Rate Payers and Governments: Investment Models for Success

Marianne Osterkorn

REEEP International Director

1. Overview about REEEP

2. Challenges for Finance Energy Efficiency

3. Finance Models and REEEP’s project contributions CDM ESCO Policies

4. Importance of information sharing and international collaboration

Content

1. REEEP understands itself as a market facilitator and enabler and is profiled as a change agent towards clean energy systems

2. REEEP aims to reduce market barriers for renewables and energy efficiency systems in emerging markets and developing countries

3. REEEP believes in action on the ground via project activitiesthat are targeted on policy improvements and innovativefinance mechanisms

4. REEEP is recognized in the international political arena - G8, UNFCC, APEC

REEEP is a partnership of delivery

REEEP currently comprises 240 partners, among those all the G7 countries and many emerging economies

Currently more than 240 partners:

• 38 Governments

• International organizations, NGOs and companies

REEEP delivers value via Regional Secretariats

REEEP Regional Office Africa

REEEP Regional Office Central Europe

REEEP Regional Office

East Asia

REEEP Regional Office

Latin America &

Caribbean

REEEP Regional Office North America

REEEP Regional OfficeSouth Asia

REEEP Regional OfficeSouth East Asia & Pacific

REEEP Regional OfficeRussia and FSUREEEP International

Secretariat

REEEP Local Focal Point MEDREP

REEEP West Africa

Focal Point

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12

12 2

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1 1

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23

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REEEP currently undertakes 68 projects in 39 countr ies

REEEP’s "energy efficiency basket " contains a range of activities carried out jointly with other players

� 34 Regional projects currently address energy efficiency

� 3 Workshops in EE in buildings � 1 EE Investment forum bi-annual

� Global Review on Energy Efficiency in 2008

� Hosting the Energy Efficiency Coalition

50% of increase in energy demand in the last 20 ye ars has been absorbed by energy savings

Source: IEA

Actual energy use

Additional energy use w ithout

savings

0

20

40

60

80

100

120

140

160

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997

exaj

oule

s

50%

IEA-11

Source: IEA

Economic growth can be de-linked from Energy Consumption

Source: IEA

Index 1980 = 100

Between 1980 and 2005 increased energy efficiency in the industry and buildings sectors lead to a decoupling of energy consumption and GDP growth...

60

80

100

120

140

160

180

1980 '85 '90 '95 '00 '05

GDP, 2000 PricesGross Energy Consumption, Adjusted

As the Danish example shows, the most impact can be achieved by combining RES and EE measures

..while at the same time the production of energy from renewable energy sources increased tremendously

0

20

40

60

80

100

120

1980 '85 '90 '95 '00 '05

PJ

Wind Straw Wood Biogas Wastes Heat Pumps

Source: Danish Energy Authority

Energy Efficiency is increasingly attracting financ e but is still facing major obstacles

� International Carbon Market is becoming a driving force

� ESCO business is becoming a billion dollar business

� Increased Access to public finance ( Green Investment Funds, WB CEIF, others )

� Lack of incentives and attractive regulations

� The Finance sector still considers EE as high risk investments ( small, not asset based )

Energy Efficiency gains momentum in the Carbon mark et

1. CDM market in 2006 - $5.25 billion;

2. Only 97 energy efficiency projects out of 844 registered CDM projects - only 5% of emission reductions till 2012;

3. 398 EE projects in the pipeline out of 2700 - 11% of emission reductions till 2012;

4. CDM Gold Standard supports EE and RE projects to get better prices

Industrial Gases34%

Renewables28%

Methane & Cement

20%

Energy Efficiency

11%

Fuel Switch7%

Projected Emission Reductions till 2012

Programmatic CDM will boost Energy Efficiency

� PCDM will allow multiple locations and different starting times of individual projects

� Procurement advantages can be materialized - CERswill cover up to 50% of the total costs

� Strong focus on end use energy efficiency – buildings, agriculture,appliances and DMS

� CERs for Kyoto compliance, no restriction for equipment providers

� Example: replacement of all lamps within Uganda

Financing Energy-efficient Street Lighting in India

� Financing and implementing energy efficient street lighting equipment at €1.5 million

� 5 Municipalities in the state of Madhya Pradesh

� Development of standard tender documents for selecting and contracting ESCOs to implement the project and CDM PDD documentation

� This standard documentation can be used by any municipality to contract ESCOs and finance efficient street lighting through CDM

�Project partner: Econoler

London- Beijing Olympic Games CDM project

� A CDM cooperation programme in China between the Beijing and London Olympics

�Reduction of emissions from the Games, and creation of infrastructure in China

�Global promotion of CDM project initiation at the time of Beijing 2008 – London 2012

�Development of scaleable RE projects and financing facilities in China

�Project Partner: LOCOG

ESCOs are the best outsourcing tool for energy efficiency solutions

� ESCOs, especially in the public sector, have an increasing importance in the emerging market ( India, China, Mexico )

� For SME’s ESCOs can provide important technical and financial support

� ESCOs have purchase advantages for equipment and power

� ESCOs understand the mode of energy efficiency projects

Create a replicable financing model for the use of ESCOsfor energy efficiency solutions in Tamil Nadu

� Increase significant water supply through improvements in water infrastructure

� Create a replicable ESCO model which will facilitate investments and provide training to the involved stakeholders in the state of Tamil Nadu

� Assistance in financing to implement energy efficiency projects on the water supply systems of 45 towns with possibility of scaling up to 150

� Case studies and tool kits to enable other states to replicate the financing approach

� Project partner: ASE

Establishing a ESCO in the commercial and industria l sector in Brazil

� Reduce energy intensity of big energy industrial and commercial customers of PETROBAS by up to 10%

� Undertake a business analysis of customer consumption data and establish a feasibility of an ESCO operation

� Establish a independent ESCO and a business plan to capitalize the identified market (attracting equity and debt financing, app 5 mio€)

� Establishing a model for big energy utilities to diversify into the sustainable sector (not core business)

� Project partner: Econoler International

Governments are the drivers of Energy Efficiency Implementation

� Setting of dynamic energy performance requirements for a wide range of products, buildings and services

� Appropriate and cost reflective price signals are essential ( targeted tax measures,internalizing of external costs, access to funding )

� Standards and Labeling to enable consumers to make a choice ( Energy Star, top runner )

� Education, information and awareness raising

� Public sector leadership ( public procurement )

Sustainable Energy Policy development in LAC regio n

� Increase penetration of RES and EE in the LAC region

� Create policy frameworks to facilitate transition to sustainable energy systems in Guatemala, Argentina,Mexico and Peru

� Assessment and analysis of existing policies and best practices in the region

� Regional consultation and awareness raising among key governments in the region during the UNIDO Inter ministerial meting in Montevideo

� Project partner: OAS

Transform the voluntary S&L system in India in a mandatory scheme

� Support the introduction of a mandatory S&L scheme in India

� Support the industrial change, harmonize standards and implement testing facilities

� Preparation of outreach materials and training NGO partners for public dissemination

� Project partner: CLASP

Government Procurement and Energy Efficiency in Chi na

� Harmonization roadmap for energy efficiency government procurement in APEC economies with a focus on China.

� Roadmap for procurement policy harmonization in China and 3 to 5 selected APEC Countries;

� Review testing, labeling and procurement practices and and identify categories for harmonization.

� Harness government procurement power for energy efficiency market transformation.

� Project Partner: CSC

If we know where we stand we know where to move

� First Global Status Report on Energy Efficiency will provide currently missing data about energy efficiency implementation

� Provide an up-to-date characterization of the markets, policies & incentive systems and involved stakeholders

� Target OECD countries and the emerging market economies of Brazil, China, India, Mexico and South Africa

� Thermal and electrical EE, Demand-Side and Supply-Side EE

� Project partner: Ecofys

International Cooperation is important to make ener gy efficiency the mainstream

� Initiation of the Energy Efficiency Coalition : A REEEP initiative and driven by the industry - will comprise of a wide group of relevant stakeholders in energy efficiency

� Global approach with focus on OECD and Plus Five countries

� Sustainable platform which increases advocacy for EE and helps to bridge the gap between "talking" and implementation

� Sharing of best practices and finance solutions

� Coalition will be launched at COP 13 end of 2007

Marianne Moscoso-OsterkornREEEP International Secretariat

Vienna International CentreVienna, Austria

Marianne.Osterkorn@reeep.org+43 1 26026 3425

www.reeep.orgwww.reegle.info

Performance/Credit Risk Guarantees and Financing Mechanisms for ESCO-structured EE Projects

� Develop and finance three ESCO-structured projects in Mexico based on “lessons learned”

� Creating risk guarantees to enable local banks to provide financing for ESCO-structured projects

� Introducing a mechanisms of replication of financing ESCOS

� Project partner: EPS Capital Corp

Renewable Energy57%

Energy Efficiency43%

The total REEEP project portfolio is well balanced in terms of thematic and sectoral objectives

Finance49%

Policy51%