Energy in a Megacity Future: Role of FinancingDr. Mark Bernstein

Managing DirectorUSC Energy InstituteUniversity of Southern California

OutlineSetting the stage

Technology Options

Policy Options

A focus on green financing

A green bank?

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Mega is in the eye of the beholder…. From the standpoint of energy – a megacity could

depend more on it’s relative population rather than absolute numbers

For example – a city of 1 million in a small country faces the same problems as a city of 10 million in a large country

Governments in the small country may have a more difficult time solving the same problems

A quarter of the world urban population live in cities that have 1 – 5 million people; 10% live in cities larger than half a million; and less than a million

There are a lot of opportunities to help these cities as well

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Some key facts help to set the stage In cities

Two-thirds of global energy is consumed 70% of CO2 emissions are emitted

In OECD countries energy use in cities is more efficient than non-city use

In developing countries it is the opposite for commercial energy In India – 87% of electricity is used in cities In China urban residents use 40% more commercial

energy than non-urban residents In China over 85% of coal is consumed for urban

energy requirements

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Some more key facts in developing country cities Electricity losses are considerably higher in urban areas

Lighting consumes 20% of total electricity use

Water heating also takes a large share

Air conditioning loads are rising In China 40% of summer electricity in urban settings is air

conditioning

Energy embodied in goods and services are higher in cities

Air pollution in cities continue to grow NOx is expected to grow by more than 20% by 2030 Particulate matter is expected to grow more than 10% by

2020 before beginning to decline

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So what can we do about this?

Reduce energy use

Use renewable technologies

Build better buildings

Encourage public transit

Improve land use

Policy and regulatory options abound Regulations:

codes and standards minimum efficiency requirements inspections zoning and use restrictions

Taxes and incentives: user fees and taxes credits subsidies loans

Government purchasing

Outreach and education

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Green financing has an important role in the future of energy use• Green financing products

Mortgages, retrofits, short and long-term

• Leasing opportunities

Green financing should offer more attractive products

Easier access to loans Simpler qualification process Lower interest rate Longer fixed term period

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There are different roles for

green financing depending on income levels

Commercial Banks can provide green finance opportunities

Middle/ Upper

Near poor

Revolving FundMicrofinance, Leasing,

Cooperatives, Municipalities

Poor Utilities, development banks Cooperatives, Municipalities

Dedicated government

programsExtremely poor

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EERE loans ARE different from other types of loans Investments lead to lower costs which is

distinct from other financial products

Efficient buildings offer unique benefits to the lender Reduced costs gives borrower more disposable

income This can reduce the risk of defaults More energy efficiency can lower future tariffs

thereby: Reducing risks of defaults for all residents and Benefiting the whole economy

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Microfinance can be used for efficiencyMicro-financing may be appropriate for energy

efficiency Compact fluorescents, Heater blankets, Home insulation and more efficient appliances Solar water heating

Should be different from existing micro-loans

Could be financed through ESCO or energy shops

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Public sector support will be neededPerhaps short term support to create a robust

financial market Government or other institution loan guarantee Short-term subsidized credit facility Interest rate subsidy Tax credit VAT exemptions Building Codes Public benefit fund Others?

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The ESCO Model can be an important contributor Energy Service Companies

Are certified venders Make money the more energy they save Helps to aggregate demand Reduce banks paperwork Ensures long-term viability

ESCO makes investment in efficiency or renewables

Customer pays a monthly fee based on expected savings and needs of ESCO to re-pay financing

ESCO shares the risk with the Banks

Utilities and energy shops can be involved with this model

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A local ‘Green Bank’ may helpDedicated to making loans that reduce energy

use, use more renewable energy or reduce greenhouse gas emissions

Can aggregate resources and demand

Can have a different risk profile

Can be more flexible

Can have a ‘micro-finance’ piece

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The key to this:Energy policies need to include lending institutions