Third Annual CO3OL WorkshopDecember 2016, Washington DC

Ashok Sarkar

Delivering Energy Efficiency in the Appliances SectorPerspectives on Implementation Practices and Financing Models

Global Energy Usage- Buildings 2014

2

Global Electricity Demand Growth and

Savings in the Buildings Sector, 2013-2040

3

Cost of Saved Energy (Demand Side)(IEA New Policies Scenario)

4

Complexities of Energy Efficiency Market Transformation:

(Barriers Beyond Cost-Effectiveness)

5

Scaling Up EE Needs an Integrated Enabling Ecosystem:

(finance is one part of the puzzle)

6

Roadmap for Scaling Up Appliance EE:Striking a Balance Between Policy Regulations & Public Financial Incentives

Source: IEA (2012)

7

Global Energy Efficiency Trends

8

Encouraging Progress on EE in last few years vis-à-vis SE4ALL Goals

Global Untapped EE Potential by Sector(IEA New Policies Scenario)

• Share of energy consumption in buildings sector growing at the most rapid pace. Within

that, space cooling energy consumption share remains highest and continues to grow

even faster.

• Unprecedented temperatures, income growth, and more accessible AC models in the

market are driving space cooling load growth at unprecedented levels – more than 20%

annually in some developing countries

• More than 80% of world’s buildings in 2040 have not been built. This also provides an

opportunity to develop the buildings sector in a sustainable manner

• Policy mechanisms like Building EE Codes and Appliance EE Minimum Energy

Performance Standards (MEPs) integrated with financial incentive mechanisms help in

long-term market transformation towards higher energy efficiency

9

Space Cooling Challenges in Mexico(Illustrative Example)

• The current market penetration of air conditioners is 12% - 14%, but estimated to increase rapidly

• The housing stock is projected to rise by 50% from 2005 to 2030

• An additional 53 million people are expected to be living in urban areas by 2050

Residential Space Cooling Scenarios (IEA, 2015)

Energy efficient scenario using IEA’s Energy

Technology Perspectives 2°C Scenario and

more energy intensive scenarios.

IEA’s 6°C Scenario

IEA’s 2°C Scenario

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Space Cooling Challenges in India(Illustrative Example)

• The air conditioner market growing rapidly (2003-2004: 1 M 2016: 4-5 M 2040: 50-70 M)

• Minimum Energy Performance Standards (MEPS) and EE Labeling exists for some ACs

Annual Household Electricity Consumption in India (IEA, 2015) Annual Household Energy Usage Breakdown -India (IEA, 2015)

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Appliance Energy Efficiency Market Potential in India:

Goes Beyond Space Cooling

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SectorDSM Investment

potential ($ billion)

Energy savings

potential (Billion

kWh/annum)

Avoided Generation

Capacity (MW)

Industry 1.8 49 8964

Residential 14.1 89 41002

Commercial Buildings 0.2 2 313

Municipal

Infrastructure3.9 8 3365

Agriculture 4.6 30 5488

Total 24.6 178 59132

End use

Investment

potential

($ billion)

Energy savings

potential (Billion

kWh/annum)

Avoided

Generation

Capacity (MW)

Cost of saved

capacity

(‘000 $ / MW)

Residential appliances 14.2 89 41002 350

Lighting - Self ballasted LED

bulbs and tubular lamps3.5 26.64 20361 173

Energy efficient ceilings fans 7.4 40 11218 660

Energy efficient room air

conditioners3.2 21.98 9423 350

DSM potential unlocked from the residential appliance efficiency improvement opportunities

Source: PwC Analysis

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Supporting Appliance EE ProgramsRole of Multilateral Finance Institutions

Carbon Market/ CDM/TCAF/etc

Domestic Public Finance

+

Development Assistance (eg., IDA or IBRD)

Leveraging

Private Sector Capital

•Utility Demand Side Management (DSM)

• On-bill• Pay-As-You

Save• Std Offers• ESCOs

•Public Procurement (Super ESCO or GovtImplementing Entity)

•Financing Schemes• EE Funds• EE Credit

Lines• EE Risk

Sharing Gaurantees

•Policy Support

INSTRUMENTS

Global Environment

Facility

Climate Finance

(CTF, GCF, Gr Bonds

TA, Awareness and Capacity Building, Institutional Support (Utilities; Municipalities, Super ESCOs, etc)TA, Awareness and Capacity Building, Institutional Support (Utilities; Municipalities, Super ESCOs, etc)

MLF

Incentives

FINANCING SOURCES AND

SUPPORT

The “Big Picture”: Alignment of Climate and

Sustainable Energy Commitments• World Bank Climate Change Action Plan was approved in 2015.

• WBG’s commitment to increase the climate-related share of its portfolio from 21 to 28% by

2020 in response to client demand, with total financing (including leveraged co-financing) of

potentially $29 billion per year by 2020.

• To get impact at scale, the Action Plan is focused on helping to shape national investment

plans and policies and leveraging the private sector.

• World Bank Energy Strategy (Energy Directions Paper) was approved in 2013; WB

commitment to UN SE4ALL goals, including doubling of the rate of improvement of energy

efficiency by 2030.

• Renewable Energy and Energy Efficiency. The WBG will increase its share of energy

efficiency operations and aim to invest $1 billion to promote energy efficiency and resilient

building in urban areas. The WB will aim to mobilize $25 billion of commercial funding for clean

energy over the next five years.

• >USD 400 billion/year investment required to meet the SE4All’s EE Goals

• Public, Multi-lateral, Climate Finance not enough

• Private Sector Capital Influx into EE is Required (>85% of future needs)

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World Bank Activities in Buildings & Energy Efficiency(Tailored to meet Institutional, Implementation and Policy Challenges)

• Building Types:

• Public Buildings: Largest single user. Often the highest EE Potential. Examples of China,

Mexico, Easter Europe; Easiest to implement; Sets an example for the rest of the sector

• Commercial Buildings : Hotels, Office Space, etc. Example of China (also supported by tools

like EDGE of IFC); Relatively less assistance required

• Residential Buildings: Fastest growing in developing world. Examples of Bulgaria, Rwanda,

Bangladesh, Mexico; Most difficult to implement;

• Existing buildings and new buildings mix requires different interventions

• Both electricity and thermal, including district heating (China, Mongolia, Eastern Europe)

• Cross-sectoral:

• Cuts across multiple sectors- urban energy systems, urban land use planning

• Diagnostic Tools used include : TRACE, CURB, etc.

• Instruments and Mechanisms:

• Policy Development and Regulations Support (Building EE Codes, Appliance EE Standards)

• Utility Demand Side Management (DSM)

• EE Funds, Credit Lines, Risk Sharing Facilities

• Energy Service Companies (ESCOs)

• Technical Assistance (TA) and Analytical and Advisory Services (ASA)

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Sustainable “Energy Efficiency Financing Ladder”

Market

Maturit

y

Commercial

Financing

Public

Financing

Advanced commercial or project financing (ESCOs)

Grants/ Subsidies

EE Funds (Revolving, Special, Mezzanine)

Utility “on-bill” financing (DSM)

MOF financing w/ budget capture

Public ESCOs (Super ESCOs)

Credit line with municipal (development) bank

Credit line with commercial bank(s)

Partial risk (first loss) guarantees

Commercial financing, bonds

Vendor credit, leasing

Budget financing, grants w/ co-financingPu

bli

c E

E fi

na

nc

ing

M

ec

ha

nis

ms

4Source: World Bank

Determining Factors

for the Choice of

EE Financing Mechanisms

• >USD 400 billion/year investment required to meet the SE4All’s EE Goals

• Public, Multi-lateral, Climate Finance not enough

• Private Sector Capital Influx into EE is Required (>85% of future needs)

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How Ready Are Countries for Leveraging Private

Sector Investment in Energy Efficiency

Supportive energy policy frameworks are essential to attract private investment

• RISE assesses laws, regulations, incentives, subsidies, sector planning and governance, and more

• The “right” policy designs will differ from country to country, but universal good practices exist

• But… policy support is only part of a strong enabling environment: RISE focuses on what policymakers can control

• In case of Energy Efficiency, 12 Core Indicators and 31 Sub-Indicators

Readiness for Investment in Sustainable Energy (RISE)

http://rise.worldbank.org

(111 Countries covered; Pilot tested earlier in 17 countries)

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Sustainable “Energy Efficiency Financing Ladder”

Market

Maturit

y

Commercial

Financing

Public

Financing

Advanced commercial or project financing (ESCOs)

Grants/ Subsidies

EE Funds (Revolving, Special, Mezzanine)

Utility “on-bill” financing (DSM)

MOF financing w/ budget capture

Public ESCOs (Super ESCOs)

Credit line with municipal (development) bank

Credit line with commercial bank(s)

Partial risk (first loss) guarantees

Commercial financing, bonds

Vendor credit, leasing

Budget financing, grants w/ co-financingPu

bli

c E

E fi

na

nc

ing

M

ec

ha

nis

ms

4Source: World Bank

Determining Factors

for the Choice of

EE Financing Mechanisms

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Energy Efficiency Funds: Typical Structure

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Source: World Bank

EXAMPLES:

Bulgaria Energy Efficiency Fund

Romania Energy Efficiency Fund

Armenia Renewable Energy and Energy

Efficiency Fund

Thailand - Energy Conservation Fund

(ENCON)

Korea – Korea Energy Management Fund

India – State Energy Conservation Funds

Sri Lanka – Sustainable Energy Fund

China - National incentive fund based on

coal savings

South Africa – Central Energy Fund

Dedicated Energy Efficiency Credit Line: Typical Structure

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Create interest on the part of commercial banks in financing EE projects

Enhance technical capacity of banks to scale up EE lending

Leverage parallel financing from the participating banks for EE financing

Strengthen the participating bank’s capacity in identifying and managing project risks

Assist banks in exploring business opportunities in other low carbon lending businesses.

Source: World Bank (2014),

Designing Credit Lines for

Energy Efficiency

Energy Efficiency Credit Lines - World Bank Examples

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Source: World Bank (2014), Designing Credit Lines for Energy Efficiency

Energy Efficiency Credit Line in China:China EE Financing Program (CHEEF)- supported by the World Bank

World Bank China Energy Efficiency Financing Program

Credit lines from World Bank to three banks in China

Exim, Minsheng and Huaxia Bank

Local Bank and

Other Sources

$1.5 B

World Bank

$400 M

World Bank

$400 M

Project AProject A

Project BProject B

Project CProject C

70%

Debt30%

Equity

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• China Energy Efficiency Financing Project I, II, and III:• WB loan ($400M): credit line to three local banks for EE investment

• GEF grant ($13.5M): capacity building to banks and EE policy support

• Focus: large and medium industrial enterprises, recently expand to ESCOs and building EE

• Achievements:

• $400M IBRD leveraged $1,900M; Annual energy savings of 3 Mton of coal equivalent and CO2 emission reduction of 7.3 Mtons

• Substantially increased PFI’s interests, capacity, and confidence in EE lending

• Lessons Learned: • Participating banks’ internal organization: Management

commitment, dedicated teams, and incentives to staff are the most important success factor

• Technical Assistance to participating banks is critical • Generating sufficient deal flows has not been easy• New business model to bundle small-scale EE projects: target

at large enterprises, and aggregate small-scale EE investments at the subsidiaries

• Encouraging participating banks to expand support to SMEs has been a challenge

Risk Sharing Guarantees for Energy Efficiency Example: India Partial Risk Sharing Facility (for Supporting EE Investments through ESCOs)

Small Industries Development Bank of India

Small Industries Development Bank of India

Lenders - Participating Financial Institutions (PFIs)

Lenders - Participating Financial Institutions (PFIs)

Energy Service Companies (ESCOs)

Energy Service Companies (ESCOs)

Host Entity (Municipalities, Large Industries, MSMEs, and Commercial Buildings)

Host Entity (Municipalities, Large Industries, MSMEs, and Commercial Buildings)

Independent M&V AgencyIndependent M&V Agency

Participants in Energy Efficiency Lending under

PRSF

Access to Risk Sharing

Monitoring & Verification

Partial Risk Sharing FacilityGEF $12 M + CTF $25 M

Partial Risk Sharing FacilityGEF $12 M + CTF $25 M

Technical Assistance(GEF $6 M)

Technical Assistance(GEF $6 M)

Risk Sharing FacilityRisk Sharing Facility

Energy Efficiency Services LimitedEnergy Efficiency Services Limited

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• Designed to address the problem of

access to finance

• Risk perception of banks and financial

institutions

• Government or donor agency provides a

partial guarantee covering loan loss from

default

• Participating banks sign agreements

specifying loan targets and conditions

• Banks conduct due diligence and process

loans

• In case of loan default the guarantee

covers a portion of the loss – the program

may also include a “first loss reserve”

• Substantial technical assistance also

provided to banks, project hosts and

project developers (ESCOs)

Mobilize

private

financing:

US$37 m of

GEF and CTF

resources are

expected to

mobilize over

US$100 m of

commercial

financing for

energy

efficiency

investments

Utility Demand Side Management (DSM)

Started after the 1970s/80s oil crisis, with US pioneering

Utilities have many advantages for pursuing DSM but also mixed incentives

Load management vs. energy conservation vs. energy efficiency (and DR!)

Recent proliferation of utility appliance programs, many on EE Lighting

Modalities: Rebates; Pay-as-you-save; On-bill Financing, etc

“Post-DSM” models – DSM bidding, standard offer, EE power plant

Revenue Recovery or Performance Incentive models (US Market)

Argentina

Brazil

Burundi

India

Mexico

Pakistan

Philippines

Rwanda

South Africa

Sri Lanka

Thailand

Uruguay

Vietnam

Bangladesh

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Source: Edison Instutute for Electric Efficiency,. “State

Electric Efficiency Regulatory Frameworks”. June 2011

Snapshot of Utility DSM Obligations in Other Countries

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Country Target Obligated parties Enforcement

mechanism

Compliance mechanism Performance incentives

for obligated parties

Australia - New

South Wales

0.4% of total electricity sales in

2009

Increasing to 4.0% in 2014

Electricity retailers and

customers who purchase

power directly from

wholesale market

Combination of legislation

and regulation

Financial penalty for non-

compliance

Self-achievement of

savings Or Purchase of

energy efficiency

certificates

Trading of energy

efficiency certificates

among obligated parties

Canada – Ontario 1330 MW reduction in peak

demand by 2014

6,000 GWh of energy savings by

2014

Electricity distribution

licensees

Combination of legislation

and regulation

Self-achievement of

savings verified by third

party and approved by

regulator

CAD 0.3 to 1.8 per unit

allowed for goal

achievement ranging from

80% to 140%

China 0.3% of electricity sales and

maximum load in the previous

year

Government-owned grid

companies

Regulation issued by

central government

agency

Self-achievement of

savings verified by third

party

Not documented

Italy 6 Mtoe cumulative in 2012 Distributors of electricity

and natural gas

Combination of legislation

and ministerial decrees

Financial penalty for non-

compliance

Self-achievement of

savings Or Purchase of

energy efficiency

certificates

Trading of energy

efficiency certificates

among obligated parties

Poland 53,452 GWh by 2016 Electricity, natural gas,

and district heating

companies and brokers

Combination of law and

regulation

Financial penalty for non-

compliance

Self-achievement of

savings Or Purchase of

energy efficiency

certificates

Trading of energy

efficiency certificates

among obligated parties

United States –

California

6,965 GWh, 1537 MW, and 150

million therms in 2010-2012 for

investor-owned utilities;

700,000 MWh for publicly owned

utilities

Investor-owned and

publicly owned electricity

and natural gas utilities

Combination of legislation

and regulation

Financial penalty for non-

compliance

Self-achievement of

savings rigorously verified

by third party contractors

Capped at 450 million

USD for investor owned

utilities

United Kingdom 12.4 MtCO2 under CERO

6 MtCO2 under CSCO and

£3.7 billion under the Home

Heating Cost Reduction

Obligation

Large energy suppliers Combination of legislation

and regulation

Self-achievement of

savings

Not documented

Utility DSM Evolution in India

Enforcement of DSM regulations continues to be limited

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1980s 1990s X Plan XI Plan XII Plan

First pilot DSM

program by

Ahmedabad Electric

Company

Industry oriented DSM

programs by GRIDCO

Orissa

Onset of megawatt scale DSM programs – CFL promotion

under BEE’s BLY scheme

BEE’s National Ag DSM and Mu DSM schemes

Onset of DSM Regulations – Maharashtra, Model Regulation

by FOR followed by seven more states

Formation of DSM cells within Utilities

Inception of Energy Efficiency Services Limited

Formation of Energy Conservation Cell by the

Gujarat Electricity Board

Rectification of electric pump sets, energy audits

and awareness programs by State Electricity

Boards and Rural Electrification Corporation

Pilot DSM programs by

BESCOM, MSEDCL,

Reliance Power;

Inception of Time of Day

Tariffs, Power factor Load

factor incentives

DSM Capacity Building Program across 33

states;

EESL’s UJALA - active in more than 24

states with over 180 million LED lamps

sold among households;

Notification of DSM Regulations - 17 states

(+7 UTs)

Provision of including DSM related

expenditure in the annual revenue

requirement petitions has established a

definite mechanism for financing and cost

recovery of Utility DSM investments

India: Bulk Procurement “Super ESCO” EESL Model

http://www.ujala.gov.in; http://www.eeslindia.org/slnp/27

• Fills in the Gap in the Indian EE Market created by:• Lack of an active large-scale ESCO Market- especially Shared Savings Model

• Limited implementation of utility DSM

• Long-term roadmaps of EE policies and regulations (building codes, appliance MEPs, etc.)

• Strong Government mandate and support, and mature EE Policy Environment

• EESL’s role as a public “Super ESCO”:• Bulk procurement cost reduction affordability

• Quality Controls and Benchmarking

• Awareness Building

• Robust Distribution, Transaction Contracts and Revenue Recovery through Savings (on-bill, PAYG)

• Strong Monitoring and Evaluation of Impacts

• Started with LED lamps for household sector, and Urban Street lighting

• Expanding into Ceiling Fans, Air Conditioners, Irrigation Pumps, Public

Buildings,

THANK YOU

Ashok Sarkar, Ph.D.

Senior Energy Specialist

Energy & Extractives Global Practice

The World Bank

Washington DC

asarkar@worldbank.org

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