Energy in a Megacity Future: Role of Financing Dr. Mark Bernstein Managing Director USC Energy Institute University of Southern California

Outline  Setting the stage  Technology Options  Policy Options  A focus on green financing  A green bank? USC Energy Institute

Mega is in the eye of the beholder….  From the standpoint of energy – a megacity could depend more on it’s relative population rather than absolute numbers  For example – a city of 1 million in a small country faces the same problems as a city of 10 million in a large country  Governments in the small country may have a more difficult time solving the same problems  A quarter of the world urban population live in cities that have 1 – 5 million people; 10% live in cities larger than half a million; and less than a million  There are a lot of opportunities to help these cities as well USC Energy Institute

Some key facts help to set the stage  In cities  Two-thirds of global energy is consumed  70% of CO2 emissions are emitted  In OECD countries energy use in cities is more efficient than non-city use  In developing countries it is the opposite for commercial energy  In India – 87% of electricity is used in cities  In China urban residents use 40% more commercial energy than non-urban residents  In China over 85% of coal is consumed for urban energy requirements USC Energy Institute

Some more key facts in developing country cities  Electricity losses are considerably higher in urban areas  Lighting consumes 20% of total electricity use  Water heating also takes a large share  Air conditioning loads are rising  In China 40% of summer electricity in urban settings is air conditioning  Energy embodied in goods and services are higher in cities  Air pollution in cities continue to grow  NOx is expected to grow by more than 20% by 2030  Particulate matter is expected to grow more than 10% by 2020 before beginning to decline USC Energy Institute

So what can we do about this? Reduce energy use Use renewable technologies Build better buildings Encourage public transit Improve land use

Policy and regulatory options abound  Regulations:  codes and standards  minimum efficiency requirements  inspections  zoning and use restrictions  Taxes and incentives:  user fees and taxes  credits  subsidies  loans  Government purchasing  Outreach and education USC Energy Institute

Green financing has an important role in the future of energy use Green financing products  Mortgages, retrofits, short and long-term Leasing opportunities  Green financing should offer more attractive products  Easier access to loans  Simpler qualification process  Lower interest rate  Longer fixed term period USC Energy Institute

There are different roles for green financing depending on income levels Commercial Banks can provide green finance opportunities Middle/ Upper Near poor Revolving Fund Microfinance, Leasing, Cooperatives, Municipalities Poor Utilities, development banks Cooperatives, Municipalities Dedicated government programs Extremely poor USC Energy Institute

EERE loans ARE different from other types of loans  Investments lead to lower costs which is distinct from other financial products  Efficient buildings offer unique benefits to the lender  Reduced costs gives borrower more disposable income  This can reduce the risk of defaults  More energy efficiency can lower future tariffs thereby:  Reducing risks of defaults for all residents and  Benefiting the whole economy USC Energy Institute

Microfinance can be used for efficiency  Micro-financing may be appropriate for energy efficiency  Compact fluorescents,  Heater blankets,  Home insulation and more efficient appliances  Solar water heating  Should be different from existing micro-loans  Could be financed through ESCO or energy shops USC Energy Institute

Public sector support will be needed  Perhaps short term support to create a robust financial market  Government or other institution loan guarantee  Short-term subsidized credit facility  Interest rate subsidy  Tax credit  VAT exemptions  Building Codes  Public benefit fund  Others? USC Energy Institute

The ESCO Model can be an important contributor  Energy Service Companies  Are certified venders  Make money the more energy they save  Helps to aggregate demand  Reduce banks paperwork  Ensures long-term viability  ESCO makes investment in efficiency or renewables  Customer pays a monthly fee based on expected savings and needs of ESCO to re-pay financing  ESCO shares the risk with the Banks  Utilities and energy shops can be involved with this model USC Energy Institute

A local ‘Green Bank’ may help  Dedicated to making loans that reduce energy use, use more renewable energy or reduce greenhouse gas emissions  Can aggregate resources and demand  Can have a different risk profile  Can be more flexible  Can have a ‘micro-finance’ piece USC Energy Institute The key to this: Energy policies need to include lending institutions