Capacity Building of Banks and Financial Institutions for Energy Efficiency Project Financing

1. Capacity Building of Banks and Financial Institutions for Energy Efficiency Project Financing Module 2 Energy Efficiency Project Characteristics Partnership to Advance Clean Energy-Deployment (PACE-D)Technical Assistance Program

2. Presentation Outline • Energy Efficiency Projects • Energy User Motivations • EE Projects in Different Sectors • EE Project Characteristics • Typical Energy Efficiency Project • Illustrative Project Examples

3. Energy Efficiency Projects • In all major consuming sectors • Large Industries • SMEs • Commercial Buildings (offices, hotels, hospitals, shopping malls, etc.) • Government Buildings • Municipalities (street lighting, water pumping) • Agriculture

4. Energy User Motivations • 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

5. Perform, Achieve and Trade Scheme • 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

6. 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

7. Energy Efficiency Projects in Industry • 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

8. Examples of EE in Cement 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

9. EE in SMEs • 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

10. Forging • Limekilns • Rolling • Pottery • Edible oils • Glass • Foundry • Brick • Rice • Paper • Brass • Energy Intensive SME Clusters

11. SIDBI Activities for EE in SMEs • 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

12. Energy Efficiency in Buildings • 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)

13. Buildings Rating Systems • 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

14. EE in Municipalities • Water Pumping • Leak detection • Efficient pumping systems • Operational optimization • Street Lighting • Efficient lighting • Controls • Solar systems

15. EE in Railways • 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

16. Characteristics of EE Projects

17. 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

18. IFC Experience with Project Size 95% of projects were under INR 4.5 crores Project Size Distribution No. of Projects = 818 Source: International Finance Corporation

19. Typical Energy Efficiency Project

20. Typical Energy Efficiency Project Initial Meeting with Client ESCO capabilities explained; expectations outlined; approval to proceed obtained This meeting is predicated on good client research Collect energy use and cost (2-3 yrs); analyze for anomalies Conduct Facility Walk-Through Review Energy Usage Data Use Customer Data Form EER provides approximate scope of savings and cost potential and is used to screen potential projects Prepare Energy Efficiency Report ERR begins process of establishing ESCO credibility Select New Client Present EER to Prospect Does energy savings justify project?? No Yes Is Credit check good?? No Credit analysis is completed by the bank providing the long-term financing

21. Client signs the LOI?? ESCO develops a Letter of Intent (LOI) and presents it to the client for signature No Select New Facility or Client Owner agrees to have ESCO complete a Detailed Energy Study (DES) Yes Detailed Energy Study (DES) Completed Present DES to Customer DES reinforces ESCO credibility Review builds motivation to undertake energy services project Review Results Including Project Scope and Plan DES Confirms Preliminary Energy Savings If DES results depart significantly from EER, ESCO absorbs part or all of DES costs No Select new Facility or Client Yes Typical Energy Efficiency Project A DES takes four to eight weeks to complete; provides opportunity to get to know client staff

22. Typical Energy Efficiency Project Customer Accepts Results No Client pays for 100% of DES Yes Final mix of measures selected; Financial modeling used to help price the ESA and optimize profit and cash flow for selected measures Draft Energy Services Agreement (ESA) is developed Client and ESCO Sign ESA No Yes Project Implementation

23. Illustrative Project Examples

24. Industrial Waste Heat Recovery • 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

25. Biomass Cogeneration • 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

26. EE Project – SME

27. EE Project – Major Health Center • 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

28. Streetlighting Project • 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

29. Energy Services Market in India 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

30. Key Characteristics of ESCOs 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.

31. Energy Services Market in India 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.)

32. Energy Services Business Models Energy Services Business Models Shared Savings Outsourced Energy Management Guaranteed Savings Deemed Energy Savings

33. Example of Customer Benefit – Hotel Guaranteed Savings

34. Developing Financial Products for EE Projects • 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

35. Thank youDilip R. LimayeFinance Team LeaderUSAID PACE-D Technical Assistance Programdlimaye@srcglobal.comwww.pace-d.com