steven fawkes paris 19 09 12 final 3
DESCRIPTION
Presentation on "Waking the sleeping giant of energy efficiency", made to CleanTuesday Paris 18th September 2012. Video available at http://lnkd.in/XzVwCt (starts at 8 minutes 30. Slides via icon on top row.)TRANSCRIPT
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Matrix C
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WAKING THE SLEEPING GIANT OF ENERGY EFFICIENCY
DR. STEVEN FAWKES
18th September 2012
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Matrix C
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ENERGY PROBLEMS
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Matrix C
orporate Finance
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Matrix C
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20%
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Matrix C
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It is not all about CO2
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Matrix C
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Premature deaths a year from air pollution:
2 million globalWorld Health Organisation
700,000 ChinaWorld Bank
300,000 EUEuropean Commission
50,000 UKHouse of Commons Environmental Audit Committee
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Matrix C
orporate Finance
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1.3 billion
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Matrix C
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THE EFFICIENCY RESOURCE
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HOW (IN)EFFICIENT ARE WE?
475
5555
Source: University of Cambridge, global figures , in EJSource: University of CambridgeUnits: Exajoules
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Matrix C
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GLOBAL POTENTIAL FOR ENERGY EFFICIENCY
$170bn a year investment would:
-halve the projected growth in energy demand (reducing demand by ~ 64 million barrels a day)
-produce half the emissions abatement required to keep atmospheric CO2 at 450ppm
-have an average IRR of all projects 17% (at $50/barrel oil)
Source: McKinsey
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BUILDINGS
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40% of world’s energy
40% of carbon emissions
20% of water use
20-40% savings are possible
Source: World Economic Forum
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BARRIERS TO ENERGY EFFICIENCY
Many barriers including;
- Supply side domination
- Low priority in many organizations
- Not regarded as strategic
- Split incentives – landlord / tenant problem
- Measurement of results (M&V)
- Limited capacity – technical skill shortages
- Access to capital
- “The ribbon problem”
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WAKING THE SLEEPING GIANT OF ENERGY EFFICIENCY
OR
HOW TO MASSIVELY SCALE UP ENERGY EFFICIENCY
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MASSIVELY SCALING UP EFFICIENCY
Requires three things:
- Expanding DEMAND for energy efficiency
- Expanding SUPPLY of energy efficiency products and services
- Expanding FINANCE for energy efficiency
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Matrix C
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SCALING UP DEMAND
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SCALING UP DEMAND
Requires:
- a sector (and sub-sector) approach
- market segmentation NOT market classification
- Capacity building at all levels from:- Institutional shareholders
- CEOs and CFOs, energy managers, shop floor workers
- householders
Regulations help but you also need to address capacity
ISO 50001
Electricity market design
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SCALING UP SUPPLY
Requires:
- Capacity building, especially in:- Improved M&V (IPMVP)
- Integrative / holistic design techniques
- Better technologies (in some cases)- Analytics
- Evaluation tools
- Advanced materials (e.g. insulation, windows)
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SCALING UP FINANCE
Problems:
- Small project size
- Off-balance sheet issue
- Not a recognized asset class
- Mis-pricing of risk
- Contract forms
- Application of private equity model
- Lack of standardization
- Lack of M&V
- Lack of a secondary market
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BUSINESS MODELS – SHARED SAVINGS
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Total energy costs after contract
Total energy costs before
contract
Total energy costs during
contract
Repayment of capital
Net savings
WID
ELY REPRODUCED –
WID
ELY MIS
-UNDERSTOOD
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Matrix C
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75% of the US market is MUSH- access to cheap municipal debt
Accounting standards- on / off-balance sheet
Transaction costs
Projects are too small for institutional investors- project sizes ~ £/€/$ 1m to 20m
- cheque sizes > £/€/$ 100m +
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PROBLEMS WITH THE ESCO MODEL
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INVESTOR APPETITE
Energy efficiency projects produce: - long-term low-risk income which is very attractive
- environmental benefits
- and don’t require subsidy
“Institutional income investors are looking for an iconic investment in this area”
Fund Manager
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THE MINERAL RIGHTS ANALOGY
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Asset owner (farmer in PA or building owner) does not have capital or technical knowledge to access asset (shale gas or efficiency savings)
3rd party pays “access fee” to have the right to exploit the resource
3rd party uses external capital to develop the projects
Royalty payment / profit sharing over time
Source: Deutsche Bank
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BUSINESS MODEL INNOVATION
The problem is NOT availability of money
ESCOs are NOT the answer
Need to develop and structure projects in a way that allows institutional investors to invest at scale
Innovation needed
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SOME EMERGING INNOVATIONS
Energy Services Agreement (ESA or MESA)- off-balance sheet services contract
- backed by an EPC contract
PACE - works in US local tax system
- now bringing in private finance
- now being applied to commercial buildings
On-bill repayment (OBR)- dependent on regulatory regime
On-bill loan - Green Deal in UK and others
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Finance
M & V
Balance
Sheet
Contract /
Procurement
Technica
l
Assist
ance
Secondary
market
Demand
Aggregation
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SUMMARY
Potential for energy efficiency is very largeWe need to wake the giant of energy efficiency by:- Increasing DEMAND- Increasing and improving SUPPLY- Increasing availability of FINANCE
On FINANCE- Capital requirements are large but manageable- Institutional income investors would like to invest- ESCO / EPC is only part of the answer- Need to address all the barriers, not just supply of finance- New models are beginning to emerge- A few large scale examples will catalyze change
Need to address problems holistically
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CONTACT
Steven FawkesMatrix Corporate Capital LLP+44 20 3206 7185+44 77 0223 1995
www.outsource-energy.co.uk
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