Energy Efficiency Financing Colin Pawley

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1 Energy Efficiency Financing Colin Pawley Director Origination and Client Coverage Standard Chartered Bank (China) Limited

2 Content Energy Efficiency Finance PRC Energy Efficiency Financing Program Objectives Financing Structure Program Framework

3 Energy Efficiency Finance - Energy Efficiency Current energy development path is environmentally and economically unsustainable Energy Efficiency will slow the growth of greenhouse gas emissions without sacrificing economic gains or living standards Improving energy use efficiencies will directly lower the cost of energy services, and thereby create financial savings

4 Energy Efficiency Finance - ESCO model ESCO (Energy Service Company) model has been a successful market-based energy efficiency initiative in North America and Western Europe since 1970s and was widely employed in Eastern Europe since late 1990s. Working with ESCOs is one of the most effective mechanisms for implementing energy efficiency. Energy-savings are possible for the end-user without experience or technical expertise. Cash flow base finance debt repayment from realized energy saving during the contract period.

5 Energy Efficiency Finance - ESCO Energy Service Company (ESCO): Develops & implements energy savings projects Arrange finance on a turnkey basis with debt repayment from realized energy savings during the contract period

6 Energy Efficiency Finance - Key Advantages Energy-saving measures without additional cost: All of the costs for retrofitting (work costs, interest, expenses of ESCOs, etc.) are compensated for by the resulting reduction in utility costs. Comprehensive services: ESCOs assure the end-users that they will provide all of the necessary services for energy conservation, including: Audits and consultation for determine energy-saving measures Planning, design, installation and management of installation Monitoring and validation after installation Maintenance and operation management Financing arrangements with financial institutions

7 Energy Efficiency Finance - Benefits End-use customer s current operating costs will be reduced by an mount at least equal to the debt service required to repay the turnkey Construction Price for ESCO to implement Energy Efficiency projects.

8 Energy Efficiency Finance - Risks Cash flow base finance with two key elements of risk: Credit risk capacity of the end-users to repay loan. Evaluation of this risk is core business of commercial banks Project risk capacity of project to reach guaranteed energy savings. Evaluation of this risk is core business of ESCO

9 PRC Energy Efficiency Financing Program Promote energy efficiency in China It mobilises business efforts to reduce energy use and greenhouse gas emissions Demonstrates a commitment to supporting energy-efficient projects Provide medium-term financing at competitive rates to clients that wish to purchase energy-efficient systems from selected Energy Service Companies (ESCO)

10 Financing Structure Each energy efficiency loan to the eligible borrower under the Program is subject to detailed technical review by ESCO, and independent credit assessment and approval by SCB. Loan in RMB with tenor upto 5 years in line with each sales contract. Interest rate and pricing, on commercial terms. Loan amount is up to 90% of the contract value. Repayment of the loan is through the energy efficiency savings created by the new system supplied by the ESCO. ADB partially shares the credit risks with SCB.

11 Program Framework Energy Service Company (ESCO) Sales Contract. Eligible Borrowers Recommend eligible borrower to SCB Loan Financing Loan Repayment SCB Loss Sharing Agreement ADB

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