Description
The Thailand Energy Efficiency Revolving Fund The objective of the Thailand Energy Revolving Fund (TEERF )is to provide access to capital for energy efficiency projects, increase awareness of energy efficiency opportunities and improve procedures and implementation of the projects. The TEERF provides credit lines to participating Thai banks on a full-recourse basis and at zero interest rate, with the requirement that the funds be used as loans to project developers and borrowers at an interest rate of no more than 4 percent. TEERF has successfully funded a number of energy saving projects since its commencement. With the success of the program in building the banks’ understanding and capacity to finance energy efficiency and renewable energy, in 2011, Thailand began to phase out the Revolving Fund. Recent lending data from the banks suggests that they have become sufficiently familiar with lending practices and are able to provide financing without government support.
Location
Thailand - Multiple cities
Region
East Asia and Pacific
Instrument
Instrument category
National, regional and municipal funds
Secondary instruments
Competitive finance or concessional loan
Project size (range)
> USD 200M
Project size (details)
The total budgeted size of the Revolving Fund was approximately USD 235M over five funding phases.
Implementer
Ministry of Energy, Department of Alternative Energy Development and Efficiency (DEDE)
Year of financial closure
N/A - Multiple projects funded by the instrument.
Client
Commercial Banks and Project Developers are effectively the client for DEDE.
Primary financer
National government, via on-lending to commercial banks.
Other co-financers
Commercial banks participating in the scheme
Other contributors
DEDE; The project developers, such as a building or factory owner, or a third party such as ESCO.
Other transaction participants
Third parties may be involved in advisory services for structuring disbursement and payment plans
Barriers addressed
Government can shift risk to the private sector: It is costly for governments to take on risk of lending directly to energy efficiency project implementers. In the case of TEERF, the major risk arising from the possibility of project proponents defaulting on loans, falls mainly on the project developers themselves and partly on the commercial lending bank, while the government carries no risk.
Government can leverage private sector investment: the provision of loan funds to an energy efficiency project can leverage significant additional investment in the project from non-government sources, in this case the participating commercial banks.
Upfront costs are reduced for project developers: The cheap loans for energy efficiency improvements allow project developers to be more ambitious in implementing wider-ranging and higher-impact measures, which have significant upfront costs, but can lead to much reduced operating costs for buildings and industry.
Financing structure
The TEERF receives revenues from a petroleum tax, yielding approximately USD 50 million per year and in 2005, having an accumulated balance of approximately USD 350M. The TEERF provides credit lines to participating Thai banks on a full-recourse basis and at zero interest rate, requiring that the funds be on-lent to project developers/borrowers at an interest rate of no more than 4%. Six major Thai commercial banks participated in the programme. The Fund initially (2003-2007) provided up to 50% of on-lent capital, with the remaining coming from the bank’s resources; in its second phase, the Fund reduced its share to 30%. Local banks were eligible to receive credit lines from the Revolving Fund in USD 2.5M -10M to finance energy efficiency and renewable energy projects. The Revolving Fund provided local banks with 0% interest to spur projects during the pilot phase. As the financing volume grew, the interest rate was subsequently set at 0.5% to cover administrative costs. Project developers make repayments of principal and interests to the participating banks, who will pay the principal amount to Department of Alternative Energy Development and Efficiency (DEDE) within seven days. DEDE then returns the funds to the TEERF. Local banks were obligated to repay the full amount plus interest to DEDE within ten years. The project developers, such as a building or factory owner, or a third party such as ESCO, are responsible for identifying the energy efficiency projects or opportunities, and conducting the initial feasibility studies required to apply for a loan from the fund. The application is made to the participating bank reviews the technical and financial viability of the project. If the results of the analysis and review are acceptable, the participating banks apply for the loan from the fund to DEDE. Once a loan is approved by DEDE, the participating banks submit a disbursement and repayment plan to DEDE and lend the funds to the project developer to implement the energy efficiency measures.
Suitability for cities in low-and-middle income countries (detail)
Yes. Suitable for countries with a relatively well developed domestic and commercial banking sector. The financing model is simple and does not rely on any factors unique to the situation in Thailand. Therefore, it could easily be applied to other LMICs.
Weblinks
WBG. (2012) Thailand - Energy effeciency revolving fund: case study. The World Bank
References
