EPS Reg. U.S. Pat. & Tm. Off.

Transcription

1 ENERGY PERFORMANCE SERVICES EPS Reg. U.S. Pat. & Tm. Off. Financing Energy Efficiency in Indonesia Opportunities &Challenges Conference: EE and RE Solutions for Buildings Opportunities and Developments in Indonesia By: Thomas K. Dreessen Chairman & CEO, EPS Capital 31 May 2016 EPS Capital Corp. Indonesia Mobile: SKYPE: tkdreessen

2 Status of EE in Indonesia Huge EE Opportunity: Virtually no market penetration No Commercially-Attractive EE financing In addition to typical global barriers, there is a market-wide EE Knowledge Void with Facility Owners, Banks & Developers: NO awareness of EE opportunities NO confidence in energy savings 2

3 Facility Owner EE Barriers In addition to EE Knowledge Void and lack of available Commercially-Attractive financing: Energy Efficiency Projects (EEPs) are viewed as low priority Infrastructure versus Core Business investments (don t fix if not broken) Don t want to use current Credit Capacity needed in Core Business to borrow for EEPs There is Lack of Confidence in EE Technologies working and in the estimated future Savings being achieved or measured and verified 3

4 Why no Commercially-Attractive Financing? Problem is NOT a lack of available funds! Problem is that the available funds cannot be accessed by Facility Owners from local banks (Banks) on commercially-attractive terms Caused by DISCONNECT in current Bank lending practices versus needs of Facility Owners (and Developers) in funding EEPs 4

5 What is the DISCONNECT? Banks offer asset-based corporate lending limited to 70% of EEP capital cost requiring: 30% equity investment in EEPs and 100% Collateral or Guarantees on Loan amount Banks do not believe savings of EEPs = increased credit capacity to Facility Owners Only Collateral Value of EEPs is the Savings Limited interest in EEPs due to small transactions, complexities and inability to evaluate risks/benefits ESCOs are an optimum solution to aggregate EEPs, but most are SMEs with limited financial capacity 5

6 SOLUTION = EEP Finance Products Apply existing EEP Finance Products that are attractive to Facility Owners and reduce barriers, risks and transaction costs for Banks: 1. EEP Loan Product 2. Energy Savings Insurance Product 6

7 EEP Loan Product Attractive Features Local currency competitively-priced loans provided to Facility Owners under structure: Does not impact Facility Owners core business credit capacity Does not require core business collateral Generates sufficient positive cash flow to motivate Facility Owners to implement EEPs 7

8 EEP Loan Product Terms (Indonesia Eximbank/ADB EEP Finance Program) EEP Loan is provided as additional debt to current lending capacity of creditworthy Facility Owners Loan Amount = 70%+ of EEP Capital Cost No collateral required beyond EEP equipment Repayment Term = 2 times EEP s Simple Payback EE Savings and Capital Costs must be supported by a properly-prepared Investment Grade Audit (IGA) EE Savings must be Measured & Verified using industry-accepted methods complying with the International Performance Measurement and Verification Protocol (IPMVP) 8

9 Energy Savings Insurance (ESI) Guarantees savings of EEPs (not Facility Owner Credit Risk) ESI specifically covers any performance-related shortfall in savings versus Facility Owner s debt service payments to Bank on the related EEP loan ESI s objective is to eliminate the risk and instill confidence in Facility Owners and Banks that future EEP savings (cash flow) will be achieved 9

10 ESI Design Designed after the performance (savings) guarantee insurance product provided in the US primarily to ESCO industry by Chubb Insurance in late 1980 s Structured as a zero loss insurance product with fees charged to the EEPs to cover losses Guarantee fee ~5% of total guaranteed amount Savings loss reserve can be leveraged 5 to 1 Administered by highly trained EE Finance Team : evaluate and recommend EEPs for ESI to Guarantor monitor, measure & verify savings of EEPs; manage the ESI guarantees and payments with LFIs 10

11 Benefits of New EEP Finance Products Helps overcome EE Knowledge Void in marketplace Creates a new EE lending product for banks that is attractive to Facility Owners Instills confidence in Facility Owners and Banks of estimated EE savings being achieved Reduces need for Facility Owners to use their core credit capacity for financing of EEPs Removes risk for Banks to be willing to increase credit capacity and reduce collateral on EEP Loans ESI can facilitate use ESCO s ability to apply its preferred Guaranteed Savings business structure 11

12 Indonesia ESCO Regulation (signed by Minister on 29 May 2016, pending final legal review) Purpose is to provide credibility to ESCO industry: Standard Definitions Guidelines Energy Investment Grade Audits (IGA) Measurement & Verification Template Contract Registration of ESCOs 12

13 Government ESCO Regulation Roadmap Development Primary objective: to modify existing regulations as needed to remove barriers for EE services to be provided in government facilities by ESCOs on a Energy Savings Performance Contracting ( ESPC ) basis 13

14 Government Barriers to ESPC 1. Multi-Year contracts Chapter 13 of Presidential decree PR38/2015 states governments can make payments over multi-year contract terms New regulation is needed to specify PR38/2015 applies to ESPC payments to ESCOs 14

15 Government Barriers to ESPC 2. Procurement Procedures Government procurement procedures are designed to purchase equipment and services on a lowest cost, competitive basis, requiring detailed proposal ESCOs cannot afford to do the time-consuming IGA needed to provide this detail Different procedures need to be developed for use by Indonesian Governmental Agencies in procuring EE services and the selection of ESCOs (RFQs and RFPs) 15

16 Government Barriers to ESPC 3. Budget Disincentive. Government budgeting of energy costs are typically allocated from General Fund to the specific governmental agency (GA) responsible for operating a facility, based on prior year actual costs adjusted for CPI or some known facility changes When EE Project reduces energy costs, the GA s subsequent year s budget from General Fund is reduced, leaving no funds to pay from savings Unfairly penalizes the GA and creates disincentive for an ESPC arrangement 16