Problem

Over the past ten years, rapid industrial and economic growth in Bangladesh has led to a growing natural gas deficit. The industrial sector alone consumed roughly 32 percent of all natural gas used from 2008–2009. Reduced availability of gas for power generation led to frequent and prolonged power outages across the country, especially during the peak summer months. This adversely affected productivity in the agriculture sector as well as in small and medium industries that do not have an alternate power supply. To address the recurring power shortages on the grid, various consumer sectors have resorted to back-up or captive power generation in the form of gas engines, which exacerbated the gas shortage. For example, in 2009, the textile sector alone needed 1,200 MW of aggregate captive power generation capacity to meet its energy requirements.

Solution

Energy Efficiency to Extend Growth

Efficient energy end-use emerged as a viable option to sustain economic growth even as gas shortages continued in Bangladesh. Under a cooperative agreement with USAID, ICF piloted a strategy to identify cost-effective energy efficiency measures for Bangladesh’s manufacturers by comparing building energy use and industrial processes to industry best practices tailored to Bangladesh. The project team focused on four industrial sectors with the highest potential for energy efficiency improvements—textiles, jute, frozen food and steel re-rolling. Across the four industries, plants were utilizing between 20 to 80 percent of the best practices identified by the project as cost-savings opportunities. This meant that many plants had a significant opportunity to reduce their operating expenses.

Making the Business Case for Investment

The second part of the pilot, which was critical to implementation and future replication, focused on addressing the business case for energy efficiency investments both within industries and across the banking sector. Manufacturers were provided support to develop energy management and information systems, provide company staff with project experience, and to grow corporate energy management policies, plans, performance targets, and financial and staffing commitments. The project also addressed the banking sector and energy service companies by developing a dedicated energy efficiency funding pool, a pipeline of bankable projects, and by conducting outreach, training and capacity building activities.

Innovation

Identifying High-Impact, Cost-Effective Improvements

In order to achieve significant improvements in energy efficiency and reduce the level of demand for natural gas, manufacturers needed to identify cost-effective improvements that would have the largest impacts on energy use. At the same time, manufacturers needed to find a way of financing these improvements that were small compared to the typical projects financed by banks. To tackle this dilemma, the project identified, analyzed and prioritized opportunities for energy efficiency in plants among the four target sectors by comparing the buildings and manufacturing processes against a database of technical best practices, developed by the project team. The database was designed to be applicable to local production systems, equipment, construction methods and operational practices. Each plant in the study was assessed against 15 industry-neutral (generic) and eight industry-/process-specific best practices with respect to costs and savings potential and ease of implementation. All of the generic practices produced simple payback periods of less than five years and in the textile and steel re-rolling sectors, more than 50 percent of the process-specific opportunities showed simple payback periods of less than two years. In the frozen food processing sector, most process-specific opportunities have simple payback periods of less than three years while in the jute sector, most of these opportunities have payback periods of more than three years.

Bundling Opportunities for Scale and Investment

As a second step, the project team demonstrated how individual energy efficiency opportunities could be bundled together into projects of significant size and payback to gain the support of company management and the necessary financing from banks. By enabling manufacturers to approach banks with larger investment opportunities and identifying the associated return on investment (ROI) for these energy efficiency improvements, banks were able to view them as attractive financing opportunities. Individual improvements vary in cost, achievable savings and payback periods. However, high investment costs and long payback periods associated with some capital improvements can be balanced through bundling with low-cost high return operating measures to achieve significant energy savings. Bundling technical best practices into portfolios also builds a strong case for investment by reducing transaction costs. The project team developed portfolios of generic and process-specific measures for each of the four sectors to represent practical and strategic projects that plants could use to secure financing. Modeling demonstrated that all of the portfolios generated a very high return on investment (ROI) because in most cases the stream of benefits will continue after the debt has been repaid.

Widespread Adoption

Completed in 2012, USAID Bangladesh adopted the approach and results of this project through a later country-wide program, Catalyzing Energy Efficiency in Bangladesh, to scale-up energy efficiency across the industrial sector.

Challenges and Lessons Learned

As a pilot, the project identified significant cost effective energy savings opportunities across the industries analyzed in the study. However, the assessment also revealed the extent to which assistance was needed to support financing for these types of projects in Bangladesh. On the basis of this assessment, the project team designed activities for donor assistance to transform the market by intervening with the various stakeholder groups to generate successful projects and build the business case for energy efficiency. The three proposed activities recommended (1) promoting public-private partnerships, (2) developing a pipeline of “showcase” energy efficiency projects and (3) conducting industry engagement, training and capacity building.