Financing Climate Change Mitigation in the Building Sector Hans Shrader and Autif Sayyed

UNEP-SBCI Fall Symposium on Sustainable Buildings 9 October 2012

• What does IFC mean by „Green Buildings‟?

• Why are greener buildings important?

• IFC‟s engagement in Green Buildings

•Mapping Opportunities

•Sustainable Energy Finance

•Green Mortgage

•Green Building Code

Green Buildings

Opportunities

IFC Experience

2

Agenda

3

The practice of

• increasing the efficiency with which buildings use

resources such as energy, water and materials while

also

• reducing the building’s impact on human health and

the environment and

• not causing undue financial burden on any

stakeholder

Definition of Green Buildings

Why are Green Buildings Important?

Buildings cause 40% of global

GHG emissions

Climate change

70% of the world will live in cities by

2050 causing increased demand

for buildings

Extreme weather events-

droughts, floods

Threats to food security

and livelihoods-

harmful effects on

agriculture, fishery and

forestry

Buildings provide the low hanging fruits for abatement Buildings offer us the single largest global opportunity to make deep emission cuts at low, no, and even negative cost.

Developing countries represent the greatest opportunity for reductions, underscoring the need for an international effort to

rapidly enhance sustainable building practices in such countries and to capitalize on this emission reduction potential.

Carbon “Abatement Curve”

Source: McKinsey Analysis

Options are cost

effective with

relatively quick

paybacks

Options not

currently cost

effective: role for

advisory,

regulation,

concessional

finance

All relevant for

“Green Buildings”

Abatement Gt CO2e/year

Cost of Abatement €/t CO2e, 2030

5

6

Local Benefits of Green Buildings

Reduced monthly utility costs

Initial investment payback period

can be well before the loan

matures

Lower maintenance costs due to

more sustainable materials

Often better indoor air quality

Can have lower costs/financing

due to government subsidies

The building has a reduced

carbon footprint and often a

higher value

Buildings are part of a big

problem,

…but they can be a big

part of the solution!

7

8

Barriers to Transformation

Market

Split incentives

Transaction Costs

Dispersed Market Involving Many Sectors

Price Distortions in Energy Market

Financial

Up-front Cost, Constrained Budgets

Perception of Investment Risk

Low Financial Institution Awareness

Lack of External Finance

Small Transaction Size

Technical

Lack of Technical Capacity in Market

Lack of Affordable Technology in Market

Awareness

Lack of Information

No Benchmarking of Energy Performance

Institutional

Low Government Capacity on New

Inter-agency Coordination Challenges

Little Public-Private Coordination

• IFC is the largest global development institution focused exclusively on the

private sector – the global leader in private sector development finance

• We create opportunity for people – to escape poverty and improve their lives

• Driven by our vision and purpose, we make a unique contribution

to development

• We invest, advise, mobilize capital, and manage assets – providing solutions for

an inclusive and sustainable world

Who We Are, What We Do

9

9.5 M tons GHG /yr

71% of Global

Poor at $2 per day

in Asia

66% of IDA

population in Asia

40% of Global

CO2 Emissions

China &

India major

source of

Emerging

Mkts FDI

0

2,000

4,000

6,000

8,000

China USA EU Brazil Indonesia Russian Fed

India [1] Japan [1]

Total GHG Emissions (million tpa) WRI 2005 data Incl. land use change

A2F Micro: 23.4M

A2F SME: 1.13M

A2 Infra: 17.8M

Farmers: 1.25M

H&E: 2.49M

Cost savings: $340M

10 S-S deals

% of key sectors

with improved

ES&G standards

2-3 innovative

business models

replicated

IFC Asia Strategy 2013-17

Strategic Themes 3 Year targets Development challenges

Climate

Change

Inclusion

Global

Integration

East Asia & Pacific

(ex-China) South Asia

(ex-India)

China

Rest of

the world

India

Share of

World's Poor

$2/day

Share Directed to

Emerging Economies

* Data for China does not

include Hong Kong

China and India 6% of global OFDI (2010)

Outward Foreign Direct

Investment

10

1. Working with governments to develop Green Building

Regulations

2. Incentivizing developers and owner operators to build green

buildings through appropriate financial products

3. Supporting the development of green building materials and

technologies with appropriate financial products

4. Supporting the creation or growth of Energy Service Companies

[ESCOs] where appropriate

5. Incentivizing financial institutions to develop „green

mortgages/credit lines‟ with appropriate financing and advisory

services products

6. Working with associations to increase demand and knowledge

of the benefits of green building

IFC Support for Green Building Sector

11

IFC present along value chain: market development; support for innovation (e.g. new age

building materials); leverage client relationships and FI platform

Country-wide

Wholesale

Approaches

Deal-by Deal

• Policy and regulatory

support (eg. Indonesia &

Colombia)

Advisory Financing

• Banks (eg.CHUEE)

• ESCOs (eg.Optima)

• Leasing (eg.Water Capital)

• Property Funds (eg.Actis)

• Client Facilities (eg.Hungary

RSF)

• Green Mortgages (eg.Kenya)

• Audits

• Technical assistance

(Guides, design support,

benchmarking)

• Debt, equity in buildings

(eg.Vinte)

•Upstream inv. in material &

technologies (eg.China Glass)

•Concessional finance (eg.

Mexico) • Voluntary GB standards (eg.

Lebanon, EDGE)

• Sector studies (e.g.,

Affordable Housing India)

Multiple opportunities for IFC in Green Buildings

12 * terms softer than market through price tenor or security

Mapping Macro drivers: Where is the biggest demand?

Econom

ic d

river

perc

enta

ge c

ost

of

ele

ctr

icit

y v

s. G

DP [

%]

-

Jamaica

Dominican

Republic

Syria

Nicaragua

Gambia

Jordan

Bulgaria Philippines

Zimbabwe

Cape Verde

South Africa

Eritrea

Croatia

Lebanon

Turkey

Ukraine^

Sudan

Ivory

Coast

Egypt

Mexico

Indonesia

Kenya

Nigeria Angola

Haiti

Brazil

Colombia

Argentina

Kyrgyzstan

Mozambique

Ghana

Senegal

Slovakia

Uzbekistan

Urban populace

added each year

[In millions]

15 10

5 1

Sri Lanka

Morocco

Thailand

Bangladesh

Russia^

Ethiopia

Cameroon

Caribbean

Mediterranean

East coast

Asian

Giants

Vietnam &

Philippines

Peru

Azerbaijan

Honduras

El Salvador Costa Rica

Malawi

Panama Paraguay

Uruguay

Zambia

Bolivia Tanzania

Ecuador

Guatemala

Trinidad

Togo

Tajikistan

China India

Vietnam Pakistan

Priority

countries

High

Priority High Cost but

low carbon grid

Low cost but

high carbon grid

Low Priority

IFC’s approach to addressing challenges is tailored to the needs of specific market contexts,

prioritising counties with high CO2 from buildings, high cost of electricity and high urbanization

Why “electricity”?: The largest amount of energy used by buildings is in the form of electricity. Typically 20-40% of the electricity generated in a country is used by the buildings sector. ^ Russia and Ukraine have a net decreasing urban population

Environmental driver CO2 from electricity generation [gCO2/kWh]

13 13

Case Studies

Sustainable Energy Financing

Green Mortgage

Green Building Code

Sustainable Energy Finance (SEF) : 2008 – present

January 2008 SEF Advisory

Phase I

December 2009 Risk Sharing

Agreement

January 2012 SEF Advisory

Phase II

• Over Php 7 Billion EE and RE loans approved

• More than 600 account officers trained

• More than 100 walkthrough audits and project evaluations,

some clients choosing to self finance SE projects

• More than 47,669 MWh/year of energy saved, roughly

equivalent to 6MW

GREEN

CRITERIA

Site

Materials

Health

Energy

Water

Community

SAVINGS

Energy

Water

Gas

LOAN

INCREASED HIGHER

CLIENT

INCOME

&

HIGHER

BUILDING

VALUE

Green Mortgage

Lender’s Benefits

• Increased volume due to enhanced suite of products

• Buildings with increased efficiency can have higher value

• Reduced risk:

Buyers have lower monthly bills;

• Better “green” image branding

IFC provides

project

analysis

support

IFC provides

financing

Green Homes

IFC Experience

Vinte Housing Developer, Mexico

Business: Housing developer

with affordable and sustainable

home design as an integral part

of its business model.

• VINTE’s attractive, well-

planned developments are

affordable through Mexico’s

Green Mortgage program that

provides incentives for

purchasing energy-efficient

homes. The program recently

won the International Star of

Energy Efficiency Award from

the Alliance to Save Energy, a

business-led global NGO.

• IFC Financing: 3-5 year debt

issuance to finance its working

capital requirements; equity

investment plus a partial credit

guarantee to enhance the

company’s local bond issuance.

Key features: • Homes typically have solar hot-water, water efficient fittings, low-energy light

bulbs and smart meters.

Photo courtesy of Fernando N. Escárcega, Real del Sol-VINTE Project.

Green Buildings Code* for

Jakarta has a potential carbon

reduction of 3MtCO2/year by

2020.

Advice on Green Building Regulation for Indonesia

Indonesia is one of the world‟s largest greenhouse gas emitters with its

building sector accounting for more than a quarter of total energy use in

2004 – a number that‟s expected to rise to nearly 40% in the next two

decades.

In response, IFC is helping the government of the capital province,

Jakarta, develop a green buildings code. The code sets energy and water

efficiency requirements for large commercial and high-rise residential

buildings, and will require climate change adaption practices to be included

in building designs.

IFC's main aim was to help create a code that is simple to implement,

effective and easy to monitor. A key element of the analysis involved

modelling a range of possible changes for each building type which met

clear criteria for market preparedness and ease of implementation while

maximizing the benefits of energy (CO2) and water reductions in a cost-

effective manner.

The details of the code have been developed in close consultation with

government as well as private sector stakeholders including, developers,

landlords and professional associations.

“…with effective implementation of the green buildings code in

Jakarta, the city can serve as a model for implementation in

other cities in Indonesia.” Fauzi Bowo, Governor Jakarta

Province

Development of Green Building Regulations

Diagnostic Phase

Identify needs and gaps

Study of building energy consumption

Quantify measures that can delivery most savings

Implementation matrix

Sensitivity analyses of Energy and non-energy variables

Cost benefit assessment of the effective options

Shortlist suitable measures

Stakeholder engagement

Discussions of draft with public and private sector clients

Training and capacity building

Launch Green Building Regulations

Steps to develop a robust effective code

20

Sensitivity Analysis of Energy Efficiency options for Jakarta shows that energy savings

of more than 30-50% can be achieved from simple measures

20

High Impact Measures Retail Hotel Hospital Apartment School

Photoelectric controls

[inclusion of controls to maximize

daylighting]

11% NA 17% NA 10%

Solar Shading [addition of horizontal and vertical

devices]

11% 18% 18% 8% 2%

Glass performance [higher solar and thermal properties]

6% 16% 14% 11% 5%

Efficient Chillers [higher chiller COP]

8% 6% 7% 9% 12%

Variable speed drives

[inclusion of variable drives on pumps] 3% 3% 5% 0.0% 0.0%

Percentage glazing [limiting window to wall ration of the

façade]

4% 9% 7% 2% 0.0%

Low energy Lights [limiting the power density for artificial

lighting]

8% 7% 16% 6% 5%

Thermostat Mgmt [limiting the min temperature]

3% 3% 7% 6% 11%

Heat Recovery [adding heat recovery unit to fresh air

inlet]

5% 3% 8% 0.0% 0.0%

Note: the above values must not be aggregated as they only reflect the potential of making each individual measure. The total energy

savings potential will be smaller than the sum of individual measure f

Sensitivity Analysis of Water Efficiency option for Jakarta shows that water savings of

more than 75-100% can be achieved from simple measures

* Note: the above values must not be aggregated as they only reflect the potential of making each individual measure. The total energy

savings potential will be smaller than the sum of individual measure

High Impact Measures Office Retail Hotel Hospital Apartment School

Water Efficient

Landscape 12% 9% 3% 6% 14% 5%

Rain water harvesting

15% 31% 4% 14% 17% 9%

Use of water

conservative fittings 34% 38% 30% 15% 35% 32%

Recycling- using sewage

Treatment Plant 67% 72% 24% 21% 50% 66%

Adopting all the above

measures 87% 100% 46% 38% 78% 74%

22

Recommendation for regulation

Payback analysis

Cost of the EEM

Availability of Technology in Jakarta

/ Ease of implementation

Energy Saving Potential

Energy Efficiency Measure (EEM) Specify AC Chillers of COP 6.7 instead of

the standard 3.2

11.40%

Yes, for both technology & ease of implementation

Increase in total building cost – 0.82%

1 Year 7 months

Yes, include in Regulation

Logic EE measure – Higher efficiency chillers

Implementation Matrix

Sample – OFFICE BUILDING

23

What is the cost of the impact?

23

Measure

Category

%Saving

Cost

Increase

Payback

Period

Window to wall ratio Building Envelope 8.0% Negative 0.0 Include

Solar Shading Devices – Combined Building Envelope 17.3% 7.2% 25.0 Consider

Reflectivity - Wall Building Envelope 0.5% 0.0% 4.8 Include

Thermal Conductance - Wall (Wall U-Value) Building Envelope 0.3% 0.5% 98.6 Exclude

Reflectivity – Roof Building Envelope 0.2% Negligible - Include

Thermal Conductance - Roof (U-value) Building Envelope 0.1% 0.0% 18.1 Consider

Glazing Assembly Properties (U-value, SHGC, VLT) Building Envelope 7.3% 0.1% 0.9 Include

COP of air conditioning (cooling) equipment HVAC 11.4% 1% 5.4 Include

Variable Speed Drives for cooling towers HVAC 9% 0% (0.1) Include

Heat recovery on extract air HVAC 2% Cost awaiting 26.2 Consider

Solar collectors for Hot water Hot water NA NA --- Exclude

Photo electric control perimeter lighting Lighting 18% 2% 7.4 Include

Exterior lighting controls Lighting NA NA --- Exclude

Low energy lighting [CFL, T5, LEDs etc] Lighting 7% 0.12% 1.0 Include

Electronic Ballast Electrical Power 2% Negligible 0.0 Include

Sub-metering benefits Electrical Power 3% NA NA Consider

Water efficient fittings [inc. low flow taps and W/C flushes] Water and Waste 40% 0.35% 6.0 Include

Rainwater harvesting Water and Waste 15% Cost awaiting 26.2 Consider

Recycling onsite Sewage T plant Water and Waste 67% Cost awaiting 7.4 Consider

Water metering Water and Waste NA Negligible NA Include

Storm water attenuation and ground water recharge Water and Waste NA Minimal impact NA Include

Implementation Matrix Summary

OFFICES

CONST. COST

5% up ENERGY USE

25% down

RETAIL

CONST. COST

2% up ENERGY USE

15% down

HOTELS

CONST. COST

3% up ENERGY USE

30% down

HOSPITALS

CONST. COST

3% up ENERGY USE

30% down

APARTMENTS

CONST. COST

2% up ENERGY USE

15% down

SCHOOLS

CONST. COST

3% up ENERGY USE

15% down

With an overall cost increase of 3% energy saving of more

than 20% can be achieved across all new buildings in Jakarta

International Regulation Experience

Similar Green Building/ Energy Efficiency Code efforts

are underway in Vietnam Bangladesh, Colombia and

Philippines.

Each country has approached GBC in their own unique

way but there are common themes from which lessons

can be learnt.

Enforcement & compliance - one of the biggest

challenges. Has been tackled with varying degree of

success through improved governance, standardisation

& enabling industry to meet technical requirements.

Experience has shown that a swift move to stringent

regulation without an established culture of

standardisation has been difficult.

Why IFC is a Good Partner

26

Advisory

• Provide training and expertise with

IFC Green Buildings and Mortgage

Specialists

• Assist in Product Development in

the green mortgage area

• Support the development of a

green mortgage pipeline

• Supply tools which measure the

cost vs. benefit; Demonstrate the

value

Direct Investments

• Provide construction bridge loans,

warehousing facilities, long-term

loans, guarantees and risk sharing

facilities

• Offer local currency financing at

attractive rates

• Provide concessional financing to

incentivize where appropriate

A unique combination of Investment and Advisory Services

Thank

You

Hans Shrader Autif Sayyed

Philippines GB Program Leader EAP GB Specialist

hshrader@ifc.org asayyed@ifc.org