Thailand’s revolving fund to stimulate EE
Hans De Keulenaer
Teething problems need to be removed before copying it in other countries
Thailand established its Energy Efficiency Revolving Fund in January 2003. The system aims at stimulating the financial sector's involvement in energy efficiency projects. It provides capital at no cost to Thai banks, which in turn use this money to provide low cost loans for energy efficiency projects.
The government allocated the initial pool of capital and provided a small number of staff to establish the financing model. The government carries no other risk since the main work of assessing the loan applications, administering the loans, and promoting the Fund is carried out by the banks.
After two years of operation, the Asia-Pacific Economic Cooperation (APEC) assessed the Fund. It concluded that the system certainly has some valuable ideas, but that some major issues need to be tackled before copying it in other countries.
Some major advantages that were pointed out:
- The repaid loans become available for recycling into new loans, hence the term 'revolving fund'. Once the system is at cruising speed, no new capital needs to be injected.
- The cheap loans often leverage significant additional investments in the project by non-government sources.
And some major points of criticism:
- Promotional activities have been too low key. Responsibility for promoting the fund has been split between the banks and the Department of Alternative Energy Development and Efficiency (DEDE). The latter has no budget specifically allocated for this task.
- Applicants lacking adequate collateral have difficulties receiving a loan.
- The financing model does creates the possibility that low risk projects are financed via the Fund, projects that would have received financing anyway (= 'free rides').
Another important remark is that these kinds of incentives only stimulate technologies which are already cost-efficient or close to it. This removes the investment barrier for certain technologies, but does not open up the market for new technologies.