What is energy efficiency?
Energy efficiency (EE) refers to the process of understanding energy use in order to implement effective solutions to lower energy consumption and minimise energy costs. EE typically comes under the banner of energy management, which is a much broader concept encompassing the planning and operation of energy generation and storage and the targeted use of mechanisms such as demand management and demand response.
EE has been said to be the fifth fuel after coal, hydrocarbons, nuclear and renewable energy. In truth, it should be the foremost fuel as it enables adopters to conserve resources, protect the climate and save cost without sacrificing timely access to the energy they need.
What is Singapore’s national strategy, if any, for energy efficiency?
To reduce its greenhouse gas emissions, Singapore has already made the switch from carbon-intensive fuel oil to natural gas for electricity generation. Natural gas now constitutes more than 95% of Singapore’s fuel mix for electricity generation. However, there are limits to how much further Singapore can reduce its emissions from its fuel mix alone. Therefore, EE is one of Singapore’s most critical pathways to decarbonisation.
Areas of focus in Singapore’s energy efficiency strategy
Singapore has identified the following areas of focus in its energy efficiency strategy:
- Promoting the adoption of energy-efficient measures and technologies;
- Building our capability to sustain and drive energy efficiency efforts and developing a local knowledge base in energy management;
- Raising awareness amongst the public, households and industry/businesses;
- Supporting research and development efforts to enhance Singapore’s capability in energy-efficient technologies.
Household initiatives by the Singapore Government
As for households, the Singapore Government has implemented the following initiatives to empower homeowners to make better choices and influence usage behaviour:
- Mandatory Energy Labelling Scheme (MELS) and Minimum Energy Performance Standards (MEPS) are key policies undertaken to improve the energy efficiency of a range of household appliances.
- MELS, introduced in 2008, requires suppliers of major energy-consuming household appliances to affix their products with energy labels, which will help customers compare the energy efficiency and make more informed purchasing decisions.
- MEPS sets standards for minimum energy performance or maximum energy consumption, thus removing appliances which are energy inefficient from the market and raising the average energy efficiency of household appliances.
The government’s strategy provides a much needed boost to the industry to accelerate the uptake of energy efficiency solutions.
Is there a central agency which regulates energy efficiency?
EE is deemed to be so critical in Singapore’s path to decarbonisation that a “Whole-of-Government” approach has been adopted to implement measures to improve energy efficiency and reduce the energy use of various sectors. Measures are being systematically implemented across all key sectors: power generation, industry, transport, building and households, as well as water and waste management.
The National Environment Agency (NEA) actively promotes energy efficiency in the industrial, household, and public sectors through legislation, incentives, and public education. The Building and Construction Authority (BCA) and the Land Transport Authority (LTA) promote energy efficiency in the buildings and transport sectors, respectively.
What are the applicable laws or binding policies?
The Energy Conservation Act 2012 mandates energy efficiency requirements and energy management practices to promote energy conservation, improve energy efficiency and reduce environmental impact.
Energy-intensive companies in the industry sector are required under the ECA to register with the NEA within six months of qualifying as a registrable corporation and to implement mandatory energy management practices. A corporation is a registrable corporation if it meets the following qualifications:
- It has operational control over a business activity which has attained the energy use threshold (54TJ of energy used per calendar year) in at least 2 out of the 3 preceding calendar years; and
- The business activity is carried out at a single site and is attributable to one of the following sectors: manufacturing and manufacturing-related services; supply of electricity, gas, steam, compressed air and chilled water for air-conditioning; and water supply and sewage and waste management.
Mandatory energy management practices
Once registered, corporations will be required to implement the following energy management practices:
- appoint an energy manager;
- monitor and report energy use and greenhouse gas emissions annually; and
- submit energy efficiency improvement plans annually.
A registered corporation under the ECA must, for each relevant business activity under its operational control, conduct an energy efficiency opportunities assessment for the relevant business activity, and submit an assessment report to NEA before the expiry of the respective assessment period.
What are some examples of national projects to promote energy efficiency?
Several national initiatives are already underway and have been implemented island-wide, including:
- The use of smart LED lighting and solar energy in existing HDB (public housing) towns will cut energy use by 15% by 2030.
- Installation of centralised cooling systems (CCS) in new HDB towns and community clubs which is a more energy-efficient solution than conventional air-conditioning systems.
- Introduction of a Mandatory Energy Labelling Scheme (MELS) to help consumers compare the energy efficiency of regulated goods to make informed purchasing decisions.
- Promulgation of Minimum Energy Performance Standards (MEPS) to raise the average energy efficiency of various household appliances such as refrigerators, air-conditioners and clothes dryers.
- The pilot of a Customised Household Energy Efficiency Report (CHEER) for households in a precinct (Jurong) with advanced electricity meters. This report helps consumers to better understand their electricity consumption patterns, with personalised tips on how they can save energy.
What is the common contracting mechanism for energy efficiency projects?
The Energy Savings Agreement (ESA) or Energy Performance Contract (EPC) are the most common forms of contract for EE projects.
An ESA is signed by the owner or operator of a site and an energy services company (ESCO). An ESCO is a company which specialises in the provision of energy-efficient technology and services, including financing, design, construction and management of EE projects. Most ESCOs are accredited by the NEA (the agency responsible for enhancing the professionalism and quality of services offered by energy firms). The ESCO will typically conduct an audit to track the energy usage and to identify the energy efficiency savings solutions in relation to the Site. If the owner or operator agrees to implement such solutions, the owner or operator will engage the ESCO to provide the energy efficiency savings solutions for the site in exchange for sharing with the ESCO the energy cost savings.
An EPC operates in largely the same way. The ESCO will conduct an initial investment grade audit (IGA), which is a stand-alone contract to identify a package of measures that could be implemented in which efficiency savings pay for the cost of the entire project. The IGA is followed by an EPC with the same provider to implement the projects as further negotiated in the performance contract.
Are there any government grants to promote energy efficiency projects?
The Energy Efficiency Fund (E2F), administered by the NEA, is an umbrella scheme consisting of five different grants to support businesses with industrial facilities to improve EE. The E2F grants relate quite sensibly to five highly practical means to accelerate EE in Singapore:
- Energy Efficient Technologies Grant
The Energy Efficient Technologies Grant supports companies to adopt energy-efficient equipment or technologies. The grant supports manufacturing companies to upgrade their equipment ahead of the carbon tax increase.
- Low-GWP Refrigerants Chillers Grant
The Low-GWP Refrigerants Chillers Grant supports companies to adopt low-GWP refrigerants for water-cooled chillers.
- Energy Management Information System Grant
The Energy Management Information System Grant supports companies to install EMIS to monitor and manage energy consumption in a structured manner.
- Energy Assessment Grant
The Energy Assessment Grant support companies to conduct detailed energy audit to identify potential areas for energy efficiency improvements.
- Resource Efficient Design Grant
The Resource Efficient Design Grant supports companies to conduct design workshops to improve resource efficiency (e.g. energy, water) for new industrial facilities or industrial facilities with major expansion.
What are some hallmarks of a bankable energy efficiency project?
A bankable EE project in the Singapore context shares many common traits with investment-grade bankable projects in Asia.
Investors are attracted to Singapore’s stable and predictable operating environment and sound legal framework – these provide confidence to the investors that they stand a good chance of recovering their investment and gaining a reasonable return.
In general, investors scrutinise the contracting structures closely to ensure a long term and stable revenue stream. Consequently, a lot of care goes into the drafting and negotiating of the key provisions relating to tariffs, termination rights and payments (by owner and operator) and the security for payment. As for the other provisions which are highly negotiated or contentious, these include the events of default by the ESCOs and the events which will qualify as force majeure events under the EPC.
Bird & Bird is a global law practice with sector specialisation in energy and utilities. Our international energy & utilities team advises commercial enterprises and public sector entities on a wide range of legal issues including power purchase agreements, demand response programs, microgrids, energy storage, carbon mitigation, IP assets, hydrogen fuel cells, green loans, and electricity futures. We provide legal support to our clients on M&A, fund-raising, energy regulation, project management, sustainability reporting, intellectual property, commercial contracts, and dispute resolution. If you would like to discuss any matters concerning energy efficiency, please feel free to get in touch with any member of the Bird & Bird Singapore Energy & Utilities team.
This article is produced by our Singapore office, Bird & Bird ATMD LLP. It does not constitute as legal advice and is intended to provide general information only. Information in this article is accurate as of 30 June 2022.
For further information, please contact:
Sandra Seah, Partner, Bird & Bird