Global ESCO Issues

1. Global ESCO Issues By John Cowan, President Environmental Interface Limited Toronto, Canada +1 416-322-6569 jcowan@environmentalinterface.com Presented to PCRA and FICCI, India June 1, 2005 On behalf of Efficiency Valuation Organization (EVO)

2. Experience From: • Designing energy efficiency projects • Starting and leading a Canadian ESCO • Consultant for ESCO startups in: • Canada & USA • Canadian government: Brazil and Honduras • World Bank: China, Thailand, Poland and Croatia • Consultant for large energy users hiring ESCOs • Verifier of energy savings claims • Consultant in emissions trading • Chair of EVO’s ‘IPMVP’ Technical Committee (c) Environmental Interface Limited, Toronto Canada

3. EVO and IPMVP??? EVO: • “Efficiency Valuation Organization” • Formed in 2004, formerly IPMVP Inc, a non-profit US corporation • Provide tools to help energy efficiency projects be valued equivalently to new energy supply projects IPMVP: • “International Performance Measurement and Verification Protocol” • First published in 1996 • Measurement & verification training and certification joint with the Association of Energy Engineers • Wide international participation (c) Environmental Interface Limited, Toronto Canada

4. Many Common Issues • ESCO industries around the world face many problems that are similar, not identical. • Each country has unique solutions. You know the Indian situation. You can compare India’s situation to some key issues and some solutions I have seen globally. (c) Environmental Interface Limited, Toronto Canada

5. Client Issues • “Production is supreme so don’t tamper!”…… • “I’m already efficient” …….. • “This ESCO proposal is too good to be true!” ………. • “My capital is needed for production purposes, and I cannot take on new debt.” ……….. • “How could I believe ESCO savings claims?” ………. (c) Environmental Interface Limited, Toronto Canada

6. More Client Issues • “I can manage projects, so I’ll do it myself.” …….. • “My consulting engineer will design a project. Then I will seek an ESCO’s capital and guarantee.” ……… • “My procurement rules do not allow selection of contractors offering different packages of hardware and services.” ……… (c) Environmental Interface Limited, Toronto Canada

7. ESCO Issues • Long sales cycles ……… • Need to find major early buyers to create experience and awareness ……… • Training staff, and keeping them ………. • How to reach the many small energy users with large savings potential …….. (c) Environmental Interface Limited, Toronto Canada

8. More ESCO Issues • Interest rates – a cost not a barrier ………… • Limits on available shareholder equity ……… • Shareholder need to control risks to their investment ……… • Financial depth to support performance guarantees .…….. • Satisfying reluctant bankers …….. (c) Environmental Interface Limited, Toronto Canada

9. Financier Issues • Client credit worthiness ………… • Bankers understand hard assets, not the savings stream as collateral .…….. • Project processes are unfamiliar to bankers ……….. • Banker reluctance to learn ………… • Small size of transactions ………… • Short term money only …………… (c) Environmental Interface Limited, Toronto Canada

10. Energy Supplier Issues • Why reduce my customers’ use of energy (= less revenue)? • Regulated utilities ………….. • Unregulated (fuel) suppliers …….. • Retrain sales staff to think in terms of their customers’ total cost of energy services …….. • Pay customers to do what they were capable of doing themselves? …….. (c) Environmental Interface Limited, Toronto Canada

11. Do my observations indicate any areas needing development or training in India? (c) Environmental Interface Limited, Toronto Canada

12. Some Favourite Resources • EVO - see www.ipmvp.orgfor current publications and new developments • USA FEMP Program - //ateam.lbl.gov/mv • Canadian Government Program - //oee.nrcan.gc.ca/fbi (c) Environmental Interface Limited, Toronto Canada

13. EVO - IPMVP IPMVP is EVO’s current publication: • Defines standard approaches to “measuring savings” to reassure clients. • Leads clients and ESCOs to discuss the tradeoff between measurement “accuracy” and measurement cost. • International recognition helps legitimize new industries. • Under constant evolution (c) Environmental Interface Limited, Toronto Canada

14. EVO - Developments • EVO’s upcoming International Energy Efficiency Financing Protocol will be: • a “blue print” for virgin financiers of energy efficiency projects; • a focus on the value of savings for loan repayment and credit capacity; • guidance on procedures for evaluating and assessing benefits and risks of energy efficiency projects; • minimum criteria for energy efficiency project lending and use of “proven” technologies; and • generic terms and conditions for various agreements (Loan, Security, ESCO, Construction, etc.) (c) Environmental Interface Limited, Toronto Canada

15. More EVO Developments EVO can develop an Indian EE Benefits Fund to: • Guarantee a portion of loan losses • Subsidize interest rate • Cover extended repayment terms • Increase returns to banks Possible sources of funds: • Government or energy supplier DSM budgets • Sale of associated emission credits = Less dependency on foreign financiers! (c) Environmental Interface Limited, Toronto Canada

16. More EVO Developments • EVO plansto develop a Program Evaluation Protocol to standardize the ways energy suppliers quantify and report the impact of DSM programs. • EVO currently runs M&V training & certification programs, and plans to expand them globally and to future EVO products. • Regional EVO programs to enable local focus on relevant issues (soon). (c) Environmental Interface Limited, Toronto Canada

17. Conclusion • I have listed common global issues faced by all stakeholders in the ESCO market. • For each of them (and others), India can or already has developed: • Appropriate local solutions • Training of: ESCOs, Clients, financiers, energy suppliers • EVO can help, especially with Indian participation. (c) Environmental Interface Limited, Toronto Canada