Capacity Building of Banks and Financial Institutions for
Capacity Building of Banks and Financial Institutions for Energy Efficiency Project Financing Module 3 Business Models for Energy Efficiency Project Implementation Partnership to Advance Clean Energy-Deployment (PACE-D) Technical Assistance Program September 2014 Capacity Building of Banks/FIs For EE Project Financing Page 1 July 2014
Presentation Outline • • Summary of Implementation Models Overview of Performance Contracting Business Models Illustrative ESCO Project Structure of Energy Services Agreements International Perspectives Experience in India Proposed BEE Funds § Partial Risk Guarantee Fund § Venture Capital Fund Capacity Building of Banks/FIs For EE Project Financing Page 2 July 2014
Summary of Implementation Models • • Simple models § Corporate Lending (balance sheet based) § Energy Audit Model Performance Contracting Models § Shared Savings Model § Guaranteed Savings Model § Deemed Savings Model § Energy Supply Contracting Capacity Building of Banks/FIs For EE Project Financing Page 3 July 2014
Energy Audit Model • Many EE Projects are implemented by the Project Hosts themselves based on recommendations by energy auditors (individual or firm) for retrofit or change of energy-using equipment in existing facilities. • • BEE has implemented a program for certification of energy auditors. • Some audit models also include a “success fee” for the auditor based upon achievement of energy cost savings. • For the Project Host and the Lender, the EE Project is a normal capital expenditure eligible for funding under regular lending programs. Financial commitments are made by the Project Hosts and the energy auditor is confined to being a technical advisor. Capacity Building of Banks/FIs For EE Project Financing Page 4 July 2014
Overview of Performance Contracting for Energy Efficiency
Energy Services Business Models Shared Savings Outsourced Energy Management Deemed Energy Savings Guaranteed Savings Capacity Building of Banks/FIs For EE Project Financing Page 6 July 2014
Energy Savings Performance Contracts Performance contracts are generally implemented by energy services providers, commonly known as ESCOs Capacity Building of Banks/FIs For EE Project Financing Page 7 July 2014
ESCO Services Capacity Building of Banks/FIs For EE Project Financing Page 8 July 2014
Additional ESCO Services Capacity Building of Banks/FIs For EE Project Financing Page 9 July 2014
Key Features of ESPCs Capacity Building of Banks/FIs For EE Project Financing Page 10 July 2014
Energy Services Value Chain Capacity Building of Banks/FIs For EE Project Financing Page 11 July 2014
Examples of Energy Services Capacity Building of Banks/FIs For EE Project Financing Page 12 July 2014
Shared Savings Model • • • Energy Services Agreement (ESA) between ESCO and host facility Financing Agreement (FA) between ESCO and financial institution (FI) ESA specifies: § ESCO finances project – generally no investment by host § ESCO receives share of actual measured cost savings § Savings share to ESCO and term of agreement are agreed upon • FA specifies: § ESCO equity investment, FI debt financing § Interest rate and term of loan § ESCO makes loan repayments from its share of savings Capacity Building of Banks/FIs For EE Project Financing Page 13 July 2014
Shared Savings Model Payment Security Mechanism Escrow or TRA account Capacity Building of Banks/FIs For EE Project Financing Page 14 July 2014
Guaranteed Savings Model • • • Energy Services Agreement (ESA) between ESCO and host facility Financing Agreement (FA) between financial institution and host facility ESA specifies: § ESCO implements project and guarantees cost savings, host pays ESCO § If savings are lower than guarantee, ESCO pays the difference; if higher, ESCO may get a “bonus” payment § M&V protocol and terms of payment to ESCO are agreed upon • FA specifies: § Host equity investment, FI debt financing § Interest rate and term of loan § Host makes loan repayments from savings Capacity Building of Banks/FIs For EE Project Financing Page 15 July 2014
Guaranteed Savings Model Payment Security Mechanism Escrow or TRA account Capacity Building of Banks/FIs For EE Project Financing Page 16 July 2014
Deemed Energy Savings Model • Energy Services Agreement (ESA) between ESCO and host facility with a fixed price for services provided. • • Financing Agreement (FA) between ESCO and financial institution (Similar to Shared Savings Model). Agreement between ESCO and government or utility under which ESCO receives payments based on deemed savings. ESA specifies: • § Services provided by ESCO § Fixed payment by host facility for ESCO services FA specifies: • § ESCO equity investment, FI debt investment § Interest rate and term of loan § ESCO makes loan repayments from host and utility/government payments Capacity Building of Banks/FIs For EE Project Financing Page 17 July 2014
Deemed Energy Savings Model Capacity Building of Banks/FIs For EE Project Financing Page 18 July 2014
Outsourced Energy Management Model • • Also known as Energy Supply Contracting • ESCO sells the output (e. g. , steam, heating/cooling, lighting) to the host facility customer at an agreed price (generally fixed over a long period of time) • ESCO invests in all equipment upgrades, repairs, etc. to improve energy efficiency • Ownership typically remains with the host facility (however, in some cases, ESCO may assume ownership of equipment). Agreement between ESCO and host facility under which ESCO takes over operation and maintenance of the energy-using equipment in host facility Capacity Building of Banks/FIs For EE Project Financing Page 19 July 2014
Outsourced Energy Management Model Capacity Building of Banks/FIs For EE Project Financing Page 20 July 2014
Illustrative Example of ESCO Project Capacity Building of Banks/FIs For EE Project Financing Page 21 July 2014
Project Economics Capacity Building of Banks/FIs For EE Project Financing Page 22 July 2014
Project Economics Capacity Building of Banks/FIs For EE Project Financing Page 23 July 2014
Guaranteed Savings Results Capacity Building of Banks/FIs For EE Project Financing Page 24 July 2014
Shared Savings Results Capacity Building of Banks/FIs For EE Project Financing Page 25 July 2014
Indicative Structure of ESA • • • Recitals Definitions Covenants Term Scope of Work Facilities Construction Operation and Maintenance Financing and Ownership of Assets Capacity Building of Banks/FIs For EE Project Financing • • Energy Savings • • Dispute Resolution Billing and Payment Transfer of Financed Assets Force Majeure, Events of Default & Termination Insurance Other Clauses in the ESA Technical Matters Page 26 July 2014
International Perspectives Capacity Building of Banks/FIs For EE Project Financing Page 27 July 2014
International Experience - USA Capacity Building of Banks/FIs For EE Project Financing Page 28 July 2014
ESCO Projects in the U. S. • • ESCO projects have been a big success in US Govt. Key contributors to success: § strong legislative and executive backing § umbrella contracts/simplified procurement § dedicated support organization/project facilitation Capacity Building of Banks/FIs For EE Project Financing Page 29 July 2014
IFC/GEF – Risk Guarantee Program Capacity Building of Banks/FIs For EE Project Financing Page 30 July 2014
Structure of CEEF Program Capacity Building of Banks/FIs For EE Project Financing Page 31 July 2014
CEEF Results • • • Provided risk guarantees to large number of projects - $49. 5 million in guarantees - Default rate was < 0. 5% Demonstrated low risk & high return of EE projects and induced banks to substantially increase loan portfolio High leveraging of IFC/GEF funds achieved – Total project investment in excess of $200 million Bank lending without PRG exceeded with PRG – In Hungary, while the projects with guarantees involved about $20 million in investments , while the non-guaranteed lending was over $200 million Also a large $250 million ESCO contract was signed by a consortium that included OTP Bank lending activity continued after end of IFC program Capacity Building of Banks/FIs For EE Project Financing Page 32 July 2014
Experience in India Capacity Building of Banks/FIs For EE Project Financing Page 33 July 2014
Thank you Dilip R. Limaye Finance Team Leader USAID PACE-D Technical Assistance Program dlimaye@srcglobal. com www. pace-d. com
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