capacity building of banks and financial institutions for energy efficiency project financing

July 2014 Page 1 July 2014Capacity Building of Banks/FIs For EE Project Financing

Capacity Building of Banks and Financial Institutionsfor Energy Efficiency Project Financing

Module 2 Energy Efficiency Project Characteristics

Partnership to Advance Clean Energy-Deployment (PACE-D)Technical Assistance Program

September 2014


• Energy Efficiency Projects

• Energy User Motivations

• EE Projects in Different Sectors

• EE Project Characteristics

• Typical Energy Efficiency Project

• Illustrative Project Examples

Presentation Outline


• In all major consuming sectors Large Industries

SMEs

Commercial Buildings (offices, hotels, hospitals, shopping malls, etc.)

Government Buildings

Municipalities (street lighting, water pumping)

Agriculture

Energy Efficiency Projects


• Achieve efficiency • Capture energy cost savings; • Improve productivity and enterprise competitiveness• Improve product quality • Address necessary system upgrades, equipment replacement, &

deferred maintenance requirements• Improve level of energy services in facilities• Improve living conditions • Improve energy system reliability• Comply with environmental regulations

Energy User Motivations

4


• Specific Energy Consumption (SEC) reduction targets for the energy-intensive units which are designated consumers under the Energy Conservation Act Targets would be % reduction of current SEC Percentage reduction requirement based on:

Sectoral targets to achieve the national goal Current SEC as a ratio of the best in the sector / groups within a sector Unit specific diversities

Target setting for the power generation and fertilizer sectors through the existing tariff-setting processes

SEC measurement and verification by BEE through designated verifiers

Perform, Achieve and Trade Scheme

Ramasamy, Sujata

5th slide in old presentation is list of major industries here pat. PAT not there in old slidelist of industries for pat in next slide presented.

July 2014

• Cement

• Chlor alkali

• Aluminum

• Pulp & paper

• Textile

• Power Plants

• Iron & steel

• Fertilizer

List of sectors for PAT

Capacity Building of Banks/FIs For EE Project Financing


• Replacement of inefficient industrial technologies with energy saving technologies and equipment, such as more efficient industrial boilers, kilns, and heat exchange systems

• Recovery and utilization of by-product gas, waste heat

• Installation of highly efficient mechanical and electrical equipment, including lighting, motors, Chillers, refrigeration units, pumps, heating and ventilation equipment, etc.

• Industrial system optimization to reduce energy use

Energy Efficiency Projects in Industry


• Improve kiln combustion efficiency by reducing the false air ingress at the Preheater section and reducing marginally the sintering level of Clinker

• Optimize the air flow to the grate cooler and reduce the vent air losses

• Utilize cooler vent air as primary air to the Kiln burner

• Improve insulation at preheaters ducts & Kiln internally

• Replace the air cooled Turbulators with Refractory lined Turbulators

• Generate electricity from the Waste heat of PH exhaust & Cooler Vent streams

• Install variable frequency drive for fans in the production processes

Examples of EE in Cement Industry

Ramasamy, Sujata

EE in glass industry given in old slide


• Key Characteristics of SMEs Very small in size (majority are MSE units) Majority of units are proprietorship / family owned concern Very limited professional management Obsolete technology/ production process Low capital investment & labor intensive High energy consumption in many sectors Lack of Knowledge about energy efficient production options and

available technologies

EE in SMEs

July 2014

• Forging

• Limekilns

• Rolling

• Pottery

• Edible oils

• Glass

• Foundry

• Brick

• Rice

• Paper

• Brass

Energy Intensive SME Clusters


• Established Energy Efficiency Cell

• Developed guidelines for EE project financing

• JICA credit line for EE equipment – disbursed in 2010

• AfD credit line – initiated in 2010

• KfW credit line – requires carbon savings estimates and monitoring – initiated in 2010

• Developing tools for Project Assessment

Impact Monitoring

SIDBI Activities for EE in SMEs


• Energy efficiency in residential, commercial, and government buildings:

Lighting

HVAC (heating, ventilation, and air conditioning)

Building envelope (insulation for roof, walls, windows, doors)

Renewable energy in buildings (roof-top solar PV, solar water

heaters, and ground source heat pumps)

Energy Efficiency in Buildings

Ramasamy, Sujata

12 th slide extra ee in buildings


• Energy Conservation Building Code (ECBC) launched in May 2007.

The ECBC sets minimum energy standards for new commercial buildings having a connected load of 100 kW or contract demand of 120 kVA.

• BEE Star Labeling Scheme for Day Use Buildings BPO buildings Shopping malls

Buildings Rating Systems

Ramasamy, Sujata

13th slide is extra here bilding ratings


• Water Pumping Leak detection Efficient pumping systems Operational optimization

• Street Lighting Efficient lighting Controls Solar systems

EE in Municipalities


• Stations, platforms Lighting Space cooling Water pumping

• Rolling stock performance Two tier rolling stock Four berth coaches Managing fuel cost Kinetic energy storage systems Power and energy optimization systems

EE in Railways

Ramasamy, Sujata

EE in railways extra

Characteristics of EE Projects


• Wide range of technologies, most with substantial experience in successful implementation, internationally as well as in India

• Relatively small project size - many projects less than INR 1 crore

• Relatively short simple payback periods – generally one to five years

• High proportion of project development costs

• Range of implementation business models with increasing interest in performance based approaches

• Manageable risks

Characteristics of EE projects


IFC Experience with Project Size

Project Size DistributionNo. of Projects = 818

95% of projects were under INR 4.5 crores

Source: International Finance Corporation

Typical Energy Efficiency Project


EER provides approximate scopeof savings and cost potential and is used to screen potential projects

ERR begins process of establishingESCO credibility

Is Credit check

good??

Is Credit check

good??

Conduct Facility Walk-Through

Conduct Facility Walk-Through

Prepare Energy Efficiency Report

Prepare Energy Efficiency Report

Doesenergy savings

justify project??

Doesenergy savings

justify project??

Select NewClient

Select NewClient

Initial Meetingwith Client

Initial Meetingwith Client

No

Yes

Present EERto Prospect

Present EERto Prospect

Review Energy Usage Data

Review Energy Usage Data

ESCO capabilities explained;expectations outlined; approvalto proceed obtained

Use CustomerData Form

Collect energy useand cost (2-3 yrs); analyzefor anomalies

NoCredit analysis is completedby the bank providing the long-term financing

This meeting is predicated ongood client research


Ramasamy, Sujata

Ramasamy, Sujata

20th slide is coloured in present slide


No

DES Confirms

Preliminary Energy

Savings

DES Confirms

Preliminary Energy

Savings

No

Yes

Owner agrees to haveESCO complete a DetailedEnergy Study (DES)

Detailed Energy Study (DES)

Completed

Detailed Energy Study (DES)

Completed

Clientsigns the

LOI??

Clientsigns the

LOI??

Yes

Present DES to Customer

Present DES to Customer

DES reinforces ESCO credibility

Review ResultsIncluding ProjectScope and Plan

Review ResultsIncluding ProjectScope and Plan

Select New Facility or Client

Select New Facility or Client

Select new Facility or Client

Select new Facility or Client

Review builds motivationto undertake energy servicesproject

If DES results depart significantlyfrom EER, ESCO absorbs part or allof DES costs

ESCO develops a Letterof Intent (LOI) andpresents it to the clientfor signature

A DES takes four to eight weeksto complete; provides opportunityto get to know client staff


PACE-D Finance Team Presentation April 29, 2013

Customer AcceptsResults

Customer AcceptsResults

No

Yes

Client pays for 100% of DES

Client pays for 100% of DES

Draft Energy Services Agreement

(ESA) is developed

Draft Energy Services Agreement

(ESA) is developed

Client and ESCO

Sign ESA

Client and ESCO

Sign ESA

No

ProjectImplementation

Yes

Final mix of measures selected;Financial modeling used to helpprice the ESA and optimize profitand cash flow for selected measures


Illustrative Project Examples


• Major industrial unit manufacturing copper

• Copper smelting exothermic process

• Hot flue gases with high heat content being wasted

• Waste heat recovery system installed

• Power generation ~ 10.4 MW

• Payback <1 year Total generation : 82.8 million units Cost of generation : Rs 1.10 per unit Cost of Grid Power : Rs 4.30 per unit Annual Savings : Rs 265 million

• Reduction of CO2emission: 47,500 tons/year

Industrial Waste Heat Recovery


• Edible oil refinery in Maharashtra

• Steam required for processes

• Co-generation (top end) using biomass (bagasse)

• Generation of power 550 KW

• Loan amount: Rs 20 million

• Annual savings: Rs 16 million

• Reduction of CO2emission: 4,350 tpa

Biomass Cogeneration


EE Project – SME


• Project: Reduction in contract demand and savings through upgrades to the building’s reactive power controllers, lighting, air conditioning, raw water pumping and switching electric loads in geysers to solar water heating

EE Project – Major Health Center

Annual Energy Bill INR 182 million

Investment Cost – Equipment INR 85 million

Project Dev. Cost INR 32 million

Total Project Cost INR 117 million

Energy Cost Savings INR 40 million

Simple Payback ~ 3 years


• Installation by ESCO of 486 street light controllers covering 19,000 street lights of Nasik Municipal corporation

• Improvement in the existing electrical distribution network for : Reduction in cable losses Power factor optimization

• Savings were shared for five years

• Annual Energy bill prior to implementation - Rs 50.0 M

• Achieved annual savings - Rs 17.0 million on a capital investment of Rs 16.6 million

• Payback period ~1.5 years

Streetlighting Project


Energy Service Companies (ESCOs)• Initiated in mid-1990s

• Growth has been slow

• Many issues and challenges faced

• BEE has empanelment scheme

• Over 137 ESCOs have been empanelled

• ESCO capacity building program planned

Energy Services Market in India


Energy Service Companies:• Provide or arrange a complete package of services, including energy

analysis, design, installation, financing, and maintenance of the energy management (and other) technologies

• Offer business and financing models under which customers effectively pay for the energy services from a portion of actual energy savings achieved

• Payments to the ESCO are based on demonstrable results (that satisfy the performance guarantees provided by the ESCO)

• Most of the project risks are assumed by the ESCO.

Key Characteristics of ESCOs

Ramasamy, Sujata

energy service market in india is extra here this is esco in new one


Other energy service providers• Energy auditors – certified by BEE• Equipment manufacturers and vendors (Schneider, Siemens, Alstohm,

etc.)• Engineering firms – extending capabilities to provide performance

contracting services• Contract energy management companies (Dalkia, A to Z Power, etc.)

Energy Services Market in India


Energy Services Business Models

Guaranteed Savings

Guaranteed Savings

Shared SavingsShared Savings

OutsourcedEnergy

Management

OutsourcedEnergy

Management

Energy ServicesBusiness Models

Deemed EnergySavings

Deemed EnergySavings

Ramasamy, Sujata

from 32 to 35 extra from old slides


Example of Customer Benefit – Hotel Guaranteed Savings


• Based on target market and project characteristics and implementation business models credit characteristics typical deal size & project economics (cash flow, ROI, NPV, etc.) Ability to assemble acceptable collateral/security package

• Define loan offer(s) term, pricing required security structure, with guarantee(s) economic parameters: e.g., size, % own funds documentation requirements

• Prepare business plan, identify/implement initial deals, train branch staff network

Developing Financial Products for EE Projects

Thank you

Dilip R. LimayeFinance Team Leader

USAID PACE-D Technical Assistance Program

[email protected]

capacity building of banks and financial institutions for energy efficiency project financing

Documents