Mainstreaming Energy Efficiency Financing Insights from a Solution Provider Financing a Sustainable Low Carbon Indian Economy Mumbai, 13 May 2010 T: E: aeee.in

13 May’10 © 2010 Copyright Alliance for an Energy Efficient Economy 2 Alliance for an Energy Efficient Economy (AEEE) is a member- driven industry association providing a common platform for energy efficiency stakeholders to collaborate and align with the Bureau of Energy Efficiency for implementing the Energy Conservation Act, and National Mission on Enhanced Energy Efficiency (NMEEE) AEEE addresses barriers to EE implementation through policy research; facilitating market transformation; fostering technology innovations; capacity building of energy professionals and stimulating financial investments AEEE Mission Vision : An Energy Efficient India

13 May’10 © 2010 Copyright Alliance for an Energy Efficient Economy Why AEEE ? EE Industry: To integrate the highly fragmented EE business in India Support Policies & Regulations: To work closely with MNRE & Nodal Agencies, BEE & SDA’s, and Regulatory Commissions for effective implementation of EC Act 2001, Electy Act 2003 & the NAPCC- National Mission on Enhanced Energy Efficiency Policy Assessment: To address cross-sectoral projects and issues & assess the energy-impact of policies Networking Platform: Platform to share and learn about global best practices, enable industry benchmarking and access to CleanTech financing & incubation programmes Market Transformation: For partnership and co-ordination with Multi- lateral & Bilateral agencies for effective EE market transformation 3

13 May’10 © 2010 Copyright Alliance for an Energy Efficient Economy Highlights of Policy Research and Advocacy Capacity building in M&V and Professional Certification Collaborations and Networking for EE companies with endusers and energy intensive industries Support DSM programmes of Utilities Develop SME Expertise & Network for CleanTech & Startups Supporting India's Emerging ESCO Industry Partnerships & Cooperation with Apex Associations Integrating Resources and Information on Energy Efficiency Benchmarking EE in Indian Industry Nationally and Globally 4

13 May’10 © 2010 Copyright Alliance for an Energy Efficient Economy Industry Opportunities in Sustainable Innovation CII defines benefits of Sustainable Innovation as: sustainability for business and sustainability for the environment & society; and the readiness for its implementation […] businesses, governments and donor agencies need to stop thinking of the poor as victims, and instead start seeing them as resilient and creative entrepreneurs, as well as value-demanding consumers - CK Prahalad, The Fortune at the Bottom of the Pyramid Corporate Social Responsibility is now going beyond Serving the Society, to emerging as a source of opportunity, innovation, and competitive advantage for businisses Shift from Risk-Cost to Opportunity-Profit: FMCG products to the poor, community-based waste management, and solar-based LED lighting options, etc 5

13 May’10 © 2010 Copyright Alliance for an Energy Efficient Economy Need New Business Models in Sustainable Innovations Companies have to recognize sustainability as a driver rather than a barrier for innovation Focus on environmental consequences of business decisions Socio-economic-environmental impacts on businesses a two- edged sword: Climate Change threats, Resource Depletion, Population pressure Expanding middle class and increasing demand for goods & services Re-orienting decision-making: Upfront Cost vs. Lifetime Cost Need for Cleaner Methods and Materials in Indian businesses: India's retail market is expected to almost double from US $ 330 billion in 2007 to US $ 637 billion in

13 May’10 © 2010 Copyright Alliance for an Energy Efficient Economy Energy Efficiency: Least Expensive & Fastest way to Reduce GHG Emissions  India's Energy Deficiency: Peak Power Deficit: 11.6%  Loss of GDP from lack of access and availability of electricity  “Govt of India’s ambitious target of electrifying entire country by 2012, is likely to be delayed because only half the proposed new capacity has been added during the three consecutive 5-Yr Plans between 1992 and 2007”  Energy Conservation Act 2001, aims to reduce India’s energy intensity One unit of Energy saved at Consumer End avoids 2.5 to 3 times Capacity Addition 7

13 May’10 © 2010 Copyright Alliance for an Energy Efficient Economy Financing EE Transition: Integrate EE in all Sectors Financing approach EE Policies & Regulations Incentivise for EE implementation Grants & Funding to support Innovations Increase access to EE financing by ESCOs in PC mode Support & Guide VCs & Startups “Mainstreaming energy efficiency in investment operations by systematically integrating energy efficiency operations within the core energy practice by replicating the business-as-usual and proven energy sector project designs and instruments” - WB EE Action Plan for Sustainable Development (2007) 8 General Industry (End-Users) ESCOs & Consultants EE Equipment Mfrs & Vendors CleanTech Startups R&D+ Innovations

13 May’10 © 2010 Copyright Alliance for an Energy Efficient Economy SMEs in India - Need for role change Victims to Entrepreneurs SMEs constitute 80% of industrial enterprises in India – 3 million SMEs One of the biggest employment-providers SMEs highly vulnerable to global competition, fluctuation in price and input costs Huge potential for EE – and wide variations in present efficiencies – highly diverse and dispersed SMEs lag behind larger Indian industry benchmarks in productivity, technology upgrading & energy efficiency SMEs have low priority for EE due to lack of awareness & capacity (skills) to adopt EE methods & technologies 9

13 May’10 © 2010 Copyright Alliance for an Energy Efficient Economy Financial Barriers for Energy Efficiency in SMEs Over 20 years national and international institutional interventions thru EE programmes in SMEs (banks, bilateral agencies & research organizations, including 3CEE Project) Financing still a constraint for smaller enterprises Low presence of domestic financial institutions in ESCO financing, especially in SMEs Need for greater accountability of measured data on energy performance of industrial operations and processes Lack of incentives for SMEs to monitor & take up EE measures Lack of interest from the industry in implementing capital intensive measures Trust issues relating to service providers: Energy Auditors/ ESCOs, and absence of champions and strategic partners 10

13 May’10 © 2010 Copyright Alliance for an Energy Efficient Economy State of EE Financing for SMEs (USAID-ECO-III Study) Low & medium investment projects, having payback of less than 1 year are normally implemented from internal accruals Medium to large investment projects normally implemented as part of modernization or expansion programme thru debt financing There are several existing sector-specific credit lines – Information on such schemes known only at cluster level (Bank HO) since they are operated through Nationalized Banks Asymmetry associated with reporting production and hence energy usage Preference and comfort in relationship with existing banks (working capital lenders) Decision for obtaining debt financing is based on the scale of investment and importance to main production operations Loan review and servicing process are not consistent and scalable 11

13 May’10 © 2010 Copyright Alliance for an Energy Efficient Economy Recommendations & Solutions (USAID ECO-III Study) Financial Products & EE Solutions to be customized to the client and industry; products to be built around existing ones used for SMEs Need for high level of awareness on possible areas and opportunities for energy cost reduction Need to dovetail EE financing with existing financing schemes, which have a better reach at the cluster level Role of SME associations to unify & empower SMEs To realize & support BEE’s Agenda for Energy Efficiency in SMEs by accelerating adoption of energy efficient technology and practices Create centers of excellence for updated information on case studies, testing facilities and costs of inputs and end-products 12

13 May’10 © 2010 Copyright Alliance for an Energy Efficient Economy Role of AEEE Strengthen ESCO business model through M&V (IPMVP & IEEFP) AEEE aims to engage with Fis and Banks to examine Inttl Energy Efficiency Financing Protocol and its relevance and application to Indian industry Platform to raise the level of SME dialogue with Banks / Financial Institutions Facilitate EE companies (Vendors/Manufacturers) to work with SMEs, through cluster approach & cross-cutting technologies Provide information services for SMEs and facilitate dialogue with other stakeholders (BEE, other policy making bodies) For partnership & co-ordination with Multi-lateral & Bilateral agencies for effective tapping of programmes and financial opportunities Forum for global best practices, enable industry benchmarking and create opportunities for energy efficiency market 13

13 May’10 © 2010 Copyright Alliance for an Energy Efficient Economy AEEE Concept of Energy Auditors Expertise Energy Efficiency: “From Boiler Room to Board Room” Create a pool of skilled and competent Energy Auditors & M&V professionals Level 1 - Energy Audit – Certified Energy Auditors / Managers Identifies opportunities, does not achieve Energy Efficiency per se Level 2 - Investment Grade Audits & develops projects/ DPRs that can attract Banks/ Institutional funding Level 3 – Certified M&V Professional (CMVP) Use reliable, International M&V protocols to COMPUTE energy savings Expertise in EE Financing to ensure/ keep track of payback – by means of IEEFP (International EE Financing Protocol) Level 4 – Carbon Accounting – Carbon Reduction Manager 14

13 May’10 © 2010 Copyright Alliance for an Energy Efficient Economy Support ESCO business and enhance success rate of EE project: M&V and IPMVP Protocol Address the Risk factors in Energy Saving Performance Contracts Affiliation with Efficiency Valuation Organization (EVO) AEEE Member companies ready to share experiences of Energy Audits, Metering and Monitoring projects AEEE leveraged USAID/ECO-III project funding & support for M&V Certification & Training programme IPMVP Trainings and Certification Exam in India M&V Fundamentals trainings in Delhi, Mumbai and Bangalore CMVP Certification training and exam in Delhi Nov’09 First time in India: Certified 8 CMVPs – of 700 CMVPs globally M&V Capacity Building 15

13 May’10 © 2010 Copyright Alliance for an Energy Efficient Economy 16 Thank you Alternative Futures SEE-Tech TIDE Technocrats CMAI Cosmos Ignite BEBLEC