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The Emerging Model of the Public Super-ESCO: Need and Opportunity

Dilip R. Limaye
Lead Consultant, Energy Efficiency ECO-Asia Clean Development and Climate Program Asia Clean Energy Forum Manila 23 June 2011
ECO-Asia Clean Development and Climate Program

Implementing Energy Efficiency


Balancing supply and demand Enhancing energy security Mitigating climate change impacts

Energy Efficiency

Reducing future generation costs

Low cost of Implementation

High Potential

Limited Market Implementation


ECO-Asia Clean Development and Climate Program

Barriers to Energy Efficiency

Barriers to Energy Efficiency

Policy/ Regulatory

Public End-users

Equipment/ Service Providers

Financing Institutions

ECO-Asia Clean Development and Climate Program

Energy Use in the Public Sector

Public Sector

PubliclyOwned Institutions

Subject to

Public Procurement Rules and Regulations

Largest Single Purchaser of Energy


Public Sector Large Cost Burden to Governments

ECO-Asia Clean Development and Climate Program

Energy Use in Public Facilities

Federal/Municipal Buildings

Universities/ Schools

Hospitals/ Clinics

Public Lighting

Water Utilities

Public Transportation

Community Centers

Fire Stations

Libraries

Orphanages

ECO-Asia Clean Development and Climate Program

Inefficient Energy Use


Energy Use in the Public Sector Very Inefficient Inadequate Maintenance Because of the Use of Limited experience Public Agency Managers Staff
ECO-Asia Clean Development and Climate Program

Old, Outdated Equipment

Limited Budgets Lack of Knowledge and Awareness

Examples of Policy Measures to Overcome Barriers


Pricing Reforms

Building Codes & Standards

Policy Measures

Energy Efficient Product Procurement

Establishing Energy Efficiency Targets


Performance Contracting using ESCOs

ECO-Asia Clean Development and Climate Program

Role of ESCOs and Performance Contracting


Performance guarantees assure the successful implementation of the energy efficiency measures. ESCOs will generally provide operation and maintenance services to assure continued high performance of equipment Measurement, verification and demonstration of the energy and cost savings is conducted The ESCO provides breadth and depth of capabilities as well as training to staff of the customer The ESCO facilitates access to external capital for project implementation

ECO-Asia Clean Development and Climate Program

ESCO Services

Engineering

Construction

ESCO Services
Design Installation

Measurement and Verification

Commissioning

ECO-Asia Clean Development and Climate Program

Additional ESCO Services

Operations and Maintenance

Providing or Arranging Financing

Optional ESCO Services

Training

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ECO-Asia Clean Development and Climate Program

ESCOs in Asia
Initiated in the mid-1990s in India, Thailand, Japan and Korea World Bank introduced ESCOs in China Many other Asian countries have expressed interest in the performance contracting concept and encouraged establishment of ESCOs (Philippines, Sri Lanka, Hong Kong, Singapore) Many government initiatives to facilitate ESCOs Many types of organizations establishing ESCO business lines But, other than in China, the growth and development of ESCO industry has been limited

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ECO-Asia Clean Development and Climate Program

Why Limited Development of ESCOs in Developing Countries?


Small size, limited capacity Mostly supported by donor funds Challenges in working with Public Sector Poor credibility with private sector Small equity, weak balance sheets Limited staff capacity Challenges in working with banks and FIs High project development costs

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ECO-Asia Clean Development and Climate Program

Establishment of a Super ESCO


A Super ESCO is an entity that Is established by the Government Serves as an ESCO for the large untapped public sector (hospitals, schools, municipalities, government buildings and other public facilities) Supports capacity development and activities of other ESCOs Facilitates access to project financing It may also act as a leasing or financing company to provide ESCOs and/or customers EE equipment on lease or on benefit-sharing terms. Recent World Bank study of public procurement of energy efficiency services (published as a book) identified the Super ESCO as a potentially viable model for developing countries

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ECO-Asia Clean Development and Climate Program

Establishment of a Super ESCO


Established by Government
Super ESCO

Perf. Contracts with Public Facilities

ESCO Capacity Building

Facilitate Access to Financing

Vendor Financing/ Leasing

Recent World Bank study of public procurement of energy efficiency services (published as a book) identified the Super ESCO as a potentially viable model for developing countries
ECO-Asia Clean Development and Climate Program

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Role of Super ESCO in China


A number of ESCOs have been established in China and many more are being created. However, these are concentrated in certain Provinces, while in other Provinces few ESCOs are operating in the market. The growth of the ESCO industry has been supported by World Bank financing The commercial banking industry is undergoing a transition in China and needs assistance to fully engage in EE project financing Province of Hebei has established Super ESCO that is working with existing and newly-formed ESCOs and commercial banks to promote increased EE project financing and implementation Super ESCO is establishing a joint venture to form a PublicPrivate Partnership (PPP) for project implementation
ECO-Asia Clean Development and Climate Program

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Structure of the Super ESCO PPP Model


Hebei DRC

DSM Fund

DSM Center

FaKai Company Super ESCO

Private Partner

EMCs

JV for Implementation

Financing Partners

EPP Projects

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ECO-Asia Clean Development and Climate Program

India Energy Efficiency Services Limited (EESL)


Very large untapped potential and a small number of fledgling ESCOs that are mostly undercapitalized New public sector company EESL established by national government with equity capital of $50 million Major functions include:
EE planning and implementation Appliances in buildings and industrial sites Agricultural and municipal DSM National CFL scheme Assisting the growth and development of the existing ESCO industry

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ECO-Asia Clean Development and Climate Program

How the Super ESCO will help in the Public Sector


BARRIERS TO EE PROJECT IMPLEMENTATION IN THE PUBLIC SECTOR Low awareness and interest on the part of public agencies in energy efficiency (EE) projects Zero budgeting policy of many governments provides little incentive for saving energy costs Budgeting Issues for public agencies - Capital Expenditure vs. Operating Expenditure Lack of procurement regulations that would allow ESCOs and Performance Contracting HOW THE SUPER ESCO CAN ADDRESS THESE BARRIERS Super ESCO can conduct "marketing campaign" to increase awareness and interest Super ESCO can develop incentive mechanisms for public agencies Agency can avoid issue by having project financed by a Super ESCO Contracting with a Super ESCO can overcome this problem
ECO-Asia Clean Development and Climate Program

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Super ESCO in the Public Sector (continued)


BARRIERS TO EE PROJECT IMPLEMENTATION IN THE PUBLIC SECTOR Limited capacity in public agencies for performance contracting using ESCOs Lack of interest on the part of local financial institutions to fund public sector projects HOW THE SUPER ESCO CAN ADDRESS THESE BARRIERS Super ESCO can develop standard contracts customized for public agencies Financing can be provided by Super ESCO

Local financial institutions generally unwilling Super ESCO can provide "project financing" for to provide "project financing" for EE projects public agency EE projects Private ESCOs unwilling to invest in public sector projects Public agencies not used to contracting with private sector for energy services Super ESCO can invest in public agency EE projects Public agencies may find it easier to contract with a Super ESCO
ECO-Asia Clean Development and Climate Program

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How the Super ESCO will help in the Private Sector


BARRIERS TO EE PROJECT IMPLEMENTATION IN THE PRIVATE SECTOR Small number of ESCOs operating in the domestic mret in many nations - makes competition difficult Low awareness of the ESCO concept on the part of commercial and industrial energy users Most private ESCOs are undercapitalized and have limited resources for project development HOW THE SUPER ESCO CAN ADDRESS THESE BARRIERS Super ESCO can facilitate the creation of additional ESCOs Super ESCO can conduct "marketing campaigsn" and provide case studies and demonstration projects Super ESCO can assist ESCOs in project development

Most ESCOs have limited resources for project Super ESCO can provide capital and/or leverage financing of EE projects funds from commercial financial institutions Few successful ESCO projects that can serve as "demonstration projects" for ESCO concept Project hosts unwilling to invest internal capital in energy efficiency projects Super ESCO can develop and disseminate case studies of successful ESCO projects Super ESCO can provide capital and/or leverage funds for EE projects from commercial FIs

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ECO-Asia Clean Development and Climate Program

Super ESCO in the Private Sector (continued)


BARRIERS TO EE PROJECT IMPLEMENTATION IN THE PRIVATE SECTOR Local FIs' lack of familiarity with lending for EE projects Local FIs' unwillingness to finance ESCOs due to their limited assets Local FIs' perception that EE projects are highly risky Local FIs' lack of capacity to conduct technical due diligence of EE projects High project development costs for ESCO projects due to limited experience in performance contracts Commercial and industrial users are not convinced of energy and cost savings benefits of EE projects HOW THE SUPER ESCO CAN ADDRESS THESE BARRIERS Super ESCO can provide TA to local FIs on EE projects and help develop new financial products Super ESCO can provide credit enhancement products for ESCOs Super ESCO can provide risk management products for FIs Super ESCO can provide assistance in technical due diligence Super ESCO can develop standardized templates for ESCO contracts and agreements Super ESCO can develop standardized and formal measurement and verification protocols

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ECO-Asia Clean Development and Climate Program

Thank you
Dilip R. Limaye ECO-Asia CDCP dlimaye@attglobal.net

ECO-Asia Clean Development and Climate Program

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