December 11, 2009 / 10:02 AM / 11 years ago

ANALYSIS - Asia climate plans to boost energy efficiency sector

HONG KONG (Reuters) - Asia’s aggressive emission targets and legislation around carbon and power use are expected to drive demand for energy efficiency products and services, creating lucrative opportunities for investors in the sector.

Rows of air conditioners are seen on the walls of a building in Singapore's financial district December 11, 2009. REUTERS/Vivek Prakash

Ongoing climate talks at Copenhagen and commitments from around the region to slash emissions could help unlock some benefits and potential investments in energy efficiency stymied by information barriers and weak regulatory standards.

“While we may or may not have an agreement in Copenhagen, many nations are setting very aggressive targets to improve energy intensity,” said Clay Nesler, vice president for Global Energy and Sustainability at Johnson Controls, a U.S.-based company offering automation solutions for buildings and vehicles.

“With that, and concerns about the cost of energy increasing due to limited supply, those are the forces that in the long-term will give rise to significant investment in energy efficiency,” he said.

An increasing focus on the energy efficiency theme is set to benefit companies such as Taiwan’s Epistar Corp, which makes energy-saving light-emitting diodes, and Japan’s Daikin Industries, which designs efficient air conditioners, analysts say.

Developing nations need $90 billion a year in improvements from plugging leaks in building ducts to replacing inefficient household appliances with energy-saving ones to slow estimated demand growth by more than half over the next 12 years, consulting firm McKinsey Global Institute said.

China alone would need to spend about 30 percent of that to ease power consumption, currently the world’s second-largest.

“Global action to fight climate change is expected to create huge opportunities for low-carbon investments,” said Barbara Hon, analyst with China Everbright Securities.

Just like Japan, China is mulling levying a carbon tax which should provide incentive for the deployment of more low-carbon fuels and energy efficient technologies, Hon said.

BUILDING EFFICIENCY

Efficiency in buildings is the segment in the sector with the largest potential for energy gains, said analysts.

Energy consumption within the residential, commercial and public buildings accounts for about 40 percent of total global energy use, making it the largest single component of energy use.

China, which is constructing the equivalent of the entire commercial floor plate of Australia every year, is a growth market for efficiency solutions providers including Johnson Controls, Honeywell International, Schneider Electric and Seimens.

But while the development of green buildings and energy-efficient infrastructure is a potentially lucrative investment market, the right incentives are lacking for the industry to gain critical mass.

In India, construction of green buildings remains very scattered among individual projects and small scale development, said Sunita Narain, director of the Centre for Science and Environment in New Delhi.

With few building owners employing efficiency schemes, engineering and solutions companies in the region are unable to expand in a big way, analysts say.

“Right now there is no incentive for (Hong Kong) developers,” said Jeanne Ng, director of environmental affairs for CLP Holdings Ltd.

“If the green building costs them more to build and they cannot push that cost onto consumers, they are not going to bother,” she said.

Vincent Cheng, associate director at engineering consulting firm Arup, said only 2.5 percent of over 40,000 Hong Kong buildings comply with the best practice standards being advocated by the Building Environmental Assessment Method or BEAM, which offers labels for a building’s environmental performance.

However, Hong Kong is considering implementing a new building energy code, which may make mandatory developers’ compliance with the code for constructing new buildings and retrofitting existing ones.

Capital constraints are a major hurdle for green building ventures, though analysts believe government support and awareness about the potential savings from the investment could help address that concern.

In Australia, the driver most affecting demand for green buildings is corporate social responsibility rather than potential cost savings as international tenants grow more picky about projecting green credentials.

“The dollar case has always been there but it is only now that it has become sexy to seek the green outcomes,” Paul Bannister, managing director of energy solutions firm Exergy, Australia.

(Editing by Lincoln Feast)

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