign served the double purpose of the market for energy efficiency services. ESCOs alerting consumers to the price reduction and educat- typically provide energy efficiency upgrades on a ing them on CFLs. paid-from-savings basis: The ESCO's services result in a reduction of the client's energy bill, and the client Technology transfer and technical assistance are in- pays the ESCO a portion of those bill savings. This fi- formation tools for the supply side of a market. These nancing scheme reduces the client's first-cost burden. tools can be instrumental in helping developing coun- Since the mid-1990s, the EBRD has been supporting try industries manufacturer high-quality, reasonably the development of ESCOs in Central and Eastern priced, energy-efficient products. Technology transfer Europe. Thanks to its support, several large ESCOs is a main element of the GEF China refrigerators proj- are now operating in the region. ect and boilers project. Low- or zero-interest loans can help facilitate pur- There are many additional ways market transforma- chases of energy-efficient equipment, by spreading tion programs can use information to reach their the high first-cost over several payments. The GEF goals, limited only by the creativity of program Thai chillers program helps business owners replace designers. Demonstration buildings have been used existing chillers with more efficient models by offer- by North American and European programs (Green ing a loan for the purchase of a new chiller. In South Lights, European GreenLight), and are especially Africa, ELI is helping transform the residential real important in a developing country context, where 36 energy efficient technologies and practices may not flux of low-quality products. In response to this prob- yet be standard, and equipment purchasers need to lem, ELI enables manufacturers to mark packages of "see it to believe it". The Green Buildings for Africa qualified CFLs with a logo that identifies high-quality and Philippines Green Buildings programs have both lamps. Other information tools include education for used high-profile demonstration buildings as proof- schoolchildren, energy audits, best practices, and la- of-concept models. The CFL market worldwide has bels, which were discussed previously. suffered a loss of consumer confidence due to an in- 37 Annex B: Stakeholder Involvement The nature of market transformation approaches de- ity organizations, each with a different geographical mands participation by a wide variety of stakehold- area of responsibility. Different types of organizations ers and careful selection of an appropriate executing are in turn responsible for on-the-ground implementa- agency. In the GEF portfolio, the nature of the execut- tion: a local subsidiary of the foreign utilities (Argen- ing agent has varied widely. Two projects, in Mexico tina, Philippines), an independent local utility (Peru), and Thailand, are executed by national electric utili- a local firm (Hungary, Latvia), a local NGO (Czech ties.36 Two China projects are implemented by govern- Republic), or an independent subsidiary of a local util- ment agencies; the efficient industrial boilers project is ity (South Africa).37 executed by a specialized project management office under the direction of the State Administration of the The participation of stakeholders has been an essential Machinery Industry (formerly a Ministry), and the part of the design and implementation of GEF market efficient refrigerators project is implemented by the transformation programs (see Table 4). Stakeholder Ministry of Environmental Protection. The Thai chill- groups can be categorized into government, electric ers project is executed by a mix of public and private utilities, industry/manufacturers, the financial sector, entities: The Thai Department of Industrial Works (un- NGOs, and "other," including non-GEF sources of der the Ministry of Industry) is the project manager, donor assistance. Three projects include participation but decided to delegate most tasks to the Industrial by all six of these stakeholder categories (Thailand Financial Corporation of Thailand (IFCT), a Thai de- chillers, Thailand DSM, and the Efficient Lighting velopment bank with partial government ownership. Initiative). The participation of stakeholders has been an essential part of project design and implementa- IFC projects are executed through private sector tion. For example, cooperation with government has agents. IFC assigned responsibility for the Poland helped ensure that a project's activities are harmonized lighting project to an association of Dutch utilities with current or planned legislation (Thailand chillers). (the Netherlands Energy Company B.V.), which Close relationships with industry allow project imple- then established an independent project company menters to closely follow market developments (Effi- (NECEL) in Poland to implement the project. The cient Lighting Initiative). NGOs have been able to act Efficient Lighting Initiative is administered and man- as neutral endorsers of a project, thus enhancing the aged on a regional basis by three foreign electric util- credibility of the project's message (Poland lighting). 36 In Mexico, the federally owned Comision Federal de Electricidad, and in Thailand, the Electricity Generation Authority of Thailand 37 Danish Power Consult (DPC), the consulting arm of Danish utilities, is administering ELI in Europe. DPC in turn works through local organizations in each country. In the Czech Republic, ELI is being implemented by SEVEn, a local NGO. In Hungary and Latvia, DPC has contracted a local consulting firm to implement ELI (EGI Kft. in Hungary, and Sia. Ekodoma in Latvia). The Spanish utility Endesa is responsible for implementing ELI in Latin America. Endesa has delegated implementation responsibility to its Peruvian and Argentinian utility subsidiaries, EDELNOR and Edesur. Finally, the Spanish utility Soluziona Ingeneria implements ELI in South Africa and the Philippines. In South Africa, Soluziona Ingeneria has hired Bonesa, an independent company established by ESKOM, the South African utility. Soluziona Ingeneria has a local office in the Philippines, and has hired internal staff to implement ELI directly. 38 Table 4: Participation of Stakeholders in GEF Projects for Energy-Efficient Products Project Government Industry Utilities Financial Sector NGOs Other / ODA Mexico High Some companies Comision Federal Government of Efficiency Lighting offered employees de Electricidad Norway, $3m grant. Pilot (1991) opportunities to (CFE) was FIDE, a public! World Bank purchase CFLs via responsible for private trust, has $10 m. GEF a paycheck execution, and carried on lighting $23 m. total deduction contri-buted $10 m. on ilumex. Ministry of Finance was recipient International of grant, and Institute for Energy Thalan Prmoton allocated fun ds EAneoitdConservation ThailandtromotioEner to EGAT. National ageGATenegtsiated Electricity Banks offered (IIEC); industryGoen ntf of Eleencytricit Ee)y Energy Policy vareee nts with Generating line of credit to associations Governmentof World Bank Ofie eatet sectors, such as Authority of large consumers as the Federation Australia, $5.6 m $19. mn. GEEal of Energy witmnaturer Thailand (EGAT) in air conditioning ai sgrant; Japan OECE, $1905 m. tota Development ofwightiangfaorers responsible for inarcdtoig ofTiIdury 2mln $190 m total and Promotion, olihngr execution program. and Thai Tourist $2mla and Energy refrigerators. Association Conservation assisted with Center of Thailand research. also played roles. CFL manufacturers None: Utilities Cooperation Polad Eficent Government (including GE, itrseinaDM SMpltofed Four NGOs38 with Dutch ODA Lighting Project participation Philips, Vox Maya) pinote but in aDM smpio offere endorsed consumer (Novem) on (1994) iadioysgefrml law prohibited of a loan foradetsndvlom t IFC/World Bank committee; Ministry agreements, them from leasing purchase of CFLs, materials, and of lighting audit $5 m. GEF of Education including CFLs so ultimately butchase ok up one ran elements standards, and $5 GEEota endorsement of contributions they could not the offer. Eolpogical CPlub). with oemn stdNtO $5 m. total school projects. to retail price participate. Ecological Club). (WWF) on student subsidies. education. China Efficient Project Nine participating Responsible for Industrial Boilers management boile r loans to boiler U.S. assistance for (1996) ~office, under State manufacturers manufacturers to development of World Bank Ecnmcad and five auxiliary upgrade production standards $33 m. GEF Trade Commission equipment facilities $1 01 m. total manufacturers fclities 38 Polish Ecological Club, Polish Consumer Federation, Polish Energy Efficiency Foundation, and Poland Energy Efficiency Agency Table 4: Participation of Stakeholders in GEF Projects for Energy-Efficient Products (cont'd) Project Government Industry Electric Financial NGOs Other / ODA Utilities Sector China: Barrier Ministry of Environ. Removal for Protection; Sixteen Banks are loaning Energy-Efficient Apliances participating funds to refrigerator U.S. assistance for Refrigerators (1998) Association; refrigerator manufacturers to development of UNDP Household Electric manufacturers upgrade production standards $9.9 m. GEF Appliance Research facilities. $41 m. total Institute Project was Project $2.47 from the developed in Project was initially Prect Industry Multilateral Fund Thailand: Building Department of close cooperation to be implementedu Impdemeteria Fisanthe associations for the Implemen- Chiller Replacement Industrial Works with Thai chiller through EGAT, Id t f such as the tat f th Program (1998) is project owner; suppliers, who but due to EGAT's Corporation of Hotel Industry Maton o t oce World Bank co-funding from agree to certain announced Thailand, a Thai Association MLF) Protocol $2.47 m. GEF National Energy conditions when privatization, development informed their (MLF); $260,000 $$5.2 m. total Policy Office their products are the project was ba nt members about the from the National sold through the restructured. ownership. project. Office. project. MoU with Energy Secretary: standards, tariff ELI seekin Consumer reform, etc; EIseigassociation toAretnIsiue ELI: Secretary of erom e isio cooperate in CFL of Standardiza- Argentina Industry and Demonstration fromegletoriciteny testing; NGOs tion (IRAM) may $2.0 m. ~ Commerce: projects. fregulaibtioragnc helping with formally adopt ELI consumer education activi'ties protection. Also companies to sell in primary and standards. government as CFLs to customers. secondary schools. client for ESCO services. Czech Energy Training and Czech Savings Executing agency Agency cooperated financing will Bank issuing loan is SEVEn, a on information and be provided to for streetlighting Czech NGO. ELI: Czech financing; training lighting SMEs. Small-scale project. NGO "Teresa" Republic for municipali- Large lighting involvement of local Discussions involved in lighting/ $1.25 m ties; successful manufacturers (GE, utilities. ongoing with efficiency education lobbying resulting in OSRAM, Philips) local banks about in primary and favorable changes are assisting with bundling smaller secondary schools. in legislation. training and audits. projects. Table 4: Participation of Stakeholders in GEF Projects for Energy-Efficient Products (cont'd) Project Government Industry Electric Financial NGOs Other t ODA Utilities Sector Training and . . Training provided financing will Banks partcipating Close cooperation to municipalities be provided to in IFC/GEF Hungary with (HEECP), ELI: Hungary with support lighting SMEs. Small-scale Energy Efficiency NGO involvement possible ELI: Hunga5 mfrom Ministries Large lighting involvement of local Co-financing planned but not yet cooperation with $1.25 m of the Interior, of manufacturers (GE, utilities. Program (HEECP) finalized. a UNDP/GEF Economics, and of OSRAM, Philips) may provide Efficiency in Public the Environment. are assisting with financing to lighting Buildings project training and audits. SMEs. Additional support Cooperation Facilitation of Lavnropaig Ongoing dialogue LclN swil for information ELI: Latvia with municipal industry working Latvenergo playing with banks on play a role in dissemination on ELI:0Latvi governments on group on lighting amupporting roefficint support for energy- playciarle in e ihtn om CFL promotion and norms; training for muichingpalmoeicin. efcntlgig expected from financing; lighting industry, loans. campaigns. Danish Energy Agency. Edelnor and Luz proemonstera-tion del Sur preparing Cooperation with project in Peruvian Cooperation with CFL programs; universities to $2.1 m. to municipal supermarket chains assistance to integrate efficient streetlighting on CFL promotion. Grupo Gloria on lighting into projects. streetlighting curriculum. projects. Collaboration with Cooperation with CFL leasing pilot Department of local offices of program created ELI has created the Energy-Energy Philips, GE and with Manila Discussions National Advisory Utilization OSRAM, as well as Electric Company underway with Council for Energy Management YataiInternational and likely with Philippine Office Efficient Lighting Management Yatai on Cagayan Electric of the IFC to (NACEEL). The Bureau and Fuels Corporation, on Power & Light support utilities, local office of IIEC and Appliance CFL promotion. ELI: Testing Laboratory. Electronic ballast Company. Possible manufactur-ers is a strong ally Philippines Collaboration manufacturers cooperation with and ESCOs with in some country $2.5 m. with Department interested in having the 119 electric direct lending activities. Possible of Trade and their products cooperatives under or with loans alliance with Energy Industry Bureau of qualified include the supervision through accredited Management Product Standards. Philips, Matsushita, of the National local banking the Philippines Technical and the local Administra- as the Planters and Institute of ancrgyRegulatorthe ficrmoQuant tion for village Development Bank. Integrated Electrical Energy Regulatory Electronics elcrfcto Eniees Board. Corporation. elect.fication Engineers. projects. 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