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Industrial Development Corporation

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Presentation on theme: "Industrial Development Corporation"— Presentation transcript:

1 Industrial Development Corporation
28 May 2013 Developing a vibrant ESCO market Honey Mamabolo Industry Specialist: Green Industries IFC – INTERNATIONAL ESCO FINANCE CONFERENCE


3 OBJECTIVES IDC motivation Study objectives:
In conducting the study, the IDC sought to enhance its position in effectively addressing market related barriers in the energy efficiency and renewable energy sectors. To develop financial instruments that support ESCOs and enhance investments in energy efficiency . Study objectives: To perform a review of international best practice in ESCO market development as a benchmark for the assessment of the situation in South Africa To undertake a detailed analysis of the South African ESCO market based on structured interviews and questionnaires. To identify and analyse existing and/or perceived technical, financial, social and regulatory barriers in the market To investigate plausible support measures to overcome these barriers based on international expertise and experience.

4 TIMELINE IDC and KfW partnered under the framework of South African-German financial co-operation - December 2010 R 500 Million Green Energy Efficiency Fund (GEEF) launched– October 2011 Key challenges - Slow development of ESCO market in South Africa IDC engaged PWC to conduct ESCO market in South Africa – November 2011 Abridged Market Study published–September 2012

5 RESEARCH METHODOLOGY Scope :10 countries covered
US, Canada, UK, Germany, Italy- fully matured ESCO industry Brazil, India, China, Japan and Australia- market transformation and developing Survey Size and Range: 30 responses from 146 questionnaires covering ESCOs , Financial Institutions and End users Focus Areas Inception and history of development Present size and scope Key barriers and enabling factors Future growth potential Key lessons Categorization and Grouping of barriers The various barriers identified and discussed were grouped in seven different characteristics critical t in the literature may o the development of any emerging industry. Awareness, information and understanding Trust and Sceptisms National policies, legislation, regulation and incentives Administrative hurdles and high transaction costs Finance and Resourcing Monitoring and verification External factors like energy prices, financial crisis, economic downturn etc.

6 DEFINITION ESCOs have been classified in several ways in the literature depending on their origin, target customers and type of services, etc. ESCO markets in the developing countries generally adopt the following classification Vendor ESCOs are equipment manufacturers and generally do not operate in the utility driven DSM industry and tend to focus on large industrial clients. Utility ESCOs bid to serve as providers for utility funded DSM programs and are paid based on electricity savings. Contractor ESCOs typically work with contractors in green field construction projects by installing more energy efficient equipment than what might have been provided otherwise. Engineering ESCOs perform design and other services but are seldom involved in performance contracts.  Transitioning to: Energy Performance Contract ESCOS : enters into a shared savings or guaranteed savings energy performance contract. The ESCO is willing to take financial, technical and other risks with the ESCO’s payment directly linked to the amount of energy saved (in physical or monetary terms).


8 BARRIERS TO MARKET Awareness, Information and Understanding
Trust and Skepticism Financing and Resourcing Lack of customer awareness-a common definition of what an ESCO is. As a result of this potential customers are not in a position to assess the benefits of the ESCO’s offerings. Limited understanding of energy efficiency opportunities and also the energy savings estimated in the feasibility reports often prepared by third party agencies; High pre-investment development and transaction costs- Cost of audits often not included as part of financing Limited understanding of ESCO services within banks and other Financial Institutions - including concept of energy performance contracting Aversion to outsource energy management tasks and allowing an outsider (the ESCO) to intervene in common practices and/or change equipment that the users are used to. Perception of high credit risks-Conventional financial institutions tend to view ESCO’s and energy efficiency projects as “business as usual” finance applications, and do not apply credit assessment criteria specifically designed for the ESCO industry. ` Information failure on energy usage, baseline data ,benchmarking data and energy audit reports Lack of accreditation within ESCO Market Lack of collateral-In asset-based lending the bank requires a collateral and energy efficiency projects usually lack high value collaterals.

National policies, legislation, regulations and incentives There are a number of national policies, legislation and incentives within the South African Industry, however many stakeholders do not know or understand these policies, regulations or incentives. External factors There two main external factors are the relatively low energy prices that make energy efficiency projects and the payback on energy efficiency savings more difficult than in other markets globally. Project approval times The time taken to approve project funding means that ESCO’s loose project opportunities as clients sometimes decide that they no longer require the ESCO’s services. Industry Associations Only a quarter of the ESCOs registered on the Eskom database are registered with an ESCO association so it does not represent the best interest of all ESCOs and the fact that two exist further reduces the bargaining power of the industry and increases the risk of public mistrust

10 MARKET ENABLERS No. Initiative Countries Examples 1
Innovative risk sharing and transfer mechanisms USA, Canada, China, Brazil, Germany, India Brazil’s government guarantee scheme for loans to EE projects. Which shares 80% of the credit risk of the lo an with commercial banks. 2 Demonstration of pilot projects/savings/EPC USA, Canada, India, China, Italy In India the government provides grants finance Energy Audits and Feasibility studies as well as pilot projects. 3 Demand Aggregation/Project Bundling USA, Canada, India, China, Japan, Germany, Italy, Australia, UK, Brazil The Berlin Energy Agency in Germany has successfully pooled over a 1000 public buildings and more than 500 private properties. 4 EE focused pubic procurement laws and mandatory EE targets Italy, Germany and UK Italian white certificate scheme: energy efficiency targets and trading scheme

Financial Greater access to working capital Bridging loans from Financial Institutions Risk Guarantees from Government and or Eskom – Credit risk guarantees Publicised well documented financial models Product transparency Training of FI staff in evaluating ESCO projects Technical assistance The high cost of the energy audit to be covered by Eskom / FI / government Cheap finance Off-balance sheet funding Regulatory New Tax incentives Carbon Taxes New building regulations to be monitored and for digressers to be penalised NERSA approving higher electricity prices Regulation changes allowing Municipalities to more easily involved in EE projects Higher incentives for Energy savings Greater penalties – enforced Sustainability and triple bottom line reporting

Others Accreditation of ESCO’s to improve confidence in the industry M&V accreditation system Attach a cost to energy audits so that only serious clients acquire ESCO services Standardisation of EPC and tender documents to reduce transaction costs and create greater trust in the ESCO industry Greater communication about the profitability of EE investments More training and workshops to ESCO’s to improve technical skills – particularly in smaller ESCOs Greater social awareness – Changing the mindset of South Africans that electricity is cheap

92% of ESCOs indicated that high energy prices are a key driver for market growth While 67% of ESCOs indicated that access to finance at competitive rates and terms would enable energy efficiency investments

2008 National Energy Efficiency Strategy for South Africa 2005 (NEES), Revised Targets energy intensity reduction of 12% by 2015 2009 2010 2011 2012 2013/14 Energy White Paper of 1998 1 million SWH Target by (revised to 2016) Integrated resource plan (IRP) 2010 Building Regulations & Building Code (SANS XA:2011) with SANS 204 NGP Green Accord Industrial Policy Action Plan (IPAP2) 2012/2013 – 2014/15 Green Industries a key sector Income Tax Act – Regulations on tax allowances for Energy Efficiency Savings (Section 12I and 12L) Carbon Taxes-at R120 per ton effective from 1 January 2015 National devl plan Government Objectives >>> Energy Efficiency Projects through the various ESKOM EEDSM programmes >>> 1 million Solar Water Heater Government Target Announcement by Minister of Energy 23 June 2009 DSM 3 yr target: To save another 1074MW

2009 2010 2011 2012 2013/14 1 million Solar Water Heater Government Target Announcement by Minister of Energy 23 June 2009 Lack of rollout due to uncertainty of rebates Beginning 2010 not many installations then Eskom increased the Rebates SASSA started developing mass rollout of LPSWH Mass rollout of LPSWH as a result of IDC client “SASSA” and other ESCos offering free systems to RDP houses.(24000 SWH per month) From last quarter 2011 to end 2012 restriction of LPSWH remained in place with the largest allocation per ESCO being limited to 1200 units per month. Factors affecting the market and the SWH rollouts Contract route of rolling out LPSWH based on the budget of R4.7 bn that was announced by the minister of finance in the 2012 budget speech. Restrictions placed on the LPSWH rollouts due to EEDSM objectives not being met. IDC facilitated increased in local content to current levels of ca 80% through industry facilitation and investments SWH Installation tragectory in light of policy support >>> IDC impact IDC Clients

Performance Contracting (5MW+) (Custom or Hybrid Solution iro Technology R/kWh Payment during and on completiion ESCO Model (1MW+) (Custom or Hybrid Solution iro Technology) Progress payments made Standard Offer {50kW – 5MW) (Limited to category of technology – per published list) Payments in line with Published R/kWh Payment terms 70(Yr0):10 (Yr1):10(Yr2):10(Yr3) (Implementation and then on each anniversary) Standard Product {0kW – 250kW) Set rate per product installed Payment post implementation IDC Funded Clients 3 ESCOS IDC impact IDC Funded Clients None thus far IDC Funded Clients 3 ESCO Led Projects ) ESCO implementing at large alloys company New Opportunities: - Residential Mass Roll out - Rooftop PV IDC Funded Clients 1 ESCO

The project has resulted in more than 70,000 LPSWH being installed nationally to the impoverished communities for free. The innovative funding model was facilitated through the CER revenue, A Rebate for Energy Efficiency and the bridging finance facility from the IDC. Ref: Diagram work ESCO IDC (Industrial Development Corporation) Carbon Credit Off - Taker Carbon Developers ESKOM REBATE PAID Municipality Households (Beneficiaries) Equipment Suppliers ERPA Prepayment G uarantee MOU Signed (Guaranteed By the IDC) Net P repayment A fter Costs Free Direct Low Pressure Solar Water Heater Cession Of Rebate and Cession of the Carbon Credits Funding of the working capital requirement

MARKET SITUATION RESPONSE HIGHLIGHTS/IMPACT Late 2010 IDC and KFW sign loan agreement for €48M and €2. 1M Technical Assistance and Capacity Building Grant 8MW cogen SACC plant-45GWh/yr and 46ktCO2 Constrained electricity supply and high prices mass rollout of 310GWh /34MW showerheads Access to finance barrier to EE/RE investments 2011 Market Launch of the R500M Green Energy Efficiency Fund(GEEF)- 10% of FUND committed at launch Aggressive marketing with Industry Associations & Partnership with Eskom -increased demand for ESCO services -High cost of small scale RE development 2012 60% of committed funding to ESCOS ESCO Market Study published-access to finance barrier to entry R400 million credit line established to finance PPA based 1MW- 10 MW and greenfields EE IDC impact Industrial Energy Efficiency 2013 27 FREE Walk through audits and 4 investment grade audits 17 companies financed at R174 million ( ca 35% of GEEF) 69% of funds committed to SMEs

19 GEEF: Developmental and Environmental Impacts
Energy saved CO2 Tons Equivalent Avoided 386,930/year 383,445/year

20 R174m 17 Future Future Focus INDUSTRIAL ENERGY EFFICIECY
Amount committed circa: 35% of R500m 17 Number of Deals approved INDUSTRIAL ENERGY EFFICIECY AND SELF USE RE SWH Energy Performance Contracts Cogeneration Waste to Energy Variable Speed Drives Roof Top PV Programme supported by the German Cooperation and Development Ministry

21 Addressing high cost of small scale RE development and need for Green Fields EE
Capital Source French Development Bank (AFD) Targeted Projects Greenfields Energy Efficiency ( linked to manufacturing expansions or new plants) Small Scale Renewable Energy sold under PPA ( both REIPP and B2B) Refurbishment of RE plants Project Size ZAR 1 – 100 million Pricing Fixed rate of 10% or Prime less 1% Loan Term Up to 12 years, there-after normal risk rate applies

22 Conclusion Pro-active approach to develop Green Industries
Renewable energy Energy efficiency Fuel based green energy & Emission and pollution management Bio fuels As well as localisation opportunities Focus on early phase project development; Develop specific funding interventions; Support and development of an emerging industry at various levels; Value chain approach with an objective to develop a long term sustainable industry.

23 Prospects Thank you Industrial Development Corporation
19 Fredman Drive, Sandown PO Box , Sandton, 2146 South Africa Telephone Facsimile

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