The Philippines Options for Financing Energy Efficiency in Public Buildings The Philippines: Options for Financing Energy Efficiency in Public Buildings Table of Contents ACKNOWLEDGEMENTS .............................................................................................................................. III ABBREVIATIONS AND ACRONYMS ...........................................................................................................IV 1. INTRODUCTION: THE IMPORTANCE OF ENERGY EFFICIENCY IN THE PHILIPPINES .......... 1 INITIATIVES OF THE GOVERNMENT OF THE PHILIPPINES TO INCREASE ENERGY EFFICIENCY .............................. 2 ENERGY EFFICIENCY IN THE PUBLIC SECTOR ..................................................................................................... 3 WORLD BANK EXPERIENCE WITH PUBLIC SECTOR ENERGY EFFICIENCY ........................................................... 3 PROJECT OBJECTIVES ......................................................................................................................................... 4 REPORT OUTLINE ............................................................................................................................................... 4 2. ASSESSMENT OF THE COSTS AND BENEFITS OF EE INVESTMENTS IN PUBLIC BUILDINGS IN THE PHILIPPINES ........................................................................................................................................ 5 METHODOLOGY .................................................................................................................................................. 5 RESULTS ............................................................................................................................................................. 5 3. BARRIERS TO FINANCING EE INVESTMENTS IN THE PUBLIC SECTOR ..................................... 7 LESSONS LEARNED IN INTERNATIONAL EXPERIENCE ......................................................................................... 7 BARRIERS TO FINANCING PUBLIC SECTOR EE IN THE PHILIPPINES ..................................................................... 7 Policy and Regulatory Barriers .................................................................................................................... 8 Barriers Related to Equipment and Service Providers ................................................................................. 8 Barriers Related to End Users ...................................................................................................................... 9 Lack of Access to Commercial Financing ..................................................................................................... 9 Implementation Capacity .............................................................................................................................. 9 4. INTERNATIONAL EXPERIENCE IN FINANCING PUBLIC SECTOR EE PROJECTS .................. 11 OVERVIEW ........................................................................................................................................................ 11 BUDGET FINANCING WITH CAPITAL RECOVERY ............................................................................................... 12 UTILITY ON-BILL FINANCING........................................................................................................................... 12 ENERGY EFFICIENCY REVOLVING FUNDS (EERFS) .......................................................................................... 13 PUBLIC OR SUPER ESCOS ................................................................................................................................ 13 PUBLIC SECTOR EE CREDIT LINES WITH DEVELOPMENT OR COMMERCIAL BANKS ......................................... 14 RISK-SHARING FACILITIES ............................................................................................................................... 14 COMMERCIAL FINANCING, BONDS ................................................................................................................... 14 VENDOR CREDIT AND LEASING ........................................................................................................................ 14 LEVERAGING COMMERCIAL FINANCING WITH PRIVATE ESCOS ...................................................................... 15 COMPARISON OF THE FINANCING OPTIONS....................................................................................................... 15 5. ASSESSMENT OF FINANCING AND IMPLEMENTATION OPTIONS FOR PUBLIC SECTOR EE IN THE PHILIPPINES ...................................................................................................................................... 21 CHARACTERISTICS OF FINANCING OPTIONS IN THE PHILIPPINES ...................................................................... 21 Narrowing the Financing Options: Rationale and Results ......................................................................... 21 BUDGET FINANCING WITH CAPITAL RECOVERY ............................................................................................... 25 Overview ..................................................................................................................................................... 25 Funds Flow ................................................................................................................................................. 25 Implementation............................................................................................................................................ 26 Technical Assistance (TA) ........................................................................................................................... 26 ENERGY EFFICIENCY REVOLVING FUNDS (EERF) ............................................................................................ 27 Legal Framework ........................................................................................................................................ 27 Fund Management and Governance ........................................................................................................... 27 Oversight Arrangements ............................................................................................................................. 28 Choosing the Fund Manager ...................................................................................................................... 28 Debt Financing ........................................................................................................................................... 29 Energy Services ........................................................................................................................................... 29 Technical Assistance ................................................................................................................................... 30 Procurement of Implementation Services.................................................................................................... 31 Organizational Structure ............................................................................................................................ 31 Investment Models....................................................................................................................................... 31 Page i The Philippines: Options for Financing Energy Efficiency in Public Buildings How PEERF Can Address the Barriers to EE Implementation .................................................................. 33 PUBLIC ESCOS ................................................................................................................................................. 34 Limitations on the Growth of ESCOs in Developing Countries .................................................................. 34 The Public ESCO Model ............................................................................................................................. 35 EESL, a Public ESCO in India .................................................................................................................... 37 How Does a Public ESCO Address EE Financing Barriers? ..................................................................... 38 Public ESCOs in the Philippines ................................................................................................................. 38 THE POTENTIAL ROLE OF INTERNATIONAL FINANCIAL INSTITUTIONS AND DONORS ....................................... 38 Financial Assistance ................................................................................................................................... 38 Capacity Building ....................................................................................................................................... 39 Other Technical Assistance ......................................................................................................................... 39 ADVANTAGES AND LIMITATIONS OF THE THREE OPTIONS ............................................................................... 41 MOVING FORWARD ON THE PUBLIC SECTOR EE FINANCING AGENDA ............................................................. 42 PROPOSED FUNDING STRUCTURE ..................................................................................................................... 43 ROADMAP FOR DEVELOPING THE GEMP INVESTMENT COMPONENT ............................................................... 44 CONCLUDING REMARKS ................................................................................................................................... 44 ANNEX A. THE ACTIVITIES OF PNOC RC ................................................................................................ 46 PNOC RC ACTIVITIES ...................................................................................................................................... 46 PNOC RC BUSINESS MODEL ........................................................................................................................... 46 CAPACITY BUILDING OF PRIVATE ESCOS ........................................................................................................ 47 SCALING-UP ACTIVITIES .................................................................................................................................. 47 LIST OF COMPLETED PROJECTS ........................................................................................................................ 47 PIPELINE PROJECTS........................................................................................................................................... 48 REFERENCES AND BIBLIOGRAPHY ......................................................................................................... 50 List of Figures FIGURE 1.1. ENERGY INTENSITY OF THE PHILIPPINES AND OTHER COUNTRIES ....................................................... 1 FIGURE 1.2.COMPARISON OF ELECTRICITY CONSUMPTION PER CAPITA IN THE PHILIPPINES, EAST ASIA & THE PACIFIC, AND WORLDWIDE ..................................................................................................................................... 2 FIGURE 3.1. INTERNATIONAL EXPERIENCE WITH BARRIERS TO EE IN THE PUBLIC SECTOR .................................... 7 FIGURE 4.1. ILLUSTRATIVE FINANCING LADDER FOR PUBLIC SECTOR EE PROJECTS ............................................ 12 FIGURE 5.1. BUDGET FINANCING FOR A PUBLIC SECTOR EE IMPROVEMENT PROJECT .......................................... 25 FIGURE 5.2.FUNDS FLOW, PUBLIC AGENCY EE FINANCING FACILITY .................................................................. 26 FIGURE 5.3.STRUCTURE OF AN EE REVOLVING FUND (EERF) .............................................................................. 27 FIGURE 5.4. THE ENERGY SERVICES AGREEMENT MODEL .................................................................................... 30 FIGURE 5.5. ORGANIZATIONAL STRUCTURE, PEERF ............................................................................................ 31 FIGURE 5.6. INVESTMENT MODEL – DEBT ............................................................................................................. 33 FIGURE 5.7. INVESTMENT MODEL - ESA ............................................................................................................... 33 FIGURE 5.8. TYPICAL STRUCTURE OF A PUBLIC ESCO ......................................................................................... 37 FIGURE 6.1. POSSIBLE FUNDING STRUCTURE FOR GEMP INVESTMENT COMPONENT ........................................... 43 FIGURE 6.2. ROADMAP FOR DEVELOPING THE GEMP INVESTMENT COMPONENT (GEMP IC) ............................. 44 List of Tables TABLE 2.1.ESTIMATED COSTS AND BENEFITS OF EE INVESTMENTS IN 158 PUBLIC BUILDINGS.............................. 6 TABLE 2.2. ESTIMATED COSTS AND BENEFITS OF EE INVESTMENTS IN PUBLIC OFFICE BUILDINGS IN THE PHILIPPINES ............................................................................................................................................................. 6 TABLE 4.1. SUMMARY OF CHARACTERISTICS OF FINANCING OPTIONS FOR PUBLIC SECTOR ENERGY EFFICIENCY PROJECTS .............................................................................................................................................................. 16 TABLE 5.1. KEY CHARACTERISTICS OF THE PUBLIC SECTOR ENERGY EFFICIENCY FINANCING OPTIONS IN THE PHILIPPINES ........................................................................................................................................................... 23 TABLE 5.2. IMPLEMENTATION STEPS FOR FUND INVESTMENT MODELS ................................................................ 31 TABLE 5.3. HOW PEERF CAN ADDRESS EE IMPLEMENTATION BARRIERS ........................................................... 34 TABLE 5.4. HOW A PUBLIC ESCO CAN ADDRESS BARRIERS TO IMPLEMENTATION .............................................. 38 TABLE 6.1.COMPARISON OF PUBLIC SECTOR FINANCING OPTIONS ....................................................................... 41 Page ii The Philippines: Options for Financing Energy Efficiency in Public Buildings ACKNOWLEDGEMENTS This report presents a summary of the main findings from the project “Options for Energy Financing in Public Buildings in the Philippines,” which was financed by the Energy Sector Management Assistance Program (ESMAP), together with the World Bank’s East Asia and Pacific Region unit. The study team was comprised of Yuriy Myroshnychenko (Senior Energy Specialist and Task Team Leader), Jas Singh (Lead Energy Specialist), Dilip Limaye (Lead Consultant), and Raymond Marquez (Technical Consultant). The team also greatly acknowledges the close cooperation and support from the Department of Energy (DOE), especially Jesus Tamang, Director, Energy Utilization Management Bureau and Patrick Aquino, Director, Energy Policy and Planning Bureau, as well as Donalyn Minimo (Department of Finance), and Rolando Toledo (Department of Budget and Management). The team also benefitted from inputs from H.E. Reynaldo Umali, Chairman of the Committee on Justice and Member of the House of Representatives; Alexander Ablaza, President, Philippine Energy Efficiency Alliance; Pedro Lite, Jr., Vice President, Philippine National Oil Company Renewables Corporation (PNOC RC); Wali del Mundo, Consultant; and Noel Verdote (IFC Operations Officer). Input was also provided by representatives of several Filipino banks and energy service companies. A roundtable discussion was held on January 18, 2018 at the World Bank Manila Office to discuss the report’s findings and recommendations. Stakeholders from the Departments of Energy, Budget and Management, and Education were in attendance, along with several representatives from the private sector and civil society. Page iii The Philippines: Options for Financing Energy Efficiency in Public Buildings ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank CAPEX Capital expenditure CFL Compact fluorescent lamp DBM Department of Budget and Management DBP Development Bank of the Philippines DOE Department of Energy DOF Department of Finance EE Energy efficiency EE&C Energy efficiency and conservation EERF Energy efficiency revolving fund EOI Expression of Interest ESA Energy service agreement ESCO Energy service company ESPC Energy saving performance contract EU European Union FI Financial Institution FS Feasibility study FY Financial year GCF Green Climate Fund GEF Global Environmental Facility GEMP Government Energy Management Program GEMP IC Government Energy Management Program Investment Component GHG Greenhouse gas GOP Government of the Philippines GW Gigawatt IEA International Energy Agency IFC International Finance Corporation IFI International financial institution IFRS International Financial Reporting Standards JICA Japan International Cooperation Agency kgoe Kilogram of oil equivalent kWh Kilowatt hour LA Loan Agreement Page iv The Philippines: Options for Financing Energy Efficiency in Public Buildings LED Light-emitting diode LFL Linear fluorescent lamp LGU Local government unit LGUGC Local Government Unit Guarantee Corporation MOA Memorandum of understanding mln Million M&V Measurement and verification MWh Megawatt hour MYOA Multi-Year Obligational Authority MYP Multiyear project NDC Nationally determined contribution NGA National government agency NPC National Power Corporation OECD Organization for Economic Co-operation and Development OPEX Operational expenditure PE2 Philippine Energy Efficiency Alliance PEERF Philippine Energy Efficiency Revolving Fund PIU Project implementation unit PHP Philippine peso PNOC RC Philippine National Oil Company Renewables Corporation PPP Public-private partnership PSC Program Steering Committee PV Photovoltaic TA Technical assistance TFE Technico-financial evaluation TPES Total primary energy supply UNDP United Nations Development Programme UNIDO United Nations Industrial Development Organization USAID U.S. Agency for International Development Page v The Philippines: Options for Financing Energy Efficiency in Public Buildings 1. INTRODUCTION: THE IMPORTANCE OF ENERGY EFFICIENCY IN THE PHILIPPINES The Philippines has a rapidly growing electricity sector, but the country is starting from a low base. Since 2000, electricity consumption per capita has grown by 37 percent, and installed power generation capacity has increased from 15.6 GW in 2005 to 21.6 GW in mid-2017. The continued electrification of the country, together with its economic growth, will continue to drive the need for new power generation capacity, much of which is likely to be coal-fired (World Bank 2016). In order for the Philippines to sustain its economic growth at a reasonable cost while also meeting its global commitments to climate change mitigation and environmental sustainability, a focus on energy efficiency (EE) is therefore critical. Figure 1.1 shows a comparison of the energy intensity1 of the Philippines relative to many other Asian countries, as well as in comparison to Asian, OECD, and worldwide averages. At 190 kilograms of oil equivalent/1000 US$ GDP, the energy intensity of the Philippines compares favorably with some of its neighboring countries, but it is considerably higher than the average of OECD countries (0.11), and more than three times higher than the level in European countries such as Denmark, Spain, and Switzerland (where it ranges from 0.04 - 0.06) (IEA 2016).2 Figure 1.1. Energy Intensity of the Philippines and Other Countries Energy Intensity of Selected Countries and Regions - 2014 TPES/GDP (toe/000 2010 USD) 0.40 0.35 Energy Intensity 0.30 0.25 0.20 0.15 0.10 0.05 0.00 Thailand India World Asia China Japan Bangladesh Denmark Taiwan Korea Hong Kong Malaysia Switzerland Spain OECD Indonesia Philippines Source: IEA 2016 Figure 1.2 illustrates the current level of per capita annual electricity consumption. Per capita electricity use in the Philippines is only 706 kWh, substantially lower than the average of 3,682 kWh per capita for the East Asia and Pacific region, and the world average of 3,144 kWh per capita.3 However, as the economy of the Philippines grows, per capita electricity and other energy use will increase, leading to a higher level of energy intensity. 1 Energy intensity is expressed as tons of primary energy supply divided by gross domestic product (GDP) in thousands of 2010 US dollars. 2 Data is from the International Energy Agency, Key World Energy Statistics, 2016. 3 The World Bank, The Little Green Data Book, 2017. Page 1 The Philippines: Options for Financing Energy Efficiency in Public Buildings Figure 1.2.Comparison of Electricity Consumption per Capita in the Philippines, East Asia & the Pacific, and Worldwide Electricity Consumption per Capita (kWh/person/year) 4000 3500 3000 kWh/person/year 2500 2000 1500 1000 500 0 Philippines East Asia & Pacific World Source: World Bank 2017 Initiatives of the Government of the Philippines to Increase Energy Efficiency In view of the relatively high level of energy intensity in the Philippines; the potential increase in energy needs to support economic growth; and the need to reduce future coal consumption to help mitigate climate change, the government of the Philippines (GOP) has recognized the need to improve EE. Actions already taken by the GOP include: • Creation of the Government Energy Management Program (GEMP)4 • Establishment of the Energy Utilization and Management Bureau within the Department of Energy (DOE) • Creation of the National Energy Efficiency and Conservation Program (NEECP) of the DOE5 • Development of the Energy Efficiency Roadmap for the Philippines (supported by SWITCH-Asia) • Development of the Energy Efficiency Action Plan for the Philippines (supported by SWITCH-Asia) • Participation in a number of EE projects sponsored by multilateral donors such as the Asian Development Bank (ADB), the United Nations Development Programme (UNDP), UNIDO, the European Union (EU), the International Finance Corporation (IFC), and the World Bank, as well as bilateral ones, including USAID and JICA. • The recent launch of the Philippine Energy Efficiency and Conservation (EE&C) Roadmap for 2017-2040. In addition, a draft law on EE is under preparation. In July 2017, four Senate committees 4 https://www.doe.gov.ph/government-energy-management-program 5 https://www.doe.gov.ph/national-energy-efficiency-and-conservation-program Page 2 The Philippines: Options for Financing Energy Efficiency in Public Buildings (Energy; Ways and Means; Public Services; and Finance) recommended a substitute bill, Senate Bill 1531, to consolidate Senate Bill 30 (a comprehensive EE&C bill) and Senate Bill 525 (a bill creating an interagency energy conservation committee).6 Energy Efficiency in the Public Sector The public sector in the Philippines, which includes both the central government and local government buildings and facilities, is a large user of energy. The government has issued orders and circulars requiring government agencies to reduce energy consumption by at least 10 percent, and has established GEMP to assist them in accomplishing this goal. There is limited data available on the total number of public sector buildings and facilities and their amount of energy consumption. Recent DOE efforts under GEMP have resulted in the development of data about building characteristics, energy use, and EE options for about 160 government buildings. (See Section 2 of this report for details.) Two previous projects, the Philippine Efficient Lighting Market Transformation Project7 and the Philippine Energy Efficiency Project 8 have addressed EE in the public sector, focusing primarily on efficient lighting in government buildings and facilities, as well as in street lighting, traffic lights, and other public lighting. By implementing EE projects, the public sector can lead by example, while helping to catalyze markets for EE goods and services. Common ownership and public financing can facilitate the potential bundling of smaller projects, thus lowering purchasing and implementation costs, and allowing for implementing at a larger scale. A scaled-up public sector program can also create jobs, fostering a sustainable local energy service company industry, as has been seen in countries such as Canada, Germany, Japan, the Republic of Korea, and the United States (World Bank 2014b). Therefore, a nationwide program to improve EE in public buildings in the Philippines should be developed by the government to realize such benefits. World Bank Experience with Public Sector Energy Efficiency Since 2007, the World Bank Group has provided about US$10 billion in financing for EE projects globally. Such projects have generally led to a 25-40 percent savings in energy costs, with simple payback periods of less than 8-10 years, substantial additional benefits (for example, the improvement of indoor comfort, better air quality, and health benefits), and increased public awareness. The repayment rates have been extremely good, with a demonstrated willingness of public building administrators to co-finance such investments. Despite attractive payback periods and energy savings potential, EE financing in the public sector is plagued by a number of market barriers. Perhaps the most critical gaps are the lack of suitable and sustainable financing mechanisms, along with the kinds of supporting institutional structures that allow public building programs to be implemented at scale. The creation of a national-level program with access to financing, technical assistance (TA), specialized energy service company (ESCO) procurement schemes with standardized audit/contracts, specialized ESCO windows, and the like, could substantially unlock the EE potential of this sector (World 6 Personal communication, Alexander Ablaza, President, Philippine Energy Efficiency Alliance, Inc. August 2017. 7 GEF 2004 8 ADB 2015 Page 3 The Philippines: Options for Financing Energy Efficiency in Public Buildings Bank 2016). Project Objectives The primary objective of this project was to identify options for addressing barriers to financing, for the purpose of scaling up EE implementation in public buildings in the Philippines. Specifically, the project was designed to: • Review existing information on energy consumption in public buildings and energy savings opportunities in the public sector in the Philippines; • Identify the major barriers to EE financing in the public sector; • Review the experiences other countries have had with financing options for public sector EE implementation; • Identify attractive options for EE implementation in public buildings in the Philippines; • Conduct a comparative assessment of the advantages and limitations of various options; • Define the selection and implementation steps that need to be taken by the government. Report Outline Section 2 of this report provides a summary of the available data on public buildings, including the energy consumption characteristics of government buildings and facilities, estimates of the potential for energy savings, and investments needed. Section 3 discusses some of the barriers to financing EE that has been seen in other countries, and summarizes such barriers in the public sector in the Philippines, including legal and regulatory barriers; lack of access to commercial financing; institutional barriers; and limited implementation capacity. Section 4 provides information about international experience in the financing of public sector EE projects. It includes a review of six different financing mechanisms: budget financing; EE revolving funds; dedicated EE credit lines; risk-sharing programs; public or super ESCOs; and commercial financing using ESCOs and performance contracting. It also presents a comparative assessment of the key characteristics of each of these financing options. Section 5 identifies three options that are considered appropriate for implementation in the Philippines—budget financing, an EE revolving fund, and a public or super ESCO—and provides detailed information on each. It also presents information on the potential role of international financial institutions in providing complementary financial and technical assistance. Section 6 summarizes the advantages and limitations of the three proposed financing options; presents the World Bank’s recommendations; and provides guidance on moving forward with the development of a national program. Page 4 The Philippines: Options for Financing Energy Efficiency in Public Buildings 2. ASSESSMENT OF THE COSTS AND BENEFITS OF EE INVESTMENTS IN PUBLIC BUILDING IN THE PHILIPPINES This section presents estimates of the energy efficiency (EE) potential, the need for investment, and the economics of EE investments for two sets of public buildings in the Philippines: 158 buildings for which the Department of Energy (DOE) has recently collected data; and all national government administrative (NGA) office buildings9. Due to a lack of reliable comprehensive information, estimates for all public buildings in the Philippines could not be made. However, the estimated results for these two sets of buildings are sufficiently representative, and will make a strong case for investing in EE improvements in public buildings nationwide. Methodology The DOE data for the 158 buildings were validated through a desk review, and the review was complemented by walk-through audits of 20 buildings. Data were processed by using an Excel- based Techno-Financial Evaluation (TFE) tool, and tallied separately for lighting and air conditioning. The TFE tool was used to compute energy consumption after EE investments; energy savings; investment costs; and the payback period. The EE cost and benefit estimates for all NGA office buildings were made based on coefficients derived from the data set for the 158 buildings and the actual data for utility bills (both water and electricity) of office buildings for 2016 10 . The electricity share was conservatively estimated at 80 percent of the total bill. It is worth noting that in addition to EE retrofitting of the lighting and air conditioning systems that were selected for illustrative purposes for this study, several other measures could and should be considered to further enhance the EE of public buildings, including the installation of new windows, window shading, green/white roofs, building control/energy management systems, and rooftop solar photovoltaic (PV) panels. Results The desk review of the energy data for the 158 buildings and walk-through audits of the 20 buildings confirmed the significant EE potential of public buildings that could be realized by investing in upgrading the lighting from compact fluorescent lamps (CFL) and linear fluorescent lamps (LFL) T12/T8 11 with magnetic ballast to LED bulbs and lamps, and switching to efficient modern air conditioning technologies such as inverters, variable refrigerant flow, and centralized chillers. EE investments in the Philippines have proven to be financially attractive, with the average payback period for the total investment program less than three and half years. As shown in 9 This includes 87 buildings of central government offices and government-owned corporations, 48 academic buildings, and 23 hospital buildings. 10 The Department of Budget Management (DBM) Budget of Expenditures and Sources of Financing FY17http://www.dbm.gov.ph/?page_id=16451 11 The “T” designation in fluorescent lamps nomenclature stand for tubular – the shape of the lamp. The number immediately following the T, gives the diameter of the lamp in eights of an inch. Page 5 The Philippines: Options for Financing Energy Efficiency in Public Buildings Table 2.1, the required EE investments in the 158 buildings totaled PHP2,203 million. They will result in energy savings of 33 percent, which translates into an annual electricity savings of 85 million kWh; monetary savings of PHP705 million; and reductions in CO2 emissions12 of 60,200 tons. Table 2.1.Estimated Costs and Benefits of EE Investments in 158 Public Buildings Electricity Electricity Investment Annual Savings Annual Simple Cost Consumption Cost Emission Payback Reductions Period PHP kWh PHP % PHP kWh CO2 Years million mln mln mln mln ton (mln) Lighting 405 50 375 41% 166 21 14,700 2.3 Air 1,795 215 1828 33% 539 65 45,500 3.4 Conditioning Total 2,200 265 2,203 33% 705 85 60,200 3.1 Table 2.2 sums up the estimated costs and benefits from EE improvements in lighting and air conditioning in NGA office buildings. Investments of PHP13,023 million will result in an annual savings in electricity of 441 million kWh; monetary savings of PHP3,586 million; and reductions in CO2 emissions of 308,000 tons. Table 2.2. Estimated Costs and Benefits of EE Investments in Public Office Buildings in the Philippines Electricity Electricity Investment Annual Savings Annual Payback Cost Consumption Cost Emission Period Reductions PHP kWh PHP % PHP kWh CO2 Years mln mln mln mln mln ton 2,091 257 2,209 43% 899 110 77,000 2.5 Lighting 9,266 1,138 10,814 29% 2,687 330 231,000 4.0 Air Conditioning 11,357 1,395 13,023 32% 3,586 441 308,000 3.6 Total 12 An estimated power grid emission factor for the Philippines is 0.7 tons of CO2 per MWh. Page 6 The Philippines: Options for Financing Energy Efficiency in Public Buildings 3. BARRIERS TO FINANCING EE INVESTMENTS IN THE PUBLIC SECTOR Lessons Learned in International Experience Energy efficiency (EE) investment programs in public institutions are notoriously difficult to implement. They are impeded by the same barriers that have slowed down EE improvements in other sectors of the economy: lack of information on the potential benefits of EE; lack of trained personnel; limited incentives; high transaction costs; and scarcity of financing. In addition, there are several barriers specific to the public sector that further hold back sustained improvements in EE. Among these are public accounting, budgeting, and procurement rules; financing constraints; very limited staff capacity; and very limited incentives for identifying and implementing EE measures. Furthermore, the public sector has very limited capacity to identify, develop, and implement EE projects. Figure 3.1 shows the barriers to EE in the public sector, based on experience in other countries. Figure 3.1. International Experience with Barriers to EE in the Public Sector Source: Adapted by the authors from World Bank 2013. Barriers to Financing Public Sector EE in the Philippines The main barriers to financing public sector EE projects in the Philippines are: • Policy and regulatory barriers; • Barriers related to equipment and service providers; • Barriers related to end users; • Lack of access to commercial financing. Page 7 The Philippines: Options for Financing Energy Efficiency in Public Buildings Policy and Regulatory Barriers • Budgetary and borrowing constraints. Public agencies in the Philippines generally have limited availability of budgetary funds for capital investment (CAPEX) to be used for EE improvements. While the existing legal framework in the Philippines does permit both national government agencies (NGAs) and local government units (LGUs) to undertake loans, it is not practical for them to do so, because of their poor creditworthiness and borrowing capacity, and their inability to provide satisfactory collateral. • Restrictive budgetary procedures. Existing budgetary rules generally do not allow public agencies to retain energy cost savings, since budgets are prepared annually, and each year’s budget allocation is based on the previous year’s expenditures (Switch Asia 2015). A reduction of budgetary spending for energy costs would lead to a decrease in allocation in the next budget cycle; and operating cost reductions usually cannot be reallocated to pay for capital expenditures. Therefore, government agencies do not have any incentives to undertake EE projects. • Multiyear contracts. Public agencies need to secure approval for Multi-Year Obligational Authority (MYOA) from the Department of Budget and Management (DBM) for all multiyear projects (MYPs). In May 2017 the DBM updated this policy through a new National Budget Circular (No. 570). • Public procurement rules. The Government Procurement Reform Act (Republic Act 9184) only allows for the procurement of “pure goods” and “pure services,” thereby disallowing “hybrid” procurements such as ESCO performance contracts. The Technical Services Office of the Government Procurement Policy Board recently opined that as long as government funds are used for EE projects (whether they are to be financed from CAPEX or OPEX budgets), the procurement law fully applies, and therefore continues to disallow ESCO contracts. • Building codes and certification. Existing building codes do not include any provisions for energy efficiency measures. Barriers Related to Equipment and Service Providers • Limited demand and high development costs. There is limited demand for EE goods and services in the public sector, and decision making can take time. Therefore, equipment and service providers need to devote substantial time and effort in order to develop EE projects, which leads to high project development costs. • Limited experience and capabilities. Despite some 26 DOE-certified ESCOs in the market, only a few undertake energy performance contracts: therefore, they have yet to develop their technical, business development, and risk management skills and capabilities. (Most of their business involves simple equipment supply or service contracts.) The government-owned ESCO-PNOC Renewables Corporation (PNOC RC) has only recently started to develop its ESCO business and energy saving performance contracting (ESPC) in the public sector. • Lack of commercial financing. Equipment suppliers and energy service providers have limited access to commercial financing, and cannot invest much of their own equity in EE projects. Also, innovative financing mechanisms such as leasing, Page 8 The Philippines: Options for Financing Energy Efficiency in Public Buildings vendor financing, and off-balance-sheet equity investments for EE equipment are not very common in the Philippines. Barriers Related to End Users • Limited budget capacity and incentives. There are generally no discretionary budgets for special projects or efficiency upgrades in the Philippines. Also, public sector decision makers have no incentive to undertake EE projects, because all energy savings typically revert to the National Treasury as unutilized energy budgets. • Limited knowledge of EE options. Public sector facility and energy managers (in both NGAs and LGUs) have limited knowledge and awareness of EE opportunities, technologies, costs, and implementation options. • Lack of sufficient, credible data. There is only limited data on the number, characteristics, and energy use statistics of public buildings. There is also limited information available to public sector decision makers on the characteristics and benefits of EE technologies (except regarding LED lighting). Lack of Access to Commercial Financing • Lack of interest and unattractive financing terms. Commercial banks have limited or no interest in lending to the public sector. Most banks consider loans to public agencies riskier than loans to private companies, in part because budgets are allocated annually, and also because most agencies have no collateral. Commercial financing terms (interest rates, loan tenors, collateral requirements, and so on) are generally not attractive from the perspective of public agency decision makers.13 • Collateralization. Commercial banks typically require assets to be pledged as collateral for a loan. They are unwilling or unable to offer debt financing to public agencies, because it is very difficult or impossible to collateralize public assets for debt financing, and because of the banks’ perception that public agency management has no financial interest in the collateral offered.14 • High transaction costs. The small size of public sector EE projects often leads to relatively high transaction costs, which makes financing such projects unattractive. Implementation Capacity • Public agency decision makers. Both central government agencies and municipalities have limited capacity for identifying EE opportunities, reviewing energy audit reports, preparing “bankable” project proposals, accessing financing, carrying out procurement for goods and services, and implementing EE projects. • Public agency implementers. While DOE has implemented GEMP, there is limited capacity within DOE to assist public agencies with EE implementation, and limited monitoring and enforcement. Therefore, the institutional capabilities, roles, and expertise for EE are fragmented. • Inadequate delivery infrastructure. There is only a very limited energy services 13 Based on communication with officials of Security Bank. 14 Based on communication with Security Bank officials. Page 9 The Philippines: Options for Financing Energy Efficiency in Public Buildings delivery infrastructure for implementing EE projects in the public sector in the Philippines. The fragmented nature of the private sector, the small number of ESCOs in the local market, the lack of energy auditing and measurement and verification (M&V) experts, and their collective lack of experience with working in the public sector are all reasons that this market remains underdeveloped. Page 10 The Philippines: Options for Financing Energy Efficiency in Public Buildings 4. INTERNATIONAL EXPERIENCE IN FINANCING PUBLIC SECTOR EE PROJECTS15 Overview Many governments of developing countries, with help from donor agencies, have financed pilot or demonstration EE projects using only grant or budget financing. However, recognizing that such financing is not sustainable in the long term, other countries have implemented a range of more sustainable financing and implementation options, to enhance the financial leverage of public funds and/or to better transition to commercial funding for public sector EE projects. A review of approaches for financing public sector EE projects in other countries has led to the following ten options: 1. Budget financing with capital recovery (financing by DOF, or a parent budgeting agency using donor funds, with repayments in the form of reduced future budgetary outlays); 2. Utility on-bill financing; 3. Establishment of an EE revolving fund; 4. Establishment of a public or super ESCO; 5. Establishment of an EE credit line through a development bank; 6. Establishment of an EE credit line through a commercial bank; 7. Creation of a risk-sharing facility, such as a partial-risk guarantee program; 8. Commercial financing using bonds; 9. Vendor financing or leasing; 10. Leveraging commercial financing using ESCOs, under the ESPC approach. Figure 4.1 illustrates these options in the form of a “financing ladder.” The ladder includes the 10 options above, plus the two non-sustainable options (grant financing and budget financing). At the bottom of the ladder are options that rely almost entirely on public financing, while the top of the ladder represents mostly private financing. Moving up the ladder leads to increasing levels of private financing. A brief description of each of the ten options follows. 15 This section is extracted from previous World Bank studies of international experience with financing options for energy efficiency. Page 11 The Philippines: Options for Financing Energy Efficiency in Public Buildings Figure 4.1. Illustrative Financing Ladder for Public Sector EE Projects Source: Adapted by the authors, from World Bank 2013 Budget Financing with Capital Recovery Under this approach, financing is provided by a government agency such as the Department of Finance (DOF), using a combination of government budget allocations and international financial institution (IFI) or donor funds. This funding covers the investment costs of the EE projects in both central and municipal buildings and facilities. The funding recipient “repays” the funds using the savings generated by the investment project in the form of reduced budgetary outlays for energy bills of the public entity in future years (“budget financing”). The size of the reduced outlay is usually based on the amount of energy cost savings. The flow of funds to pay for EE improvements follows the same path as the normal appropriations from DOF. The repayment to DOF could be complete or partial; the partial approach encourages municipal utilities and public agencies to participate in the program because they retain a share of the savings achieved. Utility On-Bill Financing Utility on-bill financing is a mechanism through which a utility provides financing for the implementation of EE projects. The funds are provided as a loan to the customer (which could be a public sector entity) for equipment purchase and installation, and loan repayments are recovered by the utility through the energy bill (ECO-Asia 2009). The cost of the EE measures is borne by the individual customers in whose facilities they have been installed (that is, the direct beneficiaries of the energy savings and related cost reductions). The utility on-bill financing approach is designed to overcome the first cost barrier: lack of Page 12 The Philippines: Options for Financing Energy Efficiency in Public Buildings availability of internal funds for investment in EE. Using this approach, the utility provides or arranges for the financing needed for the project investment. The customer signs a loan agreement with the utility, and the utility collects the loan repayments from the customer through the customer’s utility bills by adding a line item on the bill. In most cases, the loan repayments are arranged such that the amount of the repayment is smaller than the customer’s cost reduction from the energy savings created by the EE equipment. This allows the customer to be “cash flow positive” throughout the life of the EE project. Energy Efficiency Revolving Funds (EERFs) An energy efficiency revolving fund (EERF) has been demonstrated to be a viable option for scaling up EE financing in the public sector. Under a typical EERF, which is created using budget funds and/or IFI loans, financing is provided to public agencies to cover the initial investment costs of EE projects; some of the resulting savings are then used to repay the EERF, plus interest and service charges, until the original investment is recovered. The repayments can then be used to finance additional projects, thereby allowing the capital to revolve, and creating a sustainable financing mechanism (World Bank 2014a). Since both the borrower and the lender are publicly owned, such funds often offer lower-cost financing with longer tenors (repayment periods) and less stringent security requirements than those required with typical commercial loans. Because EE projects have positive financial rates of return, capturing these cost savings and reusing them for new investments creates a more efficient use of public funds than the typical budget or grant-funded approaches. This can help demonstrate the commercial viability of EE investments and provide credit histories for public agencies, paving the way for future commercial financing. Public or Super ESCOs Several countries have taken a more active role in promoting EE projects, using the performance contracting approach, by creating a public or “super” ESCO established as a corporation wholly owned by the government (World Bank 2013). Often this has been done to promote ESCOs in general, for example in China (where pilot Energy Management Companies were created by the World Bank in Beijing, Shandong, and Liaoning); in Croatia (HEP ESCO); and in Poland (MPEC). Another example is the establishment of UkrESCO in Ukraine (World Bank 2014b). Such public ESCOs were typically formed when the local ESCO markets were nascent and some public effort was deemed necessary to catalyze them. The advantage of a public ESCO is that there is often no competitive tendering process required for project development, since in this case one public agency is simply contracting with another public entity. The super ESCO is a special type of public ESCO. Established by the government, it functions as an ESCO for the public sector market (hospitals, schools, municipal utilities, government buildings, and other public facilities), while also supporting the capacity development and project development activities of existing private sector ESCOs. The government (possibly with help from IFIs) capitalizes the super ESCO with sufficient funds to undertake public sector ESPC projects and to leverage commercial financing. A primary function of the super ESCO is to facilitate access to project financing by developing relationships with local or international financial institutions. The super ESCO may also provide credit or risk guarantees for ESCO projects, or act as a leasing or financing company to provide ESCOs and/or customers with EE equipment on lease or benefit-sharing terms (Limaye and Limaye 2011). Page 13 The Philippines: Options for Financing Energy Efficiency in Public Buildings Public Sector EE Credit Lines with Development or Commercial Banks A public sector EE credit line is a financing mechanism that makes funds available to local banks and financial institutions (FIs) to provide debt financing of EE projects in utilities, and public buildings and facilities. The major purpose of such a credit line is to increase the amount of funding available from these banks for debt financing of municipal EE project investments. Such credit lines can be managed by development banks, municipal banks, commercial banks, or other FIs. Dedicated EE credit lines can be established by governments, multilateral or bilateral financial institutions, or governments in cooperation with international donor agencies. The funds provided by the donors or governments to the banks are often leveraged by additional funds provided by the participating banks and/or financial institutions to increase the total amount available for debt financing (Limaye 2013a). Risk-Sharing Facilities One major barrier to the commercial financing of public EE projects is the perception by commercial banks that such projects are inherently riskier than traditional investments. A risk- sharing facility is designed to address this challenge by providing partial coverage of the risk involved in extending loans for EE projects. The “facility”—which is essentially a bilateral loss-sharing agreement—generally includes a subordinated recovery guarantee, 16 and might also have a “first loss reserve”17 that can be used to absorb up to a specified amount of losses before the risk sharing occurs. A partial risk-guarantee facility provided by a government, donor agency, or other public agency can assist municipal utilities and public agencies by providing them with access to financing; reducing the cost of capital; and expanding the loan tenor or grace periods to match project cash flows (Mostert 2010). Such a facility would also build the commercial banks’ capacity to finance EE projects on a commercially sustainable basis. Commercial Financing, Bonds Under this option, municipalities that are creditworthy and that have borrowing capacity can take out commercial bank loans, or issue bonds to finance EE investments. This option can help mobilize commercial financing, which can then deliver scale and be sustainable. Competition can help lower financing costs, address overcollateralization and short tenor issues, and allow public agencies to undertake their own procurement and implementation. This option can work if there are well-developed municipal credit and rating systems; financial institutions that are willing and able to lend to the public sector for EE projects; and large municipalities with strong technical capacities that are willing and able to bundle many EE projects together. Vendor Credit and Leasing A lease is a contractual arrangement in which a leasing company (a lessor) gives a customer (a lessee) the right to use its equipment for a specified length of time (a lease term) and a specified 16 In a subordinated recovery guarantee, the guarantor ranks behind other lenders in the recovery of the guarantee funds it pays out in case the borrower defaults on the loan. This allows lenders to offer better loan terms, such as lower interest rates, or longer tenors. 17 In the event of a loan default, a first-loss reserve pays for all losses incurred until the maximum first-loss reserve amount is exhausted. The lender incurs losses only if the total loan loss exceeds the first-loss amount. Page 14 The Philippines: Options for Financing Energy Efficiency in Public Buildings payment (usually monthly). Depending on the lease structure, at the end of the lease term the customer can purchase, return, or continue to lease the equipment. Many different types of organizations—proprietorships, partnerships, corporations, government agencies, and religious and other nonprofit organizations—use leasing throughout the world. Suppliers of EE equipment can provide such equipment under a leasing arrangement, usually with lease payments based on estimated energy savings. Traditionally, equipment leases have been broadly classified into two types: operating leases, and finance or capital leases (Lee 2003). In an operating lease, the lessor (or owner) transfers to the lessee only the right to use the property. At the end of the lease period, the lessee returns the property to the lessor. The new global accounting standard IFRS-16 now treats an operating lease the same way as a finance/capital lease–that is, all equipment assets have to be booked as assets of the host entity, and the liabilities need to capture outstanding lease payments, just as with a loan. These changes are likely to reduce the level of leasing because of this new accounting treatment. Leveraging Commercial Financing with Private ESCOs At the top of the “financing ladder” for public sector projects is the development of private sector energy service providers, such as ESCOs that specialize in EE project development and implementation. Private ESCOs can help overcome important barriers to scaling up implementation of public sector EE projects. They can offer a range of services spanning the energy services value chain; provide the technical skills and resources needed to identify and implement EE opportunities; perform services using performance-based contracts (thereby reducing the risks to the municipal utilities and public agencies); facilitate access to financing from commercial banks; and enable energy users to pay for services out of the savings achieved. Performance contracting refers to EE implementation services offered by private ESCOs under ESPCs. These have the following key attributes (SRC Global 2005): • A complete range of implementation services, including design, engineering, construction, commissioning, and maintenance of EE measures, and monitoring and verification (M&V) of the resulting energy and cost savings. • The provision or arrangement of financing (often 100 percent), and the undertaking of “shared savings” or “guaranteed savings” contracts. Because of this, payments to the ESCO are less than the cost savings resulting from the project implementation. • Specific performance guarantees for the entire project (as opposed to the individual equipment guarantees offered by equipment manufacturers or suppliers). ESCOs generally also guarantee a certain level of energy cost savings. • Payments contingent upon demonstrated satisfaction of the performance guarantees. • Most of the technical, financial, and maintenance risk is assumed by the ESCO, thereby substantially reducing the risks to the energy user. Comparison of the Financing Options Table 4.1 provides a comparative assessment of the key characteristics of the 10 finance and delivery models discussed above. Page 15 The Philippines: Options for Financing Energy Efficiency in Public Buildings Table 4.1. Summary of Characteristics of Financing Options for Public Sector Energy Efficiency Projects Issues to be Financing Option Conditions Pros Cons addressed Examples 1. Budget financing • Credit barrier is too high, • Easy to implement • Sustainability • Who will • Hungary with capital recovery underdeveloped LGU credit • Can directly finance may be manage and • Lithuania market, collateralization is both local and central questionable, administer the difficult for public sector government agencies even if funds? • Belarus • Financing should target new and repayment is • Is there • FYR Macedonia underdeveloped markets, obtained through sufficient budget financing • Montenegro programs must be efficiently implementation administered, initial subproject capacity in the • Serbia results should be intensely DOF or other disseminated, need cofinancing implementing agency? 2. Utility on-bill • Requires regulations to facilitate • Streamlined • Requires • Are utilities • Brazil financing utility participation repayments; lower changes in interested and • China • Utilities need to be willing and repayment risk if utility willing? • India able, and have billing systems there is a risk of regulations and • Do they have • Mexico that can address such financing disconnection billing systems capacity and • Sri Lanka • Need strong financial position • Can take advantage • Creates potential billing systems • Tunisia and financial management of of utility relationships for monopolistic for on-bill and services behaviors financing? • U.S. utilities • Can be done on a • Financing may • What regulatory • Vietnam • Bill payments must be assured by public sector clients sustainable and compete with changes may be scalable basis local banks needed? 3. Energy efficiency • Insufficient liquidity in banking • Can be structured to • May require new • Needs a strong • Armenia revolving fund sector, major aversion to public address financing legislation to and capable fund • Bulgaria sector risk among banks needs and evolving create the fund manager or • Jordan • Could use some grant funds as capacity of all public • May be difficult management • Mexico subordinated debt to help agencies (central to cover team • Romania Page 16 The Philippines: Options for Financing Energy Efficiency in Public Buildings mobilize commercial agencies and local administrative • Needs • Sri Lanka cofinancing government units) costs of the fund supporting • Thailand – • TA to disseminate information • Fund may provide from its legislative ENCON Fund on EE subproject many “windows” revenues framework for performance/financial data (financial products) establishment critical to sustainability • ESA option can be • Need for professional, well- very useful for LGUs incentivized fund management with poor credit and team lack of capacity 4. Dedicated credit line • Underdeveloped public/LGU • Builds commercial • Relies on strong • Is there a • Brazil with development credit market lending market by banking partner suitable • India (municipal bank • High commercial bank lending demonstrating that with the development infrastructure rates and low tenors public agencies can incentive and bank? fund) • Existence of a credible repay ability to • How many • Mexico development bank willing to • Allows public proactively public agencies • Turkey lend to public agencies for EE agencies to undertake develop project have the and assume repayment risks their own pipeline capacity to • Public agencies must have the procurement and • Serves only borrow and are ability and willingness to borrow implementation creditworthy creditworthy? • Public agencies need to able to • Allows for lower public agencies retain energy cost savings to interest rates • Development repay debt • Funds can revolve, bank may not making it sustainable conduct proper risk assessments and appraisals 5. Dedicated EE credit • Well-developed banking sector, • Leveraging of private • Needs public • Will the • China line with commercial willingness of banks to accept funds agencies or participating • Hungary financial risks and public sector EE as line • Utilization of existing ESCOs that have financial • Serbia institution(s) of business banking infrastructure borrowing institutions • Ukraine • Sufficient market activity to for financing the capacity (credit provide loans to • Uzbekistan develop a project pipeline public sector and collateral) municipal Page 17 The Philippines: Options for Financing Energy Efficiency in Public Buildings • Need for parallel TA to develop • Banks/FIs need utilities & strong demand, and create to be willing to LGUs? sustained quality pipeline lend to the • How many public sector public agencies are creditworthy and have borrowing capacity? 6. Risk-sharing program • Well-developed banking sector, • Has worked well in • Needs a • Is the banking • India Partial Risk (such as partial credit banks are liquid and willing to some Central and relatively mature sector mature Sharing Fund guarantee) accept some risks but have a Eastern European banking sector enough? (PRSF) perception of high risk with countries and eligible • How many • USAID DCA in respect to public sector EE • May help scale up borrowers public agencies FYR Macedonia, projects commercial financing • Poor experience are Bulgaria, and • Sufficient market activity to of the World creditworthy? other countries develop project pipeline Bank and • Bulgaria USAID in some • CEEF Central & countries with Eastern Europe), respect to public China, Croatia, agencies Hungary, Poland 7. Public ESCO or • Immature private sector ESCO • Can address • Need to create a • Where will such • Armenia Super ESCO industry, but interest/demand to financing issues and new a public ESCO • Croatia HEP develop ESCO industry build ESCO capacity organization be located? ESCO • Contracting between public • Can achieve scale in • Need to provide • Will donors be (WB/GEF) ESCO and public sector entities the public sector funding interested in • India - EESL may be easier than with private • Needs to operate funding such an • Sri Lanka sector ESCOs or other energy efficiently and entity? • Ukraine Public service providers avoid acting as ESCO (EBRD) monopoly • Uruguay 8. Commercial • Requires well-developed public • Mobilizes • Only makes • Are financiers • Bulgaria financing, bonds sector credit and rating systems commercial sense for very willing and able • Denmark financing, which can Page 18 The Philippines: Options for Financing Energy Efficiency in Public Buildings • Financiers willing and able to deliver scale and be large bundles of to lend to the • India lend to public sector or to sustainable projects public sector? • United States ESCOs for EE projects • Elements of • Only highly • How many • Large public entities with strong competition can help creditworthy public agencies technical capacity willing to lower financing costs agencies can use are creditworthy bundle many EE projects • Can help address these schemes and have together overcollateralization • Relatively high borrowing and short tenor issues transaction costs capacity? 9. Vendor credit, leasing • Large, credible local and/or • Mobilizes • Relies on local • How many • China international vendors able and commercial banks and public agencies • European Union willing to finance public EE financing, which can leasing are creditworthy • United States projects deliver scale and be companies and have • Local bank financing available sustainable • Serves only very borrowing for vendor leasing • Can help address creditworthy capacity? • Creditworthy public agencies overcollateralization/ public agencies able to sign long-term vendor short tenor issues • Vendors must contracts • Financing and assume • Public agencies able to retain procurement in one substantial debt energy cost savings contract and offer long- • Lease may not count term financing against public debt • Only some equipment suited for leasing (lighting, solar water heaters, boilers) 10. Leveraging • Supportive policies and enabling • Mobilizes • Needs local • Are there any • Canada commercial environment commercial banks and capable private • China financing using • Introduction of simpler business financing, which can ESCOs to ESCOs in the • Czech Republic private models to facilitate energy deliver scale and be provide market? • Germany ESCOs/performance services market development sustainable reasonable cost • Are private • Hungary contracts • Appropriate financing schemes financing and ESCOs and/or • India Page 19 The Philippines: Options for Financing Energy Efficiency in Public Buildings • Early market development • Helps address assume credit public agencies • Japan through public sector projects overcollateralization, risk creditworthy for • South Korea • Development of PPP models to short tenor issues • Serves only very commercial • United States kick-start market • ESPC may not count creditworthy project against public debt, public agencies financing? public agency shifts • ESCO industry technical risks to is difficult to third party develop • Public procurement issues difficult to address Source: Adapted by the authors from World Bank 2013 Page 20 The Philippines: Options for Financing Energy Efficiency in Public Buildings 5. ASSESSMENT OF FINANCING AND IMPLEMENTATION OPTIONS FOR PUBLIC SECTOR EE IN THE PHILIPPINES Characteristics of Financing Options in the Philippines This section reviews the potential applicability of the financing options discussed in section 4 of this report, to the public sector in the Philippines. In assessing the suitability and benefits of these financing options, three distinct types of public sector entities are considered: I. Creditworthy public agencies (LGUs), or agencies/entities with their own budgets; II. Public agencies that do not have their own budgets and/or that have little or no capacity to borrow funds and/or to implement projects; III. Central government agencies. The financing options have different applicability, advantages, and limitations depending on the type of public entity. Based on lessons learned in other countries, of the ten options described in section 4 , four were removed from consideration: • Utility on-bill financing, because the local distribution companies do not appear to have the regulatory authority, capacity, or interest in offering such services. • Credit line with the Development Bank of the Philippines (DBP), because such a credit line, presumably funded by donors, will generally require shorter tenors, and collateral requirements that would be difficult for public agencies to satisfy. However, it should be noted that DBP could serve as the host agency for an EERF, as discussed below. • Commercial financing and bonds, because of the limited capacity of public agencies to issue bonds, and the lack of a market for such bonds. • Vendor credit and leasing, because of the immaturity of the existing market for these options. The key characteristics of the other six options for the Philippines are summarized in Table 5.1. Narrowing the Financing Options: Rationale and Results As shown in Table 5.1, six EE financing options could be applicable to the Philippines, but they are not equally viable in terms of serving the needs of all public agencies. The comparison shows that three of the options do not appear to be suitable for the needs of all public sector entities in the short to medium term: that is, approximately the next five years. • While dedicated public sector EE credit lines may be attractive and useful for financing projects using commercial lending, they are limited to serving only a few creditworthy public agencies that have sufficient borrowing capacity. These financing options will therefore not be able to serve the needs of the NGAs and many of the LGUs. • Similarly, risk sharing or guarantee programs would be limited to creditworthy public agencies seeking commercial loans, and thus would not meet the needs of NGAs and LGUs. • Commercial financing can be leveraged using performance contracting and private Page 21 The Philippines: Options for Financing Energy Efficiency in Public Buildings ESCOs, but at present this financing option is likely to be limited to creditworthy public agencies or ESCOs with strong balance sheets and the capacity to borrow. However, with time, this option could become more feasible thanks to changes in the procurement and PPP rules and procedures, and increased access to off-balance- sheet financing for ESCOs that are being promoted by the government and the Philippine Energy Efficiency Alliance (PE2). In the near term, the existing ESCOs will not have the strong balance sheets and collaterals needed to access commercial financing, and most banks will likely be reluctant to provide debt financing to public agencies for the reasons discussed in Section 3. As this study has focused on near- term solutions to boost EE investments in a broad range of public buildings, this option was not further considered. Page 22 The Philippines: Options for Financing Energy Efficiency in Public Buildings Table 5.1. Key Characteristics of the Public Sector Energy Efficiency Financing Options in The Philippines Budget Financing Dedicated Public Private ESCOs with Capital EE Revolving Sector Credit Risk Sharing Public or Super & Performance Characteristics Recovery Fund Line Program ESCO Contracting Type of Financing Loans and TA; Loans, TA, Loans, TA Guarantees, TA Loans Loans may include some energy service grants agreements Public Entities I, II, and III I, II, and III I only I only I, II, and III I and III Served* Management and Project Board of IFI, participating IFI, participating Board of directors IFI, participating Governance implementation directors financial financial financial unit (PIU) within Fund institutions institutions institutions the DOF management team Project Development By PIU Fund Participating Participating Management Private ESCOs management financial financial team of public or team institutions institutions super ESCO Project By Type I public Type I agencies Type I agencies Type I agencies Management Private ESCOs Implementation agencies and Type Type III central team of public or III central govt. entities super ESCO government By Fund Mgmt. entities Team via ESA PIU may for Type II and implement for some Type III Type II & some Type III Advantages • Easy to • Addresses • Can leverage • Can leverage • Can address • Can address implement needs of all commercial commercial needs of all needs of all • Analogous to three types financing financing three types Type I and some existing • Multiple • Existing • Multiple Type III models windows guarantee windows to agencies Page 23 The Philippines: Options for Financing Energy Efficiency in Public Buildings • Can address all (including • Existing credit programs address • Can leverage three types ESA) to lines provide provide some financing needs commercial address experience relevant and evolving financing financing experience capacity of needs and local and evolving central agencies capacity of • Existing PNOC central RC public agencies and ESCO can be municipalities expanded Limitations • Requires capable • Needs new • Cannot address • Cannot address • Needs capable • Needs a PIU legislation for the needs of the needs of management mature ESCO • Sustainability implementatio Type II Type II agencies team industry not assured n agencies • Only serves • ESCOs need to • Needs of some • Needs a strong • Only serves agencies or have Type II agencies and capable public agencies ESCOs that have borrowing may not be Fund or ESCOs that borrowing capacity easily met Management have borrowing capacity • Not suitable Team capacity for Type II agencies Can be implemented Yes Yes, unless a Yes Yes Yes. PNOC RC Yes under current new entity needs already regulations? to be created. performing such functions Source: Authors * Types of public entities: I - Creditworthy municipalities or municipal entities with their own budgets; II - Municipal entities without their own budgets, with poor credit, and/or with little or no capacity to implement projects; III – Central government agencies. PIU = Project Implementation Unit Page 24 The Philippines: Options for Financing Energy Efficiency in Public Buildings The three remaining options are discussed in detail below. Budget Financing with Capital Recovery Overview This option involves actions by the DOF or DBM, with funding provided by budgets or donor agencies to establish a public agency EE financing facility to finance EE project investments in LGUs and NGAs that are funded from the national budget. The funds provided are used by these entities to make capital investments in EE projects that will result in energy cost savings. The recipient public entity is then required to “repay” the investment over a specified period of time from the cost savings generated by the investment project. This will be accomplished by the DOF in the form of reduced budgets allocated for the energy costs of the budgeted agencies in future years (hence the term “budget financing”). The size of the reduced outlay is usually structured to be lower than the energy cost savings. Figure 5.1 shows a typical structure of such a project. Figure 5.1. Budget Financing for a Public Sector EE Improvement Project Department of Finance Budget Public Agency (Local or Central) Project Energy Cost Investment Savings Project Implementation Public Buildings Energy Service and Facilities Payments using Providers Performance Based contracts Funds Flow The flow of funds used to pay for EE improvements follows the same path as normal appropriations from DOF. The repayment to DOF could be complete or partial, and may allow public agencies to retain a share of the savings achieved. It would be desirable for DOF to allow the public entities to keep a portion of the savings in order to provide an incentive for their active participation in and support for identifying and implementing EE projects. This may require some changes in public budgeting procedures. The development of such procedures could be supported by TA. Figure 5.2 illustrates how the funds flow. Page 25 The Philippines: Options for Financing Energy Efficiency in Public Buildings Figure 5.2.Funds Flow, Public Agency EE Financing Facility Department of Funding Sources Finance Investment Funds TA Funds Program Department of Implementation Technical Energy Unit (PIU) Assistance Loan Technical Repayments Loans TA Assistance Payments for Services Public Sector EE Energy Service Projects Energy Providers Services Implementation A Project Implementation Unit (PIU) within the DOF or another suitable government agency (such as DBM or DOE), staffed with appointed specialists and consultants would be responsible for implementation. The PIU could carry out tasks such as project identification, review of applications, and monitoring and reporting, as well as assisting public entities with project preparation activities such as the review of feasibility studies, the preparation of detailed design and bidding documents, and supervision of construction activities. This option requires the establishment of a PIU within the department, and training and capacity building of the PIU staff who will be undertaking the activities envisioned. Some TA could be provided by DOE, but DOF would have to assume responsibility for budget allocation and repayments. The funds would be lent by DOF to public agencies by entering into loan agreements. The funds would be provided to central government agencies and public agencies that are able to manage the implementation of EE projects, and a demonstrated willingness to commit to repaying the loans from their energy savings. DOF would provide loans for projects undertaken by these borrowers, which would be treated as debt, with fixed repayment obligations to be made within their budget provisions in future years. The PIU would negotiate loan agreements that would define the terms of the loans, as determined by DOF, or in negotiations between DOF and the donors. Technical Assistance (TA) Certain additional services may be provided to the borrowers by the PIU as TA. Such services may include conducting a preliminary screening to identify and define the general scope of the EE projects; providing standard bidding documents for services related to project implementation; and providing measurement and verification (M&V) protocols. The borrowers will be responsible for engaging energy service providers as needed; implementing the project; properly maintaining the systems; and repaying the loan in accordance with the terms of the loan agreement. The repayment installments will be designed to allow borrowers Page 26 The Philippines: Options for Financing Energy Efficiency in Public Buildings to repay the investment costs and, if applicable, the service fees, from the accrued energy cost savings. TA may be provided by DOE with respect to energy audits, project implementation support, M&V protocols, and so on. Energy Efficiency Revolving Funds (EERF) The basic structure of an EE Revolving Fund (EERF) was described in Section 4. Figure 5.4 illustrates the structure of an EERF. Figure 5.3.Structure of an EE Revolving Fund (EERF) The key design elements that need to be considered to implement such a fund in the Philippines are discussed below. Legal Framework The establishment of an EERF is likely to require legislative action. The options for establishing an EERF include (i) creating the fund under DOE, another existing department, or a development bank; (ii) creating a new legal entity (an independent corporation or a new statutory agency); (iii) using a not-for-profit entity; or (iv) establishing a public-private partnership (PPP). The preferred option is generally the creation of a new independent corporation or a new statutory agency. If the government decides to establish the Philippine Energy Efficiency Revolving Fund (PEERF), the relevant legislation should specify its legal organization and ownership. Fund Management and Governance The key elements in the management and governance of PEERF include the following: • Oversight arrangements; • Choosing the fund manager; • Monitoring and evaluation (M&E); and • Reporting. Page 27 The Philippines: Options for Financing Energy Efficiency in Public Buildings Oversight Arrangements Although oversight arrangements vary, they typically include all of the relevant ministries that have some authority over EE, such as those responsible for finance, construction, the economy, energy, the environment, and/or urban and regional development. Examples of oversight arrangements established in other EERFs are listed below: • In Thailand, the ENCON Fund was established under the oversight of the Department of Alternative Energy Development and Efficiency (DEDE); • The Bulgarian Energy Efficiency Fund (BEEF) is overseen by a management board appointed by the national government; • The Renewable Resources and Energy Efficiency Fund (R2E2 Fund) in Armenia is governed by a government-appointed board of trustees comprised of representatives from the government, the private sector, NGOs, and academia; • The Romanian Energy Efficiency Fund (FREE) is governed by a government- appointed board of administration consisting of seven members, of whom five are private sector representatives; and • Salix Finance in the United Kingdom has a three-person board, two of which are from the private sector. If and when the Philippines establishes PEERF, it should be sure to have representation from both the public and private sectors. The main functions of the oversight body will be setting the investment strategy and policy of the fund; hiring the fund management team; establishing the overall criteria for the selection of projects; approving the annual business plans and budgets formulated by the management team; preparing and submitting an annual financial report to the government; and assuring that the fund is operating in compliance with the national EE strategy and plans. Choosing the Fund Manager Reviews of international experience with EE funds have identified a number of options for the choice of a fund manager, including an existing government agency or development bank, a utility, or a special directorate related to municipal services or building management (World Bank 2014a). Alternatively, a new organization—an independent agency, a new statutory authority, a public corporation, or a PPP—may be created to manage the fund. Any of these types of organizations could also hire a fund manager or fund management team under a contract. Thailand’s ENCON Fund was managed by DEDE. In Bulgaria, an independent fund management team that was competitively selected and included a consortium of three firms was appointed (World Bank 2010a).18 In the case of the Armenia R2E2 Fund, the government appointed an executive director and a supporting financial and technical staff to manage the fund (World Bank 2012a). In the Philippines, one of the options for the fund manager is the Development Bank of the Philippines (DBP). DBP already has a Green Financing Program, and has the capacity to manage a revolving fund (DBP 2017). Another option would be a newly created independent 18 The consortium includes an EE consultancy (Econoler International), a Foundation (Center for Energy Efficiency EnEffect), and a nonbanking financial institution (Elana Holding PLC). Page 28 The Philippines: Options for Financing Energy Efficiency in Public Buildings agency analogous to those in Armenia or Bulgaria. Whatever form the fund manager takes, the fund management team must have expertise in a number of areas, including knowledge and understanding of EE technologies and options; skills in market assessment and pipeline development; capabilities in credit analysis, financial analysis, and project appraisal; and understanding of the EE and energy services markets. Debt Financing For creditworthy municipalities that can borrow and that are able to identify, design, and implement projects, PEERF could offer debt financing. One of the advantages of an EERF is that, unlike with commercial financing, which may require an equity contribution from the borrower, the fund can provide up to 100 percent of the debt financing. The fund may also not require the type of collateral typically requested by commercial borrowers, because the public agencies may not be legally able to pledge public assets. The tenor (repayment period) of the loan will be based on (i) the type of project; and (ii) the anticipated cash flows resulting from the energy cost savings. Usually the repayment period will be structured in such a way that the loan repayments are less than the energy cost savings. It is anticipated that PEERF will offer tenors longer than those in typical commercial bank loans. Energy Services This is an innovative feature of EERFs that can be very effective for public agencies that lack the capacity to borrow funds or to effectively implement EE projects. An energy services agreement (ESA) can offer a full package of services to identify, finance, implement, and monitor EE projects. The public agency is usually required to pay some or all of its baseline energy bill into an EERF-established escrow account to cover the investment costs and associated fees during the contract period. Figure 5.5 illustrates the basic concept of a public agency’s cash flows under an ESA, with payments equal to its baseline energy bill during the contract period. For example, let us assume that the monthly energy bill for the public agency prior to the EE project implementation is $10,000. The ESA will specify this as the baseline amount, and the public agency will agree to pay this amount each month into an escrow account for the duration of the ESA, which may be five to ten years. The EERF will then make the EE project investment (assumed in this example to be $150,000). This investment will reduce the energy costs by 30 percent, to $7,000 per month. During the five-year ESA period, the agency will pay into the escrow account (i) its monthly energy bill of $7,000 and (ii) the remaining $3,000 per month, thus allowing the fund to recover its investment (plus interest and fees). Following the five-year period, the agency will be able to retain its energy cost savings, and its overall energy bill will drop to the assumed $7,000. In some cases, the contract duration is fixed; in other cases, the contract can be terminated after an agreed-upon number of payments have been made to the EERF, thereby offering a greater incentive for the agency to save more energy. Either way, one of the main advantages of the Energy Services Window model is that the ESA payments generally do not count as public debt: thus it allows public entities that are not allowed to borrow, or LGUs that do not have sufficient debt capacity, to implement EE measures. This model also helps public agencies use their limited budget and debt space for higher-priority investments while still being able to implement EE. In addition, the repayments to the EERF and energy payments Page 29 The Philippines: Options for Financing Energy Efficiency in Public Buildings can be bundled together, providing some added leverage to the fund so they can cut off the energy supply should the public agency default on its repayment obligations. Figure 5.4. The Energy Services Agreement Model EE retrofit Baseline payments to escrow account for 5-10 years Investment Agency cash flow Baseline repayment energy costs Reduced New energy energy bill bill Baseline During contract After contract Source: World Bank 2013 Technical Assistance An important feature for the success of PEERF is the TA that is provided. This could include the following: • Program marketing to and capacity building of the target public agencies, to address the information and knowledge gaps related to EE, build demand for financing, and improve the sustainability of energy savings. • Developing procedures that help public agencies engage ESCOs under PPPs such as performance-based contracts; preparing performance-based bidding documents for procurement of various elements of project implementation services; and refining these documents based on the implementation experience. • Identifying ways to bundle procurements through multiple public entities that are implementing similar projects, thus reducing transaction and equipment costs through bulk purchases. Under some financing arrangements, PEERF can even conduct the preliminary audit, procure the ESCO, and monitor the project on behalf of the clients. • Identification, assessment, and recommendation of changes, if needed, in the rules for public accounting, budgeting, and procurement in order to facilitate the financing of EE projects and the procurement of EE services. • Carrying out capacity building for ESCOs and other market actors to enhance their ability to conduct energy audits, and to screen, design, evaluate, appraise, finance, implement, and measure EE investments in the public sector. • Developing or adapting appropriate methodologies for M&V, and providing M&V training to public agency staffs and ESCOs. Page 30 The Philippines: Options for Financing Energy Efficiency in Public Buildings • Developing the terms and conditions of the ESAs with public agencies, including establishing the baseline conditions, and identifying the changes in the baseline that require an adjustment of the fixed annual payments. Procurement of Implementation Services Under the ESA option, EERF can engage private ESCOs to provide some implementation services using simple performance-based contracts. This approach can help transfer some of the project implementation risk to the private sector. It can also help build the capacity of the ESCOs, and facilitate the development of an energy services market (World Bank 2010b). Organizational Structure The organizational structure of PEERF could be developed as illustrated in Figure 5.6. Figure 5.5. Organizational Structure, PEERF Board of Directors Funding Sources Fund Manager Accounting & Administration Investment Unit Technical Assistance Unit Investment Models The PEERF should be structured to offer two main financing mechanisms: debt financing, and ESAs. The step-by-step process for these two financing instruments is shown in Table 5.2. Table 5.2. Implementation Steps for Fund Investment Models Model 1: Loans Model 2: Energy Services Agreements Step 1 Fund manager prepares and announces the Fund manager prepares and announces availability of loan funds for EE projects in the availability of ESAs for public sector municipalities and other public entities, and EE projects, and invites EOIs from invites Expressions of Interest (EOIs) from municipalities and public facilities to municipalities and public facilities to borrow participate in such agreements. funds for projects. Step 2 Fund Manager receives applications from municipalities and public entities. Step 3 Fund Manager conducts preliminary screening of EOIs and selects promising candidates. Step 4 Fund Manager conducts preliminary assessment of energy savings opportunities, including a walk-through audit. Page 31 The Philippines: Options for Financing Energy Efficiency in Public Buildings Step 5 If the walk-through audit shows promising If the walk-through audit shows opportunities for energy savings, a project promising opportunities for energy design is prepared by the borrower; the PIU savings, an ESA is negotiated between may provide assistance in the preparation of the fund and the facility. The ESA the project design. The borrower needs to specifies that the facility will pay the obtain approval from DOF for the loan. A fund a fixed amount equal to 95-100 Loan Agreement (LA) is then negotiated percent of the baseline energy costs for a between the fund and the borrower. The LA fixed period of time, as determined and specifies the responsibilities of the fund and agreed upon after a detailed assessment the borrower; the EE measures to be is conducted of the facility's baseline implemented; the total project costs and the energy use, costs, and operating amount to be loaned by the fund; the characteristics. The ESA also specifies assignment of collateral; the length of the the adjustments to be made to the fixed agreement; the terms of the loan repayment; payments in case of any changes to the the selection of the M&V methodology and facility characteristics, operating M&V agent, and other important details. The conditions, or other baseline parameters. LA also specifies the responsibilities of the An ESA would most likely not be borrower for conducting the project considered as a liability on the balance implementation activities; the services that sheet and therefore may not be part of the are to be provided by the fund to assist the entity’s debt ceiling. borrower with implementation; and the terms for payment for such services, if any. Step 6 A detailed audit is commissioned to identify A detailed audit is conducted by the fund the investment cost, energy savings, and to identify the baseline conditions. implementation requirements. Step 7 The fund prepares performance-based The fund prepares and issues bidding documents for project performance-based bidding documents implementation services and provides these to for project implementation services. the borrower. Step 8 The borrower approves the bidding The fund conducts the procurement of documents, and the procurement of the the service providers. The contracts for service providers is conducted either by the the project implementation services are borrower or by the fund, as specified in the partly performance-based, as specified in LA. The contracts for the project the bidding documents. implementation services are partly performance-based, as specified in the bidding documents. Step 9 The energy service providers implement and The energy service providers implement commission the project under the supervision and commission the project under the of the borrower or the fund staff. supervision of the fund staff. Step 10 Upon completion of the implementation and Upon completion of the implementation commissioning, the M&V agent conducts the and commissioning, the fund conducts M&V of project results. Payments are made the M&V, using its own staff or an M&V to the service providers by the borrower or the agent. Payments are made to the service fund, based on the performance criteria. providers by the fund, based on the performance criteria. Step 11 The borrower repays the loan over the term of The fund receives the fixed payments as the agreement from the savings achieved. specified in the ESA (adjusted, if appropriate) for the specified time Page 32 The Philippines: Options for Financing Energy Efficiency in Public Buildings period. The fund pays the facility’s energy bills and retains the remaining amount to cover its investment and service costs. The investment models for the debt financing option and the ESA option are shown in Figures 5.7 and 5.8. Figure 5.6. Investment Model – Debt Figure 5.7. Investment Model - ESA Energy Bill Philippines Energy Philippines Energy Payment Efficiency Revolving Efficiency Revolving Energy Suppliers Loan Fund Fund Repayment Loan Agreement ESA – Energy Fixed Payments Service Agreement Public Agency Public Agency Performance Performance Based contracts Based contracts For Energy Cost Energy Cost For Implementation Savings Savings Implementation Public Buildings Public Buildings and Facilities and Facilities Project Project Implementation Implementation services services Energy Service Energy Service Providers Providers Source: Authors How PEERF Can Address the Barriers to EE Implementation Table 5.3 shows how PEERF can address the barriers to EE implementation that were discussed in Section 3. Page 33 The Philippines: Options for Financing Energy Efficiency in Public Buildings Table 5.3. How PEERF Can Address EE Implementation Barriers Barrier Type Barrier How Addressed Finance projects directly with creditworthy Limited number of creditworthy public public agencies with borrowing capacity and agencies and borrowing capacity Legal/ engage in ESAs with others Regulatory Enter into loan agreements or ESAs with Restrictive budgeting and procurement public agencies without facing the restrictive regulations and procedures regulations/procedures Lack of internal budgets Provide financing from EERF or offer ESAs Relatively high interest rates and short Provide lower interest rates and longer tenors Access to tenors from commercial banks than commercial banks and engage in ESAs Financing Standardize agreements and procedures; Small project sizes, leading to high aggregate similar projects across public project development and transaction costs agencies Institutional Lack of information on EE technologies Provide TA; Offer ESAs Limited technical an implementation Provide TA; Offer ESAs capacity Implementation Lack of development of energy service Engage energy service providers in project Capacity providers and performance-based implementation and develop their capacity for contracting performance-based contracting Source: Adapted by authors from World Bank 2014a Public ESCOs There has been much discussion of the benefits of the ESCO model using performance contracting to help implement EE projects (Singh et al 2010). Unfortunately, implementing the ESCO model in developing countries has been challenging for many countries (Hofer et al 2016). Limitations on the Growth of ESCOs in Developing Countries The growth and development of the ESCO industry in developing countries has often been constrained by a number of barriers, most of which are also present in the Philippines: • There are very few ESCOs in the Philippines. The existing ESCOs have a small capital base and experience difficulties in accessing project funding from commercial banks and other financial institutions (FIs) because they can only provide limited equity financing. • Due to the immaturity of the EE market in the Philippines, the costs of project development are relatively high, and ESCOs are likely to find it difficult to finance project development costs. • The ESCO model is relatively new in the Philippines, and ESCOs have not yet developed good credibility with public sector energy users. • The concept of project financing for ESCO projects is not commonly accepted by banks and other FIs in the Philippines. A major reason for this is that they require collateral, and are generally unwilling to accept the savings stream generated by the project as appropriate collateral. • Banks and other FIs in the Philippines have limited knowledge and understanding of EE projects and the ESPC concept. • Banks and other FIs perceive EE projects as inherently more risky than other investments, and generally require a large proportion of equity funding from the ESCO for a project. Page 34 The Philippines: Options for Financing Energy Efficiency in Public Buildings Large-scale implementation of EE projects in the public sector in the Philippines is also constrained by a number of other barriers, as discussed earlier in this report: • Facility managers in public buildings generally do not have a good understanding of the opportunities, costs, and benefits of EE options. • There is very limited technical capacity in public agencies for conducting energy audits, for designing and engineering projects, and/or for contracting with and managing ESCOs or other energy service providers to implement projects. • There is generally little or no incentive for the staff of public agencies to save energy, since the resulting cost savings may simply lead to reduced operational budgets in future years. This may actually even represent a disincentive to saving energy. • Public sector contracting and procurement rules are rather restrictive; for example, they require the selection of the lowest bidder, which may make it difficult to adopt the performance-contracting approach. • Responsibilities for capital and operating budgets in public agencies are dispersed, making it difficult to deploy funds from capital budgets to reduce operating costs. • Banks and other FIs in the Philippines are unlikely to be willing to provide project financing for ESCO projects with public agencies. The Public ESCO Model The concept of a public ESCO has recently evolved as one of the mechanisms that can be used to overcome some of the limitations and barriers hindering the large-scale implementation of EE projects. A public ESCO (sometimes referred to as a super ESCO) is established by the government,19 and it functions as an ESCO for the public-sector market (hospitals, schools, municipalities, government buildings, and other public facilities). It also supports the capacity development and project development activities of existing private sector ESCOs, including helping to create new ESCOs (Limaye and Limaye 2011). Figure 5.9 illustrates the structure of a public ESCO. A World Bank study of international experience in the public procurement of EE services has identified the public ESCO as a potentially viable model for developing countries (Singh 2010). A public ESCO can be uniquely positioned to overcome a number of the barriers faced by smaller ESCO companies. With its size and credibility as a public institution, it can support the growth of a nation’s private domestic ESCO business, and can provide financing for EE projects. A public ESCO can also target the largely untapped EE market in the public sector. The EE potential in the public sector is generally substantial, but the implementation of energy savings programs is complicated by numerous factors, including a lack of commercial orientation within public agencies, limited incentives for lowering energy costs, complex and strict budgeting and procurement procedures, and limited access to budgetary or commercial project financing. Many public agencies face budgetary constraints, and they often focus on the upfront costs as a matter of necessity. The public ESCO should also be assigned responsibility for helping to build the capacity of the local private sector ESCOs, and to create a competitive private market for ESCO services. 19 A super ESCO may also be established by a private sector organization, an NGO, or as a PPP. Page 35 The Philippines: Options for Financing Energy Efficiency in Public Buildings An appropriate role for the public ESCO is to engage private ESCOs as subcontractors for parts of the implementation (such as energy auditing, installation, commissioning, and performance monitoring), thereby helping to build their capacity. A public ESCO may also be able to arrange financing for small private ESCOs, to help them implement projects and build their capacity and credentials. Care should be taken to avoid crowding out the private sector by the public ESCO. Page 36 The Philippines: Options for Financing Energy Efficiency in Public Buildings Figure 5.8. Typical Structure of a Public ESCO Government (Owner of Public ESCO) Initial Funding Funding and Technical Assistance Donor Agencies Public ESCO 100% Payments from Subcontracts Financing Savings Private ESCOs Public Sector Projects Services Source: Adapted by the authors from Limaye 2013b The payments from the public agency clients for the services provided by the public ESCO may need to be secured through a payment security mechanism such as an escrow account. For central government agencies, the public ESCO may sign a framework agreement with the DOF (or whatever department is responsible for the payment of energy bills) to secure payments from the energy savings generated by the EE projects. EESL, a Public ESCO in India Perhaps the most successful model of a public ESCO is Energy Efficiency Services Limited (EESL), India’s super ESCO. This company was established by the government of India as a publicly owned super ESCO with the primary objective of implementing municipal energy efficiency projects, including public buildings and street lighting. EESL, in partnership with private ESCOs and EE equipment suppliers, provides turnkey performance-based implementation services to public agencies to mobilize private entrepreneurship and investment. EESL has also undertaken substantial capacity building and training activities for the private sector energy service providers. Some of EESL’s major programs include:20 • The National EE Street Lighting Program, which has installed 3.5 million LED street lights, saving 486 million kWh. • The Residential EE Lighting Program, which has distributed 270 million LEDs, saving 7,000 MW and 35 billion kWh per year. • Programs for improving EE in agriculture, municipal water pumping, and water treatment; and for installing solar pumps. 20 Information from EESL web site: https://www.eeslindia.org, accessed on November 5, 2017. Page 37 The Philippines: Options for Financing Energy Efficiency in Public Buildings How Does a Public ESCO Address EE Financing Barriers? The key contributions that a public ESCO can make to the scaling up of EE project implementation are summarized in Table 5.4. Table 5.4. How a Public ESCO Can Address Barriers to Implementation BARRIERS TO EE PROJECT HOW THE PUBLIC ESCO CAN ADDRESS IMPLEMENTATION IN THE PUBLIC SECTOR THESE BARRIERS Low awareness and interest on the part of public agencies The Public ESCO can conduct "marketing campaign" to in energy efficiency (EE) projects increase awareness and interest Zero budgeting policy may provide little incentive for The Public ESCO can develop incentive mechanisms for saving energy costs public agencies Budgeting Issues for public agencies - Capital The agency can avoid issue by having project financed by Expenditure vs. Operating Expenditure the Public ESCO Lack of procurement regulations that would allow ESCOs Contracting with the Public ESCO can overcome this and Performance Contracting problem Limited capacity in public agencies for performance The Public ESCO can develop standard contracts contracting using ESCOs customized for public agencies Lack of interest on the part of local financial institutions Financing can be provided by the Public ESCO to fund public sector projects Local financial institutions generally unwilling to provide The Public ESCO can provide "project financing" for public "project financing" for EE projects agency EE projects Private ESCOs unwilling to invest in public sector The Public ESCO can invest in public agency EE projects projects Public agencies not used to contracting with private sector Public agencies may find it easier to contract with the for energy services Public ESCO Source: Adapted by the authors from Limaye and Limaye 2011 Public ESCOs in the Philippines In the Philippines, the PNOC Renewables Corporation (PNOC RC) is functioning as a public ESCO. PNOC RC was established as a public ESCO by the Philippine National Oil Corporation (PNOC), and was provided with an initial capitalization of PHP500 million by PNOC. Its activities to date have included projects for central government agencies as well as LGUs. Additional information on PNOC RC is provided in Annex A. The Potential Role of International Financial Institutions and Donors International financial institutions (IFIs) and donors can play a major role in the establishment and operation of all three of the shortlisted financing options in three ways: financial assistance; capacity building; and other technical assistance (TA). Financial Assistance Financial assistance may be provided in the form of loans, grants, and guarantees. The loans would have the structures and characteristics of typical IFI loans, with sovereign guarantees. IFIs may also provide or arrange for grant funds from sources such as the Global Environment Page 38 The Philippines: Options for Financing Energy Efficiency in Public Buildings Facility (GEF) or the Green Climate Fund (GCF). Another financing option would be risk- sharing facilities, such as partial credit or risk guarantees to the PEERF, or to PNOC RC. Capacity Building One of the most important ways in which IFIs can assist is through TA for capacity building. TA may be provided to: • The PIU. The TA would address the training of PIU staff (or in the case of the public ESCO option, the PNOC RC staff) to build their capacity to manage the financing and implementation of EE projects. This would include training related to EE technologies and relevant implementation strategies; basic concepts and tools for performance-based contracts; guidelines and procedures for the measurement and verification (M&V) of energy savings; and monitoring and reporting of the overall program results to the financing sources. In addition, in the case of the budget financing and PEERF, the capacity building might also include funding for the initial set-up, administration, and operation of the PIU, and for the purchase of equipment for auditing, data collection, and M&V. (This would not be needed for the public ESCO, since PNOC RC already has such capacity). • Central government agencies. This TA would help facility managers and engineers to identify opportunities for EE implementation in their buildings; conduct energy audits; and develop EE action plans. • LGUs. This would help mayors, city councils, utility executives, facility managers, and facility engineers understand the need for and the importance of EE implementation; obtain information on the technical options for energy efficiency in municipal utilities and public buildings and facilities; and conduct energy audits and develop EE action plans. • Banks and financial institutions. TA would provide information on the characteristics of EE projects; implementation business models; financial and technical appraisal; M&V; and business opportunities in financing EE projects. • Energy service providers. TA would help build capacity to develop projects; conduct energy audits; screen, design, evaluate, appraise, finance, implement, measure, and verify EE investments in the public sector; understand the perspectives of banks and financial institutions; develop M&V protocols; and prepare “bankable” project proposals. • M&V agencies. TA to create the M&V infrastructure and provide protocols and supporting tools for conducting the M&V of EE projects. Other Technical Assistance IFIs and donors can also provide other types of TA designed to facilitate the scaling up of the financing of EE projects. This TA would complement ongoing TA projects in the Philippines that are being supported by IFIs and other development partners and may include the following: • Building Energy Databases. A national inventory of public buildings can be developed, and a database containing information on the floor area and annual energy used by building type can be established. An analysis can then be conducted to develop Page 39 The Philippines: Options for Financing Energy Efficiency in Public Buildings benchmarks, such as energy use per square meter, and to identify high and low energy users. The database can also be used to estimate EE potential and investment needs. • Public Sector EE Programs and Projects. IFIs can help develop and document information on existing and planned public sector EE programs and their costs, as well as results and energy savings achieved. • Incentives and Recognition. The creation of a mix of voluntary and mandatory measures to identify and publicize high and low energy performers (a “fame and shame” program) could also be done. Such a TA could also help to establish EE targets and reporting requirements. These activities can be designed to achieve long-term, sustainable cultural changes in the public sector. • Appliance Labeling and Standards. There is a need to transform the market toward more efficient appliances and equipment. TA can be designed to: • Ensure that building materials and appliances are properly tested and certified; • Develop procedures to assure enforcement of the standards and labeling requirements; • Accelerate the implementation of building energy certificates; and • Develop an ESCO certification scheme. • Templates and Standard Contracts. Other important areas of TA include: • Developing and publishing case studies of EE projects, and documenting the lessons learned; • Providing templates for conducting energy audits; • Preparing standard contract terms and conditions for ESPCs; and • Preparing M&V users guides. Page 40 The Philippines: Options for Financing Energy Efficiency in Public Buildings 6. MOVING FORWARD Advantages and Limitations of the Three Options Table 6.1 provides a summary of the advantages and limitations of the Budget Financing, PEERF, and Public ESCO options. Table 6.1.Comparison of Public Sector Financing Options Characteristics Budget Financing PEERF Public ESCO Loans and TA; may Loans, TA, energy service Loans, TA, energy service Types of Financing include some grants agreements agreements Board of Directors Board of Directors Governance and PIU Management Management team of Public Fund management team ESCO Management team of Public Project Development PIU Fund management team ESCO Public Agencies (for debt financing) Management team of Public Project Implementation Public Agencies Fund management team ESCO (for ESAs) Assured by revolving fund Commercial operation that Based on government Sustainability & fees to cover operating can also leverage private decisions costs financing Repayment Risk None Assumed by PEERF Assumed by Public ESCO Addresses needs of all Can address needs of all Easy to implement agencies agencies Multiple windows to address Multiple windows to address Analogous to some existing financing needs and evolving financing needs and evolving models capacity of public agencies capacity of public agencies Advantages Can provide ESA option to Can address all public ESA model useful for smaller smaller and weaker public agencies and weaker public agencies agencies Uses performance based Does not require any Helps build local ESCO contracts investments from the public industry and introduce Can help build capacity of entities performance based contracts private sector ESCOs Requires active participation May need new legislation for Need to expand capacity of of the DOF implementation existing PNOC RC management May need changes in Need a strong and capable team budgeting procedures Fund Management Team Limitations Requires capable PIU Need to develop payment Need to develop payment security mechanism to assure security mechanism to assure Sustainability not assured payments payments Yes. No need for new Can be Implemented No, requires new legislation; legislation or regulations. under Current Yes may require creation of new Can use PNOC-RC and expand Legislation/Regulations? entity its activities Source: Authors Page 41 The Philippines: Options for Financing Energy Efficiency in Public Buildings Moving Forward on the Public Sector EE Financing Agenda Pursuing any one of the three proposed options will require deliberate efforts by the government to: • Identify sources for the needed investment capital; • Secure commitments from IFIs as appropriate; • Implement any needed legislative and regulatory initiatives; • Design the project identification and delivery system; • Build implementation capacity; and • Leverage private sector participation. The government should select one of the three options for implementation only after review and consultation with all relevant stakeholders, including government officials; LGU mayors and city councils; private sector representatives (including energy service providers); banks and financial institutions; and NGOs, consumer groups, and the IFI community. The next step is detailed design and implementation planning for the selected option. Implementation can yield substantial results and generate lessons for the commercial financing options that the government and the Philippine Energy Efficiency Alliance (PE2) are planning to develop through changes in legislation, regulations, and budgeting procedures. In view of the analysis in this report and discussions with a variety of stakeholders, the World Bank recommends that the government update their Government Energy Management Program (GEMP) under DOE. The purpose would be to strengthen and clarify the obligations of the administrators of public facilities (both NGAs and LGUs) to conduct periodic energy audits (for example, every 4-5 years); and to implement all viable EE measures (those with a simple payback period of less than 10 years). To support the implementation requirement, the World Bank further recommends that the government select a sustainable financing mechanism from the options discussed in this report, and establish it as a dedicated investment component under GEMP (or GEMP IC). Based on the options analyzed, the World Bank proposes two options for consideration by the government: (i) establish a PIU under DBM to administer a budget financing with capital recovery scheme; or (ii) assign the PNOC RC as the lead implementing agency of the investment component, serving as a super ESCO. Both of these options would allow GEMP to launch the investment component (GEMP IC) in a relatively short period of time, as neither would require the creation of any new institutions or any major legislative changes. The GEMP IC could focus its initial efforts on NGA buildings in order to test the mechanisms and build experience, but could later be expanded to include LGU buildings as well as other public facilities, including street lighting, municipal water pumping, irrigation, and so on. In addition, a Program Steering Committee (PSC) should be established. This would be made up of relevant government entities such as DOF, DBM, DOE, the Department of Environment and Natural Resources, the Department of Education, the Department of Health, the Department of the Interior, the Department of Science and Technology, and local governments, along with at least one or two nongovernmental organizations (from academia, the private sector, and/or civil society). The PSC would oversee GEMP IC, and would approve eligibility criteria, operating guidelines, and investment plans. Under the first option, the PIU under DBM would report to the PSC for all activities Page 42 The Philippines: Options for Financing Energy Efficiency in Public Buildings undertaken under GEMP IC, such as the development of investment plans, operation manuals, contract templates, and the like. Given the multidimensional aspects of the GEMP IC scheme, and the importance of both the energy and budget-saving benefits, it is proposed that the PIU be comanaged and staffed by DOE and DBM, but physically reside within DBM. (See Figure 5.1 and Figure 5.2 for the proposed schematic and flow of funds for this option). Under the second option, the PNOC RC would be free to undertake other business activities, as they do currently, but would have to report to the PSC for all activities undertaken under GEMP IC. (See 5.9 for the proposed schematic and benefits of this option). Under both options, the assigned organization would enter into contracts (ESAs or ESPCs) with eligible public entities to undertake EE investments, finance them, and then bundle projects for subcontracting to private ESCOs for implementation. This would fill a critical gap in public sector EE financing in the Philippines; lead to substantial budgetary and energy savings; and would help develop the local ESCO and EE market. Proposed Funding Structure A preliminary plan for the proposed funding structure of the GEMP Investment Component (GEMP IC) is summarized in Figure 6.1: • GEMP IC could be capitalized with equity of US$10 million. The equity sources could be the Green Climate Fund (GCF), the Global Environment Facility (GEF), government contributions, and other donors. • GEMP IC could also be eligible for concessional debt financing of US$40 million through a GCF loan. Figure 6.1. Possible Funding Structure for GEMP Investment Component Senior Debt IFI loans US$100m (WB, other IFIs) Subordinated Debt GCF Equity GCF, GEF, Government contributions (Grant) • Additional public debt of US$100 million could be obtained from IFIs such as the World Bank. • While the PIU within DBM or PNOC RC would be responsible for implementation of GEMP IC, the GEMP IC account would be owned by the government. All repaid capital would flow back to the GEMP IC account, allowing it to revolve over time. • The fee structure to cover administrative and program-related overhead costs (energy audits, procurement, financing, supervision and oversight, program reporting, etc.) would be established and approved by the PSC under both options. Page 43 The Philippines: Options for Financing Energy Efficiency in Public Buildings Additional resources for TA would also need to be mobilized, which could be managed by the PIU, DOE, or PNOC RC. Roadmap for Developing the GEMP Investment Component The major steps in developing GEMP IC in public facilities are shown in Figure 6.2. Figure 6.2. Roadmap for Developing the GEMP Investment Component (GEMP IC) • Update GEMP by strengthening obligations and including an investment 1 component (IC) 2 • Select a financing option and institutional arrangements • Define the GEMP IC governance structure, objectives, target market, indicators 3 and targets, and timeline 4 • Identify and mobilize financing for GEMP IC 5 • Define the contracting and repayment mechanisms • Develop a marketing strategy and approach; define eligibility criteria; develop a 6 project pipeline • Define operating rules and procedures, and develop an operations manual that 7 includes standard documents and templates 8 • Develop procurement strategies to engage local ESCOs for project implementation 9 • Identify technical assistance (TA) requirements • Develop a transition plan to allow public agencies to contract private ESCOs 10 directly with commercial financing • Adjust legislation to require public agencies to reduce energy costs, and support 11 ESCO procurement and contracting Concluding Remarks The GEMP IC for energy efficiency in public facilities could be initiated relatively quickly if implementation were assigned to an existing entity such as DBM or the PNOC RC acting as a super ESCO, while still allowing the government to own the assets under GEMP IC. If the GEMP IC and performance contracting mechanisms prove effective, it could later be extended to municipal (LGU) buildings and facilities. Should the government decide in future years to establish a new entity, such as an energy efficiency revolving fund (EERF), the GEMP IC account could be assigned to this new entity. This would allow GEMP to begin right away, Page 44 The Philippines: Options for Financing Energy Efficiency in Public Buildings while still preserving the government’s ability to establish a dedicated institution at a later date. The creation of such a GEMP IC would help the government meet its national EE targets and directly contribute to the targets for EE public buildings; help meet the country’s energy security goals; reduce public expenditures in energy, allowing for investment in other socioeconomic priorities; support its Nationally Determined Contributions (NDCs) under the Paris Agreement; and other policy objectives. GEMP IC will also provide significant co- benefits, including reduced energy imports and public energy costs; improved operations in public facilities; reduced maintenance and equipment replacement costs; creation of a local ESCO industry; new jobs; and reduced greenhouse gas (GHG) and local emissions. GEMP will be sustainable, since no recurring government budget will be needed, and it could operate on a revolving basis for more than 20 years. It can also provide the basis for extension or replication to other municipal sectors (e.g., street lighting, water pumping, etc.). In addition, by implementing GEMP IC, the Philippines can become a regional leader on EE implementation in the public sector and foster a major local ESCO industry. Page 45 The Philippines: Options for Financing Energy Efficiency in Public Buildings ANNEX A. THE ACTIVITIES OF PNOC RC PNOC RC Activities PNOC RC started its ESCO program for government buildings with the installation of rooftop solar photovoltaic (PV) panels. To date, they have installed 1.42 Megawatt peak in seven government agencies in eleven buildings in Metro Manila. The company continues to work with government agencies within Metro Manila as well as in the provinces for the installation of additional rooftop solar PVs. PNOC RC has also initiated discussions with a number of central governmental agencies and LGUs to implement EE lighting projects along with their rooftop solar installations. The company is now also offering LED retrofitting projects for government buildings and offices. These projects are designed to replace conventional lighting systems such as fluorescent, incandescent, mercury, and metal halide lamps with LED lighting systems. The first such project is the replacement of 3,725 bulbs in the Philipine National Police Academy campus in Cavite. Another project, with the University of the Philippines, is for the retrofitting of more than 50,000 bulbs. To complete its ESCO program for the government sector, PNOC RC plans to venture into installing high efficiency air conditioning units to replace the old and inefficient ones. Since this will be a capital-intensive project, PNOC RC is coordinating with local government banks to provide a credit facility for the project. Likewise, it is seeking grants or concession loans from international funding institutions PNOC RC Business Model PNOC RC implements EE projects at no upfront cost to the public agencies. The basic model is the “shared savings” business model, under which the government agency retains a share in the savings derived from the displaced energy resulting from these projects. PNOC RC finances the capital cost of the project, provides the technical services, and conducts the operations and maintenance (O&M); and the public agency pays PNOC RC a monthly fee based on an agreed-upon rate. PNOC RC ensures that the project is sustainable throughout the length of the arrangement by covering the project investment, O&M costs, and a reasonable rate of return. Since the financing is done by PNOC RC, the public agency has no direct contractual obligation to repay the lender if there is a loan; this obligation is held by PNOC RC. The implementation of its ESCO program requires PNOC RC to present a proposal to the government agency; sell the concept; conduct contract negotiations; and push for project approval. Since different agencies and LGUs have different perspectives concerning EE, the entire sales process could become tedious and lengthy. To address this issue, PNOC RC has requested the Department of Energy (DOE) to issue a circular mandating all government departments and their attached agencies to implement EE and conservation measures, as well as demand-side management programs. They have also requested that PNOC RC be designated as the sole ESCO for the government sector. While waiting for the department circular to be issued, PNOC RC has adopted a department- level contract negotiation approach that covers the entire department, including its attached agencies, in order to shorten the approval process. Page 46 The Philippines: Options for Financing Energy Efficiency in Public Buildings Capacity Building of Private ESCOs PNOC RC implements its EE and demand-side management projects through private ESCOs that function as its EPC (engineering procurement and construction) contractors, thereby contributing to the growth and development of the energy services infrastructure in the Philippines. To create awareness and appreciation among the private sector energy service providers, PNOC RC undertakes information and education campaigns and conduct forums on energy efficiency and conservation. The company intends to provide energy audit consultancy services to both the commercial and industrial sectors in order to identify energy conservation opportunities that small ESCOs may want to consider as possible ESCO projects. Scaling-Up Activities PNOC RC has requested its parent company PNOC to provide additional capital infusion of PHP500 million. With this additional capitalization, PNOC RC intends to pursue projects that aim to replace old and inefficient air conditioning units with modern and efficient systems. Likewise, the company would implement its ESCO program on a nationwide scale and undertake simultaneous EE projects and installations. The government, with the assistance of the World Bank and/or other donors, could provide additional capital to PNOC RC to further expand its activities for public sector ESPC projects, and to leverage commercial financing. A primary function of PNOC RC could be to facilitate access to project financing by developing relationships with local or international financial institutions. The company may also expand its financial products to provide credit or risk guarantees for ESCO projects, or act as a leasing or financing company to provide ESCOs and/or customers with EE equipment on lease or benefit-sharing terms. List of Completed Projects Commissioning Government Agency Location Scope Date Philippine Heart Center Quezon City 100 kW Dec. 1, 2015 Department of Science and Taguig City 100 kW Feb 16, 2016 Technology Department of Environment and Quezon City 100 kW Sept. 24, 2016 Natural Resources (EMB) Philippine Coconut Authority Quezon City 80 kW Feb 24, 2017 Commission on Audit – Gym Quezon City 100 kW Commission on Audit – Philippine Mar 24, 2017 Quezon City 100 kW Institute for Development Studies University of the Philippines – Quezon City 40 kW Quezon Hall Mar 24, 2017 University of the Philippines – Quezon City 100 kW Melchor Hall Page 47 The Philippines: Options for Financing Energy Efficiency in Public Buildings University of the Philippines – Palma Quezon City 100 kW Hall Bangko Sentral ng Pilipinas Manila 200 kW Jul 25, 2017 Bangko Sentral ng Pilipinas Quezon City 400 kW Jul 25, 2017 Philippine Public Safety College – Silang, Philippine National Police Academy 3,725 bulbs Aug 2, 2017 Cavite and NPC Source: PNOC RC Pipeline Projects Capacity Number Project Location Status (kW) of Bulbs Solar Rooftops in Government Buildings Philippine International 1 Convention Center Manila 1,000 MOA Signing University of the Philippines Ongoing MOA 2 (Phase 1) Quezon City 800 Negotiation Laguna Lake Development Ongoing MOA 3 Authority Quezon City 80 Negotiation Quezon Memorial Medical Ongoing MOA 4 Center Quezon City 100 Negotiation For site survey/ 5 BSP QC Mint Building Quezon City 400 detailed FS 6 BSP Cebu Cebu 100 For FS Ongoing MOA 7 BSP Tuguegarao Cagayan 60 Negotiation 8 DOST Taguig Taguig City 800 For detailed FS Commission on Higher 9 Education Quezon City 85 For detailed FS 10 Philippine General Hospital Manila 90 For detailed FS Solar Rooftops and EELs in LGUs MOA 1 LGU Naga City Cebu Cebu 100 3,921 negotiation Completed site 2 LGU Taal, Batangas Batangas 100 - survey Completed site 3 LGU Malolos Bulacan 250 - survey Page 48 The Philippines: Options for Financing Energy Efficiency in Public Buildings Completed site 4 LGU Guiguinto Bulacan 200 - survey Completed site 5 LGU Paumbong Bulacan 80 - survey Completed site 6 LGU Pasig City Pasig 380 - survey Completed site 7 LGU Leyte Leyte 555 - survey 8 LGU Davao City Davao City 100 500 For site survey Davao del 9 LGU Tagum City Norte 100 500 For site survey LGU Province of Davao Del Davao del 10 Norte Norte 100 9,912 For site survey North 11 LGU Municipality of Makilala Cotabato 100 438 For site survey North 12 LGU Kidapawan City Cotabato 100 1,547 For site survey General 13 LGU General Santos City Santos 100 500 For site survey South 14 LGU Koronadal Cotabato 100 500 For site survey EEL in Government Buildings University of the Philippines - MOA 1 Los Banos Laguna 26,680 negotiation University of the Philippines - MOA 2 Diliman Quezon City 33,461 negotiation Technical Education and Skills MOA 3 Development Authority Taguig City 5,000 negotiation Quirino Memorial Medical MOA 4 Center Quezon City 4,400 negotiation Commission on Higher MOA 5 Education Quezon City 1,562 negotiation Source: PNOC RC Page 49 The Philippines: Options for Financing Energy Efficiency in Public Buildings 7. 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