GREEN FOR GROWTH FUND, SOUTHEAST EUROPE FINANCING ENERGY EFFICIENCY EXPERIENCES

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1 GREEN FOR GROWTH FUND, SOUTHEAST EUROPE FINANCING ENERGY EFFICIENCY EXPERIENCES Vienna, Austria February, 2011

2 AGENDA How Can Financing Work for EE Investments? What slows investment? The Role of GGF: How do we fix it? Case Study: Can we make it work?

3 WHAT IS NEEDED TO MAKE EE FINANCE WORK? A Complex Ecosystem Banks facilitate the conversion of savings into productive loans Credit bureaus allow banks to comfortably lend to new clients Legal and regulatory system ensures enforceability of contracts Clear property rights incentivize investment (HOAs, etc.) Standard savings methodology produces predictable savings Adequate levels of know-how reduced perceived risks Available & competent network of contractors & suppliers

4 HOW SHOULD FINANCING WORK FOR EE PROJECTS? Banks Know-How Energy Audits ESCOs Service & Supply COs Credit Bureau Debt Legal Environment Consumption- Based Billing HOAs

5 AGENDA How Can Financing Work for EE Investments? What slows investment? The Role of GGF: How do we fix it? Case Study: Can we make it work?

6 HOW AND WHERE DO EE MEASURES FAIL? An economic actor perspective Information asymmetry between banks and borrowers Adverse selection: Average pricing will attract risky borrowers and turn away attractive borrowers Moral Hazard: Risky behavior as borrower knows that Bank has imperfect oversight Lack Credit bureaus and clear credit history increases cost of risk assessment Inadequate stock of knowledge and experience with the product Insufficient price signals consumption disconnected from cost Network of contractors & suppliers unavailable or inexperienced

7 HOW SHOULD FINANCING WORK FOR EE PROJECTS? Banks Know-How Energy Audits ESCOs Service & Supply COs Credit Bureau Debt Legal Environment Consumption- Based Billing HOAs

8 AGENDA How Can Financing Work for EE Investments? What slows investment? The Role of GGF: How do we fix it? Case Study: Can we make it work?

9 CURRENT TARGET PARTNERS Albania Bosnia and Herzegovina Croatia FYR of Macedonia Montenegro Serbia Kosovo 1 Turkey 1 under UNSCR 1244/99

10 HOW CAN A PUBLIC-PRIVATE PARTNERSHIP HELP? Guiding Principles of a new PPP structure Donor support a limited and valuable resource Complimentarily address underserved market segments Additionality work hand in hand with existing programs Crowd-in private investors for demonstration effects Address the larger ecosystem with a multi-level approach Non-distortion work with already functioning markets Double bottom line

11 HOW CAN A PUBLIC-PRIVATE PARTNERSHIP HELP? Creation of a new PPP structure Private Investors IFIs & Private 8X IFIs Donor Funds 1X

12 HOW SHOULD FINANCING WORK FOR EE PROJECTS? Banks Know-How IFIs Technical Assistance Service & Supply COs Development Agencies ESCOs Energy Audits Debt Energy Community

13 AGENDA How Should Financing Work? Market Failures: Where, How and Why? The Role of GGF: How do we fix it? Case Study: Does it work?

14 WHAT KIND OF THINGS DOES THE FUND DO? Capacity development in Financial Institutions EE/RE strategy and loan product development Portfolio review to identify target clients (with showcase audits ) and research on EE measures on residential level Energy auditor training (local market) Staff training: loan officers, retail and commercial lending department, monitoring staff Marketing and supply chain development Training on sustainable RE lending (RE workshop) Impact measurements European Monitoring Fund and for reporting Southeast Europe

15 TA PROJECT EXAMPLE: ENERGY EFFICIENCY SHOWCASE Capacity development Financial Institutions Purpose: Beneficiary: Increase awareness about advantages and opportunities of EE lending and EE measures Various Banks in Serbia, FYR Macedonia and Montenegro Special features: Eye-opener activity can be done before loan agreement Reaching out to Bank as well as clients of the bank (SME) Example audit results from metal processing company in Serbia: EE/RE Measure Investment Cost Energy Savings Payback Period Utilization of waste heat Up to EUR 3,000 50% * ½ year Biomass utilization (wood) EUR 220, % ** 4 years Insulation of heating pipes EUR 500 5% 2 years

16 TRACK RECORD Learning from product implementations Support of an internal champion for EE lending Design of tailored technical assistance and investment products based on needs of the financial institution First-mover and demonstration effects creating market momentum Learning by doing reduces risk perceptions and makes implementation & reporting easier Partner Institution Market Loan Size (EUR) Čačanska banka Serbia 5 million Yapi Kredi Leasing Turkey 20 million Halk banka FYR Macedonia 5 million Şekerbank Turkey 25 million NLB Razvojna Banka Bosnia & Herzegovina 5 million

17 THANK YOU FOR YOUR ATTENTION!