1. Page 1 July 2014 Capacity Building of Banks/FIs For EE Project Financing Capacity Building of Banks and Financial Institutions for Energy Efficiency Project Financing Module 3 Business Models for Energy Efficiency Project Implementation (PACE-D) Partnership to Advance Clean Energy-Deployment (PACE-D) Technical Assistance Program September 2014

2. Page 2 July 2014 Capacity Building of Banks/FIs For EE Project Financing Summary of Implementation Models Overview of Performance Contracting Performance Contracting Business Models Illustrative ESCO Project Structure of Energy Services Agreements International Perspectives Experience in India Proposed BEE Funds  Partial Risk Guarantee Fund  Venture Capital Fund Presentation Outline

3. Page 3 July 2014 Capacity Building of Banks/FIs For EE Project Financing Simple models  Corporate Lending (balance sheet based)  Energy Audit Model Performance Contracting Models  Shared Savings Model  Guaranteed Savings Model  Deemed Savings Model  Energy Supply Contracting Summary of Implementation Models

4. Page 4 July 2014 Capacity Building of Banks/FIs For EE Project Financing Many EE Projects are implemented by the Project Hosts themselves based on recommendations by energy auditors (individual or firm) for retrofit or change of energy-using equipment in existing facilities. BEE has implemented a program for certification of energy auditors. Financial commitments are made by the Project Hosts and the energy auditor is confined to being a technical advisor. Some audit models also include a “success fee” for the auditor based upon achievement of energy cost savings. For the Project Host and the Lender, the EE Project is a normal capital expenditure eligible for funding under regular lending programs. Energy Audit Model

5. Overview of Performance Contracting for Energy Efficiency

6. Page 6 July 2014 Capacity Building of Banks/FIs For EE Project Financing Energy Services Business Models Guaranteed Savings Guaranteed Savings Shared Savings Shared Savings Outsourced Energy Management Outsourced Energy Management Energy Services Business Models Deemed Energy Savings Deemed Energy Savings

7. Page 7 July 2014 Capacity Building of Banks/FIs For EE Project Financing Energy Savings Performance Contracts Performance contracts are generally implemented by energy services providers, commonly known as ESCOs

8. Page 8 July 2014 Capacity Building of Banks/FIs For EE Project Financing ESCO Services

9. Page 9 July 2014 Capacity Building of Banks/FIs For EE Project Financing Additional ESCO Services

10. Page 10 July 2014 Capacity Building of Banks/FIs For EE Project Financing Key Features of ESPCs

11. Page 11 July 2014 Capacity Building of Banks/FIs For EE Project Financing Energy Services Value Chain

12. Page 12 July 2014 Capacity Building of Banks/FIs For EE Project Financing Examples of Energy Services

13. Page 13 July 2014 Capacity Building of Banks/FIs For EE Project Financing Energy Services Agreement (ESA) between ESCO and host facility Financing Agreement (FA) between ESCO and financial institution (FI) ESA specifies:  ESCO finances project – generally no investment by host  ESCO receives share of actual measured cost savings  Savings share to ESCO and term of agreement are agreed upon FA specifies :  ESCO equity investment, FI debt financing  Interest rate and term of loan  ESCO makes loan repayments from its share of savings Shared Savings Model

14. Page 14 July 2014 Capacity Building of Banks/FIs For EE Project Financing Shared Savings Model Payment Security Mechanism Escrow or TRA account

15. Page 15 July 2014 Capacity Building of Banks/FIs For EE Project Financing Energy Services Agreement (ESA) between ESCO and host facility Financing Agreement (FA) between financial institution and host facility ESA specifies:  ESCO implements project and guarantees cost savings, host pays ESCO  If savings are lower than guarantee, ESCO pays the difference; if higher, ESCO may get a “bonus” payment  M&V protocol and terms of payment to ESCO are agreed upon FA specifies:  Host equity investment, FI debt financing  Interest rate and term of loan  Host makes loan repayments from savings Guaranteed Savings Model

16. Page 16 July 2014 Capacity Building of Banks/FIs For EE Project Financing Guaranteed Savings Model Payment Security Mechanism Escrow or TRA account

17. Page 17 July 2014 Capacity Building of Banks/FIs For EE Project Financing Energy Services Agreement (ESA) between ESCO and host facility with a fixed price for services provided. Financing Agreement (FA) between ESCO and financial institution (Similar to Shared Savings Model). Agreement between ESCO and government or utility under which ESCO receives payments based on deemed savings. ESA specifies:  Services provided by ESCO  Fixed payment by host facility for ESCO services FA specifies :  ESCO equity investment, FI debt investment  Interest rate and term of loan  ESCO makes loan repayments from host and utility/government payments Deemed Energy Savings Model

18. Page 18 July 2014 Capacity Building of Banks/FIs For EE Project Financing Deemed Energy Savings Model

19. Page 19 July 2014 Capacity Building of Banks/FIs For EE Project Financing Also known as Energy Supply Contracting Agreement between ESCO and host facility under which ESCO takes over operation and maintenance of the energy-using equipment in host facility ESCO sells the output (e.g., steam, heating/cooling, lighting) to the host facility customer at an agreed price (generally fixed over a long period of time) ESCO invests in all equipment upgrades, repairs, etc. to improve energy efficiency Ownership typically remains with the host facility (however, in some cases, ESCO may assume ownership of equipment). Outsourced Energy Management Model

20. Page 20 July 2014 Capacity Building of Banks/FIs For EE Project Financing Outsourced Energy Management Model

21. Page 21 July 2014 Capacity Building of Banks/FIs For EE Project Financing Illustrative Example of ESCO Project

22. Page 22 July 2014 Capacity Building of Banks/FIs For EE Project Financing Project Economics

23. Page 23 July 2014 Capacity Building of Banks/FIs For EE Project Financing Project Economics

24. Page 24 July 2014 Capacity Building of Banks/FIs For EE Project Financing Guaranteed Savings Results

25. Page 25 July 2014 Capacity Building of Banks/FIs For EE Project Financing Shared Savings Results

26. Page 26 July 2014 Capacity Building of Banks/FIs For EE Project Financing Indicative Structure of ESA Recitals Definitions Covenants Term Scope of Work Facilities Construction Operation and Maintenance Financing and Ownership of Assets Energy Savings Billing and Payment Transfer of Financed Assets Force Majeure, Events of Default & Termination Dispute Resolution Insurance Other Clauses in the ESA Technical Matters

27. Page 27 July 2014 Capacity Building of Banks/FIs For EE Project Financing International Perspectives

28. Page 28 July 2014 Capacity Building of Banks/FIs For EE Project Financing International Experience - USA

29. Page 29 July 2014 Capacity Building of Banks/FIs For EE Project Financing ESCO Projects in the U.S. ESCO projects have been a big success in US Govt. Key contributors to success:  strong legislative and executive backing  umbrella contracts/simplified procurement  dedicated support organization/project facilitation

30. Page 30 July 2014 Capacity Building of Banks/FIs For EE Project Financing IFC/GEF – Risk Guarantee Program

31. Page 31 July 2014 Capacity Building of Banks/FIs For EE Project Financing Structure of CEEF Program

32. Page 32 July 2014 Capacity Building of Banks/FIs For EE Project Financing Provided risk guarantees to large number of projects - $49.5 million in guarantees - Default rate was < 0.5% Demonstrated low risk & high return of EE projects and induced banks to substantially increase loan portfolio High leveraging of IFC/GEF funds achieved – Total project investment in excess of $200 million Bank lending without PRG exceeded with PRG – In Hungary, while the projects with guarantees involved about $20 million in investments, while the non-guaranteed lending was over $200 million Also a large $250 million ESCO contract was signed by a consortium that included OTP Bank Bank lending activity continued after end of IFC program CEEF Results

33. Page 33 July 2014 Capacity Building of Banks/FIs For EE Project Financing Experience in India

34. Thank you Dilip R. Limaye Finance Team Leader USAID PACE-D Technical Assistance Program dlimaye@srcglobal.com www.pace-d.com