WASHINGTON, DC, June 3, 2010—The World Bank has approved financing for a project that aims to replace around 375 chillers used in industrial, commercial, service, and institutional establishments nationwide with technology that is more energy efficient and friendly to the environment.
Called the “Chillers Energy Efficiency Project,” the project will provide financial incentive to chiller owners to encourage them to replace old chillers which consume around 50% more energy than new ones and emit harmful greenhouse gases into the atmosphere. Old chillers use up 50-70% of the total energy requirements in buildings.
The project will be financed by a $2.6-million grant from the Global Environment Facility (GEF) Trust Fund, a $1-million grant from the Multilateral Fund (MLF) for the implementation of the Montreal Protocol, and a $7.3-million Clean Development Mechanism financing with KfW (German Reconstruction Bank) as the carbon buyer.
“Replacing old and inefficient chillers will reduce greenhouse gas emissions as well as improve energy efficiency in the refrigeration and air-conditioning sector,” said Secretary Horacio Ramos of the Department of Environment and Natural Resources (DENR). “The project will also illustrate to building owners that investing in environment-friendly technologies also brings energy efficiency and thus makes good business sense.”
A chiller is a primary component in refrigeration and air-conditioning systems. Old chillers use chlorofluorocarbons (CFCs) and hydrofluorocarbons (HCFCs) as refrigerants, several of the chemical substances known to cause ozone depletion and global warming.
Established in 1991, GEF assists its member countries in the protection of the global environment and promote environmentally sound economic development. The MLF for the Implementation of the Montreal Protocol, created in 1987, provides funds to support developing countries in complying with the Kyoto Protocol requirement to phase out the use of ozone depleting substances. The importation of CFCs worldwide was banned starting January 1, 2010.
Despite the benefits of using non-CFC, energy-efficient chillers, business owners have put chiller replacement low in their priority list because new chillers are expensive and many are not aware of the benefits and urgency of replacing their old equipment.
Under the Chiller Energy Efficiency Project, chiller owners can get an upfront grant subsidy of 15% of the cost of new non-CFC-based energy efficient chillers, or opt for future carbon finance revenues to be generated by energy savings from the replacement of their chillers. In addition, these new energy efficient chillers substantially reduce operating cost.
To cover the remaining 85% of chiller cost, chiller owners may secure financing from commercial banks, government financial institutions, energy service companies, leasing companies, and chiller manufacturers and suppliers which offer financing on attractive terms. Financing options available to chiller owners include corporate loans, leasing, financing from energy service companies, and supplier credits.
World Bank Country Director Bert Hofman said that the project aims to enhance the capacity of chiller owners, energy service companies, and commercial financing entities to take advantage of carbon financing using a “programmatic approach” to the Clean Development Mechanism (CDM) of the Kyoto Protocol, a departure from the conventional approach where projects were processed individually. The Kyoto Protocol, adopted in 1997, commits industrialized countries to reduce their GHG emissions.
"Individual projects, while important, produce small volumes of emission reductions and benefit only a few players. The use of a programmatic approach allows multiple projects to be combined as one CDM project thus generating significant impact, and benefiting more players," said Mr. Hofman.
The Department of Environment and Natural Resources (DENR) - Foreign Assisted and Special Projects Office (FASPO) will act as the Coordinating Entity (CE) and will tap an independent consulting firm as a project management contractor to aggregate a number of eligible chiller replacements. It’s the first CDM project in the Philippines that has the Government acting as the CE which is responsible in consolidating the carbon emission reductions (CERs) from the individual chiller replacements.
“This innovative approach will reduce the transaction costs involved for each chiller owner in a carbon finance operation, thereby allowing many small individual projects to participate in the carbon market,” Mr. Hofman said.
The CDM, operational since 2006, refers to the mechanism provided by the Kyoto Protocol designed to assist developing countries in achieving sustainable development by permitting industrialized countries to finance projects for reducing greenhouse gas emission in developing countries and receive credit for doing so.
The CERs that are expected to be achieved in replacing the estimated 375 old chillers will amount to more than $7 million worth of carbon credits depending on the market price of carbon dioxide (CO2) tons of emissions avoided through the chiller replacements.