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“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:

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


“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

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

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.

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

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

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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