Strictly Private & Confidential

energy efficiency finance Glen Plumbridge Managing Director SDCL Asia

National Energy Efficiency Conference 2013

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Why energy efficiency

Climate CHange

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McKinsey, 2008

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Boosting energy efficiency will help stretch energy resources and slow down

the increase in carbon emissions.

•  It will also create opportunities for businesses and consumers to invest

$170 billion a year from now until 2020 •  The total annual energy savings would come to roughly $900 billion by

2020

•  generate an IRR of at least 10 percent.

International Energy agency, 2012

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in order to cut energy demand growth in half by 2035

•  US$11.8 trillion of investment in Energy Efficiency is needed by 2035, •  This investment would result in US$17.5 trillion saving in energy cost

SINGAPORE

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•  S$1.3bn – S$9bn of investment in Energy Efficiency, •  would result in S$417m – S$1,6bn saving in energy cost

•  Potential GHG abatement of 1,258 – 5,032kt

Singapore aims to achieve a 35% improvement in energy efficiency

from 2005 levels by 2030.

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Benefits

Benefits

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•  Cost savings •  Risk mitigation

•  Energy costs

•  Legislation

•  Increased asset values

•  Public Relations

Singapore Electricity tariff

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 12.00    

 14.00    

 16.00    

 18.00    

 20.00    

 22.00    

 24.00    

 26.00    

 28.00    

 30.00    

2003   2004   2005   2006   2007   2008   2009   2010   2011   2012  

Average  Electricity  Tariff  (cents/kWh)  

Average  Electricity  Tariff  (cents/kWh)   Linear  (Average  Electricity  Tariff  (cents/kWh))  

8% p.a.

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barriers

Barriers

•  Lack of information    •  Lack of expertise

•  Performance risk  

•  Availability of capital  •  Corporate commitment

Performance Contracting Energy

Efficiency Finance

Energy Audit

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Government Incentives / disincentives

Singapore energy efficiency incentives

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GREET   Grant for Energy Efficient Technologies– 20% of Capex or up to S$4m  

EASe   Energy Efficiency Improvement Assistance Scheme– fund up to 50% of the cost of an energy appraisal

GMIS-EB   Green Mark Incentive Scheme for Existing Buildings helps building owners offset part of the retrofitting costs to improve the energy efficiency of existing buildings  

BREEF   The BCA’s Building Retrofit Energy Efficiency Financing pilot scheme

ADAS   One-Year Accelerated Depreciation Allowance for Energy Efficient Equipment and Technology  

Barriers - Availability of capital

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•  Internal •  Budget constraints •  Pay back > 3yrs •  Lack of understanding at senior management level •  Time consuming with limited bottom line impact •  Focus on core business activity

•  Finance sector

•  Lack of expertise in Energy Efficiency •  Scale (S$0.5m – S$5m) •  Credit risk

Perception of risk

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In 2012, researchers at Imperial College London surveyed 30 multinational firms on the subject. Over half of the respondents saw such investments as less risk than their core business investments. And yet, over eighty percent of respondents demanded the same or an even higher rate of return on their energy efficient investments relative to their core business investments.

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Singapore Energy efficiency finance program

highlights

•  SDCL   Asia   is   establishing   an   investment   program   for   up   to   S$200  million   to   finance   the  transformaOon  of  Industrial  faciliOes  with  energy  efficient  systems  and  technologies;  

•  SDCL   Asia   will   establish   a   professional   team   in   Singapore   to   work   with   EDB   and   to  implement,  manage  and  finance  projects;  

•  SDCL  Asia  will  finance  projects  on  a  “paid  from  savings”  basis;  

•  SDCL  Asia  seeks  to  structure  financing  so  as  to  achieve  off  balance  sheet  treatment  under  internaOonal  accounOng  standards;  

•  SDCL  Asia  aims  to  generate  significant  posiOve  environmental  and  social  impact  in  terms  of  polluOon  prevenOon,  carbon  emission  reducOon  and  job  creaOon.  

Sustainable   Development   Capital   (Asia)   Limited   (“SDCL   Asia”)   has   been   selected   by   the   Singapore  Economic   Development   Board   (“EDB”)   to   establish   a   finance-­‐led   pilot   programme   to   fund   energy  efficiency  projects  in  the  manufacturing  sector  in  Singapore.    

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Energy Efficiency Fund Structure

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Investment  Company  

Investors  

Manager  

SPV  2  SPV  1  

Lenders  

Project  2   Project  3  Project  1  

SPV  3  

Investment Management Agreement

Project Management Services

Paid-from savings model

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No

Inve

stm

ent

Upf

ront

for

the

host

Annual&Electricity&Bill&Before:&1,000,000&

Annual&Financing&Payment:&200,000&

Annual&Savings:&250,000&

Annual&Electricity&Bill&A>er:&750,000&

Base%Year% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

Before&Contract& &During&Contract&&&

% %Years%

A>er&Contract&

InflaDon&on&the&Energy&Cost&by&Year&10:&c.220,000&(2%&p.a.)&

Energy Efficiency Finance Structure

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Equity  &  Debt  Investment  

Savings  Payments  

Project  Capex  

Energy  Services  Agreement    

Return  

SPV ESCO

Fund

Energy  Performance  Contract  

HOST

Benefits

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•  Introduction of expertise

•  Management of project process •  Performance risk transfer  

•  Up to 100% Capital