The South African ESCo Market

Transcription

1 The South African ESCo Market International best practice in a South African context SAEE November 2016

2 GLOBAL MARKET Internationally, ESCo markets are well established and growing strongly Global ESCO revenue pool 1 growth estimate by region USD billions US/EU breakdown by vertical (2006) Others 2 Europe 3 US % CAGR Source: Frost & Sullivan; Berkeley lab; Datamonitor; World Energy Council; US ESCO meetings; Korea ESCO meetings; expert interviews; team analysis In this document, we are using strict definition of ESCO market, which includes performance-based contracts and excludes performance-risk-free contracts. And this market size estimation includes both equipment and service revenues, but it excludes energy procurement service revenue 2 Includes Korea($0.4n), China($0.7bn), Japan($0.3bn), Brazil($0.2bn), and India($0.01bn), as of Includes only EU-15 countries. i.e., UK, Germany, France and other EU-15 members. UK, Germany and France account ~20%, ~15%, and ~8% of EU-15 ESCO market 4 Most of ESCO customers in public sector are under renovation industry expert Industrial EU market Residential ~5 ~35 ~40 ~20 Commercial US market Industrial Commercial Residential ~80 Public Sector 4 Public Sector 4 2

3 GLOBAL MARKET Largely driven by attractive risk/return characteristics Source: ACEEE 3

4 Despite the returns offered by EE/RE projects, clients remain skeptical; overcoming these will determine success of ESCo industry development Energy is not my core business, I don t know what to do. ESCo Model - So many people are approaching me, whom do I appoint? ESCO Register - I do not have the funds available, and do not want to take on more debt. Finance Database - I have better investment opportunities such as revenue producing assets. Energy Trading 4

5 ESCO MODEL What is an ESCo Energy Services Company (ESCo) is an entity that provides energy services Typically a combination of energy supply and energy efficient technology that leads to energy efficiency improvement or energy savings Consultancy providers Technology suppliers Performance-based energy contractors Energy Supply Contracting Energy Performance Contracting 5

6 ESCO MODEL ESCos provide end-to-end energy services` Diagnostics / Consulting Technical Design Product / equipment manufacturing Energy Supply Contracting (ESC) Installation ESCo contract models Operations & Maintenance Shared Savings Energy Supply Energy Performance Contracting (EPC) Data Management & Steering Guaranteed savings Financing Source: Bain, GIZ, GreenCape 6

7 ESCO MODEL Look at an ESCo like a toolbox for energy management Capability Client Intervention Service Solution Planning Public buildings Building structure Supplied energy Implementation Industrial companies Heat Air conditioning Guaranteed savings Operation Management Maintenance Private buildings SMME Lighting Appliances? Financing Engines & pumps Cogeneration Training RE generation Source: Assessing Framework Conditions for Energy Service Companies (GIZ, 2013) Contact reputable ESCos to discuss your plans and requirements GreenCape can provide shortlist and/or put you in touch with several ESCos 7

8 ESCO CONTRACTS Energy Performance Contracting involves three primary stakeholders Source: Assessing Framework Conditions for Energy Service Companies (GIZ, 2013) 8

9 ESCO CONTRACTS EPC: either savings are shared or bank guarantee signed There are two models Shared savings where the ESCo has made the investment / provided financing, and recoups this through the contracting fee Guaranteed savings where the client makes the investment but the ESCo provides a savings guaranteed for the savings realised If guaranteed savings are not achieved, the ESCo is penalised accordingly so there is no risk to the client If savings exceed target, the shavings are shared with the ESCo, meaning incentives are aligned Source: Assessing Framework Conditions for Energy Service Companies (GIZ, 2013) 9

10 ESCO CONTRACTS ESC: the ESCo supplies energy directly to the client The client pays a fee to the ESCo for the energy supplied and provides price transparency The model can offer lower prices due to - Combined supply of several forms of use energy - Lower interest rates on borrowing than client - More favourable purchasing for primary energy due to quantity - Better utilisation of operating personnel Source: Assessing Framework Conditions for Energy Service Companies (GIZ, 2013) 10

11 Despite the savings offered by EE/RE projects, clients remain skeptical; overcoming these will determine success of ESCo industry development Energy is not my core business, I don t know what to do. ESCo Model - So many people are approaching me, whom do I appoint? ESCO Register - I do not have the funds available, and do not want to take on more debt. Finance Database - I have better investment opportunities such as revenue producing assets. Energy Trading 11

12 What is the ESCo register Who manages register? SANEDI with support from GIZ. What is the register for? A tool to facilitate the market development and growth of ESCos in South Africa; and will be utilized by both the public and private sector to identify, plan, develop, finance or implement co-generation or energy efficiency and demand side management projects in buildings, public lighting or waste services plants. What if I am not on the register? Register reviewed annually, and training will be provided to enable ESCos to improve their certification How will certification work? ESCos will be certified on an entity level, as well as on a technology level. With either full or partial certification being awarded 12

13 ESCo evaluation criteria Full Certification FC in at least 70% of criteria Partial Certification PC in at least 70% of criteria 13

14 Technology criteria Full Certification FC for both Partial Certification PC for both Technologies Traffic/Street lighting Building lighting HVAC Water/Sewerage Pumping Waste Water Processes Cogen 14

15 An example 15

16 Despite the savings offered by EE/RE projects, clients remain skeptical; overcoming these will determine success of ESCo industry development Energy is not my core business, I don t know what to do. ESCo Model - So many people are approaching me, who do I appoint? ESCO Register - I do not have the funds available, and do not want to take on more debt. Finance Database - I have better investment opportunities such as revenue producing assets. Energy Trading 16

17 SASEFID highlights growth of financing options Purpose: To aid companies, project developers, public institutions or NGOs to find financing for their Energy Efficiency and Renewable Energy projects Background: Started as working group within Biogas Platform. Comprising of diverse group of contributors. Relied on already published reports by the IDC and PSEE (thank you!) as starting point. Followed by direct interaction with financiers to confirm entries. Formalised: AFD provided funding to develop online tool. SANEDI to host and update database. 17

18 What is the database? The database is hosted at You can Search the database Give feedback Join the mailing list Add a company 18

19 How to search Filter by by 44 different fields Text box pop-up with description. Show as many entries as you want, or browse through the pages Download static version Click to view profile page with further details. 58 entries to date. More to come. 19

20 Visit funders webpage or download application Short profile of funder Send to contact person More details on funder Source: Lorem Ipsum 20

21 Despite the savings offered by EE/RE projects, clients remain skeptical; overcoming these will determine success of ESCo industry development Energy is not my core business, I don t know what to do. ESCo Model - So many people are approaching me, who do I appoint? ESCO Register - I do not have the funds available, and do not want to take on more debt. Finance Database - I have better investment opportunities such as revenue producing assets. Energy Trading 21

22 How it Works

23 Benefits of Model 1. National Utility (Eskom) Stimulate investment into the grid network and upgrading thereof Assist in stabilizing the grid network Assist in bringing additional generation on-line Obtain income from the Use of Systems or so called Wires charge Can help re-coup debt owing from Municipalities Ability to unlock Private Sector Investment

24 Benefits of Model 2. Municipalities Revenue Protection our Pre-paid and Wires model POWERX s pre-paid model allows the municipality to earn and maintain a per kwh fee in excess of its current average per kwh income The POWERX Agreement will ensure that the Municipality will at the least remain revenue neutral but will not be impacted by the problems being experienced with rising tariffs and the resultant increases in non-payment, thereby enabling accurate forecasting and planning for their service delivery needs Ability to stimulate the generation of power and Local Economic Development Stimulate direct investment into the Municipality, sustainable Local Economic Development and job creation Unlock residential, commercial and industrial developments that cannot go ahead due to a lack of power in the area and concerns on Eskom s ability to maintain a 24/7 service Ability to manage the risks inherent in the aggregation of power Ability to manage and monitor embedded generation Increase access to Electricity in rural areas Monetise Municipal Resources Wind, Solar, Water, Waste, Biomass, Landfill gas, rooftop space etc.

25 Benefits of Model 3. Consumers Discounted price Predictability of the cost of power: Inflation rather than Eskom linked increases Ability to budget more accurately By buying power from POWERX the customer can lower their carbon footprint 4. Generators - Speed - Certainty - Inexpensive - Attractive escalations can escalate for the first 2-3 years at CPI +1% (On STPPP there is likely to be no increase and other Eskom and Municipal agreements are usually linked to inflation only) - Flexibility on term of the PPA anything from 1 20 years can be signed

26 These factors and other policy interventions will grow the SA ESCO market to R2.6bn R7.8bn In the next three years ESTIMATED SA ESCO MARKET SIZE FOR NEXT 3 YEARS Market penetration (% savings captured in next 3 years) 10 year ESCO market value* (Rbn) 10% 30% R2.6bn R7.8bn * Based on shared savings model between ESCO and client Source: Spinnaker Growth Partners (IDC Developing a vibrant ESCO Market - Prospects for South Africa s energy efficiency future ) 26

27 Thank You 27

28 These factors and other policy interventions will grow the SA ESCO market to R2.6bn R7.8bn In the next three years FACTORS SUPPORTING EE MARKET The increasing cost of energy NERSA has announced above infaltion increases of 8% p.a. for the next 5 years The electricity supply crisis Delays with commissioning Medupi and Kusile, reinforced by lower than requested tariff increases, will prolong SA s supply challenges The introduction by government OF strategies, policies, legislation and taxes such as carbon tax, new building regulations and tax incentives (e.g. S12L for energy efficient equipment). ESTIMATED SA ESCO MARKET SIZE FOR NEXT 3 YEARS Market penetration (% savings captured in next 3 years) 10 year ESCO market value* (Rbn) 10% 30% R2.6b n R7.8b n * Based on shared savings model between ESCO and client CONSTRAINTS AND BARRIERS Market scepticism and lack of trust in the ESCO industry due to a lack of accreditation of credible ESCOs Low level of awareness, information and understanding of the ESCO concept The provision and availability of registered Measurement and Verification professionals Lack of financial instruments specifically developed for financing the ESCO industry Project approval delays from all parties, including financiers, clients and Eskom, and High upfront costs of energy audits. Source: Spinnaker Growth Partners (IDC Developing a vibrant ESCO Market - Prospects for South Africa s energy efficiency future ) 28

29 SA MARKET However, the ESCo industry in SA hasn t really taken off Challenge #1: The energy efficiency industry is fragmented with numerous stakeholders - Building Owners (BO) have unique challenges & require holistic solutions - Numerous ESCOs and Consultants offer complex technical solutions - BO Capex budgets are limited; Financiers have different application processes and investment terms Challenge #2: Each stakeholder has different objectives and concerns - Building Owners struggle to get finance - ESCOs focus primarily on technical solution - Financiers have limited/no access to deal flow Challenge #3: Keeping each stakeholder happy could be challenging - Building Owners optimize ROI - ESCOs optimize profitability - Financiers optimize risk-return 29

30 SA MARKET: CHALLENGE #1 The energy efficiency industry is fragmented, with numerous stakeholders Banks Eskom incentives DFIs Environm. Agencies Nersa Debt Instruments Carbon Trading Trade Unions Government Pvt. Sector Pvt. Equity Hotels UNEP COP Eskom Financiers Str.-traffic lights Sport Stadia Financiers Stakeholders Building Owners Regulators Hospitals Office Buildings Municipalities Regulators Interest Groups Prisons Interest Groups Property Managers Service Providers Educ. Facilities Service Providers Activists IDC DBSA Gov. Buildings Legal Consultants ESCOs Industry Associations WWF Source:? Manufacturers 30 Foundations GEF World Bank Financiers Foundations Sub- Contractors Contractors 30

31 SA MARKET: CHALLENGE #2 Each stakeholder has different objectives and concerns Building Owners Financiers Private Sector DFIs Banks Government ESCOs Objective Operating cost reduction Asset appreciation Marketing impact Return targets Risk parameters Liquidity availability Job creation Environmental impact Return objectives Return objectives Risk/ Liquidity requirements Security provided Transaction size Affordable energy provision Job creation Environment-al impact Implement energy efficiency measures Generate operating profits Concerns Disruption to operations Accounting treatment Opportunity costs/ timing Default rate Liquidity Transaction size Risk-adjusted return of Credit risk investment objective Default risk Lock-up period Project risk Subsidising other parties Private sector abuses Access to retrofit opportunities Stakeholder protests Profitable implementation and management of initiatives 31

32 SA MARKET: CHALLENGE #3 Keeping each stakeholder happy could be challenging No. of initiatives FI BO IDC SP Most profitable NGO All Payback period BO IDC FI SP NGO Short Long Cost of Capital Low NGO IDC FI BO SP High Peripheral benefits* BO FI SP IDC NGO Don t Care Important Note*: Job creation, GHG emissions, BEE : FI = Financier, BO = Building Owner, SP = Service Provider 32