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Private finance for energy efficiency investments EBRD’s technical support and finance Zagreb, 17 September 2015
Private finance for energy efficiency investments
EBRD’s technical support and finance
Zagreb, 17 September 2015
Contents
• Overview EBRD support for energy efficiency
• Example Western Balkans: EBRD’s Regional
Energy Efficiency Programme (REEP)
• Example of ESCO projects and European market
2 October, 2015 2
The Sustainable Energy Initiative
2 October, 2015 3
• The EBRD has been engaged in
sustainable energy finance since its
establishment.
• In 2006, the EBRD launched the SEI to
address the twin challenges of energy
efficiency and climate change.
• The EBRD was the first MDB with a
dedicated pool of technical experts
in-house.
• In 2009, the EBRD became the first
MDB to set itself a carbon emissions
target.
• In mid-2014, the EBRD has already
exceeded the three year (2012-14)
target under the UN’s Sustainable
Energy for All initiative.
The EBRD’s engagement in the
context of its countries of
operations:
• high share of heavy industry
• ageing infrastructure
• high energy intensity
• a lack of market-based pricing
for energy
€16.4 billion invested since 2006
SEI Phase III SEI Phase II SEI Phase I
SEI finance since 2006
4 December 2014 4
SEI investment since 2006 (€ in billion)
27%
26% 17%
17%
12%
SEI by business area (€ in billion)
€16.4 billion invested in 926 SEI projects between 2006 and 2014.
69.6 m tonnes CO2/y of
emissions reduced
SEI by region (€ in billion)
0,7 0,9 1,0
1,3
2,2
2,6 2,3 2,4
3,0
2006 2007 2008 2009 2010 2011 2012 2013 2014
€ in
b
illio
n
Russia 3.2
South-Eastern Europe 3.1
Eastern Europe and the Caucasus 3.0
Central Europe and the Baltic 2.9
Turkey 2.1
Central Asia 1.0
South and Eastern Mediterranean (SEMED) 0.6
Regional 0.7
Total 16.4
Corporate energy efficiency 4.5
Cleaner energy production 4.2
Renewable energy 2.9
Sustainable energy financing
facilities 2.8
Municipal infrastructure energy
efficiency 2.0
Total 16.4
The SEI business model
2 October, 2015 5
POLICY
DIALOGUE
PROJECTS AND
INVESTMENTS
TECHNICAL
ASSISTANCE
Projects across SEI areas
Technical assistance to
overcome barriers: market
analysis, energy audits,
training awareness raising,
grant co-financing to provide
appropriate incentives and
address affordability
constraints
Working with governments to
support development of a
strong institutional and
regulatory framework that
incentivises sustainable
energy
Advantages of performance guaranteed ESCO
energy efficiency investments
Traditional EE investments:
• Project owner takes all the risks
associated with design,
implementation and performance
→ suboptimal investment decision.
• Procurement selects lowest initial
price, NOT cheapest investment
over life cycle
→ no incentives for bidders to
ensure efficiency and quality.
• Requires project owner to have
large amounts of budget funds for
financing investments
→ investments limited by budget.
EE investments through ESCOs:
• Significant risks are outsourced to
ESCOs (design, performance etc.)
→ optimal investment decision.
• Procurement selects cheapest
investment over life cycle, based on
energy performance and NPV
→ incentives for bidders to ensure
highest efficiency and quality at
minimum investment cost.
• Limited additional costs (co-
financing) for project owner.
→ private companies can finance
investments, depending on structure
2 October, 2015
ESCO structure incentivises optimal
investment decision
2 October, 2015 7
No EE investment made will
result in higher energy costs
and in higher cost for major
repairs.
Sub-optimal investment
decisions by residents
results in higher investment
costs and higher operational
costs.
ESCO projects result in
lower operational and
investment costs.
Example from Latvian due diligence
• Companies invest own money and are paid from achieved savings.
• Companies incentivised to lower investment costs (due diligence: up to
32%) and increased energy savings (due diligence: up to 38kWh/m2*year).
Separate execution from credit risk
• FIs see companies (ESCOs) as aggregators for scaling up energy efficiency
investments: companies take implementation risk, while ESCO-clients’
affordability risk is unchanged.
Example of support: Western Balkans Regional Energy Efficiency Programme (REEP)
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Regional Energy Efficiency Programme (REEP)
• Programmed by the EBRD
• Supported by the Energy Community
• Funded by the EU Western Balkans Investment Framework and the Western Balkans Joint Fund
• More information under www.wb-reep.org
Policy dialogue support
To create effective legislations for public
sector EE
•EE works & services procurement by
preparing procurement law, contract
templates and guidelines
•EE Projects implementation by preparing
budget code and relevant laws
•Transposition of ESCO elements of EU
Directives 2006/32/EC and 2012/27/EU
Technical assistance
To help local public authorities with
procuring EE projects
• Identification of EE Projects
• Support municipalities in tender
preparation and procurement
To attract the private sector
• To apply for tenders
• For companies to implement EE
Projects
• For banks to finance EE projects
Finance
Finance is provided
through
• WeBSEFF credit lines
• WeBSDFF direct
financing
Activity area for ESCO projects
2 October, 2015
Example of ESCO policy work and
project pipeline preparation support in
Western Balkans
Legislative support for
EE Projects
Energy efficiency (EE)
Project preparation
TC assignments
Policy dialogue
Street lighting tenders
prepared by REEP
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EE Project
preparation
EE Project
preparation
Legislative
support for
EE Projects
EE Project
preparation
Legislative support
for EE Projects
Ad-hoc EE
Project
preparation
available
Legislative
support for EE
Projects
EE Project
preparation
EE Project
preparation
TC project preparation for
ESCO projects:
• 9 tenders prepared by REEP
• 7 tenders under preparation
by REEP
2 October, 2015
ESCO tenders under
preparation by REEP
Feasibility/scoping studies
under preparation by REEP
European ESCO Market is growing
Europe (1) :
“…[the European ESCO] market earned revenues of $4.25 billion in 2012
and estimates this to reach $7.37 billion in 2018. “
Germany(2):
• one of Europe’s most mature ESCO markets
• Pioneer market in Energy Services with stable growth
• Market EUR 2 billion to EUR 4 billion
• 55-60% of all ESCOs in Germany are utility companies, e.g. district heating
companies etc.
EU Directives support the ESCO concept: •ESCO services are supported by 2006/32/EC and 2012/27/EU.
•Using private ESCO finance for leveraging EU grants by Council Regulation
(EC) No 1303/2013.
(1) Frost & Sullivan , 2013.
(2) German Ministry for Economy and Technology, 2013.
2 October, 2015
Examples: EBRD project preparation
support for public sector ESCO energy efficiency
(ERBD financing not explicit mentioned)
South Eastern Europe (10 countries)
•Preparation of ESCO street lighting tenders: 14 tenders prepared, more under preparation
(including public building projects) (various EBRD other TC programmes, incl. in BG and RO)
•Preparing enabling legislative framework
•Preparation of ESCO projects (street lighting pipeline >EUR 50 m).
•EBRD financing framework EUR 100 m under preparation.
Selected examples of ESCO projects
Ukraine
•Preparation of ESCO projects in 83 school buildings in Dnipropetrovsk. EBRD loan EUR 10 m.
•Lot 1 with 39 tendered and contracted; tender for Lot 2 about to be published
•Technical support for preparing ESCO projects and replicating in other cities in Ukraine.
•Financing framework for financing ESCO projects in Ukraine through cities (EUR 100 m).
•Preparing ESCO law supported by EBRD, law now in force.
Lithuania
•Preparing ESCO legislation, contracts and tender documents.
•Preparing ESCO project pipeline in central government buildings.
•Meeting policy targets: in Lithuania government decided to use ESCO concept for achieving
3% annual refurbishments under article 5.1 of EED 2012/27/EU
2 October, 2015 11
Contacts
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For all further enquiries, please
contact:
Toivo Miller
Principle Manager
Email: [email protected]
2 October, 2015
