www.pwc.com/it
Financing energy
efficiency
Main barriers and solutions
16 September 2014
RES4MED One-day workshop
“A step change in the deployment of RE and EE solutions in
the Mediterranean”
Investing in Energy efficiency
Main actors and issues (1)
Project
promoter
(Beneficiary)
EE investment
project
Ow
n fin
ance
En
er
gy
cos
ts
red
u
ction
Technology
1
st
issue
Upfront costs
2
nd
issue
Risks on energy
savings
achievements
T
ra
ns
ac
tion
co
sts
4
th
issue
Technology
reliability
NPV NetSavings>Committed resources
5
th
issue
3
rd
issue
Lenghty process
NO GO
16 September 2014
Investing in Energy efficiency
Main actors and issues (2)
Financing energy efficiency • Main barriers and solutions
Project
promoter
(Beneficiary)
EE investment
project
Borr
owed
finan
ce
En
er
gy
cos
ts
red
u
ction
Technology
2
nd
issue
Risks on energy
savings
achievements
T
ra
ns
ac
tion
co
sts
4
th
issue
Technology
reliability
NPV NetSavings>Committed resources+interests
5
th
issue
3
rd
issue
Lenghty process
NO GO
Financial
institution
Loan
Loan repayment
Better risk allocation needed
Investing in Energy efficiency
Main actors and issues (3)
Project
promoter
(Beneficiary)
EE investment
project
Borr
owed
finan
ce
En
er
gy
cos
ts
red
u
ction
Technology
2
ndissue
Risks on energy savings
achievements
4
thissue
Technology reliability
NPV NetSavings>Committed
resources+interests+operational costs
5
thissue
3
rdissue
Lenghty process
Financial
institution
Loan
Loan repayment
T
ran
sa
ctio
n
co
sts
Energy Service Company
Payment (shared
savings)
T
ran
sa
ctio
n
co
sts
Likely to GO
Better financial instruments needed within
an
EPC
16 September 2014
Financing Energy efficiency
Outstanding issues: non financial barriers – technical knowledge
Financing energy efficiency • Main barriers and solutions
Financing Energy efficiency
Outstanding issues: financial barriers (1)
•
Banks and other financial institutions are suffering from
information
asymmetries about the potential of EE technologies.
•
Especially in case of investments with long times of return:
•
commercial banks react to exposure to risk preferring a
restriction of credit
while
•
investment funds, which have a greater appetite for risk,
they prefer to
invest in large volume transactions.
•
Therefore, investments in EE fall into the trap of the absence of mechanisms
mixed "corporate-finance project" that require specific expertise (and interest) of
banks.
•
Financing mechanisms may be available at all levels, applying well known
approaches.
16 September 2014
Financing Energy efficiency
Outstanding issues: financial barriers (2) – matching needs
Many projects in one single ESCO
Risks not segmented, mixed flows
Contractual clauses variable from
project to project
Many single projects,
independent and small
Mixed financing needs
(investment, working capital)
Portfolio financing asks for
homogeneous projects
Risk profiling needed
Standardisation
Preference for segregation
Different financing lines
Financing energy efficiency • Main barriers and solutions
Financing Energy efficiency
Enabling factors: Information
Energy audits
Energy audits provide information on the
current consumption pattern of the
beneficiary and help establishing a
baseline where to build an EPC upon.
It’s necessary energy audits do not only
measure energy demand but also
provide an estimation of the energy
consumption function (linked to level of
activity, weather conditions, etc.)
---
Such baseline must be dynamic.
IT-based monitoring systems
Monitoring and controlling systems, based
on softwares which gather and
elaborate data coming from meters,
are fundamental as facilitators of the
entire EPC process as:
•
they help controlling the energy
performances after the intervention
against the baseline;
•
they help checking the technological
performances.
---Such IT systems help overcoming many
information barriers (and related
16 September 2014
Financing Energy efficiency
Solutions: forfeiting schemes
Financing energy efficiency • Main barriers and solutions
•
The
intermediation of
an ESCO between the
project promoter and
the bank
allows you to
finance the investment,
with a share of risk
borne by the technical
operator and paid by the
bank, which buys part of
receivables energy savings
resulting from the
customer's ESCO.
•
Lenders may
, in turn,
refinance at a fund
operating in the
medium to long term
to
mitigate the risks of their
exposure.
Financing Energy efficiency
Solutions: more complex project finance schemes
10
20
30
40
50
60
70
80
90
100
0
1
2
3
4
Availability fee
Fixed consumption quota
Variable consumption quota
ESCO
Long term
bank
16 September 2014
Conclusions
•
As highlighted before, one of the main condition for projects to start is
minimising transaction costs
.
•
Incentives
can help project start and a good design of supporting schemes
is crucial (for example, tradable certificates).
•
But, basically,
Energy Performance Contracts
need, to work, proper:
•
allocation of risks
, according to competences;
•
segregation of cash flows
, each one covering a given risk;
•
reflection of such risks/flows into contract clauses (ToR)
;
•
standardisation
;
•
financial instruments
;
•
information system
as a guidance through the contract.
Thanks for your attention
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers Advisory SpA, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2012 PricewaterhouseCoopers Advisory SpA. All rights reserved. In this document, “PwC”
