APEC ENERGY WORKING GROUP FRAMEWORK PROPOSAL FOR IMPLEMENTING ENERGY INVESTMENT RECOMMENDATIONS (November 2004).

MINISTERIAL DIRECTIVE 6th EMM, Energy Ministers directed the EWG: “to implement the recommendations of the ‘Energy Investment Report: Facilitating Energy Investment in the APEC Region....” APEC Economic Leaders called on EWG in October, 2003 “to work with the private sector and financial institutions to facilitate greater investment in clean and more efficient energy infrastructure and technologies.” The Recommendations resulted from 3 financing workshops which carried out the direction of the APEC Economic Leaders. These efforts are part of the Longer-Term Measures to advance APEC’s Energy Security Initiative.

NEED FOR ACTION By 2020, energy trends indicate that total GDP in APEC expected to double and demand forecast to grow by 60 percent. Need for significant investments in energy infrastructure and an economic and environmental imperative to rationalize energy use through reducing energy demand and energy intensity. Public funds will not be sufficient to meet the region’s energy requirements; Private capital must be mobilized and the risks and costs of investment reduced. Benefits of investment in cleaner, more efficient energy manifold: increased energy security, increased productivity/economic development and decreased energy-related environmental and health impacts. Notwithstanding benefits, workshops revealed that Energy Efficiency and Renewable Energy markets are underdeveloped relative to their market potential; Workshops also recognized that funding is available but is not getting to qualified projects. APEC’s EWG can help to close gap between project development and financing; Entails public-private partnerships to address risks and costs; Focus on building local financial/commercial infrastructure to link private capital with project development.

MEETING THE CHALLENGE To help address challenge for significant investment and to rationalize energy use, this Framework Proposal recommends four steps for action: EWG Task Force on Energy Efficiency and Renewable Financing; IFAT to Help Build Local Commercial Capability; Databases and Information Sharing Systems; and Project Development.

ENERGY EFFICIENCY AND RENEWABLE FINANCING TASK FORCE Objective: Develop New Business Models to Commercialize and Build Self-Sustaining Financing for Energy Efficiency and Renewable Projects that are smaller scale and have different risk profiles and higher investment hurdles than conventional energy projects. Four Functional Areas for Coordination: –Engage Financial Institutions and Private Sector through EBN and Expert Groups; –Promote Supportive Policy and Regulatory Frameworks; –Increase Awareness of Benefits of EE/RE Systems and Expand Database and Information Sharing System Capability; and –Develop Market Capacity and Mechanisms to Commercialize Financing. Task Force to assure maximum efforts and results; Contribute to a lasting developmental impact by building self-sustaining markets for financing these projects.

IFAT PROGRAM Develop framework for IFAT technical assistance program to build local EE/RE finance expertise that can link private capital with qualified projects at lowest cost to project developers; Increase local financial sectors’ experience and capacity to provide project financing on an ongoing and eventually independent basis. Train local financial institutions to evaluate financial and technical aspects of projects and use procedures to mitigate risk on a portfolio basis. –Developing and marketing specialized financial products/services; –Using Standardized tools and documents to mobilize capital. Train project developers to structure bankable projects. Develop profitable new business lines for participating financial institutions in host economies.

INFORMATION SYSTEMS Expand Database and Information Sharing Capability to make connections, educate and increase investment flows. Two Operational Account Proposals (EGEEC/EGRNET): –Energy Efficiency Database and Information Sharing System Case Studies on Best Practices and Lessons Learned; Information and Guidance on Tools for evaluating Energy Performance; Users Guide on Energy Management Models and Benchmarking Tools; and Integration of Energy Efficiency Recommendations into EWG Pledge and Review Program. –APEC-CPI and EWG Website Information on Best Practices/Lessons Learned; Financial Programs; Policies and Incentives; Interactive Facility on Projects, Financing and Partners Market Facilitation Network for Partnership Building Full Cost Accounting Methods; Standardizing Terms of Reference for Technology Deployment.

PROJECT DEVELOPMENT Self-Funded Proposal by U.S. to scale-up EGEEC projects to build self- sustaining markets for financing EE/RE projects. Key components: –Financial Intermediaries/Special Purpose Entities to develop and use standardized tools and documents and specialized products to raise capital at lowest cost to project developers; Provide replicable financial structures for raising capital to accelerate project development and increase investment into economies; –Integrative Public-Private Sector Financing to develop opportunities for innovative underwriting of efficiency improvements to public facilities; –Capital Market Facilities to Incentivize EE/RE Lending: Incentives to bring down the cost of capital, extend financing terms and guarantee loans for banks, e.g., finance guarantee facilities, public benefit funds, standardizing small-scale distributed energy projects by securitizing accounts receivable. TILF Account Proposal to Standardize Financing Procedures and Transactions. Key components: –Standardize methods and procedures for financing to enable long-term financing on a “cash-flow” basis; o Standardize tools/procedures for measuring and verifying energy performance to support non-asset based financing and to increase return on investment.

RECOMMENDATIONS To carry out APEC Energy Ministers directive to implement EE/RE Project Financing Recommendations, Recommend: Endorse Proposals at this Meeting to: –Establish Energy Efficiency and Renewable Financing Task Force; and –Develop Framework for IFAT Program to Build Local Commercial Capability. Consider and Endorse Out-Of-Session Self-Funded Proposal to Build Self-Sustaining Financial Structures Based on EGEEC Projects. Support at next EWG Meeting Project Proposals for Funding: –Operational Account Proposals to Expand Information Systems; –TILF Account Proposal to Standardize Financing Transactions and Methods for Measuring Energy Performance and Emissions Reductions.