1. ESCO Market Barriers &
Opportunities:
Amit Bando, Executive Director,
the IPEEC Experience
IPEEC

2. 1.
What is IPEEC?
1

3. 2

4. IPEEC is an
Autonomous Entity
Members account for over 75% of world GDP and energy
EU
use.
Germany
United
Kingdom
France
Italy
Russia
Canada
Japan
USA
Republic of
Korea
China
Mexico
India
Brazil
Australia
IPEEC was established in 2009 at the G8
summit in Italy
Reports to G20 Summit, Clean Energy
Ministerial & others
3

5. 8 Task Groups Dedicated to
EE
Policy Making/Capacity Building
Energy
Management
Capacity
Building,
Training
EE
Indicators
Energy
Performanc
e
Finance
Industrial Sector
Energy Management
Commercial/
Residential
Sector
Appliances
Energy Performance
Utilities
Sector
Energy
Provider
Compilation of National and International Initiatives
4

6. 2.
ESCOs &
Performance
Contracts
5

7. Types of EE Financing
Mechanisms
Financing Mechanism
Delivery Channels/Frameworks
1. Subsidies& Grants
2. Lending
Programmes
3. Performance
Contracting
4. Carbon Financing
5. Energy Saving
Certificates Trading
Grants, susbsidies, tax incentives, other
Bank window, low-interest lending,
guarantee funds, other
Guaranteed savings, shared savings, other
CDM funding, Joint Implementation, other
White certificates, ESCerts, EE credits, other
Source: IPEEC Report on the Assessment of EE Finance Mechanisms
6

8. Energy Performance
Contracting (EPC)
 Definition:Loan from the Energy Service Company (ESCO), paid out of the
savings or benefits of the EE projects.
 Benefits: the ESCO:
 shares the energy savings with the customer (shared saving model), or
 assumes the performance risk, not credit risk (guaranteedsavings model)
 Possible use:
 Super ESCOs operated by the government (India, USA)
Issues
Measures to improve effectiveness
• Relatively new mechanism
• Lack of ESCO’s credibility/ability
• In some countries (such as India):
lack of standardised protocols
• Accredition programmes
• Demonstration projects showing the
benefits of EPC
• Formation of ESCO associations
Source: IPEEC Report on the Assessment of EE Finance Mechanisms
7

9. ESCO: With or Without
EPC?
EPC
No EPC, or simple one No EPC
Countries&
Regions
North America,
Europe
Australia,China,
Mexico
Less developed
economies
Type of
services
Technical and
financial services
Simple projects with
little M&V (e.g.: China)
management &
upgrade of equipment
Purchasing,
installation &
maintenance of
equipment
Remuneration Based on energy
saved; ESCO
assumes risks
Specified fee
Specified fee
Sector
All
Mostly rural
electrification
All
Source: IISD (2010) Energy Service Companies (ESCOs) in Developing Countries & others
8

10. Different Types of Energy
Performance Contracting (EPC)
Loan & interest
payments
Financial
ESCO
Institution
Customer
Services
Loan(s)
ESCO
Remuneration
Remuneration
Services
Loan & interest
payments Financial
Customer
Institution
Loan(s)
Remuneration
Sales of Receivables
ESCO
Cash Advance
Financial
Institution
Services
Source: Berlin Energy Agency
Remuneration of
ESCO Investment Customer
Loan(s)
9

11. 3.
The IPEEC
Experience

12. Framework Providing Solid Basis
for Complex Project Structure
EPC Structure in the Berlin Energy Saving Partnership
Remuneration
Public Authority/
Building Owner
ESCO
Saving guarantee
Facilities/Sites
Natural gas, district heat, electricity, oil
Remuneration
Source: Berlin Energy Agency
Utilities
Gas, Electricity and/or
Fuel Supply
Companies
Coordination
Supply
Technical Issues
11

13. Korea: Shared Savings &
Guaranteed Savings
Customer
ESCO
Contract
Recommendation
KEMCO
(Korea Energy
Management
Company)
Loan
Financial
Institution
 As of September 2012, there are 226 ESCOs in Korea
 First Korean ESCOs were established in 1992,
 ESCOs can benefit from:
An Energy Conservation Fund,
 An « ESCO Activation Plan ».

Source: KEMCO (2012), PresentationatIPEEC EE Finance Webinar
12

14. China (1 of 2): Role of the
Government
 In 2010, EPC represented $4.24 billion
 ¾ of them areused in industry
 3 types of EPC:
Shared Saving Contracts,
2.
Guaranteed Energy Savings
Contracts,
3.
Outsourcing Contracts.
 Common examples of basic EPC
involve:
 Focus on specific technology,
 Simple services,
 Less-than-3-year payback.
1.
Government & Market
The government played a
crucial coordination role:
• In April 2010, new
legislation on ESCOs:
• Tax incentives,
• Favorable taxation,
• Clarification of
accounting
principles;
• 12th Five-Year Plan:
ESCOs used as a
market instrument to
promote EE.
13

15. China (2 of 2)
The Role of International
Organisation Support
 In 1998, « Energy Conservation » project (Phase 1) establishing 3




ESCOs:
 $15 Million-grant from the GEF,
 $63 Million-loan from IBRD;
Grant from the European Commission for:
 Technical Assistance,
 Support to the immediate implementation of small projects;
In 2001, « Energy Conservation » (Phase 2):
 $ 26 Million-grant from GEF;
In 2001: support from the UK to establish the future Energy
Management Companies Association (EMCA);
ESCOs also benefit from the IFC training programme (CHUEE)
Source: Sun, Zhu, Taylor (2011); China’s ESCO Industry
14

16. 4.
Conclusion
&Recommendation
s
15

17. What is Needed for ESCOs to
be Successful?
The complexity of the EPC
depends on the type of market
1.
Strong legal framework
a)
b)
Contract enforcement,
Market transparency,
Monitoring & Verification procedures
(M&V),
3. Possibly, fiscal incentives or other
policies supporting ESCOs,
4. Rational energy prices .
Withoutthese conditions, ESCOs have to
focus on basic services:
2.
•
•
ESCOs need Specific
Skills
1. Technical &practical
2.
3.
experience
Capacity to arrange &
manage financing, and to
mitigate financial risks
Business entrepreneurship
& project/client
management skills
Source: Sun, Zhu, Taylor (2011)
Purchasing, installation & maintenance,
Management & upgrade of equipment.
16