industrial development corporation 28 may 2013 developing a vibrant esco market honey mamabolo...
TRANSCRIPT
Industrial Development Corporation
28 May 2013
Developing a vibrant ESCO marketHoney MamaboloIndustry Specialist: Green IndustriesIFC – INTERNATIONAL ESCO FINANCE CONFERENCE
2
CONTENT
o ESCO MARKET STUDY OVERVIEW
OBJECTIVES
TIMELIN
RESEARCH METHODOLOGY
o ESCO DEFINITION AND OPERATING
MODELS
o MARKET BARRIERS AND ENABLERS
o IDC IMPACTS- INNOVATIVE FUNDING
INSTRUMENTS
o CONCLUSION
OBJECTIVES
• IDC motivation– In conducting the study, the IDC sought to enhance its position in effectively addressing market
related barriers in the energy efficiency and renewable energy sectors. – To develop financial instruments that support ESCOs and enhance investments in energy
efficiency .
• Study objectives: – To perform a review of international best practice in ESCO market development as a benchmark for
the assessment of the situation in South Africa– To undertake a detailed analysis of the South African ESCO market based on structured interviews
and questionnaires.– To identify and analyse existing and/or perceived technical, financial, social and regulatory barriers
in the market– To investigate plausible support measures to overcome these barriers based on international
expertise and experience.
TIMELINE
IDC and KfW partnered under the framework of South African-German
financial co-operation - December 2010
R 500 Million Green Energy
Efficiency Fund (GEEF)
launched– October 2011
Key challenges - Slow development of ESCO market in South Africa
IDC engaged PWC to
conduct ESCO market in
South Africa – November 2011
Abridged Market Study
published–September 2012
Scope :10 countries covered
• US, Canada, UK, Germany, Italy- fully matured ESCO
industry• Brazil, India, China, Japan and Australia- market
transformation and developingSurvey Size and Range: 30 responses from 146 questionnaires covering ESCOs , Financial Institutions and End users
Focus Areas
• Inception and history of development• Present size and scope• Key barriers and enabling factors• Future growth potential• Key lessons
• Categorization and Grouping of barriers• The various barriers identified and discussed were grouped in
seven different characteristics critical t in the literature may o
the development of any emerging industry.
RESEARCH METHODOLOGY
Awareness, information and understanding
Trust and Sceptisms
National policies, legislation,
regulation and incentives
Administrative hurdles and high transaction costs
Finance and Resourcing
Monitoring and verification
External factors like energy prices, financial crisis,
economic downturn etc.
DEFINITION
ESCOs have been classified in several ways in the literature depending on their origin, target customers and type of services, etc. ESCO markets in the developing countries generally adopt the following classification
• Vendor ESCOs are equipment manufacturers and generally do not operate in the utility driven DSM industry and tend to focus on large industrial clients.
• Utility ESCOs bid to serve as providers for utility funded DSM programs and are paid based on electricity savings.
• Contractor ESCOs typically work with contractors in green field construction projects by installing more energy efficient equipment than what might have been provided otherwise.
• Engineering ESCOs perform design and other services but are seldom involved in performance contracts.
• Transitioning to:
Energy Performance Contract ESCOS : enters into a shared savings or guaranteed savings energy performance contract. The ESCO is willing to take financial, technical and other risks with the ESCO’s payment directly linked to the amount of energy saved (in physical or monetary terms).
OPERATING MODEL-ESCO vs END USER FINANCING
BARRIERS TO MARKET
Awareness, Information and Understanding
Trust and Skepticism Financing and Resourcing
Lack of customer awareness-a common definition of what an ESCO is. As a result of this potential customers are not in a position to assess the benefits of the ESCO’s offerings.
Limited understanding of energy efficiency opportunities and also the energy savings estimated in the feasibility reports often prepared by third party agencies;
High pre-investment development and transaction costs- Cost of audits often not included as part of financing
Limited understanding of ESCO services within banks and other Financial Institutions - including concept of energy performance contracting
Aversion to outsource energy management tasks and allowing an outsider (the ESCO) to intervene in common practices and/or change equipment that the users are used to.
Perception of high credit risks-Conventional financial institutions tend to view ESCO’s and energy efficiency projects as “business as usual” finance applications, and do not apply credit assessment criteria specifically designed for the ESCO industry. `
Information failure on energy usage, baseline data ,benchmarking data and energy audit reports
Lack of accreditation within ESCO Market
Lack of collateral-In asset-based lending the bank requires a collateral and energy efficiency projects usually lack high value collaterals.
OTHER BARRIERS CONTINUED
National policies, legislation, regulations and incentives• There are a number of national policies, legislation and incentives within the South African Industry , however many
stakeholders do not know or understand these policies, regulations or incentives.
External factors• There two main external factors are the relatively low energy prices that make energy efficiency projects and the payback on
energy efficiency savings more difficult than in other markets globally.
Project approval times• The time taken to approve project funding means that ESCO’s loose project opportunities as clients sometimes decide that
they no longer require the ESCO’s services.
Industry Associations• Only a quarter of the ESCOs registered on the Eskom database are registered with an ESCO association so it does not
represent the best interest of all ESCOs and the fact that two exist further reduces the bargaining power of the industry and increases the risk of public mistrust
No. Initiative Countries Examples
1 Innovative risk sharing and transfer mechanisms
USA, Canada, China, Brazil, Germany, India
•Brazil’s government guarantee scheme for loans to EE projects. Which shares 80% of the credit risk of the loan with commercial banks.
2 Demonstration of pilot projects/savings/EPC USA, Canada, India, China, Italy
In India the government provides grants finance
Energy Audits and Feasibility studies as well as pilot
projects.
3 Demand Aggregation/Project Bundling USA, Canada, India, China, Japan, Germany, Italy, Australia, UK, Brazil
The Berlin Energy Agency in Germany has successfully pooled over a 1000 public buildings and more than 500 private properties.
4 EE focused pubic procurement laws and mandatory EE targets Italy, Germany and UK
Italian white certificate scheme: energy efficiency targets and trading scheme
MARKET ENABLERS
ENABLERS IDENTIFIED BY SOUTH AFRICAN ESCOS
Financial• Greater access to working capital• Bridging loans from Financial Institutions• Risk Guarantees from Government and or
Eskom – Credit risk guarantees• Publicised well documented financial models• Product transparency• Training of FI staff in evaluating ESCO projects• Technical assistance• The high cost of the energy audit to be
covered by Eskom / FI / government• Cheap finance• Off-balance sheet funding
Regulatory• New Tax incentives• Carbon Taxes• New building regulations to be monitored and
for digressers to be penalised• NERSA approving higher electricity prices• Regulation changes allowing Municipalities to
more easily involved in EE projects • Higher incentives for Energy savings• Greater penalties – enforced• Sustainability and triple bottom line reporting
ENABLERS IDENTIFIED BY ESCOS
Others• Accreditation of ESCO’s to improve
confidence in the industry• M&V accreditation system• Attach a cost to energy audits so that only
serious clients acquire ESCO services• Standardisation of EPC and tender
documents to reduce transaction costs and create greater trust in the ESCO industry
• Greater communication about the profitability of EE investments
• More training and workshops to ESCO’s to improve technical skills – particularly in smaller ESCOs
• Greater social awareness – Changing the mindset of South Africans that electricity is cheap
GROWTH DRIVERS IDENTIFIED BY SA ESCOS
• 92% of ESCOs indicated that high energy prices are a key driver for market growth• While 67% of ESCOs indicated that access to finance at competitive rates and terms would enable energy
efficiency investments
0%
20%
40%
60%
80%
100%
0.0
1.0
2.0
3.0
4.092%
67%3.5
2.8 2.9
2.32.4
3.0
Key Drivers to growth
No / Moderate Effect Significant/ Most Significant Effect Survey Average
0 =
No
Effec
t 4=
Mos
t sig
nific
ant e
ffec
t
POLICY AND REGULATORY ENABLERS:
2008
2008
National Energy Efficiency Strategy for South Africa 2005(NEES), Revised 2012
- Targets energy intensity reduction of 12% by 2015
2009
2010
2011
2012
2012
2013/14
1 million Solar Water Heater Government Target
Announcement by Minister of Energy 23 June 2009
Government Objectives>>>
Energy Efficiency Projects through the various ESKOM EEDSM programmes >>>
Energy White Paper of 1998
1 million SWH Target by 2014 (revised to 2016)
Integrated resource plan (IRP) 2010
Industrial Policy Action Plan (IPAP2) 2012/2013 – 2014/15
Green Industries a key sector
Building Regulations & Building Code (SANS 10400-XA:2011) with SANS 204
NGPGreen Accord
Jan-04 May-05 Oct-06 Feb-08 Jul-09 Nov-10 Apr-12 Aug-130
500
1000
1500
2000
2500
3000
3500
4000Energy Efficiency Projects (MW Savings)
Eskom Verified Savings (MW)
Income Tax Act – Regulations on tax allowances for Energy Efficiency Savings (Section 12I and 12L)
Carbon Taxes-at R120 per ton effective from 1 January 2015
National devl plan
DSM 3 yr target:To save another 1074MW
Jun-08 Oct-09 Feb-11 Jul-12 Nov-13 Apr-15 Aug-160
50000
100000
150000
200000
250000
300000
350000
SWH Installed
SWH Installed
POLICY AND REGULATORY ENABLERS Industry example: SWH Rollout
2009
2010
2011
2012
2013/14
Factors affecting the market and the SWH rollouts
SWH Installation tragectory in light of policy support >>>
1 million Solar Water Heater Government Target
Announcement by Minister of Energy 23 June 2009
Lack of rollout due to uncertainty of rebates
Beginning 2010 not many installations then Eskom increased the Rebates
SASSA started developing mass rollout of LPSWH
Mass rollout of LPSWH as a result of IDC client “SASSA” and other ESCos offering free systems to RDP houses.(24000 SWH per month)
From last quarter 2011 to end 2012 restriction of LPSWH remained in place with the largest allocation per ESCO being limited to 1200 units per month.
Contract route of rolling out LPSWH based on the budget of R4.7 bn that was announced by the minister of finance in the 2012 budget speech.
Restrictions placed on the LPSWH rollouts due to EEDSM objectives not being met.
IDC
impactIDC Clients
IDC facilitated increased in local content to current levels of ca 80% through industry facilitation and investments
FINANCIAL ENABLERS: IDC PARTICIPATION IN FINANCING ESCOS
Performance Contracting (5MW+)•(Custom or Hybrid Solution iro Technology•R/kWh•Payment during and on completiion
ESCO Model (1MW+)•(Custom or Hybrid Solution iro Technology)•R/kWh•Progress payments made
Standard Offer {50kW – 5MW)•(Limited to category of technology – per published list)•Payments in line with Published R/kWh•Payment terms 70(Yr0):10 (Yr1):10(Yr2):10(Yr3) (Implementation and then on each anniversary)
Standard Product {0kW – 250kW)•(Limited to category of technology – per published list)•Set rate per product installed•Payment post implementation
IDC Funded Clients• 3 ESCOS
IDC Funded Clients• None thus far
IDC Funded Clients• 3 ESCO Led Projects )• ESCO implementing at large
alloys company
IDC Funded Clients• 1 ESCO
IDC
impact
New Opportunities:
- Residential Mass Roll out
- Rooftop PV
• The project has resulted in more than 70,000 LPSWH being installed nationally to the impoverished communities for free.
• The innovative funding model was facilitated through the CER revenue, A Rebate for Energy Efficiency and the bridging finance facility from the IDC. Ref: Diagram
ESCO
IDC(Industrial Development Corporation) Carbon Credit
Off-Taker
Carbon Developers
ESKOM
REBATE PAID
Municipality
Households (Beneficiaries)
Equipment Suppliers
ERPA
Prepayment Guarantee
MOU Signed
Prepayment (Guaranteed By the IDC)
Net Prepayment After Costs
Free Direct Low Pressure Solar Water Heater
Cession Of Rebate and Cession of the Carbon Credits
Funding of the working capital
requirement
IDC @
work
FINANCIAL ENABLERS: IDC PARTICIPATION IN FINANCING ESCOS
Late2010
2011
2012
2013
• Market Launch of the R500M Green Energy Efficiency Fund(GEEF)- 10% of FUND committed at launch
• Aggressive marketing with Industry Associations & Partnership with Eskom
• IDC and KFW sign loan agreement for €48M and €2. 1M Technical Assistance and Capacity Building Grant
• ESCO Market Study published-access to finance barrier to entry• R400 million credit line established to finance PPA based 1MW- 10
MW and greenfields EE
• 17 companies financed at R174 million ( ca 35% of GEEF)• 69% of funds committed to SMEs
MARKET SITUATION
Constrained electricity supply and high prices
Access to finance barrier to
EE/RE investments
RESPONSE
-increased demand for
ESCO services -High cost of
small scale RE development
HIGHLIGHTS/IMPACT
8MW cogen SACC plant-45GWh/yr and 46ktCO2
mass rollout of 310GWh
/34MW showerheads
60% of committed funding to ESCOS
27 FREE Walk through
audits and 4 investment
grade audits
Industrial Energy
Efficiency
FINANCIAL ENABLERS: IDC PARTICIPATION IN FINANCING ESCOS
IDC
impact
GEEF: Developmental and Environmental Impacts
CO2 TonsEquivalent
Avoided
383,445/year
Energy saved
386,930/year
20
Future Focus
17Number of Deals approved
Programme supported by the German Cooperation and Development Ministry
Future R174mAmount committed
circa: 35% of R500m
SWH Energy Performance ContractsCogeneration Waste to Energy Variable Speed DrivesRoof Top PV
INDUSTRIAL ENERGY EFFICIECYAND SELF USE RE
21
Addressing high cost of small scale RE development and need for Green Fields EE
Capital Source French Development Bank (AFD)
Targeted Projects • Greenfields Energy Efficiency ( linked to manufacturing expansions or new plants)
• Small Scale Renewable Energy sold under PPA ( both REIPP and B2B)
• Refurbishment of RE plants
Project Size ZAR 1 – 100 million
Pricing Fixed rate of 10% orPrime less 1%
Loan Term Up to 12 years, there-after normal risk rate applies
Conclusion
• Pro-active approach to develop Green Industries• Renewable energy• Energy efficiency• Fuel based green energy & Emission and pollution management• Bio fuels• As well as localisation opportunities
• Focus on early phase project development;• Develop specific funding interventions;• Support and development of an emerging industry at various levels;• Value chain approach with an objective to develop a long term
sustainable industry.
23
Prospects
Thank you
Industrial Development Corporation19 Fredman Drive, SandownPO Box 784055, Sandton, 2146South AfricaTelephone 011 269 3000Facsimile 011 269 2116E-mail [email protected]