18-19 June 2013, Belgrade - Serbia WHY ENERGY EFFICIENCY (EE)? Prof. Johannes Hamhaber, 2011, Cologne University of Applied Science. EE FINANCING Types of financing mechanism Financing models Tax incentive Tax reductions, exemptions, credits Subsidies Subsidy, grant, etc. Loan programs Performance contracting Carbon financing Low interest loans, collateral free loans, etc. ESCOs, Energy performance contracts, etc. Kyoto mechnanisms, etc. Acuner and Onaygil, 2013 HOW ABOUT BARRIERS? Limaye, 2011 Why has progress been so slow?  Need for appropriate deliver mechanisms to identify, package, finance and implement EE projects across sectors and end users in an effective and efficient manner  Lack of international consensus on approaches (e.g., regulation vs. incentives vs. information) – i.e., appropriate role of government  Local markets require local solutions  EE is invisible, hard to measure – need for consistent, credible data  Poor incentives - mixed institutional incentives, low prices, behavioral inertia ESCO ?  To provide energy efficiency services to consumers    project finance, engineering, project management, equipment maintenance, monitoring and evaluation. Generally performs any or all of the following services:  auditing, developing packages of recommended measures,  arranging financing,  installing or overseeing installation of measures,  training, equipment commissioning, maintenance,  measuring, verifying, and guaranteeing savings. Usually made through Energy Performance Contracts (or “EPC”), which are self- reimbursing loans (i.e. that are repaid through savings). IEA, 2007 What is an EPC?  Contracting mechanism to implement EE projects on turn-key basis  Design, equipment procurement, construction/installation, and savings verification  Optional services: financing, operations and maintenance (O&M), training, etc.  Usually, compensation is tied to actual energy savings from the client or ‘host facility’  Allows host facilities with limited capital to pay for EE upgrades from future energy savings, while mobilizing private capital and sharing of project performance risks EPC MODELS Financial institution Loan Repayment from portion of savings share Project development, financing, and implementation ESP Shared Savings Model End user Payment based on savings share Financial institution Arrange financing Loan Repayment with funds according to ESPC Project development and implementation Guaranteed Savings Model ESP End user Payment for services according to ESPC Savings guarantee Taylor et al., 2008 How EPCs can help EPCs Can… Barriers High perceived risks better define the benefits/costs upfront, assign some project risks away from the client and financier allow for equipment renewal and plant modernization, increasing Low interest in energy savings competitiveness and output quality, often under simplified turn-key arrangement Limited budget for capital upgrades Small projects with high project development/ transaction costs Inadequate information and technical know-how facilitate project financing, usually with repayments derived from project savings allowing positive cashflow throughout allow smaller projects to be bundled, streamline audits/M&V for similar types of facilities, reduces hassle factor for clients solicit technically competent private sector firms to compete based on their qualifications, experience and best project ideas Singh, World Bank, 2012 But...  Highly complex mechanisms, requiring strong legal, financial, accounting, business infrastructure  Must be very technically competent, have strong financial expertise, developed risk management experience  Financing and performance guarantees pose particular challenges in developing countries Key Success Factors...  Supportive policies and enabling environment  Introduction of simpler business models first  Appropriate financing schemes  Early market development through public sector projects  Development of PPP models to kick-start market Finance options...  Focus on large, financially strong firms to act as ESCOs  Use of third party financing (guaranteed savings model)  Creation of special EE funds, guarantee funds, performance bonds, etc.  Loan recovery through client utility bills HOW ABOUT TURKEY? LEGISLATION  Energy Efficiency Law, 2007  Regulation on Efficient Utilization of Energy Sources and Energy (En-Ver), 2008 – (Revised in 2011)  Regulation on Building Energy Performance (BEP-TR), 2008 – (Revised in 2010)  Notification on Energy Efficiency Incentives, 2012/3  Notification on Authorization of Companies Providing Energy Efficiency Services ,2012/4 – (Revised in 2013/1)  Energy Efficiency Strategy, 2012 -2023 HOW ABOUT TURKEY? ADMINISTRATION 2 November 2011 DG of Renewable Energy HOW ABOUT TURKEY? MARKET: • Totally 32 ESCOs: o o o • In the Energy Efficiency Strategy (2012-2023), o o • 5 for industry sectors 17 for building sectors 10 for both sectors it is specified that these numbers shall be 50 up to 2015 but for only industrial sector activities. No other specification for building sector is stated. For being an ESCO, either A or B class certification could be possible. YEGM, 2013 Minimum expert requirements for ESCOs in industry and building sectors for B class certificates For Industry Sector: For Building Sector: Iron and Steel Chemical/PetroChemical Stone, Soil and Mining Paper and Textile Food Transport Vehicles Residential Commercial YEGM Notification, 25 July 2012 Minimum expert requirements for ESCOs in industry and building sectors for A class certificates • Holding TS EN ISO 9001 Quality Management System Standard, • For industry sector, • o having at least one efficiency project with 10.600.000 € budget for desired industry sub-sector and total budget of 100.600.000 € completion certificate o one of the improvements in this project should be related to directly process or process equipment in that sector, For building sector, o having one contract of efficiency projects with 4.240.000 € budget and totally 42.400.000 € completion certificate. YEGM Notification, 25 July 2012 Energy Efficiency Incentives in Turkey by Legislation Incentive Energy Efficiency (EE) Projects In En-Ver Regulation . Defined for Industries with total energy consumption equal or greater than 1000 TOE (as an average of 3 years consumption) . According to sub- sector, scale of the project, target saving potential, the upper limit changes In EE Strategy . Giving more attention to decrease in electricity usage as well as renewable energy projects. . Building sector?? Energy Efficiency Incentives in Turkey by Legislation Incentive In En-Ver Regulation . Defined for Industries with total energy consumption equal or greater than 1000 TOE (as an average of 3 years consumption) Voluntary Agreements . If you guarantee at least 10% energy saving in 3 years, the support of 20% of the energy cost in the starting year up to app. 80 000 EURO as a grant In EE Strategy . Giving more attention to decrease in electricity usage as well as renewable energy projects. . Building sector?? For Industries with total energy consumption equal or greater than 1000 TOE (as an average of 3 years consumption) ESCO activities For commercial buildings – with total construction area equal or greater than 20 000 m2 / .The cost of ESCO shall be included total energy consumption equal or greater than 500 within the budget of EE projects that is incentivized. TOE (as an average of 3 years consumption) For public/governmental buildings – with construction area equal or greater than 10 000 m2 / total energy consumption equal or greater than 250 TOE (as an average of 3 years consumption) . Third party financing UP TO NOW... Energy Efficiency Incentives in Turkey by Legislation  EE Projects  2009: 17 projects with 476 000 EURO  2010: 15 projects with 504 000 EURO  2012: 11 projects with 600 000 EURO  Voluntary Agreements 2009: None  2010: 11projects (their results will be seen 2013 together with the total amount as an incentive)  Incentives by Private Sector TURSEFF – «Turkey Sustainable Energy Facility» was initiated in 2010 with 200 million Dollar funds with the inclusion of Akbank, İş Bankası, Denizbank, Garanti Bankası, Vakıfbank Credit Line Maximum allowable limit Energy Efficiency credits   Renewable Energy credits Up to 5 million US$ Energy Efficiency and Renewable Energy credits for commercial buildings Up to 5 million US$ Energy Efficiency and Renewable Energy credits for residential buildings Up to 75.000 US$ Supplier credits Up to 1 million US$ Small sized: up to 300.000 US$ Medium sized: >300.000-5 million US$ Incentives by Private Sector Bank Credit Donor Şekerbank Ecocredit Şekerbank Energy Efficiency Credit EIB French Development Agency Worldbank EBRD Halkbank TSKB Renewable Energy and Enviromental Credit TKB Renewable Energy and Energy Efficiency Credit KFW French Development Agency Worldbank Worldbank EIB Islamic Development Bank VERY NEW CREDIT LINE…     From International Finance Cooperation (IFC) to TSKB For financing energy efficiency + preventing climate change Totally 75 million Dollar Aiming approximately100 000 tonnes of CO2 emission reduction annually… HOW ESCOs WORK? Service Agreement Energy Audit EE Project Preparation Implementation Agreement EE project Preparation and Implementation Operation, Maintenance, Verification Termination Only payment for auditing Building the market Full commercial financing “Full service” EPCs Combination of smaller shared savings and some guaranteed savings contracts Contracts with some recourse in outer years, deferred final payment One-year contracts with bulk of payment held until detailed commissioning Small equipment supply contracts using leasing/supplier credit with bonus for meeting energy savings target Singh, World Bank, 2012 ESCOs in Building Energy Performance (BEP) Evaluation Certification Scheme ESCO / Freelance ConsultantEngineers Ratios EVD SMM 2% 98% ESCO:115, Freelance:5248 Ministry of Environment and Urban Planning, www.csb.gov.tr ESCOs in Building Energy Performance (BEP) Evaluation Distribution of Approved BEP Certificates Existing Building 11% BUT AFTER 2017 BEP CERTIFICATION SHALL BE MANDATORY FOR THE EXISTING BUILDING!! New Buildings 89% Ministry of Environment and Urban Planning, www.csb.gov.tr POTENTIAL PROBLEMS  How to make the routes to reach goals in terms of energy efficiency realistic when complying with the current situation?  How to reduce the risk of potential market failures ahead?  Energy or greenhouse gas emission savings rarely within the main drivers.  Very little public funds but first drivers for the behaviour of market players in the expected directions.  Most technology solutions are too expensive.  Existing gaps between performance by design and performance at commissioning  Renewable energy sources have not yet reached mature integration GENERAL RECOMMENDATIONS An Independent Responsible Organisation: • • Proper monitoring and inspection • Database formation • Sustainability • Low carbon society • Definition of reliable indicators • Standartisation • National Energy Efficiency Action Plan • National Energy Efficiency Fund • Energy Performance Contracting: • Public private partnership, • Sample contract scheme formation, • Demonstration projects and monitoring • Low Hanging Fruits • Consumer Responsibility!! CONSPICUOUS ACTIONS - 1: Design-Experience-Learn-Operate-Monitor and Finally Gain More than What You Invest  Governmental policies are the base for the EE implementations especially while differentiating voluntary/mandatory energy efficiency applications in favour of being more mandatory together with incentives and punishments.  Integrated information, measurement and monitoring system should be developed in order to determine reference and maximum available energy saving potentials for true application of energy performance certification and contracting. CONSPICUOUS ACTIONS - 2: Design-Experience-Learn-Operate-Monitor and Finally Gain More than What You Invest  Investments on energy efficiency are the type of investment that gain more than what you invested which is bearing 3E-energy-economyenvironment management.  Investment on energy efficiency (EE) and renewable energy (RE) applications= Direct impact (gain only by EE/RE measure itself) + Indirect Impact (environmental i.e. reducing GHG; lower energy dependence i.e. high energy security) + Induced Impact (Social i.e. more employment, increased comfort levels, improved health and productivity)  In order to reduce the differences between what is targeted and what is realized for the sake of the investment on energy efficiency, performances from material to energy consuming systems should be designed, installed, operated and monitored properly. CONCLUSION !! e-mail : [email protected]