ESCO Market Barriers &
Opportunities:
Amit Bando, Executive Director,
the IPEEC Experience
IPEEC
1.

What is IPEEC?

1
2
IPEEC is an
Autonomous Entity
Members account for over 75% of world GDP and energy
EU
use.
Germany
United
Kingdom
France

...
8 Task Groups Dedicated to
EE
Policy Making/Capacity Building
Energy
Management

Capacity
Building,
Training

EE
Indicator...
2.

ESCOs &
Performance
Contracts

5
Types of EE Financing
Mechanisms
Financing Mechanism

Delivery Channels/Frameworks

1. Subsidies& Grants
2. Lending
Progra...
Energy Performance
Contracting (EPC)
 Definition:Loan from the Energy Service Company (ESCO), paid out of the

savings or...
ESCO: With or Without
EPC?
EPC

No EPC, or simple one No EPC

Countries&
Regions

North America,
Europe

Australia,China,
...
Different Types of Energy
Performance Contracting (EPC)
Loan & interest
payments
Financial
ESCO
Institution

Customer
Serv...
3.

The IPEEC
Experience
Framework Providing Solid Basis
for Complex Project Structure
EPC Structure in the Berlin Energy Saving Partnership
Remune...
Korea: Shared Savings &
Guaranteed Savings
Customer

ESCO
Contract

Recommendation

KEMCO
(Korea Energy
Management
Company...
China (1 of 2): Role of the
Government
 In 2010, EPC represented $4.24 billion
 ¾ of them areused in industry
 3 types ...
China (2 of 2)
The Role of International
Organisation Support
 In 1998, « Energy Conservation » project (Phase 1) establi...
4.

Conclusion
&Recommendation
s

15
What is Needed for ESCOs to
be Successful?
The complexity of the EPC
depends on the type of market
1.

Strong legal framew...
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ESCOs, IPEEC

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  • Distributed leadership – in brown: TG working on ESCOs
  • Preconditions: transparency, strong legal framework that provides solid basis for complex project structure, M&V
  • During the 11th FYP, China launched the Top 1,000 enterprises programme, targeting China’s 1,000 biggest energy consumers. The purpose is to support its objective of reducing energy intensity by approx. 20% between 2005 and 2010. The programme was monitored at the local level by local energy monitoring and supervision centers – most of them being overwhelmed by the task. The 12th FYP has expanded the programme to 10,000 companies with the objective to reduce energy intensity by 16% btwn 2011 and 2015. The energy conservation centers cannot possibly monitor the programme and the government will rely on ESCOs to implement the energy savings in the targeted companies.
  • ESCOs, IPEEC

    1. 1. ESCO Market Barriers & Opportunities: Amit Bando, Executive Director, the IPEEC Experience IPEEC
    2. 2. 1. What is IPEEC? 1
    3. 3. 2
    4. 4. IPEEC is an Autonomous Entity Members account for over 75% of world GDP and energy EU use. Germany United Kingdom France Italy Russia Canada Japan USA Republic of Korea China Mexico India Brazil Australia IPEEC was established in 2009 at the G8 summit in Italy Reports to G20 Summit, Clean Energy Ministerial & others 3
    5. 5. 8 Task Groups Dedicated to EE Policy Making/Capacity Building Energy Management Capacity Building, Training EE Indicators Energy Performanc e Finance Industrial Sector Energy Management Commercial/ Residential Sector Appliances Energy Performance Utilities Sector Energy Provider Compilation of National and International Initiatives 4
    6. 6. 2. ESCOs & Performance Contracts 5
    7. 7. Types of EE Financing Mechanisms Financing Mechanism Delivery Channels/Frameworks 1. Subsidies& Grants 2. Lending Programmes 3. Performance Contracting 4. Carbon Financing 5. Energy Saving Certificates Trading Grants, susbsidies, tax incentives, other Bank window, low-interest lending, guarantee funds, other Guaranteed savings, shared savings, other CDM funding, Joint Implementation, other White certificates, ESCerts, EE credits, other Source: IPEEC Report on the Assessment of EE Finance Mechanisms 6
    8. 8. Energy Performance Contracting (EPC)  Definition:Loan from the Energy Service Company (ESCO), paid out of the savings or benefits of the EE projects.  Benefits: the ESCO:  shares the energy savings with the customer (shared saving model), or  assumes the performance risk, not credit risk (guaranteedsavings model)  Possible use:  Super ESCOs operated by the government (India, USA) Issues Measures to improve effectiveness • Relatively new mechanism • Lack of ESCO’s credibility/ability • In some countries (such as India): lack of standardised protocols • Accredition programmes • Demonstration projects showing the benefits of EPC • Formation of ESCO associations Source: IPEEC Report on the Assessment of EE Finance Mechanisms 7
    9. 9. ESCO: With or Without EPC? EPC No EPC, or simple one No EPC Countries& Regions North America, Europe Australia,China, Mexico Less developed economies Type of services Technical and financial services Simple projects with little M&V (e.g.: China) management & upgrade of equipment Purchasing, installation & maintenance of equipment Remuneration Based on energy saved; ESCO assumes risks Specified fee Specified fee Sector All Mostly rural electrification All Source: IISD (2010) Energy Service Companies (ESCOs) in Developing Countries & others 8
    10. 10. Different Types of Energy Performance Contracting (EPC) Loan & interest payments Financial ESCO Institution Customer Services Loan(s) ESCO Remuneration Remuneration Services Loan & interest payments Financial Customer Institution Loan(s) Remuneration Sales of Receivables ESCO Cash Advance Financial Institution Services Source: Berlin Energy Agency Remuneration of ESCO Investment Customer Loan(s) 9
    11. 11. 3. The IPEEC Experience
    12. 12. Framework Providing Solid Basis for Complex Project Structure EPC Structure in the Berlin Energy Saving Partnership Remuneration Public Authority/ Building Owner ESCO Saving guarantee Facilities/Sites Natural gas, district heat, electricity, oil Remuneration Source: Berlin Energy Agency Utilities Gas, Electricity and/or Fuel Supply Companies Coordination Supply Technical Issues 11
    13. 13. Korea: Shared Savings & Guaranteed Savings Customer ESCO Contract Recommendation KEMCO (Korea Energy Management Company) Loan Financial Institution  As of September 2012, there are 226 ESCOs in Korea  First Korean ESCOs were established in 1992,  ESCOs can benefit from: An Energy Conservation Fund,  An « ESCO Activation Plan ».  Source: KEMCO (2012), PresentationatIPEEC EE Finance Webinar 12
    14. 14. China (1 of 2): Role of the Government  In 2010, EPC represented $4.24 billion  ¾ of them areused in industry  3 types of EPC: Shared Saving Contracts, 2. Guaranteed Energy Savings Contracts, 3. Outsourcing Contracts.  Common examples of basic EPC involve:  Focus on specific technology,  Simple services,  Less-than-3-year payback. 1. Government & Market The government played a crucial coordination role: • In April 2010, new legislation on ESCOs: • Tax incentives, • Favorable taxation, • Clarification of accounting principles; • 12th Five-Year Plan: ESCOs used as a market instrument to promote EE. 13
    15. 15. China (2 of 2) The Role of International Organisation Support  In 1998, « Energy Conservation » project (Phase 1) establishing 3     ESCOs:  $15 Million-grant from the GEF,  $63 Million-loan from IBRD; Grant from the European Commission for:  Technical Assistance,  Support to the immediate implementation of small projects; In 2001, « Energy Conservation » (Phase 2):  $ 26 Million-grant from GEF; In 2001: support from the UK to establish the future Energy Management Companies Association (EMCA); ESCOs also benefit from the IFC training programme (CHUEE) Source: Sun, Zhu, Taylor (2011); China’s ESCO Industry 14
    16. 16. 4. Conclusion &Recommendation s 15
    17. 17. What is Needed for ESCOs to be Successful? The complexity of the EPC depends on the type of market 1. Strong legal framework a) b) Contract enforcement, Market transparency, Monitoring & Verification procedures (M&V), 3. Possibly, fiscal incentives or other policies supporting ESCOs, 4. Rational energy prices . Withoutthese conditions, ESCOs have to focus on basic services: 2. • • ESCOs need Specific Skills 1. Technical &practical 2. 3. experience Capacity to arrange & manage financing, and to mitigate financial risks Business entrepreneurship & project/client management skills Source: Sun, Zhu, Taylor (2011) Purchasing, installation & maintenance, Management & upgrade of equipment. 16

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