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Financing Energy Efficiency         Projects                         B.GInitiative For Establishing The Central East Europ...
Session Agenda:The finance barrierFour financial mechanismsConclusionsRoles of policy makers, industry andfinancial sector
Step 1: Planning and Organization                 •   task 1a: Meeting with top managementIs financing a   •              ...
Why is financing a barrier for EE in industry   1. The Government does not give financial   1      incentives to become en...
What are the (possible) causes?Companies:         Money available but not readily         Lack of money for high cost opti...
Four types of financial mechanismsTax policy   • Taxes             • Tax incentivesSubsidies    • SubsidiesLending      • ...
Lending programs: bank loansTraditional loansBarriers because banksLack understanding of the value of EE projectsFavor inv...
Lending programs: soft loans /                 revolving fundsObjective: encourage EE investments throughreduced borrowing...
Lending programs: Guarantee fundsObjective: Encourage EE lending through subsidizedcredit risk of bankAdvantages:   Allevi...
ESCOs: what is an ESCO?Energy Services Company (ESCO)Private company providing EE services     Service providers (auditors...
ESCOs: what is performance contractingESCO provides energy saving for a fee (link savings & payment)EE auditEE recommendat...
Financial mechanisms:        ESCOs: guaranteed savingsHow it works: Customer takes out “normal” loan (will appear on balan...
ESCOs: shared savingsHow it works:Customer does not take loan (will not appear onbalance sheet)ESCO finances project: take...
ESCOs: pay from savingsHow it works:Subset of guaranteed savingsIf savings higher: repayment fasterIf savings lower: repay...
ESCOs: End-use outsourcing      ESCO operates & maintains equipment or systems      Output (steam, compressed air) sold to...
ESCOs: equipment supplier credit & equipment leasingSupplier designs and implements project &measures performanceEquipment...
e. In this arrangement, an equipment supplier designs and implements the  project, and is responsible for confirming that ...
Barriers to performance contracting                              !Lack of legal and financial infrastructure to supportper...
ConclusionsPrivate sector financing of EE investments can be viable andprofitablePrivate sector financing insufficient to ...
Government policy should encourage EE  Industry must have know how and systems to plan EE projects andevaluate benefits  F...
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ESCO Fund Central East Europe

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First part of the project the main idea is micro financing municipality for the implementation of new technologies or solutions to cut energy costs, minimum 500 k Euro up to 2 mill Euro.
We are in negotiation with few investors, and we finished monitoring up of 100 municipality.

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ESCO Fund Central East Europe

  1. 1. Financing Energy Efficiency Projects B.GInitiative For Establishing The Central East European ESCO Found
  2. 2. Session Agenda:The finance barrierFour financial mechanismsConclusionsRoles of policy makers, industry andfinancial sector
  3. 3. Step 1: Planning and Organization • task 1a: Meeting with top managementIs financing a • • • task 1b: Form a Team and inform staff task 1c: Pre -assessment to collect general information task 1d: Select focus areas • task 1e: Prepare assessment proposal for top management approvalbarrier to Step 2: Assessmentenergy • • task 2a: Staff meeting and training task 2b: Prepare focus area flow charts •efficiency? task 2c: Walkthrough of focus areas • task 2d: Quantify inputs and outputs and costs to establish a ba seline baseline • task 2e: Quantify losses through a material and energy balance Step 3: Identification of Options • task 3a: Determine causes of losses • task 3b: Identify possible options • task 3c: Screen options for feasibility analysis Step 4: Feasibility Analysis of Options • task 4a: Technical, economic and environmental evaluation of opt ions options • task 4b: Rank feasible options for implementation • task 4c: Prepare implementation and monitoring proposal for top management approval Step 5: Implementation and Monitoring of Options • task 5a: Implement options and monitor results • task 5b: Evaluation meeting with top management Step 6: Continuous Improvement • task 6a: Prepare proposal to continue with energy efficiency for top management approval
  4. 4. Why is financing a barrier for EE in industry 1. The Government does not give financial 1 incentives to become energy efficient 2. Management is concerned about the 2 investment costs of energy efficiency measures 3. It is difficult to obtain financing for energy 3 efficiency projects
  5. 5. What are the (possible) causes?Companies: Money available but not readily Lack of money for high cost optionsGovernment: Fuel subsidies Lack of government financial incentivesFinance sector Lack of financial mechanisms
  6. 6. Four types of financial mechanismsTax policy • Taxes • Tax incentivesSubsidies • SubsidiesLending • Bank loansprograms • Soft loans / revolving funds • Guarantee funds • Energy efficiency „Bank windows”ESCOs • Guaranteed savings • Shared savings • Pay from savings • Other
  7. 7. Lending programs: bank loansTraditional loansBarriers because banksLack understanding of the value of EE projectsFavor investments in expanding productionEE projects considered “high risk”EE projects can have long payback periodsCollateral requirementsEE projects are too smallLoans for EE have higher transactions costsLack trust in consultant information in loan applicationsPrefer to loan to applicants with established banking relationshipsBusinesses lack the capability to develop strong loan applications
  8. 8. Lending programs: soft loans / revolving fundsObjective: encourage EE investments throughreduced borrowing costsSoft loans: loan with public funds at low interestratesRevolving fund: repaid loans used for re-lendingto new projectsAdvantages / disadvantages + Address many of bank loan barriers - Does not address collateral availability; proposal development; SME access
  9. 9. Lending programs: Guarantee fundsObjective: Encourage EE lending through subsidizedcredit risk of bankAdvantages: Alleviate barriers: collateral requirements, high risk of new technologies, risk of long-term lending Build bank capacity in EE loansWork best: Banking sector well developed and liquid Risk of EE loans is main barrier Sufficient demand for loan fin
  10. 10. ESCOs: what is an ESCO?Energy Services Company (ESCO)Private company providing EE services Service providers (auditors / building contractors) Suppliers (e.g. equipment) UtilitiesEnergy Services Company (ESCO) Performance Contracts are innovativefinancial arrangements that combine the design and implementation ofenergy efficiency projects with financing and the guarantee ofperformance (i.e., the customer is guaranteed that he/she will get energysavings out of the project).
  11. 11. ESCOs: what is performance contractingESCO provides energy saving for a fee (link savings & payment)EE auditEE recommendationsSecure financingProject implementationPayment out of actual savings made
  12. 12. Financial mechanisms: ESCOs: guaranteed savingsHow it works: Customer takes out “normal” loan (will appear on balance sheet) ESCO guarantees loan can be repaid with savings ESCO pays difference if minimum savings not metMain advantage: ESCO can undertake more projects
  13. 13. ESCOs: shared savingsHow it works:Customer does not take loan (will not appear onbalance sheet)ESCO finances project: takes performance & creditriskCustomer pays higher %Main advantage: Independent of customer’sborrowing capacity
  14. 14. ESCOs: pay from savingsHow it works:Subset of guaranteed savingsIf savings higher: repayment fasterIf savings lower: repayment slower Main advantage: less risk for ESCO
  15. 15. ESCOs: End-use outsourcing ESCO operates & maintains equipment or systems Output (steam, compressed air) sold to customerIn this type of project, the ESCO assumes responsibility for the operation andmaintenance of the equipment and/or systems it installs and then sells the output(such as steam, heating/cooling, or lighting) back to the customer at an agreedprice. Any costs for equipment upgrades or repairs are typically also theresponsibility of the ESCO, although ownership of the equipment usually remainswith the customer. This model is also sometimes referred to as chauffage orcontract energy management.
  16. 16. ESCOs: equipment supplier credit & equipment leasingSupplier designs and implements project &measures performanceEquipment supplier credit: Customer owns equipment Customer pays lump-sum or over time based on energy savingsEquipment leasing: Supplier owns equipment until full repayment Customer pays lease payments
  17. 17. e. In this arrangement, an equipment supplier designs and implements the project, and is responsible for confirming that performance and energy savings match customer expectations. The customer pays for the equipment either on a lump-sum basis after installation or like other performance contracting arrangements, over time, usually from the estimated energy savings. The customer receives ownership of the equipment immediately. Equipment leasing is similar to supplier credit in that the supplier receives fixed payments from the estimated energy savings to cover equipment purchase and installation. However, the payments are made as a “lease to own” arrangement, and the supplier retains ownership of the equipment until all the lease payments, and any transfer payments, are completed.
  18. 18. Barriers to performance contracting !Lack of legal and financial infrastructure to supportperformance contractsLimited ability of local ESCOs to obtain bank financing or raiseequity capitalLack of bank experience with EE projects and/or performancecontractsLack of confidence in ESCO performance estimates!
  19. 19. ConclusionsPrivate sector financing of EE investments can be viable andprofitablePrivate sector financing insufficient to encourage EEinvestments in all casesFinancial mechanisms should not be viewed in isolation fromother EE programs/policies
  20. 20. Government policy should encourage EE Industry must have know how and systems to plan EE projects andevaluate benefits Financial sector must be well developed and understand profitpotential of EE in industry •Government policy should encourage (and certainly not discourage) efficiency improvements. •Industry must have the technical know how and management systems to plan energy efficiency projects and evaluate their potential business benefits. •The financial sector must be well developed and understand the potential for profit in energy efficiency projects and businesses. Achieving these conditions requires action, not just from policy makers, but also from industry and the financial sector.

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