INDUSTRIAL ENERGY EFFICIENCY FINANCING: THE EBRD EXPERIENCE JOSUÉ TANAKA MANAGING DIRECTOR ENERGY EFFICIENCY AND CLIMATE CHANGE PRESENTATION PREPARED FOR FIRST MEETING ENERGY EFFICIENCY CAMPUS TORINO, 17 OCTOBER 2013
PRESENTATION STRUCTURE INDUSTRIAL ENERGY EFFICIENCY FINANCING: THE EBRD EXPERIENCE EBRD overview • Rationale for EBRD energy efficiency focus • SEI: EBRD energy efficiency strategy • EBRD industrial energy efficiency activity • ESCO: opportunities, challenges and action • 1
EBRD OVERVIEW INTRODUCTION • International financial institution promoting transition to market economies in 34 countries from central Europe to central Asia. • In 2011, the Bank expanded its operations to include Egypt, Jordan, Morocco and Tunisia (Southern and Eastern Mediterranean – SEMED region). • Owned by 64 countries and two inter-governmental institutions. • Capital base of €30 billion* Cumulative business volume of €81.7bn Note: Unaudited as at 31 July 2013 2
EBRD OVERVIEW REGION OF OPERATIONS 3
EBRD OVERVIEW EBRD ACTIVITY € billion • AAA/Aaa rated multilateral development bank. • Invested over €81.7 billion in more than 3,800 projects since 1991. • 2013 YTD: • €5.2 billion invested in 257 projects • Private sector accounted for 79% share • Debt 83%, Equity 11% and Guarantee 6% Note: Provisional data 4
RATIONALE FOR ENERGY EFFICIENCY FOCUS ENERGY INTENSITY PPP $ per kg. of oil equivalent 5
RATIONALE FOR ENERGY EFFICIENCY FOCUS ELECTRICITY DEMAND TRENDS Electricity consumption affected by • GDP, population growth, urbanisation. Electricity market tends to grow +4% • on average above country growth rates (and even higher in EBRD region) Domestic electricity tariffs in EBRD • region are rising to catch up with EU levels 6
SUSTAINABLE ENERGY INITIATIVE OVERVIEW EBRD launched the Sustainable Energy Initiative (SEI) in 2006 as part of international initiative to scale-up financing for energy efficiency and renewable energy. From launch to end 2012, the following SEI results have been achieved: • €12.5 billion of cumulative SEI EBRD financing • Over 700 projects • €61 billion total project value • 57 million tons CO 2 emissions reduction per year (equivalent to annual emissions of Sweden) • One quarter of EBRD annual investments in SEI 7
SUSTAINABLE ENERGY INITIATIVE ACTIVITIES The SEI is structured along activity areas which correspond to specific climate change mitigation actions. These include: Industrial energy efficiency investments in energy-intensive industrial processes such as steel • manufacturing, aluminium smelting, cement and glass production, as well as major transport investments, such as in railway operating companies. Sustainable Energy Financing Facilities (SEFFs) through local banks in countries of operations • to support industrial energy efficiency in small and medium-sized enterprises (SMEs), small- scale renewable energy and building energy efficiency projects. Power sector energy efficiency to improve the energy efficiency of transmission networks and • thermal power stations which generate the majority of energy in the region. Renewable energy project financing including technical cooperation to shape the institutional • and regulatory frameworks for renewable energy investment. Municipal infrastructure energy efficiency including upgrading and development of district • heating, public transport networks and water supply systems. SEI activities also include climate change adaptation, carbon market development and sustainable energy policy dialogue supporting transformational change. 8
SUSTAINABLE ENERGY INITIATIVE COMPOSITION 2006-2012 9
SUSTAINABLE ENERGY INITIATIVE CUMULATIVE INVESTMENT BY ACTIVITY SEI business volume (2006 – 2013 Q3) Business area Financing volume (in € million) Industrial energy efficiency 3,156 SEFFs 2,158 Cleaner energy production 3,373 Renewable energy 2,109 Municipal infrastructure 1,646 energy efficiency Total 12,500 10
SUSTAINABLE ENERGY INITIATIVE CUMULATIVE INVESTMENT BY REGION Central Europe Russia and the Baltic 2006 – 2013: €2.6 billion 2006 – 2013: €2.2 billion Central Asia 2006 – 2013 : €0.7 billion Eastern Europe and the Caucasus 2006 – 2013: €2.5 billion South-Eastern Europe 2006 – 2013: € 2.5 billion Turkey • Total signed SEI finance from 2006 to 2008 – 2013: €1.4 billion date: €12.5 billion Cross-regional • Total estimated GHG emissions South and Eastern Mediterranean 2006 – 2013: €0.5 billion 2012 – 2013 : €0.1billion reductions 57 million tonnes CO 2 e /year
INDUSTRIAL ENERGY EFFICIENCY BARRIERS TO ACTION Behavioural and technology-related • Historic focus on top-line growth strategies (acquisition, expansion), not cost saving • Poor energy management culture with no strategic focus on EE • Lack of project implementation capacity (e.g. technical managers focused on operations and maintenance and not EE opportunities) • Little penetration of BAT EE technologies and practices in EBRD COOs (knowledge / experience gaps) Financing • Long-term commercial loans not readily available, other financing priorities (not EE) • Gap between financial decision-makers and technical staff • EE financed out of residual maintenance budgets, no strategic borrowing for EE Policy • limited policy support (incentives and penalties, awareness) • energy tariffs not reflective of externalities (e.g. cost of CO 2 emissions) RESULT: profitable EE opportunities not identified or not implemented 12
INDUSTRIAL ENERGY EFFICIENCY SEI BUSINESS MODEL Projects across SEI areas PROJECTS AND INVESTMENTS POLICY TECHNICAL DIALOGUE ASSISTANCE Technical Assistance to overcome barriers: Working with market analysis, energy governments to audits, training support development awareness raising, of a strong institutional grant co-financing to and regulatory provide appropriate framework that incentives and address incentivises sustainable affordability constraints energy 13
INDUSTRIAL ENERGY EFFICIENCY SEI PRODUCTS EBRD energy efficiency product offering includes: •Promotion of best practices on energy efficiency in energy intensive and other sectors •Financing for EE projects: dedicated EE loans or EE as a component within broader investment programs •Financing to corporates, dedicated financing facilities via partner commercial banks, financing of third-party intermediaries ( ESCOs) •Array of financing instruments and tenors •Technical support to clients on energy efficiency •Policy support to governments to help address barriers and stimulate private investment in EE 14
INDUSTRIAL ENERGY EFFICIENCY TECHNICAL SUPPORT Dedicated EBRD technical experts to support project assessment and preparation • Additional technical resource and expertise via external consultants hired by EBRD • and financed from EBRD’s technical cooperation funds: Investment grade energy audits to identify energy and resource saving • projects and develop priority investment plans Detailed feasibility studies in the area of process and energy systems • optimisation, resource efficiency Assistance in project implementation (procurement, etc.) • Evaluation of energy management system, support to further improvement • and certification under ISO 50001, training to personnel Link technical to financial decision maker by bridging gap between financial • decision makers and technical staff (objective estimation of potential, investment plan) Increase the volume and accelerate the pace of EE investments through long-term • financing arranged by EBRD 15
CASE 1: INDUSTRIAL ENERGY EFFICIENCY Svilosa, Bulgaria Client: Pulp and Paper mill • EBRD finance: € 18 m Loan (2005) for the restructuring and expansion of Svilosa Pulp & Paper mill • Use of proceeds: € 14 m used for EE modernisation of equipment and processes: • heat recovery • replacement of compressed air units • frequency controllers on electric motors • back-pressure steam turbine to recover wasted heat and produce electricity, etc. • Efficiency and cost benefits: energy costs reduction of € 5 m per annum; productivity improvements • IRR range: 11% - 137% (avg. 31%). Payback of all investments: ~ 3 years • Environmental benefits: CO2 emissions reduction (750 ktonnes CO2e), reduced water and heat losses 16
CASE 2: INDUSTRIAL ENERGY EFFICIENCY NLMK, RUSSIA • Client: NLMK – one of the leading Russian integrated steel- making companies • EBRD finance: €125 m. long term loan to co-finance part of NLMK’s EE improvement programme with a cost of €490 m • Funds partially used to finance 150 MW combined heat and power plant using waste gas from blast furnaces • Project Impact: Estimated energy savings 10,800 GWh per year, CO2 reduction of 1,500 ktonnes CO2e per year • Additionally, Global Environmental Facility funded the The program will result in a 15% reduction of energy demand by 2015 assignment that supported NLMK in the implementation of the first ISO 50001-certified energy management system in Project signed in 2010 Russia. 17
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