Developing countries will need about $531 billion of additional investments in clean energy technologies every year in order to limit global temperature rise to 2° C above pre-industrial levels, thus preventing climate change’s worst impacts. To attract investments on the scale required, developing country governments, with support from developed countries, must undertake “readiness” activities that will encourage public and private sector investors to put their money into climate-friendly projects.
WRI’s six-part blog series, Mobilizing Clean Energy Finance, highlights individual developing countries’ experiences in scaling up investments in clean energy and explores the role climate finance plays in addressing investment barriers. The cases draw on WRI’s recent report, Mobilizing Climate Investment.
The development of Thailand’s energy efficiency sector is an interesting case study. It demonstrates how strong government leadership combined with strategic support from international climate finance can drive the transition toward an energy-efficient economy.
In the early 1990s, Thailand’s economy was growing rapidly at 10 percent per year; the power sector was growing even faster. The government recognized that conserving energy would provide a low-cost way to meet its citizens’ rising demand for energy.
It responded by passing a law in 1992 that set energy efficiency standards for industry and established an Energy Conservation Promotion Fund, which raised funds for energy efficiency projects by taxing petroleum products. The government also introduced a demand-side management plan, using about $40 million in climate finance from the Global Environment Facility (an international climate fund) and the Australian and Japanese governments. This plan included public awareness campaigns, setting energy efficiency standards for buildings and appliances, and demand-side planning to better manage the timing of consumer energy use.
The state energy generation utility successfully implemented the demand-side management plan, with impressive results: The utility achieved 15,700 gigawatt hours of energy savings by 2012, exceeding its own energy-savings targets. Key to the plan’s success was the fact that it was designed in close coordination with the private sector, carefully tailored to the Thai context, and widely disseminated through public awareness campaigns, resulting in strong support from industry and the public. Furthermore, the utility underwent considerable staff expansion and training to build its capacity to effectively implement the plan.
Financing Low-Carbon Projects in Thailand
While the demand-side management plan yielded positive results, an important barrier remained: Thailand’s local banks had a limited understanding of energy efficiency projects, making it challenging for potential developers to access financing for such projects.
The Thai government took action by establishing an Energy Efficiency Revolving Fund in 2002, offering credit lines—initially at no interest—to local banks so that they could provide loans for energy efficiency projects. The Revolving Fund made commercial banks more familiar with energy efficiency projects, and by 2010, it had financed projects worth a total investment of $453 million, resulting in energy cost savings in the region of $154 million each year.
The financial incentives to banks, combined with the enhanced awareness of energy efficiency, were key to the success of the Revolving Fund. Another critical factor was that the government had a reliable source of funding from the Energy Conservation Promotion Fund to invest in the Revolving Fund, so it did not need to rely on international support.
What Can We Learn from Thailand?
Thailand has been able to transition smoothly from readiness activities—such as capacity-building, awareness-raising, and demonstration—to large-scale investments. It is now embarking on a 20-year energy efficiency development plan funded through the Energy Conservation Promotion Fund, which aims to reduce the country’s overall energy consumption by 20 percent by 2030.
Other countries can learn from Thailand’s experience of combining strong national leadership with strategic use of climate finance for carefully targeted readiness activities. However, building an enabling environment for investment in clean energy is an ongoing process. As Thailand moves forward with its 20-year plan, it must continue undertaking readiness activities—such as training programs to address remaining skill gaps— to ensure it has the right conditions in place to scale up clean energy development.
- LEARN MORE: Find out how other developing nations are boosting investments in clean energy through our ongoing blog series, Mobilizing Clean Energy Finance. Or, download WRI’s publication, Mobilizing Climate Investment: The Role of International Climate Finance in Creating Readiness for Scaled Up, Low-Carbon Energy