Is there a future for ESCOs and DSM models in WBG Ops ?

Focus on ESCOs and DSM so far…  Two commonly used models in the energy efficiency projects  Have been around for 15 years (?) in the Bank, but the track record is mixed  Few succeses to show e.g China ESCO program, Thai DSM program

Why is Utility DSM Attractive as a model ?  Well defined, captive customers for the program  Utility bill can be utilized as a repayment mechanism – Sri Lanka CFL program, India capacitor leasing  Simple project structure, reasonable technical capacity  Impact evaluations can build on existing metering and data gathering

What did we learn from experience ?  Utilities are largely interested in DSM for load management, reactive power compensation, loss reduction and public relations– EE is a secondary benefit  Regulatory/policy interventions are required to sustain, especially in reforming sectors  Utilities are hesitant to undertake any financial intermediation role  DSM group is often marginalized within the Utility  Skills other than technical skills are lacking

ESCO as a Business Model  Allows private sector participation and financing  Technical and/or financial risks are moved away from the end-users  Inherent business incentive for EE growth  Full service ESCOs are a one stop shop for customers

What did we learn from ESCO projects ?  There are a wide range of models (Full service to technical performance guarantee)  Legal and financial “infrastructure” required to support such businesses is often lacking in our client countries  Characterized by small, new businesses with low capitalization- equity problem  Lack of credibility to raised debt – the ESCO-lender Gap

What are some other models for Delivering EE ?  Loans and risk-sharing programs to finance EE projects for end-users (seen earlier)  Market transformation approaches such as manufacturer negotiations, facilitating bulk procurement, standards & labeling etc.

Where do we go from here ?  EE project financing should be the core theme rather than ESCO development  DSM is appropriate for niche applications where core utility benefits are obvious  Building capacity of the commercial banks in EE project financing is valuable  Complementary EE Market transformation approaches should be considered