capacity building of banks and financial institutions for energy efficiency project financing
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Capacity Building of Banks and Financial Institutions for Energy Efficiency Project Financing Module 2 Energy Efficiency Project Characteristics Partnership to Advance Clean Energy-Deployment (PACE-D) Technical Assistance Program. Presentation Outline. Energy Efficiency Projects - PowerPoint PPT PresentationTRANSCRIPT
Page 1 July 2014 Page 1 July 2014Capacity Building of Banks/FIs For EE Project Financing
Capacity Building of Banks and Financial Institutionsfor Energy Efficiency Project Financing
Module 2 Energy Efficiency Project Characteristics
Partnership to Advance Clean Energy-Deployment (PACE-D)Technical Assistance Program
September 2014
Page 2 July 2014 Page 2 July 2014Capacity Building of Banks/FIs For EE Project Financing
• Energy Efficiency Projects
• Energy User Motivations
• EE Projects in Different Sectors
• EE Project Characteristics
• Typical Energy Efficiency Project
• Illustrative Project Examples
Presentation Outline
Page 3 July 2014 Page 3 July 2014Capacity Building of Banks/FIs For EE Project Financing
• In all major consuming sectors Large Industries
SMEs
Commercial Buildings (offices, hotels, hospitals, shopping malls, etc.)
Government Buildings
Municipalities (street lighting, water pumping)
Agriculture
Energy Efficiency Projects
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• Achieve efficiency • Capture energy cost savings; • Improve productivity and enterprise competitiveness• Improve product quality • Address necessary system upgrades, equipment replacement, &
deferred maintenance requirements• Improve level of energy services in facilities• Improve living conditions • Improve energy system reliability• Comply with environmental regulations
Energy User Motivations
4
Page 5 July 2014 Page 5 July 2014Capacity Building of Banks/FIs For EE Project Financing
• Specific Energy Consumption (SEC) reduction targets for the energy-intensive units which are designated consumers under the Energy Conservation Act Targets would be % reduction of current SEC Percentage reduction requirement based on:
Sectoral targets to achieve the national goal Current SEC as a ratio of the best in the sector / groups within a sector Unit specific diversities
Target setting for the power generation and fertilizer sectors through the existing tariff-setting processes
SEC measurement and verification by BEE through designated verifiers
Perform, Achieve and Trade Scheme
Page 6 July 2014
• Cement
• Chlor alkali
• Aluminum
• Pulp & paper
• Textile
• Power Plants
• Iron & steel
• Fertilizer
List of sectors for PAT
Capacity Building of Banks/FIs For EE Project Financing
Page 7 July 2014 Page 7 July 2014Capacity Building of Banks/FIs For EE Project Financing
• Replacement of inefficient industrial technologies with energy saving technologies and equipment, such as more efficient industrial boilers, kilns, and heat exchange systems
• Recovery and utilization of by-product gas, waste heat
• Installation of highly efficient mechanical and electrical equipment, including lighting, motors, Chillers, refrigeration units, pumps, heating and ventilation equipment, etc.
• Industrial system optimization to reduce energy use
Energy Efficiency Projects in Industry
Page 8 July 2014 Page 8 July 2014Capacity Building of Banks/FIs For EE Project Financing
• Improve kiln combustion efficiency by reducing the false air ingress at the Preheater section and reducing marginally the sintering level of Clinker
• Optimize the air flow to the grate cooler and reduce the vent air losses
• Utilize cooler vent air as primary air to the Kiln burner
• Improve insulation at preheaters ducts & Kiln internally
• Replace the air cooled Turbulators with Refractory lined Turbulators
• Generate electricity from the Waste heat of PH exhaust & Cooler Vent streams
• Install variable frequency drive for fans in the production processes
Examples of EE in Cement Industry
Page 9 July 2014 Page 9 July 2014Capacity Building of Banks/FIs For EE Project Financing
• Key Characteristics of SMEs Very small in size (majority are MSE units) Majority of units are proprietorship / family owned concern Very limited professional management Obsolete technology/ production process Low capital investment & labor intensive High energy consumption in many sectors Lack of Knowledge about energy efficient production options and
available technologies
EE in SMEs
Page 10 July 2014
• Forging
• Limekilns
• Rolling
• Pottery
• Edible oils
• Glass
• Foundry
• Brick
• Rice
• Paper
• Brass
Energy Intensive SME Clusters
Page 11 July 2014 Page 11 July 2014Capacity Building of Banks/FIs For EE Project Financing
• Established Energy Efficiency Cell
• Developed guidelines for EE project financing
• JICA credit line for EE equipment – disbursed in 2010
• AfD credit line – initiated in 2010
• KfW credit line – requires carbon savings estimates and monitoring – initiated in 2010
• Developing tools for Project Assessment
Impact Monitoring
SIDBI Activities for EE in SMEs
Page 12 July 2014 Page 12 July 2014Capacity Building of Banks/FIs For EE Project Financing
• Energy efficiency in residential, commercial, and government buildings:
Lighting
HVAC (heating, ventilation, and air conditioning)
Building envelope (insulation for roof, walls, windows, doors)
Renewable energy in buildings (roof-top solar PV, solar water
heaters, and ground source heat pumps)
Energy Efficiency in Buildings
Page 13 July 2014 Page 13 July 2014Capacity Building of Banks/FIs For EE Project Financing
• Energy Conservation Building Code (ECBC) launched in May 2007.
The ECBC sets minimum energy standards for new commercial buildings having a connected load of 100 kW or contract demand of 120 kVA.
• BEE Star Labeling Scheme for Day Use Buildings BPO buildings Shopping malls
Buildings Rating Systems
Page 14 July 2014 Page 14 July 2014Capacity Building of Banks/FIs For EE Project Financing
• Water Pumping Leak detection Efficient pumping systems Operational optimization
• Street Lighting Efficient lighting Controls Solar systems
EE in Municipalities
Page 15 July 2014 Page 15 July 2014Capacity Building of Banks/FIs For EE Project Financing
• Stations, platforms Lighting Space cooling Water pumping
• Rolling stock performance Two tier rolling stock Four berth coaches Managing fuel cost Kinetic energy storage systems Power and energy optimization systems
EE in Railways
Characteristics of EE Projects
Page 17 July 2014 Page 17 July 2014Capacity Building of Banks/FIs For EE Project Financing
• Wide range of technologies, most with substantial experience in successful implementation, internationally as well as in India
• Relatively small project size - many projects less than INR 1 crore
• Relatively short simple payback periods – generally one to five years
• High proportion of project development costs
• Range of implementation business models with increasing interest in performance based approaches
• Manageable risks
Characteristics of EE projects
Page 18 July 2014 Page 18 July 2014Capacity Building of Banks/FIs For EE Project Financing
IFC Experience with Project Size
Project Size DistributionNo. of Projects = 818
95% of projects were under INR 4.5 crores
Source: International Finance Corporation
Typical Energy Efficiency Project
Page 20 July 2014 Page 20 July 2014Capacity Building of Banks/FIs For EE Project Financing
EER provides approximate scopeof savings and cost potential and is used to screen potential projects
ERR begins process of establishingESCO credibility
Is Credit check
good??
Is Credit check
good??
Conduct Facility Walk-Through
Conduct Facility Walk-Through
Prepare Energy Efficiency Report
Prepare Energy Efficiency Report
Doesenergy savings
justify project??
Doesenergy savings
justify project??
Select NewClient
Select NewClient
Initial Meetingwith Client
Initial Meetingwith Client
No
Yes
Present EERto Prospect
Present EERto Prospect
Review Energy Usage Data
Review Energy Usage Data
ESCO capabilities explained;expectations outlined; approvalto proceed obtained
Use CustomerData Form
Collect energy useand cost (2-3 yrs); analyzefor anomalies
NoCredit analysis is completedby the bank providing the long-term financing
This meeting is predicated ongood client research
Typical Energy Efficiency Project
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No
DES Confirms
Preliminary Energy
Savings
DES Confirms
Preliminary Energy
Savings
No
Yes
Owner agrees to haveESCO complete a DetailedEnergy Study (DES)
Detailed Energy Study (DES)
Completed
Detailed Energy Study (DES)
Completed
Clientsigns the
LOI??
Clientsigns the
LOI??
Yes
Present DES to Customer
Present DES to Customer
DES reinforces ESCO credibility
Review ResultsIncluding ProjectScope and Plan
Review ResultsIncluding ProjectScope and Plan
Select New Facility or Client
Select New Facility or Client
Select new Facility or Client
Select new Facility or Client
Review builds motivationto undertake energy servicesproject
If DES results depart significantlyfrom EER, ESCO absorbs part or allof DES costs
ESCO develops a Letterof Intent (LOI) andpresents it to the clientfor signature
A DES takes four to eight weeksto complete; provides opportunityto get to know client staff
Typical Energy Efficiency Project
PACE-D Finance Team Presentation Page 22 April 29, 2013
Customer AcceptsResults
Customer AcceptsResults
No
Yes
Client pays for 100% of DES
Client pays for 100% of DES
Draft Energy Services Agreement
(ESA) is developed
Draft Energy Services Agreement
(ESA) is developed
Client and ESCO
Sign ESA
Client and ESCO
Sign ESA
No
ProjectImplementation
Yes
Final mix of measures selected;Financial modeling used to helpprice the ESA and optimize profitand cash flow for selected measures
Typical Energy Efficiency Project
Illustrative Project Examples
Page 24 July 2014 Page 24 July 2014Capacity Building of Banks/FIs For EE Project Financing
• Major industrial unit manufacturing copper
• Copper smelting exothermic process
• Hot flue gases with high heat content being wasted
• Waste heat recovery system installed
• Power generation ~ 10.4 MW
• Payback <1 year Total generation : 82.8 million units Cost of generation : Rs 1.10 per unit Cost of Grid Power : Rs 4.30 per unit Annual Savings : Rs 265 million
• Reduction of CO2emission: 47,500 tons/year
Industrial Waste Heat Recovery
Page 25 July 2014 Page 25 July 2014Capacity Building of Banks/FIs For EE Project Financing
• Edible oil refinery in Maharashtra
• Steam required for processes
• Co-generation (top end) using biomass (bagasse)
• Generation of power 550 KW
• Loan amount: Rs 20 million
• Annual savings: Rs 16 million
• Reduction of CO2emission: 4,350 tpa
Biomass Cogeneration
Page 26 July 2014 Page 26 July 2014Capacity Building of Banks/FIs For EE Project Financing
EE Project – SME
Page 27 July 2014 Page 27 July 2014Capacity Building of Banks/FIs For EE Project Financing
• Project: Reduction in contract demand and savings through upgrades to the building’s reactive power controllers, lighting, air conditioning, raw water pumping and switching electric loads in geysers to solar water heating
EE Project – Major Health Center
Annual Energy Bill INR 182 million
Investment Cost – Equipment INR 85 million
Project Dev. Cost INR 32 million
Total Project Cost INR 117 million
Energy Cost Savings INR 40 million
Simple Payback ~ 3 years
Page 28 July 2014 Page 28 July 2014Capacity Building of Banks/FIs For EE Project Financing
• Installation by ESCO of 486 street light controllers covering 19,000 street lights of Nasik Municipal corporation
• Improvement in the existing electrical distribution network for : Reduction in cable losses Power factor optimization
• Savings were shared for five years
• Annual Energy bill prior to implementation - Rs 50.0 M
• Achieved annual savings - Rs 17.0 million on a capital investment of Rs 16.6 million
• Payback period ~1.5 years
Streetlighting Project
Page 29 July 2014 Page 29 July 2014Capacity Building of Banks/FIs For EE Project Financing
Energy Service Companies (ESCOs)• Initiated in mid-1990s
• Growth has been slow
• Many issues and challenges faced
• BEE has empanelment scheme
• Over 137 ESCOs have been empanelled
• ESCO capacity building program planned
Energy Services Market in India
Page 30 July 2014 Page 30 July 2014Capacity Building of Banks/FIs For EE Project Financing
Energy Service Companies:• Provide or arrange a complete package of services, including energy
analysis, design, installation, financing, and maintenance of the energy management (and other) technologies
• Offer business and financing models under which customers effectively pay for the energy services from a portion of actual energy savings achieved
• Payments to the ESCO are based on demonstrable results (that satisfy the performance guarantees provided by the ESCO)
• Most of the project risks are assumed by the ESCO.
Key Characteristics of ESCOs
Page 31 July 2014 Page 31 July 2014Capacity Building of Banks/FIs For EE Project Financing
Other energy service providers• Energy auditors – certified by BEE• Equipment manufacturers and vendors (Schneider, Siemens, Alstohm,
etc.)• Engineering firms – extending capabilities to provide performance
contracting services• Contract energy management companies (Dalkia, A to Z Power, etc.)
Energy Services Market in India
Page 32 July 2014 Page 32 July 2014Capacity Building of Banks/FIs For EE Project Financing
Energy Services Business Models
Guaranteed Savings
Guaranteed Savings
Shared SavingsShared Savings
OutsourcedEnergy
Management
OutsourcedEnergy
Management
Energy ServicesBusiness Models
Deemed EnergySavings
Deemed EnergySavings
Page 33 July 2014 Page 33 July 2014Capacity Building of Banks/FIs For EE Project Financing
Example of Customer Benefit – Hotel Guaranteed Savings
Page 34 July 2014 Page 34 July 2014Capacity Building of Banks/FIs For EE Project Financing
• Based on target market and project characteristics and implementation business models credit characteristics typical deal size & project economics (cash flow, ROI, NPV, etc.) Ability to assemble acceptable collateral/security package
• Define loan offer(s) term, pricing required security structure, with guarantee(s) economic parameters: e.g., size, % own funds documentation requirements
• Prepare business plan, identify/implement initial deals, train branch staff network
Developing Financial Products for EE Projects
Thank you
Dilip R. LimayeFinance Team Leader
USAID PACE-D Technical Assistance Program