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Engaging the Banks In Providing End-User Financing To the Solar Water Heating Sector

Engaging the Banks In Providing End-User Financing To the Solar Water Heating Sector. United Nations Environment Programme , DTIE Program Manager, Myriem TOUHAMI myriem.touhami@unep.org. UNEP-DTIE and the Energy Branch. UNEP Division of Technology, Industry and Economics (DTIE).

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Engaging the Banks In Providing End-User Financing To the Solar Water Heating Sector

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  1. Engaging the Banks In Providing End-User Financing To the Solar Water Heating Sector United Nations Environment Programme, DTIE Program Manager, Myriem TOUHAMI myriem.touhami@unep.org

  2. UNEP-DTIE and the Energy Branch UNEP Division of Technology, Industry and Economics (DTIE) Energy International Environmental Technology Centre Chemicals Economics and Trade Sustainable Consumption& Production Ozone Action Policy Unit Technology Transfer Unit Transport Policy Unit Finance Unit Mission: To help overcome market barriers and increase investment flowsto renewable energy and energy efficiency technologies

  3. Within our Energy branch programme, UNEP helps to: • Overcome market barriers • Increase investment flows • to renewable energy • and energy efficiency • technologies

  4. UNEP is not a bank but we work to support the banking sector and other financial players in creating tailored clean energy finance mechanism. • For sectors already commercialized on a “cash and carry” basis, UNEP has been implemented credit enhancement programmes that help local banks build dedicated loan portfolios.

  5. End-User Finance Programmes Indian Solar Loan Programme • Consumer Finance • domestic PV systems • Canara and Syndicate Banks provided training and interest softening incentive • 2,017 bank branches • 49,560 homes financed PV SolarTunisia SWH Montenegro PROSOL I Residential Tunisia SWH Macedonia Green Villages China PROSOL Hotels Tunisia SWH Albania PROSOL Industrial Tunisia Financing Access to Clean Energy Technologies Asia GSWH Lebanon Green Mortgage for SWH - Mexico EE lighting Morocco EGYSOL Hotels Egypt GSWH India GSWH Algeria PV Solar India Solar Loan Programs Indonesia SWH Residential South Africa GSWH Chili Key Implementation Stage SWH: Solar Water HeatingProjects GSWH: Global Solar Water Heating Programme Completed PROSOL: ProgrammeSolaire - Solar Water Heating Programme in Tunisia EE Lighting: Energy Efficiency Lighting Programme in Morocco Operating EGYSOL: Egyptian Solar Water Heating Programme PV SolarLoan Programme India In Development PV Solarproject; Photovoltaicsolarproject in Tunisia FACET: Financing Access to Clean Energy Technologies (3 countries Asia) ISLP: IndonesianSolarLoan Programme GVC: Green Village Credit China

  6. PROSOL (Prog. Solaire) : A success Story in Tunisisia • PROSOL goal is to upscale the Market for Residential Solar Water Heaters,with the aim reach a significant decrease of CO2 emissions at the household level. • PROSOL helps local banks build loan portfolios in RE area by implementing a framework that tackle all the market barriers

  7. Initial Situation Why isn’t solar energy used for water heating in sunny Tunisia? Favourable conditions Challenges • Capital intensive, no financing • Currentoption (LPG )heavily subsidised • High solar resource • Strong institutions • National priority: Energy conservation UNEP Strategy 1. Help banks to begin financing Solar Water Heaters 2. Address perverse subsidy Goal • Develop sustainable SWH market; displace LPG use. • Improve energy security and reduce CO2

  8. Market Analysis- Barriers to investment for stakeholders in 2004 – Beginning of PROSOL I Development Tunisian Government - Budget constraint for public resource - No previous pilot project that removed market barriers in a sustainable way - Fossil fuel (LPG) subsidies distorted the economics of SWH Households • Lack of confidence in the technology (previous bad experience) • High Upfront cost barrier • Not aware of the economic benefits Commercial banks • -Risk aversion • Lack of local bank expertise to tailor RE loans • Bad perception of the market profitability

  9. Main Features of the Programme • Buy CHEAP andPaySLOWLY • A loan mechanism over a 5-year term with repayment via the STEG bill • Monthly payment = Energy savings • Discounted Interest Rates: • Initialaverage bank consumer loans: 12 – 13% • With STEG’s involvement, 2 banks (Amen Bank & UBCI) and lowered the interest rates by 5-6 points because the risk of nonpayment is low (less than 1%, Prosol I) • UNEP furthersoftenedinterest rates down to 0%, full benefitpassed on to the customer. 1. Mechanism to facilitate consumers access to credit • repayments made through electricity bills • interest rates initially softened • interest subsidy phased out after 18 months 2. Subsidy equalized between SWH and LPG • 20% subsidy on SWH capital cost to enhance competiveness of SWH vis a vis the existing gas subsidy (underwritten for a trial period by Italy) • After successful trial made permanent: legislation mandating a 20% capital cost subsidy for SWH in residential sector

  10. A Quick and Simplified Procedure Customer contacts the SWH supplier A list of eligible suppliers is given by our main partner to the project, the National Agency for Energy Conservation (ANME) Customer fills out the application form at the SWH supplier office, presents his latest STEG bill and ID The installation is immediate once the application form and engagement form are signed PROSOL- What it does

  11. PROSOL Results 435,350 m2 = 145,100 systems 112 million USD worth of local bank loans CO2 emission reductions in 2005-2010 was 135,000 tCO2,

  12. Financial and Economic Analysis • PROSOL Residential in Tunisia has been selected by the Climate Policy Initiative (CPI) as a San Giorgio Group case study. CPI carried out a detailed analysis considering PROSOL a successful example that provides an insight into how a developing country can align domestic and international support to level the playing field between low carbon technologies and heavily subsidized fossil fuel based alternatives

  13. Financial and Economic Analysis Investments – Who pays for what • investment in the overall Program during 2005-2011 has been estimated at approximately US$ 248 million • The Public Sector provided 18%; • 82% was provided by Private Capital (end-users and banks) 45% 1 US$ of public resources 37% Mobilized 18% 5 US$ of private capital

  14. Financial and Economic Analysis Benefits for the Tunisian Government • 101 million US$ savings achievable in20 years (2005-2025), of which 15.2 million US$ were achieved in the period 2005-2010. • 21.8 million US$ of public resources are paid back in less than 3 years, thusfull offsetting the Government’s (GoT) initial investment Public finance returns under the BAU scenario and fossil fuel “phasing out” scenario

  15. Financial and Economic Analysis Benefits for the Tunisian Government • The second phase of PROSOL Residential has been registered as a Programmatic CDM with a an estimated annual emission reductions of 7,200 tCO2. Associated revenues range between 350,000-700,000 US$ and will be reinvested to sustain the Programme itself.

  16. Financial and Economic Analysis Local Economic and social Development • PROSOL Residential has stimulated the development of the domestic solar thermal industrial cluster, with local actors playing a primary role. • The industryturnover 2005-2010 has been estimated of about 120.2 million US$, of which 106.8 million US$ associated to manufacture and 13.4 million US$ associated with installers. • Local stakeholder’s analysis suggest that PROSOL contributed to create 3,000 new direct jobs and up to 7,000 indirect Companies X 6 Installers X 12

  17. Financial and Economic Analysis The end-user perspective • PROSOL offers the possibility for households to use energy bill savings to cover investment costs in an acceptable period of time, with affordable (and/or no) upfront investment costs. • overall reductions in households’ energy bills to approximately US$ 605 -1,325 over the expected SWH’s life-cycle. • The different incentive measures introduced by PROSOL significantly lowered SWH system costs for residential consumers: SWHs’ Levelized Cost of Energy (LCOE) decreased indeed from USD 9.7 cents/kWh to USD 7.3 cents/ kWh (around 25% less). • Local stakeholders today believe that PROSOL had a tangible cultural effect on households, inducing changes in their investment behavior

  18. Risk Analysis and Response Strategiesunder PROSOL II • SWH failure risks:thanks to mitigation measures – accreditation scheme for suppliers, certification of equipments, training, on-site spots checks, guarantees – default rates observed in 2005-2010 corresponded to only 1%. • Debt default risk: this risk was mitigated by a double-level loan guarantee scheme: • Third-party loan debt collector – the state-owned utility (STEG) collects loan repayments through electricity bill and may suspend electricity supply in case of payment default • Third-party loan guarantor – suppliers initially (PROSOL I) and then STEG (PROSOL II) • Risk Allocation: There is an overall evidence of a balanced risk allocation under which risks are allocated to the stakeholder more suited to bear them

  19. PROSOL Key Success Factors • The engagement and strong commitment of national public Authorities evident in the credible and stable support that bolstered investors’ confidence • The involvement of the State utility STEG as a debt enforcer, which enhanced domestic financial institutions trust and resulted in lowered financing costs for residential end-user purchasers; • an appealing financial scheme using soft interest rates and longer repayment terms; • the implementation of pervasive and focused awareness raising, communication and capacity building activities; and • a stakeholder-tailored approach that involved all relevant actors in the development of the SWH market from national authorities to financial institutions, suppliers, installers and end-users .

  20. Lampes Basses Consommations(LBCs) :Exemple au Maroc: INARA • Objectif: réduire de 200 MW la puissance appelée durant Hpointes. • Hypothèses: • 5 millions de lampes à incandescence de 100 W remplacées par des LBC de 20W. Effacement à la pointe de plus de 214 MW, et économie d’énergie de 300GWh/an (production nette).

  21. Analyse de la situation marketing La demande: les ménages • Caractéristiques de la demande : • 4,4 millions de ménages électrifiés • 1,8 millions de ménages au niveau des distributeurs (estimé) • 2,6 millions de ménages au niveau de l’ONE • En moyenne 9,7 lampes/foyer * • 35% des foyers ont au moins une LBC soit 2,9 millions de foyers électrifiés n’ayant pas de LBC* * Données d’une enquête téléphonique menée entre mars et mai 2008 auprès de 1380 clients ( ONE et Distributeurs )

  22. Analyse de la situation marketing L’Offre:Les produits concurrents • Les lampes à incandescence: • 29 Millions/an (Philips 75% de part de marché) • 95% en baïonnette • 50% en 100W • Prix entre 4 et 5 DH • Les LBC non conformes: contrefaçon, lampes de mauvais qualité sans économie d’énergie • Sont vendues à un prix allant de 5 à 20 DH • Sont distribuées en grande quantité

  23. Nouvelle centrale Vs Efficacité Energétique Comparaison: • Option1: Construction d’une centrale à groupe diesel de 200MW  Investissement de l’ordre de 180 millions d’euros, soit près de 2 milliards de DH. • Option2: Achat et distribution de LBC: (option avec implication maximale de l’ONE) • Sur la base d’un coût d’achat et de distribution équivalent au prix de vente chez le détaillant 25DH.  Investissement de l’ordre de 133 millions de DH. * Taux d’actualisation de 8% et projet renouvelé tous les trois ans

  24. 1. Par appeld’offre, l’ONEachète les LBC (1er lot de 5 million de lampes en 2008) • Reduction des prix (bulk purchase) • Qualité assurée • 2. Vente et installation par des agents (INSTELECs) • Une commission de 2.50 MAD (29 US cents) par lampeinstallée pour les foyers avec abonnement • Créationd’emplois (micro-entreprises) • 3. Clients remboursent1 MAD (11,76 US cents) par lampe pendant 24 mois via leur facture d’éléctricité • 4. L’ONE offre le service après vente et uneguarantie de 2 ans pour les lampes Mécanisme de Financement

  25. INARA - Resultats INARA : Installations mensuelles des LBC

  26. Conclusions • No standardbank engagement strategy • End-user finance initiatives must employ a variety of approaches and tools: • Institutional support from local governments • Multi-stakeholder approach (government, banks, suppliers, installers, state utility) • Technical support for setting up dedicated loan instrument • Targeted capacity building, training, communication and dissemination to specific financial incentives • Integrating carbon reduction benefits

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