Application Title Promoting private sector investment through large scale adoption of energy saving technologies and equipment for textile sector of Bangladesh

Country/ Region Bangladesh

Accredited Entity Infrastructure Development Company Limited (IDCOL)

Approval Date 5 November 2018

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Notes

• The PPF supports the development of projects and programmes and enhance their

quality at entry into the Fund’s pipeline. With a view to enhancing the balance and

diversity of the project pipeline, the PPF is designed to especially support Direct Access

Entities for projects in the micro-to-small size category. International Accredited Entities

seeking project preparation support from the PPF are encouraged to do so especially for

LDCs, SIDS and African countries where no Direct Access Entity is accredited. All

Accredited Entities are encouraged to articulate counterpart support for project

preparation within their requests for support from the PPF.

• A PPF submission should include below documents:

1. PPF request (this form)

2. PPF No-Objection letter1

3. Concept Note

• Please copy the National Designated Authority (ies) when submitting this PPF request.

• Requests for support from the PPF should be submitted at the same time or following

submission of a GCF Concept Note for a project or programme.

• Further information on GCF PPF can be found on GCF website Project Preparation

Facility Guidelines.

1Please note that the PPF No-Objection Letter is different from the Funding Proposal No-Objection Letter. PPF No-Objection Letter template can be downloaded from here.

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2 See here to download the Concept Note template. 3Template for PPF No-Objection Letter can be downloaded here.

A. Executive Summary

Accredited Entity (AE)

Name: M.Mosleh Uddin

Position: Unit Head-GCF

Email: mosleh.uddin@idcol.org

Tel:+8801615973097 & +880-996-6743265 (EXT 295)

Full Office address:UTC Building, 16th Floor,8 Panthapath, Kawran Bazar, Dhaka-1215,

Bangladesh

Has a Concept Note2 been submitted in association with this request for support from the PPF?

Yes ☒ No ☐

If yes, please indicate Project/Programme title: Promoting private sector investment through large scale adoption of energy saving technologies and equipment for textile sector of Bangladesh

Has a No-Objection Letter3 been submitted for this request for support from the PPF?

Yes ☒ No ☐

(Please note that a PPF No-Objection Letter is a requirement for the submission of this request)

Total Cost

Total cost of Project Preparation activities: US 345,800.00 $ Amount requested from the PPF: US 301,562.00 $ Counterpart funding from the AE: US 44,238.00 $

Anticipated Duration Number of months to implement the Project Preparation activities:05 Months

Summary of the request for Project Preparation support

(Please provide a maximum 200 words brief description of the Project Preparation activities to develop the Concept Note into a Funding Proposal with support from the GCF’s Project Preparation Facility.)

The Programme on “Promoting private sector investments through large scale adoption of energy saving technologies and equipment for the textile sector of Bangladesh” once implemented will be one of the largest scale up programmes in energy efficiency that will be taken up in the textile sector in Bangladesh. The programme will also be unique where for the first time the demographic impact on the whole will be looked upon while primarily fighting climate change. This will need systematic and in-depth analysis which has not been taken up at the scale being envisaged under this programme. This will only be possible due to the funding facility under the Green Climate Fund.

PPF support from GCF is needed to conduct following studies which will help to establish available information and identify information gaps to develop full funding proposal for the proposed project.

1. Pre-feasibility and feasibility studies; The main activities proposed under this includes: stakeholder consultation, collection of baseline data, study on the project outcome and impact, market study of proposed financial product, identifying best available relevant energy efficiency technologies for textile industry. This activities are essential to ensure completion of all background studies, ensuring they are appropriate in scope and provide required analyses in good quality

2. Environmental, social and gender studies; which will include Environmental and social impact assessment of the project, Development of environmental and social management gender analysis and action plan development. This activities are needed to determine project strategy, priorities, key partners, and key barriers to success

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4The PPF can provide support within the following project preparation activity areas:

i. Pre-feasibility and feasibility studies ii. Environmental, social and gender studies iii. Risk Assessments iv. Identification of programme and project level indicators

Other activities of direct relevance for Direct Access Entities that the PPF can support are as follows: v. Pre-contract services, including the revision of tender documents vi. Advisory services and/or other services to financially structure a proposed activity vii. Other project preparation activities, where necessary, and with sufficient justification

3. Risk assessments; which will include social, environmental, operational, financial risk assessment and suggestion of risk mitigation measures. It is needed to define all relevant aspects of the project justification and conduct risk analysis.

4. Identification of programme/project-level indicators; which includes identification & measurement of GCF core indicators relevant to program and formulation of methodology to be used for calculating this core indicators. This is needed to clearly identify project interventions boundaries and scope, justify project duration and size, to clearly access paradigm/transformational shift potential, sustainable development potential, and efficiency and effectiveness of the proposed project.

These activities will help collection of information and data which will help to appraise the project in a better way. The above mentioned studies and cross-checking of information with the authorities of the country is essential for the successful implementation of proposed project.

B. Description of Project Preparation Activities

Outputs and Activities

(Please select Activity Areas4, activities, and deliverables

as needed)

Month

(Please shade the implementation period from the starting month of the Output and Activity in the schedule. Please also indicate the

month of completion of each deliverable with “X” in the corresponding cell)

1 2 3 4 5 6 7 8 9 10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

Activity and deliverable 1:

PPF activity area: Pre-feasibility, feasibility studies and project design

The following activities will be taken up during the Deliverable 1

a) Stakeholder consultations at national and project level implementation including with indigenous people if relevant (Minutes of meeting and photography). Develop the multi-stakeholder engagement plan and the consultations that will be conducted.

b) Systematic analysis/baseline survey of textile sector and break up of energy consumption and list of energy intensive equipment/processes in garment sector.

c) Study including baseline data to quantify carbon emissions, vulnerability and projected referenced climate change impacts.

d) Study on the project outcomes and the impact that will improve the baseline scenario.

e) Study on the market for the proposed financial product(s)/services including the historical data and forecasts.

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f) Identifying best available relevant energy efficiency technologies for textile industry

g) Detailed economic and financial analysis (including the development of financial model to see if this kind of interventions are financially sustainable).

h) Analysis of financial structures & interest rates available and barriers regarding the present day structures & access to market for energy efficiency for small and medium enterprises

i) Revision to best efficient financial structures also aiding more Foreign Direct Investments and access to international finance for energy efficient technologies including possibilities of technology transfer possibilities

j) Preparing the budget/fund size

k) Justifying the level of concessionality

Deliverables:

I. Detail feasibility study reports for the project. II. A summary report with a number of key

findings and recommendation for consideration in further planning, and provides additional relevant background materials in a series of annexes to the feasibility report.

Activity and deliverable 2:

PPF activity area: Environmental, social and gender studies

The following activities will be taken up under the Deliverable 2

a) Assessment of the previous environmental performance of particular equipment or appliance in one sample facility. This will include environmental audit of a facility (sample one) to establish the past performance, any environmental issues or non-compliances of a facility;

b) Assessment through an audit of an environmental (and social) management system of one sample facility;

c) Potential environmental and social impacts of the new equipment and the disposal (final fate assessment) of the replaced equipment;

d) Consultation with stakeholders and supply chain that may be affected by the change in equipment

e) The environment and social impact assessment of the project

f) Development of Environmental and Social Management Plan, and how the project/programme will avoid or mitigate negative impacts at each stage (e.g. preparation, implementation and operation), in accordance with the Fund’s Environmental and Social Safeguard (ESS) standard.

g) Gender analysis and action plan development in accordance with the Fund’s Gender Policy and Action Plan.

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C. Justification of the Project Preparation Request

Deliverables:

I. Environmental audit report of a facility II. A detail Environmental and Social

Management Framework Report III. A gender assessment report. IV. A gender action plan.

Activity and deliverable 3:

PPF activity area: Risk assessment

The activities that will be involved in this deliverable will be

a) Social & environmental risk assessment of the program

b) Technical risk assessment of the program

c) Operational risk assessment of the program

d) Financial risk assessment of the program

e) Other risks related to the program

f) Suggestion of risk mitigation measures

Deliverables:

I. A detail risk assessment report along with mitigation measures.

Activity and deliverable 4:

PPF activity area: Identification of programme/project level indicators

The activities that will be involved in this deliverable will be

a) Identification & measurement of GCF core indicators relevant to Program

b) Detailed methodology formulated to be used for calculating this GCF core indicators.

c) Describing how the project/programme’s indicator values compare to the appropriate benchmarks (i.e. the indicator values for a similar project/programme in a comparable context).

d) Providing means of verification of expected result quantified against each indicator.

Deliverables:

I. A guideline and a logical framework that set out, detail plans for interventions with the respective targets and predictions.

II. Framework for monitoring and measurement of the output and impacts of the Programme

III. Develop a standard reporting format that will capture the effectiveness of planned and achieved output and outcomes.

Estimated time for submission corresponding full Funding Proposal to the GCF

(Please indicate the month with ‘X’.)

X

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(Please provide rationale for the AEs’ need to receive GCF Project Preparation fund to strengthen development of the corresponding funding proposal. Especially for international AEs, please outline counterpart resources that will complement GCF PPF fund also in the budget table in section E.)

The Programme for scale up of energy efficiency in textile sector has been taken up for the first time. PPF is needed to conduct various studies and to identify available information and information gaps to develop full proposal for such a large programme .PPF is also needed to gather and systematize baseline information, to define the data and information gaps and additional research needs, to review and update the project development work plan. PPF is needed to quantify and propose in a better way the impact of the funding on energy efficiency in textile sector, design the funding proposal to maximize the impact and beneficiaries of the funding and establish stronger baseline and monitoring and evaluation parameters that are currently available. It is needed to undertake consultations with relevant public and private actors and ensure project beneficiaries participate in defining project focus and activities; discussion of the project idea closely with them will ensure their inputs are incorporated into the funding proposal.

PPF is needed to clearly identify project interventions boundaries and scope, justify project duration and size, to clearly access paradigm/transformational shift potential, sustainable development potential, and efficiency and effectiveness of the proposed project. It is needed for undertaking gender screening and advancing gender considerations within the proposal. It is needed for the preparation of environment and social impact assessment, economic and financial evaluation and social safeguards assessment to determine project strategy, priorities, key partners, and key barriers to success .It is also needed to define all relevant aspects of the project justification and conduct risk analysis.

Furthermore, such funding is required to ensure completion of all background studies, ensuring they are appropriate in scope and provide required analyses in good quality. In addition, PPF is needed to ensure the proposal is evidence-based and has all necessary references to prove that proposed solutions demonstrate feasibility across all project outputs.

The analysis and impact assessments need a far better understanding of the demographics and hence all activities mentioned in the above four deliverables are all unique. Once completed, these assessments could be used for any further projects to fight climate change from Bangladesh. The vulnerable communities will be identified through the deliverable 2 will have far reaching impacts to understand what changes in adaptation apart from mitigation activities will be required. The demographic studies will provide the very basics for a huge elevation in labour standards, working conditions, needs of social and environment management system understanding and financial structures that could create leveraged impacts than just the government undertaking the measures.

The expertise involved in the activities involved in the deliverables as mentioned above are very specific and will involve local & international consultants. In the absence of the project preparation fund, some of these activities will not be undertaken, that could ultimately result in reduced impacts.

IDCOL will arrange an International Seminar & Exhibition to Promote Energy Efficiency & Conservation, during March 10-11 2019 which will be a source of valuable inputs for this present proposal of Energy Efficiency technologies & equipment of IDCOL for GCF. The expo will cover a number of industrial sectors potential for energy efficiency technologies & equipment. Being the second largest energy intensive industry (12.40% of total energy consumption by industrial sub-sector), textile industry has significant potential for energy savings. So textile industry related stakeholder engagement & valuable outputs of the seminar & exhibition, will be an added arena for better understanding of market demand for energy efficiency equipment for textile sector & fine tuning of the GCF funding proposal. The financial management of the expo will be conducted by IDCOL. A detail break up of tentative cost has been attached in Attachment 01.

D. Implementation Arrangement

(Please include information on implementation arrangements for proposed Project Preparation activities. Please provide TORs for all consultants to be contracted with PPF activities.)

IDCOL will be having a project/programme unit under which the PPF activities would be managed. A separate programme manager will be appointed or additional charges will be conferred upon an existing official. IDCOL’s core GCF team of three members can be working for this. The ToRs for activities proposed to be carried in this PPF are provided as a separate document. Below is the explanation on how the programme would be administered.

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1. Employment of consultant as per IDCOL’s procurement policy:

• Under the provision of IDCOL’s procurement policy, IDCOL is entitled to undergo direct solicitation/ selection method for the procurement of consultancy services as long as the reason is justifiable.

• E&Y has a strong presence in Bangladesh’s Energy Efficiency (EE) domain, including its affiliation with the relevant Government bodies. E&Y is currently assisting IDCOL to mobilize JICA fund for promoting EE in the country and has shown an exceptional result. Therefore, E&Y’s existing resources and experience of the Bangladesh’s EE market gives them the clear advantage over competition for the procurement process. Thus for the implementation of the proposed PPF activities in this application, IDCOL will go through the direct solicitation/ selection method for procuring Ernst & Young (“EY”) as the lead consultant.

• In order for this to happen, IDCOL’s Procurement team (who reports directly to the Head of Operations) will first assess the procurement request, to ensure that the justification provided for direct selection is compatible with IDCOL’s procurement policy and also satisfies the single source selection criteria of GCF as per the Fund’s Administrative Guideline on Procurement.5

• Once IDCOL’s Procurement Department is satisfied with the justification provided for the Direct Selection/Solicitation of E&Y, they will prepare a memorandum for IDCOL’s Management approval. Once approved, the memorandum will subsequently be placed in IDCOL’s Board Meeting for the final approval as the procurement amount exceeds the threshold of BDT 5 million6.

• If IDCOL’s Board approves the procurement of E&Y, IDCOL will sign a legal agreement with E&Y for conducting the PPF activities as per the ToR approved by GCF, for the development of the of GCF funding proposal for promoting energy efficiency financing in textiles sectors.

2. IDCOL’s implementation arrangement with E&Y

• E&Y will be the lead consultancy firm to collaborate with local consultants and IDCOL staffs for conducting the PPF activities.

• E&Y has already been engaged for the past 10 months as ‘technical assistance consultant’ for IDCOL’s “Energy Efficiency and Conservation Promotion Financing Project”, which aims to promote energy efficiency financing instruments in the industrial and commercial sectors of Bangladesh under the JICA line of credit. There are ample opportunities for exploiting operational synergies in the two engagements, optimise resource deployment and in the process produce quality funding proposal for GCF in a cost effective manner.

• Moreover, given that the timeline for submitting the GCF funding proposal is fast approaching for available GCF board in a year, engaging EY on single source basis will save valuable time and resources for IDCOL. Experts from E&Y team are already working with IDCOL on various issues pertaining to energy efficiency financing, including outreach and promotional activities and therefore their direct engagement could seamlessly initiate the efforts for preparing the GCF funding proposal without wasting much time.

• E & Y has a dedicated team advising and supporting clients in the developing economies including Bangladesh for access to GCF funds. Most recently, they have completed an engagement with IFC on “Process evaluation of dialogue component of Bangladesh Water PaCT partnership for cleaner textile”. Through this engagement, EY team has built a strong network within the textile industry in Bangladesh that can be leveraged for engaging relevant stakeholder in a short period and add value to the GCF funding proposal. The team members involved in this assignment will be involved along with the energy efficiency team to work on the GCF funding proposal and will comprise a mix of national and international experts.

5 IDCOL in addition to its own procurement policy, follows respective procurement policies of the donor agencies during respective

procurement of goods and services e.g. IDCOL procures necessary goods, works, and services following the World Bank Guidelines (available on <www.worldbank.org/procurement>) for procurement under the World Bank funded projects, for the JICA funded projects, IDCOL follows JICA guidelines (available on <http://jica.go.jp/english>), IDCOL follows KFW guidelines (available on <www.kfw.de>), etc. 6 Section 8 of IDCOL’s procurement policy requires all the procurement above BDT 5 million to be authorized by IDCOL’s Board members.

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• E & Y will have complete charge of experts and sub-consultants, performing the services and shall be fully responsible for the services performed by them or on their behalf.

• The selection of E& Y has primary been agreed with IDCOL’s management. The rest of the formalities for engaging them with PPF activities will be completed in line with procurement policy, adopted by IDCOL, upon approval form GCF.

• Finally, IDCOL will be responsible for the overall project and financial management of this PPF.

3. Full disclosure of PPF outputs

As per the requirement of GCF’s Information Disclosure Policy (IDP), IDCOL will ensure full disclosure of the PPF outputs in its website (http://idcol.org/home) to ensure it is publicly available for use by relevant actors in the country.

E. Budget7 Details and Disbursement Schedule

Detailed budget was removed due to confidential information

7 “Sub-total cost” must be provided for each activity, and broken down by the “cost categories” (e.g. Consultants, Travel,

Equipment, Training & workshops, Others). Please provide sufficient breakdown of costs to enable effective review. -

Please submit the completed form to fundingproposal@gcfund.org, using the following name convention in the subject line and file name: “CN-[Accredited Entity or Country]-YYYYMMDD”

Project/Programme Title:

Promoting private sector investment through large scale adoption of energy saving technologies and equipment for textile sector of Bangladesh

Country(ies): Bangladesh

National Designated Authority(ies) (NDA):

Economic Relations Division (ERD), Ministry of Finance, Dhaka, Bangladesh

Accredited Entity(ies) (AE): Infrastructure Development Company Limited (IDCOL)

Date of first submission/ version number:

[2018-08-20] [V.0]

Date of current submission/ version number

[YYYY-MM-DD] [V.0]

PROJECT / PROGRAMME CONCEPT NOTE Template V.2.2

Notes • The maximum number of pages should not exceed 12 pages, excluding annexes.

Proposals exceeding the prescribed length will not be assessed within the indicative service standard time of 30 days.

• As per the Information Disclosure Policy, the concept note, and additional documents provided to the Secretariat can be disclosed unless marked by the Accredited Entity(ies) (or NDAs) as confidential.

• The relevant National Designated Authority(ies) will be informed by the Secretariat of the concept note upon receipt.

• NDA can also submit the concept note directly with or without an identified accredited entity at this stage. In this case, they can leave blank the section related to the accredited entity. The Secretariat will inform the accredited entity(ies) nominated by the NDA, if any.

• Accredited Entities and/or NDAs are encouraged to submit a Concept Note before making a request for project preparation support from the Project Preparation Facility (PPF).

• Further information on GCF concept note preparation can be found on GCF website Funding Projects Fine Print.

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A. Project/Programme Summary (max. 1 page)

A.1. Project or programme ☐ Project

☒ Programme

A.2. Public or private sector

☐ Public sector

☒ Private sector

A.3. Is the CN submitted in response to an RFP?

Yes ☐ No ☒

If yes, specify the RFP: ______________

A.4. Confidentiality1 ☐ Confidential

☒ Not confidential

A.5. Indicate the result areas for the project/programme

Mitigation: Reduced emissions from:

☐ Energy access and power generation

☐ Low emission transport

☒ Buildings, cities and industries and appliances

☐ Forestry and land use

Adaptation: Increased resilience of:

☐ Most vulnerable people and communities

☐ Health and well-being, and food and water security

☐ Infrastructure and built environment

☐ Ecosystem and ecosystem services

A.6. Estimated mitigation impact (tCO2eq over lifespan)

4.47 million tCO2eq

A.7. Estimated adaptation impact (number of direct beneficiaries and % of population)

N/A

A.8. Indicative total project cost (GCF + co-finance)

Amount: USD 166(GCF loan 100.00+Co-finance 66.00) million

A.9. Indicative GCF funding requested

Amount: Loan: USD 100.00 million Technical assistance(Grant): USD 4.00 million

A.10. Mark the type of financial instrument requested for the GCF funding

☐ Grant ☐ Reimbursable grant ☐ Guarantees ☐ Equity

☐ Subordinated loan ☒ Senior Loan ☒ Other: specify: Technical Assistance (TA) in

the form of Grant to AE (IDCOL)

A.11. Estimated duration of project/ programme:

a) disbursement period: 05 years

b) repayment period, if applicable: To GCF by IDCOL: 20 years (including 05 years grace period, from Year 06-20)

To IDCOL by IE: Maximum 10 years for individual loan

(including max 02 years grace period)

The GCF fund will have revolving nature.

A.12. Estimated project/ Programme lifespan

20 years

(05 years grace+15 years repayment)

A.13. Is funding from the Project Preparation Facility requested?2

Yes ☒ No ☐

Other support received ☐ If so, by

who:

A.14. ESS category3

☐ A or I-1

☒ B or I-2

☐ C or I-3

A.15. Is the CN aligned with your accreditation standard?

Yes ☒ No ☐ A.16. Has the CN been shared with the NDA?

Yes ☒ No ☐

1 Concept notes (or sections of) not marked as confidential may be published in accordance with the Information Disclosure Policy (Decision B.12/35) and the Review of the Initial Proposal Approval Process (Decision B.17/18). 2 See here for access to project preparation support request template and guidelines 3 Refer to the Fund’s environmental and social safeguards (Decision B.07/02)

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A.17. AMA signed (if submitted by AE)

Yes ☐ No ☒

If no, specify the status of AMA negotiations and expected date of signing: The final feedback from RMC is expected to receive by 23rd August on final draft AMA.

A.18. Is the CN included in the Entity Work Programme?

Yes ☒ No ☐

A.19. Project/Programme rationale, objectives and approach of programme/project (max 100 words)

Brief summary of the problem statement and climate rationale, objective and selected implementation approach, including the executing entity(ies) and other implementing partners.

• The industrial sector in Bangladesh accounts for 47.8% of the commercial energy consumption, predominantly in the form of natural gas and electricity. A dominant proportion of this commercial energy is inefficiently consumed and utilised for economic and production activities. The impetus towards efficient end use of energy in the industrial sector is lagging because of the subsidised energy prices. Moreover, the economic growth outlook in the medium to long term will further put tremendous pressure on the government to manage the rising energy demand, associated GHG emissions and achieve its commitments (INDC) under the UN Paris climate accord.

• In this scenario, the imperative for energy savings in the energy intensive industrial sector is higher than ever before. Boosting private sector investment towards energy saving technologies and equipment is one of the key strategies envisaged to realise a self-reliant ecosystem that can help the country race towards its climate change mitigation and adaptation objectives. One of the important bottlenecks for achieving this is the lack of access to attractive financing resources, mostly in terms of concessional pricing & flexible tenure. Financing alone does not guarantee energy savings, but is an effective tool for helping create a business case for a wide range of energy efficiency investments that are typically delayed because of the high upfront costs and lack of awareness.

• This program aims to support entrepreneurs and business establishments in the textile sector, one of the largest industries of the country, with financial and market resources to avail investment opportunities for energy saving technology upgrades. Textile sector will cover areas under spinning, weaving & dyeing. i.e. all activity areas other than RMG. IDCOL will be the Direct Access Entity (DAE), arranging concessional loans from GCF to finance textile businesses in Bangladesh to adopt energy efficient technologies & appliances. The cost of purchasing energy saving equipment and technology will be the subject of the loan, which will be utilised by factory owners and business establishments in the textile sector to purchase, install and use energy saving technologies. Thus IDCOL, as well as a DAE, will also be the Executing Entity (EE) and the borrowers of the textile industry will be the Implementing entity (IE) for the program. The concessional fund will be channelled to the textile businesses via IDCOL. Besides being the fund manager, IDCOL will also perform supervision & monitoring role for successful implementation of the program.

• This energy efficiency program will be a scaling up of the successful ‘Energy Efficiency and Conservation Promotion Financing (EECPF) Project’ led by Government of Bangladesh (GoB) in association with JICA, where IDCOL was an executing agency. Concessional loans for the purpose of promoting EE&C measures were primarily extended to industrial sector with provision for commercial, building & household sector subsequently, as well as, small business for home appliances. The proposed program to GCF for energy efficiency has special focus to the textile industry given its demand for energy efficiency technology & equipment compared to other industrial sectors. This proposed program will also cover a broad range of energy efficiency technology & equipment compared to EECPF.

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B. Project/Programme Information (max. 8 pages)

B.1. Context and baseline (max. 2 pages) Describe the climate vulnerabilities and impacts, GHG emissions profile, and mitigation and adaptation needs that the prospective intervention is envisaged to address.

1. Climate vulnerability of Bangladesh- Bangladesh is becoming increasingly vulnerable to climate change impacts in the form of sea level rise, high tide and river flood by cyclone, which is potentially caused by GHG emissions from rising fossil fuel consumption. This is despite the total GHG emissions in the country being less than 0.35% of the global emissions. Without a collective ambition to limit GHG emissions internationally, the impact of climate change to Bangladesh could be catastrophic resulting in annual loss of 2% of GDP by 2050 and 9.4% of GDP by 2100. GoB is fully committed to play its part in the global collective action to reduce GHG emissions. Under a BAU scenario, GHG emissions in Bangladesh’s power, transport and industry sectors is expected to represent 69% of total emissions by 2030, an increase of 264% by 2030, from 64 MtCO2e in 2011 to 234 MtCO2e in 2030. Private sector energy efficiency investments has a key role in controlling environmental (ambient air quality) degradation and climate change impacts resulting from burning fossil fuels.

2. Current energy situation of Bangladesh- Bangladesh, a rapidly-growing country, is largely dependent on energy to feed its growth appetite. In the past decade, the primary energy consumption has increased over two folds and this trend is likely to continue. As a result, the country’s primary energy demand-supply gap is increasing. Further, its indigenous natural gas, which caters to more than half of the country’s primary energy demand and the primary fuel used for 63% of power generation, is no longer a reliable source of energy. The supply capacity of 2,197 million standard cubic feet per day (mm scfd) is not being able to cope with the daily demand of 2,543 MM scfd. Against this background, the Government of Bangladesh (GoB) has been endeavouring to fill the gap by boosting its power generation capacity as well as by diversifying to alternate sources of energy. These supply side measures, however, are not sufficient for addressing to the issue. It is becoming imperative for GoB to take measures on the demand side. Bangladesh’s primary energy supply is currently dominated by Natural gas (75%) followed by crude oil & petroleum products (17%) and coal (8%). Over the last decade or so, rapid industrial and economic growth in Bangladesh has led to a growing natural gas deficit. Bangladesh’s power sector is also grappling to meet the rising demand. There is more than 20% deficit in the peak power requirement as reported by the state owned utilities, who have been resorting to load shedding as a commonly accepted practice to bridge the demand supply gap. This adversely affects productivity in the small and medium industries. In order to address the frequent power shortages on the grid, the large factories have resorted to back-up or captive power generation in the form of gas engines, which has further exacerbated the gas shortage. Fast depleting indigenous natural gas resources is posing a major threat to energy security. Going forward, high dependency on energy imports could enhance exposure to geopolitical risks and volatile international energy commodity prices. High import bill could pose tremendous financial burden on the government’s exchequer, already burdened with energy subsidies for both natural gas and electricity supplies in the industry and residential sectors. The subsides on commercial energy products such as natural gas and electricity for industry and residential consumers have been adopted as powerful fiscal policy tools to meet the socio economic development objectives of the Government of Bangladesh (GoB). Yet, subsidies are a huge burden on the government finances. In this scenario, supply side measures alone, are not sufficient to address the above issues and there is a pressing requirement to complement with demand-side measures. Demand side energy saving measures deployed at scale under this program can bridge supply gaps, complement load shedding, counter the growing dependence on energy imports and effectively minimize the negative impact on the economy. More importantly, the resulting energy savings has the potential to reduce the energy subsidy burden of GoB in the same proportion and enhance the government’s capacity to keep the fiscal condition in check.

3. Energy saving potential of Textile sector- On the demand side, the industry sector account for 47.8% of the commercial energy demand, predominantly in the form of natural gas and electricity. However, most of this commercial energy is inefficiently consumed and utilised for economic activities. The Textile sector being the second most energy intensive consumes 12.4% of the total industrial energy demand (1,586 TOE/year) and has the potential to save. The projects to be funded under this umbrella initiative are expected to avoid 4.47 million tCO2eq. Over the lifetime of investment hereby assumed 20 years considering GCF loan tenure. 223,567 tCO2eq of GHG emissions can be avoided annually through improved energy efficiency in industrial processes in the textile sector of Bangladesh and reduced energy consumption, of natural gas, electricity, oil and coal (current energy mix). Total energy saving is estimated 84,750 toe per year.

4. Increasing demand of EE equipment in the Textile sector- For Bangladesh to reach the strategic target

of $50 billion in RMG export by 2021, the industry must utilise energy efficient technologies to maintain the

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international competitive advantage against the rising energy price forecast. Not to mention, the weightage of “optimum energy use” for acquiring LEED certification is highest among other requirements regarding factory building construction and renovation. Therefore, the demand for healthy, highly efficient and cost-saving green buildings are growing in Bangladesh as it gives them an edge for negotiation as an ethical business, while they face a constant pressure from the international buyers for adopting sustainable green options. Even though demand for EE equipment exists in the textile sector, but large scale adoption is unaccounted for, due to the unavailability of sufficient concessional financing needed to overcome high up-front costs and longer payback periods.

5. Prospective intervention proposed under the Program-

The proposed program will support a wide range of energy efficiency investments in the textile sector of Bangladesh helping to create a climate resilient infrastructure for these type of industries. The program would also effectively tap the energy saving opportunities across the value chain of the energy intensive zone of textile industries contributing to significant energy savings, improved productivity among businesses, rational use of energy among such business enterprises and reduced CO2 emissions.

Please indicate how the project fits in with the country’s national priorities and its full ownership of the concept. Is the project/programme directly contributing to the country’s INDC/NDC or national climate strategies or other plans such as NAMAs, NAPs or equivalent? If so, please describe which priorities identified in these documents the proposed project is aiming to address and/or improve. The GoB is committed to the following contributions under the UN Paris climate framework, that are also part of the INDC (Intended Nationally Determined Contributions) of Bangladesh :

An unconditional contribution to reduce GHG emissions by 5% from Business As Usual (BAU) levels by 2030 in the power, transport and industry sectors, based on existing resources.

A conditional 15% reduction in GHG emissions from BAU levels by 2030 in the power, transport and industry sectors, subject to appropriate international support in the form of finance, investment, technology development and transfer, and capacity building.

Improved energy efficiency in production and consumption of energy is one of the key mitigation programs envisaged in the country’s INDC. In this regard, GoB aims to achieve 10% of energy consumption reduction in the industry sector by 2030 compared to the business as usual. Further GoB expects to achieve its target of 20% improved energy intensity (national primary energy consumption per gross domestic product/GDP) by 2030 compared to the 2013 level. This program will boost private sector investments in energy saving technologies promoting an ecosystem level movement in the key energy intensive sectors of the economy, including industry, thus contributing directly to achieve the above national goals and strategies.

Under the EE&C Master Plan, three EE&C programs will be promoted, namely, Energy Management Program, EE Labeling Program and EE Buildings Program, which will be targeted at large energy consuming entities and equipment in the industrial, residential and commercial sectors. During the period between 2015 and 2030, a total of 5.3 Mtoe/ year or the energy savings of approx. BDT 100 billion/year can be achieved through the adoption and implementation of the three EE&C Programs. In addition, the Government considers it important to provide EE Finance Program to raise EE awareness among the power end users and boost their investments in EE products. Low interest loans is one of the key financial incentives envisaged to lessen the financial burden (initial costs) of end users who will purchase high energy efficient electric appliances and industrial equipment. Besides, subsidies and preferential tax will also be provided to further reduce the burden. As part of the Bangladesh Climate Change Strategy and Action Plan (BCCSAP), Bangladesh’s strategy on mitigation sets out the following programme:

• Improved energy efficiency in production and consumption of energy which will ensure energy security and low carbon development of the economy.

Bangladesh already has a number of activities and targets that are driving action to reduce GHG emissions and that will help in meeting the unconditional contributions as set out in its INDC, some of which also overlap with the Energy Efficiency & Conservation Master Plan (as mentioned earlier):

• A target to reduce energy intensity (per GDP) by 20% by 2030 compared to 2013 levels (EE & C Master Plan)

• An Energy Management Programme, including establishment of Energy Management Systems and energy audits for industry by accredited energy auditors

• An Energy Efficiency Labelling programme to promote sales of high efficiency products in the market

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• Energy Efficiency measures for buildings, such as heat insulation and cooling measures , and a revised code on energy efficiency of new buildings

Therefore, improved energy efficiency in production and consumption of energy is one of the key mitigation programs envisaged in the country’s INDC. Once again, it has been repeatedly emphasized that GoB expects to achieve its target of 20% improved energy intensity (national primary energy consumption per gross domestic product/GDP) by 2030 compared to the 2013 level. This project will boost private sector investments in energy saving technologies promoting an ecosystem level movement in the key energy intensive sectors of the economy that is textile, thus contributing directly towards advancing the above national plans, priorities and actions. Describe the main root causes and barriers (social, gender, fiscal, regulatory, technological, financial, ecological, institutional, etc.) that need to be addressed. Energy saving technology upgrades typically bear higher upfront / initial costs as compared to their conventional and inefficient counterparts. This combined with subsidised energy provides limited business case for the private sector to opt for energy efficient technologies. It should be advantageous enough to cover the extra initial cost that an end user will have to bear when purchasing energy saving product, compared with when buying a non-energy saving product. Therefore preferential financing facilities such as concessional loans is an effective tool for helping create a business case for a wide range of energy efficiency investments that are typically delayed because of the high upfront costs. Furthermore, private sector companies/ investors expect fast payback on energy efficiency investments and they often fail to make a holistic assessment of the investment payback that needs to consider future oil price shocks, increased productivity etc. These gaps disqualify many promising energy saving projects despite having positive returns. Commercially attractive financing products could form a critical component of the value chain in reducing the payback for energy efficiency investments and further encourage the private sector to scale up such investments. Where relevant, and particularly for private sector project/programme, please describe the key characteristics and dynamics of the sector or market in which the project/programme will operate. Bangladesh’s textiles and garments industry contributes 13% to the country’s total GDP. As one of the major sources of export earnings, this sector positions the country as the world’s second largest apparel exporter of western brands, after China. And also is the largest labour intensive manufacturing sector of the country which employs about 5 million people. The textile sector alone has various product line as shown in the Table 1 below and as mentioned above it is an industry that is more labour intensive than any other in Bangladesh, and thus plays a critical role in providing employment for people.

Table 1: Textile sector of Bangladesh at a glance

Type of mill No. of unit Production Employment (million)

Spinning 385 2.05 million Ton 0.40

Weaving 721 2150 miilion meter 0.08

Knitting 2800 4100 million meter 0.06

Power loom 1065 400 million meter 0.04

Handloom 1,83,512 8370 million meter 1.02

Dyeing Finishing 310 1720 million meter 0.03

Garments 5063 444 million dozens 3.60

Sericulture 72 0.69 million Kgs 0.60

Jute

0.90 million ton

Apart from the liberalization initiated as a policy measure by the Government, two main reasons behind the phenomenal growth in this sector are: availability of cheap labour and low energy costs. Labour costs are only USD 0.23/hr whereas, in India, Pakistan and China the labour costs are USD 0.43/hr, USD 0.41/hr and USD 0.89/hr, respectively. Natural gas energy costs in Bangladesh are cheaper than prices in India, Pakistan and China. Environmental and safety compliance has just started to gain attention, and past periods of growth can also be attributed to the moderate standards set for labour safety and environmental compliance. Continued growth in this sector has also been facilitated by the trade encouragement policies of the western countries such as the WTO Agreement on Textiles and Clothing (ATC), Everything but Arms (EBA), Generalized System of

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Privilege (GSP) in the EU countries and The US 2009 Tariff Relief Assistance. These policies have provided Bangladesh with huge potential in the global clothing market, especially in the EU and America. The textile sector require both thermal and electrical energy in their operation. Electrical energy is primarily available from national grid as almost every unit is connected to the grid (through different grid service providers) at different voltage levels i.e. 33KV/11KV/0.4KV. In addition, it is also common to generate electricity through on-site gas generators and use it for continuous factory production. The textile sector alone has a captive generation capacity of 1,100 MW, while the country as a whole has a total generation capacity of about 8,525 MW as of December 2012. Moreover, some factories use diesel generators as a source of back up energy. Thermal energy is used for steam generation and hot water. Since the most common steam generators are gas powered, there is frequent interruption in the production of steam whenever gas pressure reduces. Currently, new gas connections to industrial facilities have been halted due to the demand supply gap. New facilities are therefore utilizing diesel-fired boilers, furnace oil boilers, compressed natural gas (CNG) boilers, etc. Some factories have started to use exhaust gas boilers (EGB) to get steam from generator, boiler and furnace exhaust; however, utilization of such technology is less than 50%. Interestingly, in Bangladesh, electricity from the grid is often used as stand by supply while most companies rely on captive generation from gas. This is due to an imbalance in the gas and electricity tariffs i.e. electricity is being supplied to the industries at a higher rate by distribution companies while the cost of electricity generation from self-supply, without any waste heat recovery, is lower. Figure 01 shows the breakdown of electricity end-users in the textiles industry, while Figure 02 presents thermal energy end-users.

Figure 1: Electrical Energy Usage Pattern in the Textiles Industry, Bangladesh In order to ensure consistent power supply, Government has been increasing the power production through national grid by installing new power plants. RE program is already on going with Mini-Grid/Grid Tide/Solar roof top etc IDCOL has its own program also for these renewable energy products. Some textile factory owners are also installing solar roof top themselves. Electricity savings from self-supplied source may not be cost effective for future as the price for natural Gas has an increasing trend. Recent gas price has been proposed to be increased by BERC (Bangladesh Energy Regulatory Commission). So Gas will be available, but costlier. So there will be un-interrupted production but costing will be higher in upcoming days. This is where EE equipment & technology would help savings electricity & contribute to improve the baseline situation.

B.2. Project/Programme description (max. 3 pages)

Describe the expected set of components/outputs and subcomponents/activities to address the above barriers identified that will lead to the expected outcomes.

The Program will provide concessional financing in suitable conditions to textile businesses in Bangladesh through the Direct Access Entity (DAE) named Infrastructure Development Company Limited (IDCOL) to promote the investments needed for accelerated development of EE projects in the textile industry. Here, as mentioned earlier, IDCOL will also be the Executing Entity (EE) for the program.

The Program is designed to optimize the use of funding available in terms of leverage and sustainability, investing concessional resources optimally to enable adequate financing and creating market instruments to manage risks among

Figure 2: Thermal Energy Usage Pattern

in the Textiles Industry, Bangladesh.

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market actors. In order to access financing from the Program, the end borrowers will always be required to take on risk via minimal capital requirements.

The proposed Project shall be executed via two components:

Component 1: Implementation costs and technical assistance activities.

GCF non-reimbursable resources (technical assistance) will support to address real or perceived risks and barriers that

are currently limiting EE investments in the textile sector and include:

i. Developing and elaborating a financing strategy, including non-financial instruments to help originate and fulfil

the demand for financing EE investments in textile sector.

ii. Create awareness on the economic benefit of investing in energy saving equipment and technologies in the

market and develop a pipeline of technically-robust, bankable EE projects

iii. Developing capacity and knowledge at the institutional levels required for adoption of EE technology

iv. Identifying and engaging technology providers and other key market stakeholders to support the demand for

financing EE equipment

v. Developing standards and mechanisms for adequate monitoring, reporting and verification of energy savings

and GHG emissions reductions or avoidance resulting from the support to EE investment projects in textile

industry

IDCOL will be the Executing Entity of these TA components & this will be provided as Grant to IDCOL. The final required

amount & activities of TA will be determined after detail analysis of the baseline condition & identification of specific

requirements of Textile sector under the feasibility & other activities as per the proposed PPF.

Component 02: Energy Saving Technology Loan for Textile sector with Preferential Rates.

Under this component, IDCOL will provide term loans with preferential rates to textile sector borrowers (from SME to Corporate) who will utilize the fund received to adopt energy efficient appliances & technologies. The cost of purchasing the energy saving technology and equipment will be the main subject of the loan, which will be utilized by the borrowers to retrofit and/or expand or establish their factories, processes and building infrastructure. The loan may also be utilized for ancillary costs of installing and operating the energy saving technology such as transport, assembly and installation, training and technical transfer, customs, insurance and auxiliary equipment, connection and accessories, and other incidental costs. The co-financing from IDCOL & Sponsor will be established within different cost components of energy saving technology & equipment.

The pricing for this program will be concessional in terms of other commercial financing available in the market & will be determined after detail market study under feasibility. IDCOL will invest its own fund (20% of the project cost) with GCF financing & the final rate to textile borrowers will be a blended one.

The major activities under this component include but not limited to appraisal / due diligence of loan applications and project performance monitoring & evaluation. A pre-determined eligibility criteria for companies, minimum project/loan size, list of eligible energy saving technologies and equipment meeting pre-defined standards and specifications will facilitate a transparent, simplified and robust appraisal criteria for lending under the program. The pre-determined eligibility criteria will be finalized during development of the funding proposal & will be commensurate as per the industry practice.

In terms of rationale, please describe the theory of change and provide information on how it serves to shift the development pathway toward a more low-emissions and/or climate resilient direction, in line with the Fund’s goals and objectives.

The program aims to provide preferential GCF loans of 100.00 Million USD for scaling up adoption of energy saving technologies and equipment in textile industry of Bangladesh. The projects to be funded under this umbrella initiative are expected to avoid 4.47 million tCO2eq. Over the lifetime of investment hereby assumed 20 years considering GCF loan tenure. 223,567 tCO2eq of GHG emissions can be avoided annually through improved energy efficiency in industrial processes in the textile sector of Bangladesh and reduced energy consumption, of natural gas, electricity, oil and coal (current energy mix). Total energy saving is estimated 84,750 toe per year.

It is also important to understand that this program would ultimately overcome the key market related barriers, boost the private sector investment cycle and help create a self-reliant ecosystem for adoption of energy saving technologies in the key energy intensive sectors of the economy. The energy savings resulting from this program would directly contribute to achieve the GHG emission reduction goals envisaged in the country’s INDC, thereby promoting low emission development pathway. These savings would also help the industry and government control environmental (ambient air quality) degradation resulting from burning fossil fuels for heat and electricity. More importantly, the investments enabled through this program will help improve the productivity & competitiveness of the local textile industry in Bangladesh thereby leading to sustainable development pathways. The

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investments would also create a climate resilient built infrastructure and environment through deep penetration of energy saving technologies, equipment and appliances in one of the most energy intensive industry of Bangladesh. Furthermore, a massive portion of Government’s subsidy on natural gas and electricity will be saved reducing the fiscal pressure. State-of-the art technologies from developed countries will be transferred, facilitating replication and ensuring that Bangladesh follows a low-carbon growth path. Ultimately, the program would help realize self-reliant cycles rather than compulsory EE&C activities. The change therefore is to realize a “self-reliant EE&C” society by 2030. Describe how activities in the proposal are consistent with national regulatory and legal framework, if applicable. The financing activities proposed under this program will be conducted within the existing national regulatory and legal framework applicable for the Bank & non-banking financial institutions in the country. More importantly, the overall program concept is consistent with the national policy framework stipulated in the SREDA Act, Energy Efficiency Master Plan, Intended Nationally Determined Contributions (INDC) of Bangladesh and the Seventh Five Year Plan 2016-20. Describe in what way the Accredited Entity(ies) is well placed to undertake the planned activities and what will be the implementation arrangements with the executing entity(ies) and implementing partners. IDCOL is one of the leading financial institutions in the country promoting energy efficiency investments in the manufacturing, services and households sector. The ‘Industrial and Energy Efficiency Finance (IEEF) unit’ is a dedicated unit within IDCOL for financing energy efficiency investments and programs. IDCOL is one of the two national executing agencies for ‘Energy Efficiency and Conservation Promotion Financing (EECPF) Project’ led by GoB in association with JICA. Under this initiative, IDCOL has considerable experience in providing preferential loans for the industry sectors for adoption of specific energy saving technologies and equipment. IDCOL is the executing entity for the solar home system (SHS) program for off grid rural households, which is acclaimed as the largest off-grid renewable energy program in the world. About 56 Partner Organizations (PO) are implementing the program. IDCOL provides grant and soft loans as well as necessary technical assistance to the PO’s. POs select customers, extend loan, install the systems, and provide after sale service.. Thus the program has ensured supply of solar electricity to 18 million people i.e. 12% of the country’s total population who previously used kerosene lamps for lighting purpose. IDCOL is also enlisted as Participating Financial Institution (PFI) under the Green Banking Wing of the Green Banking and CSR Department of the Bangladesh Bank. Under the GoB led initiatives for Improved Cook Stove (ICS) and Energy Efficient Brick Kilns, IDCOL as executing entity has already achieved tremendous success in financing the large scale adoption of these energy efficient technologies. . IDCOL will play the significant role as fund manager to assess the eligibility of the sub-projects of the Textile sector for financing under the program as per the set criteria and accordingly will place disbursement request to GCF. IDCOL will be the borrower & Executing Entity (EE) where the Textile owners will be the Implementing Entity (IE). The ‘Industrial and Energy Efficiency Finance (IEEF) unit’ will channelize the loans to the ultimate beneficiary .i.e. textile borrowers. This unit of IDCOL will be in primary contact with the borrowers. IDCOL will have separate role as Accredited Entity (AE) & Executing Entity (EE). The Implementation arrangement will be as follows:

Please provide a brief overview of the key financial and operational risks and any mitigation measures identified at this stage.

• Lack of standards could be one of the important risks in ensuring that the energy saving technologies financed under the program perform as expected. The GoB through SREDA and BSTI is working to develop and promote standards for various energy saving technologies with high investment and energy savings potential in the country. This program would quickly adopt such standards as and when they are published. Also, existing international standards would come in handy to mitigate this risk. By that time, IDCOL will establish a prospective energy efficient equipment list with standard for an equipment to be eligible for financing during the time of full

AMA

GCF

FAA

Sub agreement: IDCOL and Textile borrowers

Textile Borrowers Textile Borrowers Textile Borrowers Textile Borrowers

IDCOL

As Accredited Entity (AE): Overall program oversight,

monitoring & reporting

As Borrower & Executing Entity (EE): Loan to Textile

sector owners

Contactual Structure

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funding proposal development. This list will be reviewed periodically to accommodate up to date technology changes.

• Energy saving projects of all sizes require specific technical expertise to conduct a meaningful and comprehensive appraisal. Lack of capacity to undertake technical appraisal of energy saving technologies and high transaction costs associated with such activities can also pose some level risk for IDCOL in executing the program. Securing technical assistance from qualified and experienced consultants can effectively mitigate this operational risk for IDCOL. Furthermore, there are many energy saving technologies that are getting outdated quickly with the emergence of robust super-efficient technologies. This can pose some risk of financing suboptimal energy saving solutions leading to reduced performance. The engagement of technical assistance consultants would ensure that the program has access to knowledge and wisdom of adopting state of the art technologies and the projects are appraised keeping in mind the internationally recognised, best practice standards. This will help to minimize project performance risks. The Energy audit of the existing textile factories will be done Certified Energy Auditors.

• Environmental and social risks are generally minimal with energy saving technologies. However, IDCOL has established its own Environmental and Social Safeguards Framework (ESSF) which would be complied across all of its financing activities under the program.

B.3. Expected project results aligned with the GCF investment criteria (max. 3 pages)

The GCF is directed to make a significant and ambitious contribution to the global efforts towards attaining the goals set by the international community to combat climate change, and promoting the paradigm shift towards low-emission and climate-resilient development pathways by limiting or reducing greenhouse gas emissions and adapting to the impacts of climate change. Provide an estimate of the expected impacts aligned with the GCF investment criteria: impact potential, paradigm shift, sustainable development, needs of recipients, country ownership, and efficiency and effectiveness.

I. Impact potential: The projects to be funded under this umbrella initiative are expected to avoid 4.47 million tCO2eq. Over the lifetime of investment hereby assumed 20 years considering GCF loan tenure. 223,567 tCO2eq of GHG emissions can be avoided annually through improved energy efficiency in industrial processes in the textile sector of Bangladesh and reduced energy consumption, of natural gas, electricity, oil and coal (current energy mix). Total energy saving is estimated 84,750 toe per year. It is important to note that given the nature of the Project to support a number of EE sub-projects, the ex- ante estimates of energy saving and GHG emissions avoided would not be accurate and could change upon the composition of EE lending portfolio supported throughout the implementation. The calculation methodology takes into account this uncertainty and deploys a conservative approach. Implementation of this project will potentially impact 1,000,000 people, and with 80% of the current workforce being women, about 800,000 females. Reduced emissions in this sector will also lead to better working conditions for these workers, and contribute to improvement of overall and health and wellbeing at the operational level. Per million USD of investment has potential to reduce 1354 tCO2eq of GHG emissions per year. Cost per tonne of CO2 equivalent emissions removed is estimated to be 36.9 USD, and estimated GCF cost for the same is 22.3 USD. The textile sector in Bangladesh has around 3,000 enterprises and consumes 1,695,000 tons of oil equivalent or TOE per year. Expected energy saving potential, if textile industries in Bangladesh achieve the international best practice specific energy consumption, is 25%. Basis the same, this translates to energy saving of about 424,000 TOE per year if the entire sector adopts energy efficient mechanisms. The fuel mix in the textile sector is natural gas [94%], electricity [5%], oil and coal [1%]4. Using weighted average methodology, the aggregate emission factor is 63 kg/GJ5. This results in estimation of the CO2 emission reduction potential in the whole of textile sector to be 1.12 million tCO2 per year. This project intends to drive energy efficiency implementation in 20% of the manufacturing units. It may also be noted here that the tentative expenditure for energy efficiency in 10 units is USD 5.24 million, leading to USD 524,000 for energy efficiency transformation in one unit. Considering the same, 223,567 tCO2 equivalent of emissions can potentially be

4 Bangladesh. 2015. Energy Efficiency and Conservation Master Plan up to 2030

5 IPCC Volume 2, Grid Emission Factor from DoE, Govt. of Bangladesh circular

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reduced through this project in one year, and 4.47 million tCO2 equivalent over the lifetime of the project, assuming life of 20 years. The estimation methodology is presented below. Energy consumed by Textile sector in Bangladesh = 1,695,000 TOE per year Estimated energy efficiency potential in Textile sector = 25% reduction potential = 424,000 TOE per year Emission factor (fuel mix - natural gas [94%], electricity [5%], oil and coal [1%]) = 63 kg/GJ CO2 Emission reduction potential in textile sector = energy efficiency potential x emission factor = 1.12 million tCO2/ year Considering the project will cover 20% of the total textile units, CO2 Emission reduction potential = 223,567 tCO2e Considering 20 years lifetime, CO2 Emission reduction potential = 4.47 million tCO2e

II. Paradigm shift potential:

• Potential for scaling up and replication (Provide a numerical multiple and supporting rationale):

The Program aims to promote a significant paradigm shift in Bangladesh, one that could be scaled-up and replicated. This project is an intervention package that addresses a range of barriers to EE investment in an integrated manner on the basis of a thorough analysis of the national context. There are several areas where there is scalability and replication in the ultimately served sectors, as well as other industries that have not been included in this project such as the garments industries, the knitwear industries. Therefore, the ripple effect created by this proposed intervention will bring about CO2 emission reduction of 223,567 tCO2e per year. A vital factor to note at this point is that the learning from this program initiative can be applied to other industries such as iron &steel rerolling, cement & clinker grinding, food processing / cold storage industries etc. which will help in creating an established market base that will enable in setting a standardized medium to sell the phenomenon of climate change mitigation. It will also enhance accelerated scale-up of such sectors and enhance exposure of these sectors in being a potential area for expanding in EE investment. The investments enabled through this program will help improve the productivity & competitiveness of the local textile industry in Bangladesh thereby leading to sustainable development pathways. The investments would also create a climate resilient built environment through deep penetration of energy saving technologies, equipment and appliances in the textile industries. Furthermore, a massive portion of Government’s subsidy on natural gas and electricity will be saved reducing the fiscal pressure. State-of-the art technologies from developed countries will be transferred, facilitating replication and ensuring that Bangladesh follows a low-carbon growth path. Ultimately, the program would help realize self-reliant cycles rather than compulsory EE&C activities. The change therefore is to realize a “self-reliant EE&C” society by 2030. The intervention can also be replicated in the household as well as commercial sector and in other industrial sectors of the economy, where additional efficiency gains are expected from the replacement of inefficient energy-intensive equipment by private actors. Based on demonstration effects we expect the doubling of emission reductions estimated by the Program.

• Potential for knowledge and learning:

The package of standardized tools which the program is expected to develop has a strong replication potential in other market segments and elsewhere. The implementation of the proposed intervention includes a number of consultations, technical assistance activities and capacity building process of key implementing partners of the program (i.e., IDCOL and the textile industries) and a strong dissemination and communications strategy around these standard tools and business model. In addition, the monitoring activities during implementation of the Program will provide information and early lessons from good practices to be further replicated in later implementation stages of the Program and disseminated to market players. This would allow to exchange experiences and replicate results in other regions with similar challenges for investment in EE projects.

• Contribution to the creation of an enabling environment:

The industry, buildings and residential sectors contribute to 78% of total energy consumption in the country. The energy savings resulting from the program will directly contribute to the GHG emission reduction commitments of the GoB specified under INDC thereby contributing to the global low-carbon development pathways, consistent with a temperature increase of less than 2 degrees Celsius. The program enables to create a self-reliant ecosystem for both end users and suppliers of energy saving technologies. Helping to build scale and volumes for energy saving technology suppliers, the program will bring down the costs of these technologies and make them attractive even at commercial financing rates. This will allow for scaling up the scope and impact of the program without equally increasing the total costs of implementation. The program will advance the national strategy to bring down the cost of energy saving technologies and

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systemically promote investment in low-emission or climate-resilient development. Once the costs of energy saving technologies reach market acceptability levels, the public sector institutions can further scale up their adoption through public procurement rules and regulations. The business case for private sector adoption of energy saving technologies gets further strengthened. This would promote mainstreaming of climate change considerations into policies and regulatory frameworks and decision-making processes at national, regional and local levels, including private-sector decision-making. More importantly, the investments enabled through this program will help improve the productivity & competitiveness of the local industry in Bangladesh thereby leading to sustainable development pathways.

• Contribution to regulatory framework and policies:

The Project aligns and reinforces public policy priorities related to climate change, energy use, and productivity upgrading set by the Government of Bangladesh. With its focus on allowing access to climate finance and leveraging private finance, this Program is not only primarily targeting domestic policy and regulation, but rather the mobilization of private sector investment for mitigation activities through EE. It is important to mention that IDCOL in its role as a government owned entity within the financial system will allocate GCF resources in order to accelerate the achievement of the goals set up by the government in EE investments. The project supports the Government in promoting the execution of the energy law and the relevant policies aimed at reducing the use of diesel, natural gas etc. This will be done through a comprehensive analysis of the sector and by fostering a policy dialogue process between government entities and with inputs from private sector market players. The EE goals and objectives in the context of Bangladesh is aligned with the Energy Efficiency and Conservation Master Plan up to 2030 as well as the SREDA Act (2012), specifically with the initiatives and programs directed at private end-beneficiaries.

IDCOL has already submitted a concept note to GCF regarding implementation of energy efficient equipment in the garments sector and is now proposing to intervene in the textile sector. Just like the garments sector the textile sector in Bangladesh is also not efficient in energy use because of continuous usage of old/ mal-maintained machines and poor energy management. The program will enable tremendous opportunities for the industry, technology suppliers and energy service companies to develop and adopt innovative solutions, new technologies, business models etc. The program will enable state-of-the art technologies from developed countries to be transferred, opening up new markets for international players.

III. Sustainable development potential The program will help create momentum to shift to low-emission sustainable development pathways through energy efficient buildings, cities and industries. Furthermore, a massive portion of government’s subsidy on fossil fuel for electricity generation will be saved and national energy security will be sustained. The energy savings would help the industry and government control environmental (ambient air quality) degradation resulting from burning fossil fuels for heat and electricity for all kinds of economic activity in buildings, cities and industries. More importantly, the investments enabled through this program will help improve the productivity & competitiveness of the local industry in Bangladesh thereby leading to sustainable development pathways.

Scaling up energy saving technologies with high standards would also help enable positive externalities in the form of expected improvements in productivity, competitiveness, safety of industrial equipment. The program would enable more than 166 million USD of investments for energy saving technologies enabling positive externalities in the form of expanded and enhanced job markets, job creation and poverty alleviation increased energy security etc. As the maximum portion of workers in Textile industry are women, this will help empowering women in social contribution also.

IV. Needs of recipient Bangladesh is becoming increasingly vulnerable for air pollution, sea level rise, high tide and river flood by cyclone potentially caused by GHG emissions from rising fossil fuel consumption. This is despite the total GHG emissions in the country being less than 0.35% of the global emissions. Without a collective ambition to limit GHG emissions internationally, the impact of climate change to Bangladesh could be catastrophic resulting in annual loss of 2% of GDP by 2050 and 9.4% of GDP by 2100. The proposed programme directly contributes to the collective global action under UN Paris Climate framework to help limit GHG emissions and mitigate climate change impacts in the country. Also in the current energy supply scenario, the public sector investments in Bangladesh is focused more on supply side interventions in order to ramp up the generation capacity and bridge supply gaps. This limits the budgetary resources available with the government to drive public sector investments for demand side interventions, especially towards energy saving technologies. In this scenario, boosting private sector investments is critical to keep investment cycle going in important markets such as industry, buildings and household appliances. However, one of the major barriers for driving private sector investments for energy efficient technology upgrades is that they compete for capital with other corporate

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priorities of interest and often given the least priority by the top managements. In this scenario, supporting businesses with attractive financing products and mechanisms for energy saving technology upgrades could go a long way in getting the attention of corporate top management and overcoming this important market barrier.

Energy saving technology upgrades typically bear higher upfront / initial costs as compared to their conventional and inefficient counterparts. This combined with subsidised energy provides limited business case for the private sector to opt for energy efficient technologies. Therefore preferential financing facilities such as concessional loans envisaged under this program is an effective tool for helping create a business case for a wide range of energy efficiency investments that are typically delayed because of the high upfront costs.

V. Country Ownership The program directly contributes to the country’s ambitions and goals under the UN Paris Climate framework. Moreover, the program is consistent with the country’s national strategy (Energy Efficiency Master Plan) to provide ‘Energy Efficiency Finance Program’ to boost the investments in energy efficiency products with low interest loans as one of the key financial incentives. Furthermore, the program also contributes to the GoB target to achieve 10% of energy consumption reduction in the industry sector by 2030 and 20% improved energy intensity by 2030. This proposal has been developed in consultation with civil society groups and other relevant stakeholders and would continue to seek their future engagement in accordance with the GCF’s environmental and social safeguards and stakeholder consultation guidelines. The proposal also places decision-making responsibility with in-country financial institutions and uses domestic systems to ensure accountability.

VI. Efficiency and effectiveness The proposed program structure, the envisaged financial instrument (preferential term loans) is most effective and reasonable in order to achieve the proposal’s objectives, including addressing existing bottlenecks and/or barriers. Under this program, the 100 million USD GCF fund will be co-financed with 65 Million USD IDCOL’s and borrowers’ fund, which will further catalyse investments led by the private sector to effectively tap energy saving opportunities in the key energy intensive markets of the country. Not only working as AE, IDCOL will co-finance from its own fund & the blended rate will be concessional in the market in term of availability. In the proposed co-financing, IDCOL & Sponsor will finance at the same ratio (20% each) of the project cost. Estimation of the CO2 emission reduction potential in the whole of textile sector to be 1.12 million tCO2 per year. 223,567 tCO2 equivalent of emissions can potentially be reduced through this project in one year, and 4.47 million tCO2 equivalent over the lifetime of the project, assuming life of 20 years. Per million USD of investment has potential to reduce 1354 tCO2eq of GHG emissions per year. Cost per tonne of CO2 equivalent emissions removed is estimated to be 36.9 USD, and estimated GCF cost for the same is 22.3 USD. The program also helps to build scale and volumes for energy saving technology suppliers, bringing down the costs of these technologies and making them attractive even at commercial financing rates. This will allow for scaling up the scope and impact of the program without equally increasing the total costs of implementation.

B.4. Engagement among the NDA, AE, and/or other relevant stakeholders in the country (max ½ page)

Please describe how engagement among the NDA, AE and/or other relevant stakeholders in the country has taken place and what further engagement will be undertaken as the concept is developed into a funding proposal.

The Economic Relations Division, which is the National Designated Authority (NDA) of GCF, teamed up with IDCOL to organize sensitisation workshops for the relevant private sectors to let them know about the opportunities that GCF represents through its AE, that is, through IDCOL, in the country.

IDCOL is committed to help in ensuring economic development of the country and to improve the standard of living of the people through sustainable and environmental-friendly investments.

Its renewable energy and energy efficiency projects/programs are providing access to sustainable energy services for productive use primarily for people living in remote areas of Bangladesh and contributing to reduction of greenhouse gas emissions by reducing use of fossil fuels.

Therefore, IDCOL designed this Energy Efficiency Concept Note as it plans to arrange finance for energy efficiency projects of private sectors by sourcing fund from GCF. The selective textile sector borrowers will be the primary contact with the ultimate borrowers & IDCOL.

From this stage IDCOL will work closely with the NDA and the private executing entities to develop the funding proposal as per the market reality.

IDCOL will arrange an International Seminar & Exhibition to Promote Energy Efficiency & Conservation, during November 2018 which will be a source of valuable inputs for this present proposal of Energy Efficiency technologies & equipment of IDCOL for GCF. The expo will cover a number of industrial sectors potential for energy efficiency technologies & equipment. Being the second largest energy intensive industry (12.40% of total energy consumption by industrial sub-

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sector), textile industry has significant potential for energy savings. So textile industry related stakeholder engagement & valuable outputs of the seminar & exhibition, will be an added arena for better understanding of market demand for energy efficiency equipment for textile sector & fine tuning of the GCF funding proposal.

C. Indicative Financing/Cost Information (max. 3 pages)

C.1. Financing by components (max ½ page)

Please provide an estimate of the total cost per component/output and disaggregate by source of financing.

Component/Output

Indicative cost

(USD)

GCF financing Co-financing

Amount

(USD)

Financial Instrument

Amount

(USD)

Financial Instrument

Name of Institutions

Component 01:

Implementation costs and technical assistance activities

4.00 4.00 Technical assistance (Grant)

- - -

Note: These Technical assistance (TA) will facilitate to conduct the activities described in Page: 09 under component 01 & will not be a part of project cost. Because IDCOL is not accredited for channeling grant component but can be able to utilize the TA as a DAE.

Component 02:

Energy Saving Technology Loan for Textile with Preferential Rates

166.00 mln USD 100.00 mln Senior Loan 33.00 mln

33.00 mln

Loan

Equity

IDCOL

Sponsor

Indicative total cost (USD)

166.00 Million USD [100%]

100.00 Million USD [60.00%] 66.00 Million USD [40.00%]

For private sector proposal, provide an overview (diagram) of the proposed financing structure.

C.2. Justification of GCF funding request (max. 1 page)

Operational flow of Loan

Disbursement of fund ($) Repayment of fund ($)

Textile borrower will place disbursement request time to time to IDCOL

Disbursement of fund (TK/$) Repayment of fund (TK/$)

Textile Borrowers Textile Borrowers Textile Borrowers Textile Borrowers

IDCOL

GCF

IDCOL will place request to GCF as per the disbursemnt requirement time to time & disburse it to textile

borrowers upon receiving the fund

As AE, IDCOL will receive the Fee from GCF for administering & managing the fund as well as Monitoring,

Evaluation & Reporting

Textile borrower will submit proposal to IDCOL EE Unit for financing & IDCOL's approving authority will consider

approval

IDCOL will add a premium with GCF interest rate while providing fund to the textile borrower along withy its own

co-financing

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Explain why the Project/ Programme requires GCF funding, i.e. explaining why this is not financed by the public and/ or private sector(s) of the country.

In the current energy supply scenario, the public sector investments in Bangladesh is focused more on supply side interventions in order to ramp up the generation capacity and bridge supply gaps. This limits the budgetary resources available with the government to drive investments for demand side interventions, especially towards energy saving technologies. The public energy efficiency fund that is currently available within the country is limited. In addition, there are several competing priorities for those funds that involve setting up adequate testing infrastructure, conducting pilots etc. This leaves private sector, which needs attractive financing options to stimulate investments. The funds from bilateral development institutions come with their own limitations in creating a non-discriminatory, fair and transparent market structure for such funds. All of these conditions presents a compelling need for GCF funding.

Describe alternative funding options for the same activities being proposed in the Concept Note, including an analysis of the barriers for the potential beneficiaries to access to finance and the constraints of public and private sources of funding.

Public sector funds in the country are limited and focused towards energy supply side interventions to bridge the persisting gaps in the economy. The available funds have competing priorities for important energy efficiency policy implementation in the areas of appliance standards & labelling, regulation of energy consumption in large consumers, conducting pilots etc. The funds from bilateral development institutions come with their own limitations in creating a non-discriminatory, fair and transparent market structures for such funds.

More importantly, it is crucial that the cost of funds remain lower to promote energy saving technologies as they generally are more costly when compared to inefficient ones. The attractive financing terms enabled by GCF low cost funds is one of the key success drivers for promoting the adoption of energy saving technology.

Justify the rationale and level of concessionality of the GCF financial instrument(s) as well as how this will be passed on to the end-users and beneficiaries. Justify why this is the minimum required to make the investment viable and most efficient considering the incremental cost or risk premium of the Project/ Programme (refer to Decisions B.12/17; B.10/03; and B.09/04 for more details). The justification for grants and reimbursable grants is mandatory.

One of the major barriers for driving private sector investments for energy saving technology upgrades is that they compete for capital with other corporate priorities of interest and often are given the least priority by the top managements. Subsidised prices of commercial energy commodities in Bangladesh makes this scenario even worse as the private sector does not perceive the true cost of energy in its operations. In this scenario, supporting businesses with attractive financing products and mechanisms for energy saving technology upgrades could go a long way in getting the attention of corporate top management and overcoming this important market barrier. Energy saving technology upgrades typically bear higher upfront / initial costs as compared to their conventional and inefficient counterparts. This combined with subsidised energy provides limited business case for the private sector to opt for energy efficient technologies. It should be advantageous enough to cover the extra initial cost that an end user will have to bear when purchasing energy saving product, compared with when buying a non-energy saving product. Therefore preferential financing facilities supported by GCF funds can be an effective tool for helping create a business case for a wide range of energy efficiency investments. Furthermore, private sector companies / investors expect fast payback on energy efficiency investments and they often fail to make a holistic assessment of the investment payback that needs to consider future oil price shocks, increased productivity etc. These gaps disqualify many promising energy saving projects despite having positive returns. Commercially attractive financing products could form a critical component of the value chain in reducing the payback period for energy efficiency investments and further encourage the private sector to scale up such investments.

The concessionality considered in this Programme will be targeted at overcoming short term risk or cost barriers. The concessionality (in the form of appropriate tenors, interest rates, and grace periods) offered by GCF will be passed on to the end borrowers. This contribution is critical to develop a market from the demand-side against existing constraints and barriers, so that an enabling environment for promoting innovative EE markets in established.

This program aims to pass on the low cost advantage of GCF funds by the Executing Entity (IDCOL) to the implementing partners (textile sector) through preferential loans.

In the case of private sector proposal, concessional terms should be minimized and justified as per the Guiding principles applicable to the private sector operations (Decision B.05/07).

C.3. Sustainability and replicability of the project (exit strategy) (max. 1 page)

Please explain how the project/programme sustainability will be ensured in the long run and how this will be monitored, after the project/programme is implemented with support from the GCF and other sources.

The program enables to create a self-reliant ecosystem for both end users and suppliers of energy saving technologies. Helping to build scale and volumes for energy saving technology suppliers, the program will bring down the costs of these technologies and make them attractive even at commercial financing rates. This will allow for scaling up the scope and

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impact of the program without equally increasing the total costs of implementation. The program will advance the national strategy to bring down the cost of energy saving technologies and systemically promote investment in low-emission or climate-resilient development. Once the costs of energy saving technologies reach market acceptability levels, the public sector institutions can further scale up their adoption through public procurement rules and regulations. The business case for private sector adoption of energy saving technologies gets further strengthened. This would promote mainstreaming of climate change considerations into policies and regulatory frameworks and decision-making processes at national, regional and local levels, including private-sector decision-making. More importantly, the investments enabled through this program will help improve the productivity & competitiveness of the local industry in Bangladesh thereby leading to sustainable development pathways.

For non-grant instruments, explain how the capital invested will be repaid and over what duration of time.

IDCOL and its implementation partners will have creditor and debtor relationship under this program. The industry partners will be provided with preferential term loans with maximum tenor of 10 year with grace period of 2 year. The loan period from GCF will be for 20 years (Including grace period of 05 years) & repayment period would be 15 Years (starting from year 06 to year 20).The GCF loan will be revolving in nature; the reflows fund will be re-invested to other suitable Energy Efficiency projects. IDCOL’s credit risk management and credit monitoring teams are well equipped to monitor the repayments as per the terms and conditions of the term loans. IDCOL has relevant experience to work with this type of Energy Efficiency financing.

D. Supporting documents submitted (OPTIONAL)

☐ Map indicating the location of the project/programme

☐ Diagram of the theory of change

☐ Economic and financial model with key assumptions and potential stressed scenarios

☐ Pre-feasibility study

☐ Evaluation report of previous project

☐ Results of environmental and social risk screening

Self-awareness check boxes

Are you aware that the full Funding Proposal and Annexes will require these documents? Yes ☐ No ☐

• Feasibility Study

• Environmental and social impact assessment or environmental and social management framework

• Stakeholder consultations at national and project level implementation including with indigenous

people if relevant

• Gender assessment and action plan

• Operations and maintenance plan if relevant

• Loan or grant operation manual as appropriate

• Co-financing commitment letters

Are you aware that a funding proposal from an accredited entity without a signed AMA will be reviewed but

not sent to the Board for consideration? Yes ☐ No ☐