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Www.efficiency-from-germany.info Opportunities and Challenges to ESCO Model in Vietnam Nguyen Dang Anh Thi January 14, 2013.

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Presentation on theme: "Www.efficiency-from-germany.info Opportunities and Challenges to ESCO Model in Vietnam Nguyen Dang Anh Thi January 14, 2013."— Presentation transcript:

1 Opportunities and Challenges to ESCO Model in Vietnam Nguyen Dang Anh Thi January 14, 2013

2 Table of Contents ESCO Business Model3 Status of ESCO in Vietnam6 Legal Framework7 Market Opportunity for ESCO Development8 Major Challenges to ESCO Development12 Case Study14 Recommendations for ESCO Development16 Appendix: Key ESCO Players17

3 Energy Service Company (ESCO) Business Model  What is an ESCO?  ESCO is an organization that offers a broad range of energy-saving solutions, including energy audits, design and implementation of energy conservation measures, operation and management of introduced facilities, and procurement of project funds.  The basic concept of ESCO is that the client does not have to incur any upfront capital investment and is only responsible for the payment for the investment made or arranged by the ESCO.  Two key remuneration models of ESCO contracts: shared savings and guaranteed savings Energy Consumption or utility cost E Client’s financial gain Re pa y m en t Interest Capital investme nt ESCO’s fee Guaranteed Before ESCO project During ESCO project Energy Consumption or utility cost Client’s financial gain After ESCO project

4 Energy Service Company (ESCO) Business Model Shared Savings Financial Model Source: IFC energy service company market analysis (2011)

5 Energy Service Company (ESCO) Business Model Guaranteed Savings Financial Model Source: IFC energy service company market analysis (2011)

6 Status of ESCO in Vietnam  Overview  The ESCO market in Vietnam is still in its infancy and unlikely to develop without sustained government support.  There are about 15 “so-called” ESCOs operating in Vietnam. These are generally small in size and weak in asset base.  Data on level of ESCO activities is limited  Majority of ESCOs in Vietnam remain incapable in terms of finance and technology, therefore they only offer simple services and haven't fully met market demand  Most of ESCOs can not access to financing due to limited financing capacity and weak balance sheet. National EE Law National EE programs Grants for ESCO Energy Audit assistance Tax incentives Yes No

7 Legal Framework  The Law No. 50/2010/QH12 on Energy Efficiency and Conservation took effect in 2011;  Decree No. 21/2011/NĐ-CP of the Government provides guidance on the implementation of the Law on Energy Efficiency and Conservation;  Decision No. 1427/QĐ-TTg dated 2 nd Oct approving the National Target program for Energy Efficiency and Conservation in period ;  Decision No. 1393/QĐ-TTg dated 25 th Sep approving the National Green Growth Strategy;  The Law No. 59/2005/QH11 on Investment; and its guidance documents;  The Law No. 60/2005/QH11 on Enterprises; and its guidance documents;  The Law No. 14/2008/QH12 on Corporate Income Tax;  The Law No. 45/2005/QH11 on Import Tax and Export Tax.

8 Market Opportunity for ESCO Development in Vietnam  Huge market potential  Power consumption is forecast to increase from 81TWh in 2010 to 451TWh in 2030 while supply is shortage.  More than 1,200 key energy-consumption facilities using over 1,000 TOE per year  The total investment needed for EE projects during is US$ 847m  Fuel shortage after 2015  Vietnam has started to import steam coal and oil products over the last 5 years  Although oil is currently its largest source of export revenue, Vietnam is projected to become a net importer by 2015 Source: Reexcapitalasia, October 2010

9 Market Opportunity for ESCO Development in Vietnam (Cont.)  Current efforts of the Government and international organizations to create electricity market based on competitiveness  Removal of fuel subsidies  Power sector reform based on competitive market  Interest of stakeholders in energy efficiency market  Campaign on EE launched in Nov 2012 under which Vietnamese firms having EE projects will have an opportunity to borrow capital from various financial institutions such as: IFC at $100 million Danish embassy at $30 million Asian Development Bank at $100 million World Bank at $70-$100 million, and Japan International Cooperation Agency at $50 million

10 Energy Efficiency in Industrial Sector Source: Reexcapitalasia, October 2010

11 Energy Efficiency in Commercial Sector Source: Reexcapitalasia, October 2010

12  Difficulty accessing financing  Scarce capital and immature banking sector  ESCOs are not aware of how to access financing Unawareness of existing grants, loans, credit facilities offered by a large number of international financial support mechanism. Unclear system for accessing domestic source of capital  ESCOs and their clients are unknown or not considered creditworthy Lenders is lack of familiarity with EE financing Lenders is lack of confidence in return of EE projects  High administrative and transaction costs related to technical challenges, time-consuming contract negotiation, lack of a legal and institutional framework and complicated government procurement rules Major Challenges for ESCO Development in Vietnam

13  Governmental supports in terms of policies and measures are not sufficient:  No tax incentives  Lack of an effective overarching and comprehensive EE policy framework  Insufficient financial support and assistance  Electricity price subsidies negatively effect energy investment  EE is not yet regarded as top business priority by many companies  Users are not fully aware of EE and not confident that equipments deployed can achieve projected savings  Challenges of the EPC business model:  Low profit margin due to electricity price subsidy  The uncertainties associated with remuneration based on guaranteeing savings  Risks associated with clients who do not fulfill their end of the contract  The costs associated with preparing complicated bids that may not be successful Major Challenges for ESCO Development in Vietnam

14 EERF  Founded in 2003  Total budgeted size: US$235mil 13 banks EE/RE Developers max amount ~ US$1.6m/project Loan term: max. 7 years Repayment + Interest (max. 4%/year) Credit lines of US$ mil/bank Repayment within 10 years Interest (0.5%/year)  Projects financed: 294  Total investment: UD$519 mil  Financial saving: US$177 mil/year  Energy savings: 320 ktoe/year  CO2 reduction: 1 mil ton annually Resulted Source: Center for Clean Air Policy, 2012 Case Study 1: Thailand’s Energy Efficiency Revolving Fund (EERF)

15 ESCO Fund (US$32.6 mil) Non-profit foundation EE/RE Developers  Projects financed: 39  Total investment: UD$166 mil  Financial saving: US$30 mil/year  Energy savings: ktoe/year Resulted  Phase 1:  Phase 2:  Equity investment: (10-50% of project, max US$1.6 mil, 5-7 years investment)  ESCO venture capital: (max US$1.6 mil, 5-7 years investment)  Equity leasing: (up to 100% of project cost, max US$0.3 mil, payback <5years, interest rate 4%)  Technical Assistance: (up to US$3250/project)  Credit guarantee facility: (up to US$0.3 mil/project, < 5 years, 1.75% guarantor fee)  Carbon credit trading Source: Center for Clean Air Policy, 2012 Case Study 2: Thailand’s ESCO Fund

16  Having a focal agency to coordinate all EE programs funded by local and international organizations.  Developing financial support mechanisms: Dedicated debt agencies, development funds or grants, loan guarantees… Thailand’s EE Revolving Fund and ESCO Fund could be suitable models to learn.  Building legal framework for ESCO business  Capacity building: ESCOs, bankers, end-users, governmental agencies. Recommendations for ESCO Development

17 KEY ESCO PLAYERS APPENDIX

18 Key ESCO Players Company nameDescription ECC-Ha Noi  Established in 2007  Supported by national budget  Mainly operating in Hanoi and surrounding areas  The primary function: research and consultancy assistance to organizational energy users ECC-Ho Chi Minh  Established in 2002 as a member of the Department of Science and Technology  Supported by national budget  Mainly operating in Ho Chi Minh City and surrounding areas  The primary function: energy auditing, technology transfer, energy conservation training, energy conservation communication, and financial consultancy ENERTEAM  Established in 1995, Enerteam is a non-governmental organization and the first science & technology organization specializing in energy efficiency in Vietnam  Main services: energy auditing, technical & financial analysis and performance guaranty for energy saving  Completed projects: Masan, Big C

19 Key ESCO Players Company nameDescription Schneider Electric Vietnam  Moving from product sale to solution sale since 2008  Strong in providing Building Energy Management Systems and solutions  Provided energy management system for Intel Manufactures, Bitexco Tower, Hilton Hotel, Agribank Data Center, Vietinbank HaNoi, BaoViet Bank Hanoi SYSTECH ESCO  Founded in 2006  Main services: providing equipment and energy saving solutions  Involved in several EE projects sponsored by foreign organizations (Meet Bis, Danida, UNDP, GEF, Jica, USEP, WB, SIDA,..) HATECH ESCO  Founded in 2008, Hatech is a company under the support UNDP and the Vietnam National Energy Efficiency Program (VNEEP)  Main services: providing comprehensive packages of energy saving solutions with financial support to enterprises.  Involved projects: Colusa Miliket Foodstuff JSC, Truong Giang Seafood processing Corp, Thien Tri Paper Manufacture, Thanh Vinh Corp, Thuan An 3,…

20 Key ESCO Players Company nameDescription RCEE-NIRAS  Founded in 2006, RCEE-NIRAS is a Danish-Vietnamese consulting company, mainly operating in the North Vietnam  Main Services: providing consultancy services in Energy, Climate and Environment field  Participating in several foreign Energy and Environment projects together with the Ministry of Industry and Trade VESCO  Founded in 2008 as a “backyard” of RCEE-NIRAS  Main Services: specializing in energy audit  Involved in over 10 projects VETS  Mainly operating in the North Vietnam  Main Services: Consultancy and implementation of EE systems  Target sectors: garment, cement Hoa Thuan Corp  Founded in 2009; mainly operating in the South Vietnam  Main Services: providing EE solutions for compressor machine manufacturers  Target sectors: plastic industry

21 Key ESCO Players Company nameDescription Solar BK  Founded in 2006; mainly operating in the South Vietnam  Main Services: providing packages of EE solutions focusing in solar and wind energy  Completed projects: Majestic Hotel, Morin Hotel, Norfolk Hotel, Sai Gon Hotel, Wooshu complex, Son Long Thuan Resort, Vinamilk, Tan Cang Restaurant,… Viet ESCO  Established in February 2012 by ECC HCMC and Veglia-the first ESCO in Japan  Main services: providing packaged EE solutions and financial arrangement  Succeeded with financial assistance from the International Finance Corporation (IFC).  Ongoing projects : Legend Saigon Kasati ESCO  Established in August 2012 by Vietnam Posts and Telecommunication Group and other individuals  Strategic partner: Enerteam  Main services: providing packaged EE solutions and financial arrangement  Completed projects: No information Further info:


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