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Scaling-Up Energy Efficiency: The Case for a Super-ESCO

Dilip R. Limaye

Asia ESCO Conference 2010

New Delhi January 2010

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Limitations on Internal Financing

Some Project Implementers may haveadequate financial resources and deploythese resources for project implementationWorldwide experience indicates that internalfunds have many competing demandsEnergy efficiency projects do not receivehigh priority for internal fundsTherefore the Project Implementer needs toobtain financing from external fundingsources

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Barriers to External Financing

Small project sizeLimited application of project financing for EEprojectsLack of knowledge and awarenessRisk perceptionsRelatively high transaction costsHigh project development costsRequirement for collateral or balance sheet financingMonitoring and measurement of energy savings

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Innovative Financing Mechanisms

Establishing special purpose energy efficiency fundsLeveraging financing from commercial financialinstitutionsEncouraging the use of performance contractingthrough ESCOsOther financing mechanisms

Direct utility financingCarbon financingLease financing

Creation of a Super-ESCO

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ESCOs in Developing Countries

The term ESCO has been used to designate a wide range of different types of organizations that may offer theperformance contracting mechanismSuch organizations may include

design and engineering firms

construction management firmsequipment manufacturers and suppliersIn-house ESCOs in large industrial groupsteams comprising of two or more of the above

ESCOs need both equity for project development and debtfinancing for project costs and working capital.ESCOs need to develop working relationships withcommercial financial institutions and work with them toarrange the needed financing or EE projects.

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Limited Development of ESCOs in

Developing Countries Small number of ESCOsMostly supported by donorfundsDifficulties in working withPublic SectorPoor credibility withprivate sectorSmall size - limitedbalance sheetsLimited technical capacityChallenges in working withFIs

High project developmentcosts

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Establishment of a Super ESCO

A Super ESCO is an entity thatIs established by the GovernmentServes as an ESCO for the large untapped public sector(hospitals, schools, municipalities, government buildingsand other public facilities)

Supports capacity development and activities of otherESCOsFacilitates access to project financing

It may also act as a leasing or financing company to provideESCOs and/or customers EE equipment on lease or onbenefit-sharing terms.Recent World Bank study of public procurement of energyefficiency services (being published as a book) identified the

Super ESCO as a potentially viable model

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ADB Project in the Philippines

Establish the EC2 Corporation as a public sectorSuper-ESCOFirst-year budget of $6.5 million for public sectorprojects

First-year budget of $1.5 million to assist privateESCOs and facilitate financingAdditional funding in future planned by GoP for bothpublic and private sectorsEmphasis on establishing ESCO model in public sectorand commercializing it in the private sectorADB funding TA project to develop business plan andprovide support in initial activities

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Role of Super ESCO in China

A number of ESCOs have been established in Chinaand many more are being created. However, these areconcentrated in certain Provinces, while in otherProvinces few ESCOs are operating in the market.The growth of the ESCO industry has depended

heavily on World Bank financingThe commercial banking industry is undergoing atransition in China and needs assistance to fullyengage in EE project financingGovernment sponsored Super ESCOs at the Provinciallevel can work with the existing and newly-formedESCOs and commercial banks to promote increased

EE project financing and implementation

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Super ESCO in the Province of Hebei

The province has established a DSM centerand a wholly-owned subsidiary for projectfinancing and implementationEnergy efficiency fund created through acess on electricity salesGoal is to achieve a 600 MW EnergyEfficiency Power plant (EPP)Key initial tasks underway include strategydevelopment, business plan, andimplementation approach

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India Energy Efficiency Services

Limited (EESL) Very large untapped potential and a small number of fledgling ESCOs that are mostly undercapitalizedNew public sector company EESL established bynational government with equity capital of $50

millionMajor functions include EE planning andimplementation appliances in buildings and industrialsites, agricultural and municipal DSM, the nationalCFL scheme and assisting the growth anddevelopment of the existing ESCO industry

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How the Super ESCO will help in the

Public Sector BARRIERS TO EE PROJECT

IMPLEMENTATION IN THE PUBLIC SECTORHOW THE SUPER ESCO

CAN ADDRESS THESE BARRIERS

Low awareness and interest on the part of public agencies in energy efficiency (EE)

projects

Super ESCO can conduct "marketing campaign"to increase awareness and interest

Zero budgeting policy of many governmentsprovides little incentive for saving energy

costs

Super ESCO can develop incentive mechanismsfor public agencies

Budgeting Issues for public agencies - CapitalExpenditure vs. Operating Expenditure

Agency can avoid issue by having projectfinanced by a Super ESCO

Lack of procurement regulations that wouldallow ESCOs and Performance Contracting

Contracting with a Super ESCO can overcomethis problem

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How the Super ESCO will help in the

Private Sector BARRIERS TO EE PROJECT

IMPLEMENTATION IN THE PRIVATE SECTORHOW THE SUPER ESCO

CAN ADDRESS THESE BARRIERS

Small number of ESCOs operating in thedomestic mret in many nations - makes

competition difficult

Super ESCO can facilitate the creation of additional ESCOs

Low awareness of the ESCO concept on thepart of commercial and industrial energy

users

Super ESCO can conduct "marketingcampaigsn" and provide case studies and

demonstration projectsMost private ESCOs are undercapitalized and

have limited resources for projectdevelopment

Super ESCO can assist ESCOs in projectdevelopment

Most ESCOs have limited resources for projectfinancing of EE projects

Super ESCO can provide capital and/or leveragefunds from commercial financial institutions

Few successful ESCO projects that can serveas "demonstration projects" for ESCO concept

Super ESCO can develop and disseminate casestudies of successful ESCO projects

Project hosts unwilling to invest internalcapital in energy efficiency projects

Super ESCO can provide capital and/or leveragefunds for EE projects from commercial FIs

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Thank you

Dilip R. Limaye dlimaye@attglobal.net