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EEPIC

“Scale Up Financing of Energy Efficiency Projects at China Industrial Facilities”
Asia Clean Energy Forum 2012 - Session 9:
“Approaches to Scaling Up Energy Efficiency Investments in Asia”

By: Thomas K. Dreessen Chairman & CEO, EEPIC
6 June 2012 Energy Efficiency Project Investment Company Limited
China Mobile: +86 150 1064 6580 Email: tkd@epscc.com

Financing is Major Barrier for PRC to meet its 12th five-year Plan EE Targets
• Problem is NOT a lack of available funds! • Problem is inability of ESCOs, vendors, developers of Energy Efficiency Projects (“EEPs”) and industrial facility owners to access available Debt and Equity on ‘commercially-attractive’ terms

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“Funding Gap” in China
• Virtually all China banks only offer asset-based lending, limited to 70% of capital cost requiring:
– 30% equity investment in EEPs – 100% Collateral or Guarantees required on loan amount

• Real “Collateral Value” of EEPs is the Savings • Few China banks interested in EEPs due to small transactions and lack of internal capacity to evaluate and accept the Savings cash flow as collateral • ESCOs are optimum solution but are typically small, medium-sized enterprises (“SMEs”) with limited equity/collateral capacity • Few China Investors interested in EEPs versus IPOs
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EE Barriers of China Industrial “Hosts”
• EEPs pursued to comply with PRC mandates • EEPs viewed as ‘Infrastructure Investments’ - low priority vs. ‘Core Business’ (don’t fix if not broken) • Funding EEPs from LFIs impairs ‘Credit Capacity’ which ‘SMEs’ cannot afford to divert from their ‘Core Business’ to access debt from LFIs • EEPs cannot compete with internal capital for ‘Core Business’ 1-year hurdle rates • EEP benefits are too small to get on ‘radar screen’ and justify ‘perceived’ operating complexities/risks • Not convinced of actual cost reductions and not aware of “M&V” methods to ensure sustainability
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China Industrial Energy Efficiency Finance (CIEEF) DEBT Solution by: Institute of Industrial Productivity
• Create Savings Guarantee (SG) to LFIs that EEP savings will be sufficient to repay the principal plus interest on the EEP loan (separate from credit risk) • Build capacity of LFIs to evaluate risks/benefits of EEPs with proven, market-based training workshops • Localize existing Global Products and Methods:
(IEEFP) : International Energy Efficiency Finance Protocol (IPMVP): International Performance Measurement &
Verification Protocol
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Current SG Design Summary
• Guarantee LFIs that savings from EEPs will be sufficient to pay the principal and interest on the EEP loan (separate from credit risk) • EEPs charged a fee on total guaranteed amount, as a “zero loss” insurance product • Administered by highly-trained EE technical staff to approve EEPs that comply with IPMVP (or PRC comparable) for transparent savings M&V • Key success factor is to have LFIs accept cash flow from savings of EEPs as the primary collateral for their EE loans, based on the SG.
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EEP “EQUITY Investment Solution by:
• • • • • (Energy Efficiency Project Investment Company) Invest equity alongside bank debt to fund 100% of total Implementation Cost of EEPs Provide construction and long-term funding to ESCOs and other implementers of EEPs in China Assist in developing EEPs to increase technologies implemented, project size & investment Accept Host savings payments from EEPs calculated according to “IPMVP” guidelines Utilize China Project Companies to aggregate multiple EEPs and reduce transaction costs with standardized documents and methodologies
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Benefits of EEPIC Structure
• Fills “Funding and Technical Gaps“ for ESCOs and Developers, allowing them to implement more technologies in EEPs with more revenues • Creates new EE Investment product for equity funds and new EE Lending product for banks • Provides a mechanism to scale-up and aggregate EEPs for funding and reduced transaction costs • Accelerates implementation of EE in China • Delivers sustainable Energy & GHG reductions through “Measured and Verified” savings • Reduces EE barriers for end-use Hosts
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Benefits to EE Stakeholders in China
To Industrial Hosts:
• Limits impact on “core business” capital and credit capacity through Savings-based Payment Guarantees • Provides measured Energy and GHG emission reductions for compliance with China’s Energy Plans

To ESCOs and other developers (SMEs):
• Fills funding gap for significant “backlog” of EEPs from 700+ EMCA members in China

Equity Investors:
• Improves IRRs and reduces Host credit risk
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