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Capacity Building of Banks and Financial Institutions
for Energy Efficiency Project Financing
Module 1
Market Opportunity
Partnership to Advance Clean Energy-Deployment (PACE-D)
Technical Assistance Program
September 2014
Capacity Building of Banks/FIs
For EE Project Financing
Page 1
July 2014
Presentation Outline
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Introduction to NMEEE and EEFP
Need for Capacity Building
Project Objectives
Business Opportunity in EE Financing
Market Studies
Perspectives, Issues and Challenges
Government Policies and Programs
Achieving the Potential
Capacity Building of Banks/FIs
For EE Project Financing
Page 2
July 2014
• Importance of Energy Efficiency
Capacity Building of Banks/FIs
For EE Project Financing
Page 3
July 2014
Role of Energy Efficiency in Mitigating Climate Change
Source – International Energy Agency, World Energy Outlook, 2011
Capacity Building of Banks/FIs
For EE Project Financing
Page 4
July 2014
National Mission for Enhanced Energy Efficiency (NMEEE)
Capacity Building of Banks/FIs
For EE Project Financing
Page 5
July 2014
Energy Efficiency Financing Platform
Ensuring availability of finance at reasonable
rates for energy efficiency projects
NMEEE
Creating demand for energy efficient
products, goods and services
Energy Efficiency
Financing Platform
Promotion of performance contracting
and energy service companies (ESCOs)
Credible monitoring and verification protocols
to confirm energy savings
Capacity building of banks and FIs
Capacity Building of Banks/FIs
For EE Project Financing
Page 6
July 2014
GoI commitment to climate change
India has made a commitment to reduce its emissions per unit of GDP by
20- 25% below 2005 levels by 2020.
 To meet and exceed this goal, India is increasing fuel efficiency
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standards by 2011;
Adopting building energy codes by 2012;
Increasing forest cover to sequester 10 percent of its annual
emissions; and
Increasing the fraction of electricity derived from wind, solar, and small
hydro from the current 8 percent to 20 percent by 2020.
Capacity Building of Banks/FIs
For EE Project Financing
Page 7
July 2014
Need for Capacity Building
BEE statement in EEFP
“There is need to enhance capacity of banks and financial institutions
by imparting training to bank officials on opportunities for financing
energy efficiency projects in different sectors of the economy. The
capacity building is intended to help bankers in understanding the
importance and viability of financing energy efficiency projects, type
and size of projects, and ways and means to tap the huge potential in
this area.”
Capacity Building of Banks/FIs
For EE Project Financing
Page 8
July 2014
Capacity Building Modules
1. Market Opportunity
2. EE Project Characteristics
3. Implementation Models
4. Project Appraisal
5. Measurement & Verification
Capacity Building of Banks/FIs
For EE Project Financing
Page 9
July 2014
The Market Opportunity
Long-Term Opportunity for Financing of EE Projects
Government
Role
Provide
Incentives
Develop Policies
and Programs
Stimulate Market
development
Long-Term Market
Growth and
Development
Sustainable Project
Development and
Commercial Financing
Active Participation
of Banks and
Financial Institutions
Capacity Building of Banks/FIs
For EE Project Financing
Page 11
July 2014
Studies of Market Potential
ADB
Study
World Bank
Study
National Studies of
Energy Efficiency
Market Potential
Planning Commission
Low-Carbon Study
CII/IREDA Study of
Industrial EE
NPC Study for BEE
NPC Study
For BEE
While the results vary, they all point out the large
potential market for EE project implementation
Capacity Building of Banks/FIs
For EE Project Financing
Page 12
July 2014
World Bank and CII/IREDA Studies
• World Bank
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 Three-country study (India, China, Brazil)
 Included detailed estimates of EE potential
 Estimated potential in India – 50 billion kWh
 Investment potential – INR 140 billion
CII/IREDA Study of Industrial EE Potential
 Prepared Investor’s Manual for Industrial EE
 Identified technologies to improve energy efficiency, equipment
suppliers, and government policies / incentives for the sector
 Estimated potential – 37.5 billion kWh
 Investment potential - INR 82.5 billion
Capacity Building of Banks/FIs
For EE Project Financing
Page 13
July 2014
National Productivity Council Study for BEE
Sectors
NPC Study
for BEE
State by State
Energy Savings
Potential
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Agricultural Pumping
Municipal Pumping
Street Lighting
Commercial Buildings
SMEs
Energy Savings
Potential (15% )
Investment Potential
At estimated 4 year payback
75 Billion Units
INR 150,000 Crores
Source: National Productivity Council, State-wise Electricity Consumption & Conservation
Potential in India, Prepared for Bureau of Energy Efficiency, New Delhi, 2010.
Capacity Building of Banks/FIs
For EE Project Financing
Page 14
July 2014
Planning Commission Low-Carbon Future
Estimates of energy savings in Billion kWh
SECTOR
DETERMINED EFFORT
AGGRESSIVE EFFORT
Appliances
80
147
Agriculture
5
10
Industry
20
60
End Use Savings
105
217
Generation Savings
124
255
Source; Planning Commission, Low Carbon Strategies for Inclusive Growth - An Interim Report,
Government of India, New Delhi, 2011.
Capacity Building of Banks/FIs
For EE Project Financing
Page 15
July 2014
Why Has Implementation been Low ?
Despite the large market size, EE project implementation has
been substantially lower than anticipated
Source: World Bank, Unlocking Commercial Financing for Clean Energy In East Asia,
Washington, D.C., 2013
Capacity Building of Banks/FIs
For EE Project Financing
Page 16
July 2014
Bankers’ Perspectives on EE Projects
• Small project size - high transaction costs
• High project development costs (“soft costs”)
• Difficulties is collateralizing project assets
• Lack of well-established payment security mechanisms
• Limited appraisal experience
• Poor creditworthiness of borrowers
• No standard contracts/agreements
• Credibility of savings estimates
• Limited availability of formal M&V approaches
• Cash flow may be already pledged to existing banker
Capacity Building of Banks/FIs
For EE Project Financing
Page 17
July 2014
Project Risks
Risk Management
• Using proven technologies
• Project bundling
• Customized financial products
• Rigorous project appraisal
• Innovative ways to collateralize project assets
• Payment security mechanisms
• Standard contracts and agreements
• Formal third-party measurement and verification (M&V)
Capacity Building of Banks/FIs
For EE Project Financing
Page 19
July 2014
Tools and Resources from BEE
• PAT scheme for large energy users
• Partial Risk Guarantee Fund for EE (PRGFEE)
• Venture Capital Fund for EE (VCFEE)
• Energy audits of buildings, municipalities and SMEs
• Establishment of EESL to facilitate public sector EE
• Performance contracting based demonstration projects
• ESCO accreditation
• ESCO capacity building
• SME program with SIDBI
• M&V protocols
Capacity Building of Banks/FIs
For EE Project Financing
Page 20
July 2014
International Perspectives
Capacity Building of Banks/FIs
For EE Project Financing
Page 21
July 2014
International Experience - USA
U.S. Federal
Government
Initiatives
Directed agencies to achieve savings
Changed procurement regulations
Facilitated shared savings contracts
Selected ESCOs under IQC contracting
U.S. State
Government
Initiatives
Similar legislation, regulations and
directives to State agencies – focus on
municipal, schools and hospitals markets
Results
Capacity Building of Banks/FIs
For EE Project Financing
Mature market - EE project financing
Excellent collaborative relationships
between banks and ESCOs
100% project financing available
Page 22
July 2014
IFC/GEF – Central & Eastern Europe – Risk Sharing
Successfully implemented the Risk Sharing program in 6 countries
Commercializing Energy Efficiency Finance Program
IFC/
GEF
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GFA
Participating
Banks
Loans
Project
Developers
RESULTS
Provided risk guarantees to large number of projects - default < 0.5%
Demonstrated low risk & high return of EE projects
Induced banks to substantially increase loan portfolio
High leveraging of IFC/GEF funds achieved
Bank lending without PRG exceeded with PRG (in Hungary 10x)
Bank lending activity continued after end of IFC program
Capacity Building of Banks/FIs
For EE Project Financing
Page 23
July 2014
Examples of Experience in India
Technology
Finance Group
Financed a number
of EE projects using
funds from USAID
and other donors
SIDBI
Energy
Efficiency Cell
Financing EE
projects in SMEs
with Credit lines from
JICA/KfW/AfD
BEE
Government &
Municipal
Projects
Demonstration
projects for
performance
contracting
ICICI
Bank
Capacity Building of Banks/FIs
For EE Project Financing
Page 24
July 2014
Other Debt Financing Projects in India
• ADB/IDBI – Industrial Energy Efficiency Program
• World Bank/IREDA EE Financing Scheme
• KfW Credit Lines for EE (SIDBI and EESL)
• BEE PRGFEE
• World Bank Partial Risk Sharing Scheme
• Govt. of India – Technology Innovation Fund
• Commercial bank financing activities
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State Bank of India
ICICI Bank
Yes Bank
Canara Bank
Union Bank
Capacity Building of Banks/FIs
For EE Project Financing
Page 25
July 2014
Moving Forward
Moving Forward
Capacity Building of Banks/FIs
For EE Project Financing
Page 26
July 2014
Achieving the Potential
What banks/FIs need to do:
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Management commitment to EE financing as a business line
Identification of target markets
Establishment of Energy Efficiency Unit or Cell
Understanding of EE financing and implementation business models
Identification of available government and donor incentive programs
Development of customized financial products
Training and capacity building of loan officers and risk managers
Establishment of relationships with ESCOs and other energy service
providers
Capacity Building of Banks/FIs
For EE Project Financing
Page 27
July 2014
Thank you
Dilip R. Limaye
Finance Team Leader
USAID PACE-D Technical Assistance Program
[email protected]
www.pace-d.com