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
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•
•
•
•
•
•
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Summary of Implementation Models
Overview of Performance Contracting
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.
• Financial commitments are made by the Project Hosts and the energy
auditor is confined to being a technical advisor.
• 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.
Capacity Building of Banks/FIs
For EE Project Financing
Page 4
July 2014
Overview of Performance
Contracting for Energy Efficiency
Energy Services Business Models
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
• Agreement between ESCO and host facility under which ESCO takes
over operation and maintenance of the energy-using equipment in host
facility
• 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).
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
SUMMARY OF EE MEASURES
No.
Description
Cost
Savings
Payback
Lifetime
1
Lighting 1
30.0
25.0
1.2
6
2
Lighting 2
40.0
20.0
2.0
10
3
Air conditioning
250.0
75.0
3.3
15
4
Pumps
50.0
20.0
2.5
15
5
VFD on Motors
140.0
45.0
3.1
20
6
Load Management
60.0
30.0
2.0
10
Total
570.0
215.0
2.7
-
Project Development Costs
150.0
Total Including Proj. Dev.
720.0
215.0
3.3
Capacity Building of Banks/FIs
For EE Project Financing
Page 21
July 2014
Project Economics
ECONOMICS INCL. PROJECT DEVELOPMENT COSTS
No.
Description
Cost
Savings
Payback
A
All
720.0
215.0
3.3
B
Exclude A/C
470.0
140.0
3.4
C
Exclude A/C and VFD
330.0
95.0
3.5
D
Lighting Only
220.0
45.0
4.9
Capacity Building of Banks/FIs
For EE Project Financing
Page 22
July 2014
Project Economics
Package
CASH FLOWS
No.
Description
Cost
1
2
3
…..
15
A
All
-720.0
215.0
215.0
215.0
…..
140.0
B
Exclude A/C
-470.0
140.0
140.0
140.0
…..
65.0
C
Exclude A/C and VFD
-330.0
95.0
95.0
95.0
…..
20.0
D
Lighting Only
-220.0
45.0
45.0
45.0
…..
0.0
ECONOMIC PARAMETERS
No.
Package
Cost
NPV
IRR
A
All
720.0
$552.52
28%
B
Exclude A/C
470.0
$319.65
27%
C
Exclude A/C and VFD
330.0
$170.99
25%
D
Lighting Only
220.0
Capacity Building of Banks/FIs
For EE Project Financing
($3.76)
Page 23
11%
July 2014
Guaranteed Savings Results
ESCO arranges Bank Financing, Customer puts up required equity
CASH FLOWS
Case
Description
Cost
1
2
3
…..
15
A
100 % Equity Financing
-720.0
215.0
215.0
215.0
…..
140.0
B
30% Equity, 70% Debt, 7 year term
-216.0
97.5
97.5
97.5
…..
140.0
C
30% Equity, 70% Debt, 5 year term
-216.0
68.2
68.2
68.2
…..
140.0
D
40% Equity, 60% Debt, 7 year term
-288.0
114.3
114.3
114.3
…..
140.0
No.
Package
Cost
NPV
IRR
A
100 % Equity Financing
720.0
552.52
28%
B
30% Equity, 70% Debt, 7 year term
216.0
523.61
47%
C
30% Equity, 70% Debt, 5 year term
216.0
530.01
41%
D
40% Equity, 60% Debt, 7 year term
288.0
527.74
41%
Capacity Building of Banks/FIs
For EE Project Financing
Page 24
July 2014
Shared Savings Results
ESCO finances project; Customer agrees to shared savings; Customer puts up zero equity
CASH FLOWS
Case
ESCO - 1
ESCO - 2
Organization
Cost
1
2
3
15
ESCO Equity 30%, ESCO Share of Savings 80%, Loan Term 7 years, ESA 7 years
Project
-216.0
97.5
97.5
97.5
Customer
0.0
43.0
43.0
43.0
ESCO
-66.0
54.5
54.5
54.5
140.0
140.0
0.0
ESCO Equity 40%, ESCO Share of Savings 75%, Loan Term 7 years, ESA 10 years
Project
-288.0
114.3
114.3
114.3
Customer
0.0
53.8
53.8
53.8
ESCO
-188.0
60.5
60.5
60.5
140.0
140.0
0.0
No.
Organization
Cost
NPV
IRR
ESCO - 1
Project
Customer
ESCO
216.0
0.0
66.0
523.61
502.59
154.95
47%
N/A
81%
ESCO - 2
Project
Customer
ESCO
288.0
0.0
188.0
527.74
407.65
209.37
41%
N/A
33%
Capacity Building of Banks/FIs
For EE Project Financing
Page 25
July 2014
Indicative Structure of ESA
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•
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•
•
•
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
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