Busso von Alvensleben KfW

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Keynote Presentation: KfW Experiences on Energy Efficiency Financing

Busso von Alvensleben, Head of KfW Pretoria

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  • 2
  • Gives an impulse for investing in energy-efficient construction and rehabilitation Regulations are the basis. In germany the most important regulation within the housing sector is the Energy Conservation Ordinance (called EnEV). The EnEV defines the energy efficiency requirements for new and existing buildings Instruments are necessary to realize the requirements in the housing sector Two main Instruments: Information and Consulting f.e. we have a Energy Performance Certificate for buildings, the energy consultant becomes more and more important in housing Promotion: f.e. promotional programmes of KfW or BAFA (renewable Energies), different municipal and regional programmes
  • Gives an impulse for investing in energy-efficient construction and rehabilitation Regulations are the basis. In germany the most important regulation within the housing sector is the Energy Conservation Ordinance (called EnEV). The EnEV defines the energy efficiency requirements for new and existing buildings Instruments are necessary to realize the requirements in the housing sector Two main Instruments: Information and Consulting f.e. we have a Energy Performance Certificate for buildings, the energy consultant becomes more and more important in housing Promotion: f.e. promotional programmes of KfW or BAFA (renewable Energies), different municipal and regional programmes
  • Consulting component : Initial Consulting Objective - Offset information deficits regarding energy savings commercial enterprises can achieve by examining their energetic weak points Grant amount – max. 2 person-days and up to 80% of a daily fee End-2009 more than 3,800 initial consulting Detailed Consulting Objective - In-depth energy analysis to prepare a strategy for energy-saving measures Grant amount – max. 10 person-days and up to 60% of daily fee End-2009 more than 920 detailed consulting Promotional Measures facility and energy technology incl. heating, air conditioning, lighting, ventilation, hot water n ew buildings and upgrade of buildings according to Energy Conservation Directive (EnEV) machines (electrical drive mechanisms, pressurised air, pumps) process cooling/process heat heat recovery/waste heat utilisation measuring, regulating and control equipment information and communication technology
  • Average electricity consumption of the urban middle class (5 member household): India: 8.000 kWh p.a., Germany 4.500 Primary energy need of a newly constructed buidling for heating, cooking and warm water: India: humid warm:60-110; hot dry: 100-150; Germany 35-50 CO2 savings (kg/p.a./m²) of 30% reduction: 14,7 in India vs 4,6 in Germany Electricity tariffs for household use > 300 kWh p.m.: 5-6 INR (8 to 10 EUR Cent) (pretty high copmared to 3 EUR Cent Indian average für private househilds) About 25% of sold electricity and 13.5% of sold energy in India are used for residential buildings -> will grow further with growing incomes; cöose to 2 Mio new residential units p.a. 4 to 6 years amortization period for incremental costs (wie gerechnet?), IRR 24-36%
  • Average electricity consumption of the urban middle class (5 member household): India: 8.000 kWh p.a., Germany 4.500 Primary energy need of a newly constructed buidling for heating, cooking and warm water: India: humid warm:60-110; hot dry: 100-150; Germany 35-50 CO2 savings (kg/p.a./m²) of 30% reduction: 14,7 in India vs 4,6 in Germany Electricity tariffs for household use > 300 kWh p.m.: 5-6 INR (8 to 10 EUR Cent) (pretty high copmared to 3 EUR Cent Indian average für private househilds) About 25% of sold electricity and 13.5% of sold energy in India are used for residential buildings -> will grow further with growing incomes; cöose to 2 Mio new residential units p.a. 4 to 6 years amortization period for incremental costs (wie gerechnet?), IRR 24-36%
  • Average electricity consumption of the urban middle class (5 member household): India: 8.000 kWh p.a., Germany 4.500 Primary energy need of a newly constructed buidling for heating, cooking and warm water: India: humid warm:60-110; hot dry: 100-150; Germany 35-50 CO2 savings (kg/p.a./m²) of 30% reduction: 14,7 in India vs 4,6 in Germany Electricity tariffs for household use > 300 kWh p.m.: 5-6 INR (8 to 10 EUR Cent) (pretty high copmared to 3 EUR Cent Indian average für private househilds) About 25% of sold electricity and 13.5% of sold energy in India are used for residential buildings -> will grow further with growing incomes; cöose to 2 Mio new residential units p.a. 4 to 6 years amortization period for incremental costs (wie gerechnet?), IRR 24-36%
  • Rs. 10 Crores revolving loan facility (EUR 1.4 Mio) to ESCO Yantra Harvest Energy Monthly repayments to SIDBI matching cash flows of the individual project No additional hypothecation of equipment -> credit capacity of client not affected Additional personal guarantees of ESCO owners
  • Average electricity consumption of the urban middle class (5 member household): India: 8.000 kWh p.a., Germany 4.500 Primary energy need of a newly constructed buidling for heating, cooking and warm water: India: humid warm:60-110; hot dry: 100-150; Germany 35-50 CO2 savings (kg/p.a./m²) of 30% reduction: 14,7 in India vs 4,6 in Germany Electricity tariffs for household use > 300 kWh p.m.: 5-6 INR (8 to 10 EUR Cent) (pretty high copmared to 3 EUR Cent Indian average für private househilds) About 25% of sold electricity and 13.5% of sold energy in India are used for residential buildings -> will grow further with growing incomes; cöose to 2 Mio new residential units p.a. 4 to 6 years amortization period for incremental costs (wie gerechnet?), IRR 24-36%
  • Busso von Alvensleben KfW

    1. 1. Bank aus VerantwortungFinancing Industrial Energy EfficiencyProjectsBusso v. AlvenslebenDirector KfW Development Bank Pretoria Office
    2. 2. 2Financing Industrial Energy Efficiency ProjectsContent1 KfW: Who We Are2 How to promote Energy Efficiency3 Promoting Energy Efficiency – Best practice examples4 Lessons Learnt
    3. 3. Bank aus VerantwortungKfW Entwicklungsbank – Who We Are
    4. 4. 4Financing Industrial Energy Efficiency Projects•Promotional Bank of the Federal Republic of Germany•Founded in 1948•About 2300 employees in Frankfurt, more than 4,763employees in total (2011)•More than 70 offices worldwide•AAA, Aaa rating•Third largest German Bank by balance sheet(450 bn EUR)•100 bn EUR commitments in 2011KfW Headquarters in Frankfurt/Germany
    5. 5. 5Financing Industrial Energy Efficiency ProjectsWe Are Part of KfW BankengruppePromotion ofdeveloping andtransition countriesInternational businessPromotionconstructionof new housingand modernisationas well as educationPromotion SMEs,business founders,start-upsFinancing municipalinfrastructure projectsand global loansGermany/Europeagency business forFederal GovernmentDomestic promotionInternationalproject andexport financePromotion of environmental and climate protectionBusiness AreaMittelstandsbankBusiness AreaPrivatkundenbankBusiness AreaKommunalbankBusiness AreaExport and ProjectFinanceBusiness AreaPromotion ofDeveloping andTransition Countries
    6. 6. 6Financing Industrial Energy Efficiency Projects 6Our ReputationA strong environmental & climate protection bankpromoting green investments of MSME and private Households● KfW is acting on behalf of the German Government andone of the leading environmental and climateprotection banks world-wide.● In 2011, approx. EUR 23 billion new commitments forenvironmental and climate protection were made.● Thereof EUR 2.75 billion commitments can be attributedto environmental finance in transition and developingcountries by KfW Development Bank.● KfW is acting on behalf of the German Government andone of the leading environmental and climateprotection banks world-wide.● In 2011, approx. EUR 23 billion new commitments forenvironmental and climate protection were made.● Thereof EUR 2.75 billion commitments can be attributedto environmental finance in transition and developingcountries by KfW Development Bank.Broad experience as a leading Environmental Bankin GermanyBroad experience as a leading Environmental Bankin Germany
    7. 7. 7Financing Industrial Energy Efficiency ProjectsHow to promote Energy Efficiency
    8. 8. 8Financing Industrial Energy Efficiency Projects 8StickTambourine CarrotHow to Promote Energy Efficiency?
    9. 9. 9Financing Industrial Energy Efficiency Projects 9Legislation, Rules and Regulations, Technical StandardsEnergy efficiency requirementsfor production, services, new and existing buildings„PromotionalProgrammes“„Information andConsulting“I N S T R U M E N T I N S T R U M E N TRegulatory Framework Forms the Foundation for Other Instruments
    10. 10. 10Financing Industrial Energy Efficiency ProjectsProject Types - Demand Side Energy Efficiency• Public Buildings (e.g. schools, administrative buildings), e.g. Turkey• Other public infrastructure (e.g. street lighting, water supply, agricultural pumping)• Rehabilitation of residential buildings, e.g. ChinaProjects with public sector entities• Small and medium-sized enterprises, commercial and industrial sector (incl. buildings)• Residential buildings (private households and developers)• Approx. 30 credit lines in Eastern Europe, Asia, Latin America and AfricaCredit lines with local financial institutionsStructured Investment Funds• Mobilising private capital for EE investments(e.g. Global Climate Partnership Fund)Efficiency programmes through utilities• Financing and implementing EE investments through utilities (“utility DSM”, e.g. Mexico, Croatia)
    11. 11. 11Financing Industrial Energy Efficiency ProjectsBilateral cooperation with local Financial InstitutionsTarget Group and Volume Green investments (mainly, in regard to renewable energy and energy efficiencymeasures) for MSMEs and private households Sub-loan volume up to USD 1 million ∅-sub-loan: SME USD 100,000 – 200,000 / private households up to USD 25,000Instruments Credit lines to financial institutions at close to market conditions(slightly reduced interest rates for green loan product implementation) Technical AssistanceImpact Implementation of a widespread, standardised and established green loan product energy savings and reduction of greenhouse gas (GHG)-emissions Awareness raising within the Partner Institution and sub-borrowers Opening up the market for commercial financing
    12. 12. 12Financing Industrial Energy Efficiency ProjectsTailor made Technical Assistance to Financial Institutions1. Screening of existing Loan Portfolio und Clustering Screening of existing loan portfolio to filter already financed green investments Definition of clusters First Impact Analysis2. Analysis and Adaptation of Credit Process Development and Integration of additional questions in application form Efficient integration into the whole credit process3. Training of Loan Officers General Awareness within the Partner Institution Particular technical knowledge in order to enable the Loan Officer to recognize respective investments and“sell” the advantages (e.g. through cost reduction, payback periods, etc.)3. Support in Marketing Support the set-up marketing activities and promotional material5. Monitoring of energy saving and CO2 reduction Impact Analysis Development of a Monitoring/Reporting Tool tobe applied by the Partner Institution
    13. 13. 13Financing Industrial Energy Efficiency ProjectsPromoting Energy Efficiency –Best Practice Examples
    14. 14. 14Financing Industrial Energy Efficiency ProjectsEnergy Efficiency Promotion in German SMEsA Special Fund for Energy Efficiency“Special Fund for Energy Efficiency in SMEs“Joint Initiative of the Federal Economic Ministry (BMWi) and KfW(Launched February 2008)Consulting Component(Grant for energy consulting)Financing Component(loans for investmentsin energy efficiency)Energy efficiency consulting Energy efficiency programmeKey Results End-2009: 833 sub-loans amounting to EUR 400 millionSince 4/2012: consulting component for companies with minimum energycost of 5.000 EUR p.a.
    15. 15. 15Financing Industrial Energy Efficiency ProjectsOur Experience in IndiaEE Finance Schemes supported by KfWSmall and Medium-sized Enterprises Small Industries Development Bank of IndiaResidential HousingNational Housing BankPublic Buildings and Infrastructure Energy Efficiency Services Ltd. (EESL)PPP with private companies(DEG) German mechanical engineering companies
    16. 16. 16Financing Industrial Energy Efficiency ProjectsRegulatory Framework for EE Promotion in India (I/II) –Bureau for Energy Efficiency (BEE)› Mandate: The BEE was set up in 2002 to reduce energy intensity of the Indianeconomy. It assists in developing policies and strategies with a thrust on self-regulationand market principles.› Regulatory Framework: Energy Conservation Act (EC Act)› Functions:› Develop and recommend the Central government› processes and energy consumption standards› minimum consumption standards and labeling design for equipment andappliances› specific energy conversation building codes› Creating awareness and disseminate information for efficient use of energy and itsconservation› Recommend the Central Government for notifying any user or class of users of energyas designated consumer
    17. 17. 17Financing Industrial Energy Efficiency Projects› Energy need of refinancedbuildings at least 30% lower thanbenchmark building› Adaptation of simple but robusttool for energy performanceassessment to Indian conditions(e.g. climate, behaviour)› Research CooperationFrauenhofer/ TERILesson learnt: Scaling up EE finance requires simple butrobust tools for energy performance assessment
    18. 18. 18Financing Industrial Energy Efficiency ProjectsObjectives› Reduce emissions of greenhouse gases by Indian SMEs by min. 80.000 tons p.a.› Raise SME investments in energy efficient technologies› Broaden SIDBI´s financial instruments and “institutionalize” EE lendingApproach› EUR 50 Mio credit line to SIDBI for on-lending to Indian SME› EUR 0.5 Mio grant for technical assistance (training, marketing, monitoring)› List of eligible EE measures plus assessment tool for more complex casesKfW‘s Approach in Financing EE for SME‘s (SIDBI)
    19. 19. 19Financing Industrial Energy Efficiency Projects›Client: manufacturer of TNT bars in Raipur, Chhattisgarh›approx. EUR 570,000 term loan›Investment in continuous casting and shearing machines›Shutting down the billet reheating furnace (re-rolling mill)eliminating use of fossil fuel (coal)›Approx. 15,000 tons CO2 reduction p.a.›Support to project development (“handholding”) throughaccompanying measure›Replication potential in clusterExample of SIDBI SME Investments (I/II): Steel Re-Rolling
    20. 20. 20Financing Industrial Energy Efficiency Projects›Client: Yantra Harvest Energy Pvt. Ltd., Pune›Rs. 10 Crores revolving loan facility (EUR 1.4 Mio)› Supplier of Variable Frequency Drives› Offers complete retrofit solutions (include i.a. equipment audit,installation of energy saving equipment, maintenance) on ESCObasis›Yantra recovers investment costs through monthly performance-based payments from client›Yantra receivables assigned/hypothecated to SIDBI›Client payments routed through Escrow account›Monthly repayments to SIDBI matching cash flows of the individualproject›No additional hypothecation of equipmentExample of SIDBI SME Investments (II/II):Cash-flow Financing for ESCOs
    21. 21. 21Financing Industrial Energy Efficiency ProjectsObjectivesEESL created in 2009 to support implementation of the “National Mission for EnhancedEnergy Efficiency” (NMEEE) with the following tasks:› Super ESCO for implementation of EE projects› Consultancy for CDM and energy efficiency› Resource center for capacity building of SDAs, utilities and other playersApproach› Up to EUR 50 Mio credit line and up to EUR 1.5 Mio grant for technical assistance› Currently support to EESL business planning for ESCO investment operationsPublic Buildings and InfrastructureEnergy Efficiency Services Ltd. (EESL)
    22. 22. 22Financing Industrial Energy Efficiency ProjectsSupporting Innovative Business and Financing Models:Cash-flow based Financing for ESCOs in India (SIDBI)SIDBISIDBI ESCOESCO ClientClientINR loan facilityDesign, implementationand maintenanceEscrowAccountEscrowAccountMonthly performance-basedpaymentsAssignment ofreceivablesRepaymentRepayment
    23. 23. 23Financing Industrial Energy Efficiency ProjectsLessons Learnt
    24. 24. 24Financing Industrial Energy Efficiency ProjectsChallenges in Promoting Energy Efficiency Non-conducive policy framework and unfavourable market conditions► energy prices, standards, awareness Managing interests of diverse stakeholders► e.g. energy agencies, auditors, financial institutions; local content issues; incentives (technology vs. job creation); target groups Adequate definition of EE saving targets and eligibility criteria► e.g. demonstration of innovative technologies vs. broad-scaleprogrammes, cost effectiveness) Mainstreaming & Scaling up of new financial products in partner institutions Monitoring of energy savings and CO2-reduction Mobilising private capital
    25. 25. 25Financing Industrial Energy Efficiency Projects› EE finance is most effective as part of a promotional system including regulation andinformation/consulting (incl. labeling)› Well-designed public EE finance can catalyze private investment› Any subsidies provided should first focus on supporting institutional learning of localfinancial institutions› Standardization, simple eligibility criteria and user-friendly tools are key to scaling up EEfinance› Management commitment and staff incentives are critical factors when working with localfinancial institution› EE finance schemes should support innovative business models (e.g. ESCOs) and relatedinnovative financing products› Scaling up on-lending is crucial to providing incentives in green investments› “One Size fits all does not work” - Tailor-made projects are key to success› Branding for Energy Efficiency creates transparency and visibilityLessons learnt
    26. 26. Bank aus VerantwortungSIYABONGA!Busso v. AlvenslebenDirector KfW Pretoria OfficeBusso.Alvensleben@kfw.de

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