EBRD and ESCOs

Matti Hyyrynen Head of Baltics

EBRD

Riga, April 2013

EBRD’s  Sustainable  Energy  Ini4a4ve  (SEI):  the  concept  

Financing:  Direct  investments    Direct  lending  Equity  investments  Structured  finance  Intermediated  finance    

EBRD’s  TA  to  overcome  barriers  includes  market  analysis,  energy  assessments,  training  and  awareness  raising,  and  grant  co-­‐financing  to  provide  incenDves  

EBRD  supports  governments  to  develop  strong  insDtuDonal  and  regulatory  frameworks  that  incenDvise  sustainable  energy    

SEI responds to needs of energy transition in EBRD countries of operations, as well as to the call of the G8 for IFIs to scale-up climate change mitigation investments

EBRD’s  Sustainable  Energy  Ini4a4ve  (SEI):  results  

SEI Phase 1 (2006 – 2008)

Aimed at strengthening EBRD’s capacity to scale up sustainable energy projects

Achieved SEI business volume of €2.7 billion in 166 projects (total project value of €14 billion), of which 64% in the

private sector

Achieved estimated CO2 emissions reduction of 21 million tonnes per annum

SEI Phase 2 (2009 – 2011)

Achieved SEI business volume of more than €6 billion in 298 projects (total project value of €33 billion)

Achieved carbon emissions reduction of more than 26 million tonnes CO2 per annum

SEI Phase 3 (2012 – 2014)

Set SEI business volume target range of €4.5 to €6.5 billion with a target project value range of €15 to €25 billion

A target annual carbon emissions reduction range of 26 to 32 million tonnes of CO2 per annum

0  

500  

1000  

1500  

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2006   2007   2008   2009   2010   2011  

€  million  

SEI  Investment  

Why  are  ESCO  energy  efficiency  projects  beneficial?  

•  Problem – Public and private sector assets (eg buildings) are often characterised by underinvestment. This causes energy inefficiencies.

•  Opportunity – inefficiencies give rise to energy (cost) saving potentials •  Constraint to opportunity – asset owners usually focus on their core

business activities but lack •  knowledge needed for designing energy efficiency (EE)

investments and •  funds for financing EE investments

•  Solution – ESCO projects solve this constraint by offering: •  private sector expertise for project design, implementation

and operation and accept the related performance risk •  selection of the most economic energy efficiency solution •  commercial financing (=off-balance sheet finance)

Energy  Performance  Contrac4ng  (EnPC)  address  en4re  efficiency  value  chain  for  efficiency  

Operating of eg public or commercial buildings – all building owners do it •  Buying primary and secondary energy •  Operating building technology (BT) Optimised operation – few building owners •  energy controlling: collecting energy data,

analysis and optimisation operations •  developing operational instructions and manuals •  maintaining BT ESCO energy efficiency projects Detailed analysis and multi-annual efficiency investment plan:

•  Energy efficiency investments that are commercially financed and paid by generated energy cost savings

•  ESCOs guaranteed savings •  optimised operations and maintenance by ESCOs

Benefits  of  EnPC  approach  

End-users will benefit from •  improved comfort levels for end-users of shopping malls, hospitals, schools, public administration,

street lighting etc. Public sectors benefit from •  private sector expertise available for efficiency project design, implementation and operation •  the most economic efficiency solution being procured on basis of life cycle costing •  contractually guaranteed energy cost savings •  off-balance sheet investments and savings result in state budget relief •  available budget or grants can be leveraged = more investments in energy efficiency than through

traditional procurement and more efficient use of grants Private sector benefits from •  new economic activities and employment in private sector (ESCOs) ESCO services and its benefits can extend to residential, commercial and industrial sectors Banking sector •  new financing products for financing energy efficiency; cash flow based financing; forfeiting; new,

secure long term product

Financing  source  of  Energy  Performance  Contrac4ng  (EnPC  or  EPC)  projects  

EnPC efficiency investments*

Absolute energy costs before efficiency investment

Saved energy costs, used for repaying efficiency investment (ESCO) End of EnPC

project

Energy costs savings of asset owner (approx. 20 – 60%)

Time in years 0.5 – 1 year 5 – 10 years

Absolute Energy costs per public building

Absolute energy costs after end of EnPC project

* ESCO invest in assets (private finance and expertise) and optimisation of operation

Overview  of  EBRD  ESCO  programme  

Support ESCO project preparation: l  engage with ESCOs’ clients and train key staff members

l  identification of suitable assets

l  energy audits

l  prepare ESCO tenders/projects

Develop financing product for ESCO projects with ideal characteristics being: l  treated as off-balance sheet for asset owners and ESCOs

l  appropriate risk allocation and mitigation

Support government to create an ESCO enabling framework (most relevant for regulated, public sector projects): l  engage with key Ministries on clarifying and identifying key obstacles

l  providing support regarding:

l  prepare ESCO contract templates and tender package documents

l  if needed, clarify procurement and budget elements

Theme  1:  ESCO  development  (1/2)  

Legal advisory assignments Objective •  supporting countries to improve their legal framework for ESCO

projects (Energy Performance Contracting, EnPC) Scope •  public budget code, procurement law, standard contract template,

tender templates, guidance notes etc. Prerequisites •  countries to have receptive, interested structure in place in order

for consultants to start working.

© European Bank for Reconstruction and Development 2010 | www.ebrd.com

Theme  1:  ESCO  development  (2/2)  

Technical assistance assignments Objective •  supporting individual local entities (e.g. cities, regions) to

implement ESCO/EnPC programmes and individual projects Scope •  prepare ESCO investment programmes; identify, prepare, tender

and monitor ESCO/EnPC projects Prerequisites •  local entity to demonstrate political will and interest and allocate

sufficient administrational resources for an ESCO programme

© European Bank for Reconstruction and Development 2010 | www.ebrd.com

EBRD  ESCO  ac4vi4es  

•  2007 – Bulgaria: €7 mln credit to Bulgarian ESCO Fund •  2008 on-going – Russia: US$9 mln GEF grant for public sector ESCO programme •  2011 – Romania: €10 mln credit to local ESCO •  2011 on-going – Ukraine: ESCO project with city of Dnipropetrovsk with first tenders in

2H/2012 (€20 mln) •  2011 on-going – Poland: developing with Polish Energy Agency creation of dedicated

ESCO financing mechanism in 2012 (EBRD €15 mln) •  2012 – Bulgaria: €10 mln credit to Bulgarian ESCO Fund •  2012 – Russia: €20 mln credit to industrial ESCO Fenice •  2012 onwards – Baltic ESCO Fund with EBRD financing and technical support •  2012 onwards – discussion with industrial company on financing SPV •  2012 onwards – Western Balkan, Theme 1: €5 mln EU grant for technical assistance

programme for ESCO market development •  2013 – SEMED region: ESCO water company finance

Thank  you!  

Contacts Viesturs Bernans, Principal Banker, Vilnius Resident Office bernansv@ebrd.com Toivo Miller, Principal Product Development Manager Energy Efficiency & Climate Change team EBRD, One Exchange Square, London EC2A 2JN e-mail: millert@ebrd.com