FINANCING ENERGY EFFICIENCY IN THE PUBLIC SECTOR USING EE FUNDS

Transcription

1 FINANCING ENERGY EFFICIENCY IN THE PUBLIC SECTOR USING EE FUNDS Jas Singh Senior Energy Efficiency Specialist Energy & Extractives Global Practice Group Financing Energy Efficiency: Funding Opportunities, Institutional Models and Successful Practices WBIF-ECS Workshop, March 18, 2015 Vienna, Austria

2 World Bank and EE in the Western Balkans Recently implemented and planned World Bank projects total ~US$163 million for EE in public buildings 1 o o o Energy savings typically 30-45% per building, payback periods ~6-8 yrs Substantial Baseline co-benefits (improved comfort, urban renewal, public awareness, student energy education) Willingness to costs co-finance Lessons learned: o o o o Limited replication of donor pilots and grants without sustainable funding mechanisms in place Government project management units orphaned after projects, loss of technical/implementation capacity High energy cost savings means that projects can and should repay upfront investments Difficult to scale-up; buildings/year average

3 Need to Scale-up EE in Public Sector Improving EE in public sector key to achieve 9% EE target by 2018 (NEEAPs) Some important steps to improve framework for EE in buildings initiated Adoption of NEEAPs, including measures for buildings and targets for residential/ service sectors Baseline Progress on transposition energy of Directives: 2006/32/EC (Energy Services), 2010/30/EU (Labeling), 2010/31/EU costs (Energy Performance of Buildings) Targeted projects (pilots) and initiatives to improve EE in buildings National/local and sectoral EE activities Some EE financing facilities accessible for public sector consumers 2 Other government and donor supported programs But, approach has been fragmented and piecemeal Policy and regulatory frameworks remains incomplete Limited linkages between policy and financing Focus often on loans for most creditworthy and grants for poorest, leaving the middle market largely unserved Enabling environment and markets need sustained, scaled-up implementation Private sector needs predictable/stable demand for goods/services

4 Barriers to EE in the Public Sector Policy / Regulatory Equipment/ Service Provider End User Financiers 3 Low energy pricing, consumption-based billing and collections Public procurement and budgeting policies Limitations on public financing and borrowing capacity Ad hoc planning Import duties on EE equipment Unclear or underdeveloped EE institutional framework Lack of appliance standards and building EE codes, lack of testing, poor enforcement Limited and poor data High project development costs Perceived risk of late/ non-payment of public sector Limited demand for EE goods/services Diffuse/diverse markets New contractual mechanisms (e.g., ESCOs) Limited technical, business, risk mgmt. skills Limited access to financing/ equity Lack of awareness High upfront and project development costs Ability/willingness to pay incremental cost Low EE benefits relative to other costs and priorities Perceived risks of new technologies/ systems Low levels of comfort Mixed/lack of incentives Behavioral biases Lack of credible data No discretionary budgets for special projects/ upgrades and limited ability to borrow Cannot collateralize public assets New technologies and contractual mechanisms Small sizes/widely dispersed high transaction costs High perceived risks, incl. public credit risks Other higher return, lower risk projects Overcollateralization, restrictions on public assets as collaterals Behavioral biases

5 Public EE financing ladder Select Sustainable Public EE Financing Scheme Market Maturity Commercial Financing Advanced commercial or project financing (ESCOs) Vendor credit, leasing Commercial financing, bonds 4 Public Financing Partial risk guarantees Credit line with commercial bank(s) Credit line with municipal (development) bank Public ESCOs EE revolving funds Utility (on-bill) financing MOF financing w/ budget capture Budget financing, grants w/ co-financing Grants

6 Why an Energy Efficiency Revolving Fund? 5 Allows for financing for public sector (central government, municipal) where banks are unable or unwilling to provide financing Can offer financing at more preferential terms, options to combine with grants where available Ability to pool government, donor, commercial financing more easily Greater ability to bundle smaller projects, allowing for economies of scale and lower transaction costs Offers ability to centralize implementation (procurement, technical reviews, safeguards) so lessons can be incorporated into future projects Revolving structures with associated fees allows it to operate sustainably But EE Funds should not crowd out private financing, when available Recovery of operating costs and developing pipelines take time Heavy reliance on good fund manger, proper governance structures Cannot succeed when full grants are offered through budget and parallel donor programs

7 6 Typical Structure of EE Fund

8 Establishing the Legal Framework 7 Establishing an EE Fund typically requires some legislative actions: Provision in Energy Law or Energy Efficiency Law Funding may be authorized by a budget line item (e.g., Serbia), through an existing entity (e.g., BiH, Montenegro environmental fund) Some legal frameworks do not allow for special funds to be created (e.g., Kosovo) Legal provision typically does not specify the institutional set-up or establishment of a new entity, so some secondary legislation may be required Secondary legislation is often needed to create a new institution, specifying organizational type and structure, governance arrangements, ownership Amendments to existing regulations are needed to assign EE Fund management to an existing institution Institutional options may include: Management by an existing entity (e.g., energy agency, municipal/ development bank, municipal/infrastructure/environmental fund, utility, buildings directorate, etc.) Creation of a new legal entity (e.g., state-owned corporation, statutory agency) Establishment of a public-private partnership (PPP)

9 EE Fund Governance EE Fund oversight is delegated to a Board appointed by the government Governing Board Board of Trustees (Armenia) Management Board (Bulgaria) Board of Administration (Romania) Board of Directors (Salix Finance) Setting the investment strategy and policy Hiring the fund management team Establishing project selection criteria Approving annual business plans & budgets Preparing and submitting annual financial reports Assuring compliance with national EE strategy 8

10 Financing Products Financing Products Debt Financing Energy Service Agreements Forfeiting Risk Guarantee Budget Capture 9

11 Agency cash flow What are Energy Service Agreements? EE retrofit Baseline payments Baseline energy costs to escrow account for 5-10 years Investment repayment New energy bills 10 Baseline payments need to be adjusted for: Changes in energy prices Changes in operations and comfort levels Severe weather impacting energy use

12 ESAs continued Other aspects But clients need 11 Public entities/municipalities can Energy bill payment discipline, with maintain a positive cash flow throughout recourse for nonpayment the ESA Baseline Metering and consumption-based energy ESAs under EERF may have increased billing (for district heating) procurement flexibility costs allows for Retention of energy savings in order to innovation make baseline payments Smaller projects can be bundled by New energy Sufficient baseline data, comfort levels EERF, lowering product and transaction bills costs Staff qualified to understand and negotiate ESAs Contract duration can be flexible until the investment is fully repaid ESAs may not count against municipal debt limits Performance risks can be offloaded to contractors/escos under simplified energy performance contracts

13 Roadmap for Establishing an EE Fund 1 Obtain government commitment, adopt legislative initiative, and establish legal framework 2 Identify suitable, sustainable funding sources Define fund objectives and target markets Baseline energy costs Establish the governance structure Select the Fund Manager (or Management Team) and recruit key staff Define the financing mechanisms to be deployed, including TA and other services New energy bills Develop marketing strategy and approach; develop a project pipeline Define the operating rules and procedures and the appication forms. Prepare the Operations Manual Identify and document eligibility criteria Develop standardized procurement models, including simplified performance-based payment schemes Develop approaches for project aggregation to reduce transaction costs Define the monitoring, reporting, and evaluation procedures 12

14 Case Study: Armenia R2E2 Fund Renewable Resources and Energy Efficiency (R2E2) Fund established in 2005, started revolving mechanism in 2012 for public EE projects using ESAs Project targeted US$9 million (about 100 municipal street lighting and building retrofit projects) over 3 years To date, the R2E2 Fund has signed 55 ESAs totaling US$8.7 million Average project size is about US$150,000 (one US$1.2 million project with a university) All ESAs are being repaid on time (or early) All projects are subcontracted to local construction firms under simplified performance contracts; to date, all have met or exceeded savings estimates Many new technologies have been introduced, since procurement is based on highest NPV rather than lowest cost Some key lessons/remaining issues include: High % of application rejection (55/307 applications accepted) creates higher admin costs than expected Need to develop robust project pipeline to meet investment target Increased bundling in procurement to lower transaction costs Fund sustainability after project closure is unclear 13

15 Proposed EE Fund: Macedonia Energy Law calls for an EE Fund, but did not specify funding/institutional set-up GoM approved National Program for Energy Efficiency in Public Buildings (NPEEPB) in 2013 with proposed EE Fund as main financing mechanism NPEEPB (Phase 1) would seek to renovate up to 2,441 central and municipal government buildings over 7-15 years Initial capitalization of 30 million in 2016, with second capitalization of additional 30 million in 5-7 years EE Fund would use ESAs, but institutional set-up remains unclear: 14 Option 1 create a new state entity/corporation to act as EE Fund with competitively recruited fund manger Option 2 EE Fund would be managed by Macedonian Bank for Development Promotion (MBDP) with recruited specialists Benefits: GOM can reduce energy spending by about 1/3 ( 14 million/year) over next 15 years Reduced energy imports, refurbished public building stock, improved comfort levels EE Fund designed to be financially sustainable, with funds revolving 2-3 times ( 137 million in total investment over 15 years)

16 Potential for EE Funds in ECA Region There are now several active EE Revolving Funds in the region: Armenia (R2E2 Fund), Bulgaria (EERSF), Moldova (FEE), Slovenia (ECO Fund), Romania (FREE) Albania: Proposed setting up an EE Fund in May 2014; status? Bosnia & Herzegovina: Assigned EE to existing Environmental Funds, allocating grants for now, UNDP and World Bank plan option papers for revolving fund Croatia: Environmental/EE Fund in place offering grants, World Bank prepared proposal for EE revolving fund for municipalities now under consideration, status? Kosovo: World Bank will undertake an options study and design a proposed Fund; World Bank and EC agreed to consider funding in 2017 Montenegro: No dedicated EE Fund structure in place, EE program budget line item in place, IPA support for options study planned in 2015/16 Serbia: World Bank prepared EE Fund options paper with Min of Energy but MOF/gov t has not yet agreed due to fiscal consolidation constraints EE Funds are now being considered in several countries in the region, including Belarus, Kazakhstan, Macedonia, Turkey, Ukraine 15

17 Thank you Jas Singh Senior Energy Efficiency Specialist Energy & Extractives Global Practice Group Tel: