At the recent Green Bonds conference at which I chaired a panel, Sean Kidney of the Climate Bonds Initiative challenged the audience in his inimitable way with the questions – “how do we scale-up all this (meaning investment into green infrastructure) rapidly?”
It won’t be a surprise but my response starts with the absolute need to focus on the massive economic potential offered by energy efficiency. Improving energy efficiency will bring cheaper, cleaner, faster reductions in emissions, and greater economic impact than investing in generation options – and it has been proven many times there is massive potential that is economic right now.
It also won’t surprise anyone when I say scaling-up requires standardization in the way that projects are developed and documented and for energy efficiency this means through systems such as the Investor Confidence Project (ICP). Failure to require standards like ICP will lead to a lot of under-performance, both financially and environmentally. If green bond investors only rely on ex ante assessments of energy saving, or rely on inaccurate indicators like Energy Performance Certificates, and don’t require standardized projects with independent Quality Assurance and enforced Measurement and Verification of results we may end up with a gross misallocation of investment into “green” energy saving projects that really are not performing, financially or environmentally.
The really big problem is that there is not a culture or eco-system for developing large, multi-premise investment programmes. Project developers and owners tend to work on one project at a time, developers like ESCOs are passive and only respond to RFQs, they don’t go out there and create demand at a portfolio level. We need a new type of developer – let’s call them a “super developer”, that only develops large scale projects, aggregating smaller projects and acts like an infrastructure or property developer. Developing anything is high risk and there is a need for risk equity capital to drive the development of project investment opportunities at scale. Super developers could be private sector or public sector. Governments have huge portfolios of property and vehicles and should provide a ready channel to aggregate demand through super developers but they are not really doing it.
To learn how to scale-up investment into energy efficiency we need to look around the world to places where efficiency investment is actually happening at scale and I see four case studies of super developers in action that have global significance and everyone needs to examine:
PACE in the US which was discussed earlier in the conference
The Carbon & Energy Fund (CEF) that is a framework for procuring Energy Performance Contracts in the UK’s National Health Service (NHS)
The Dubai Super ESCo
Energy Efficiency Services Ltd (EESL) in India.
At the green bond conference we heard from David Gabrielson of PACE Nation and Craig Brown of Renovate America about how PACE has really started to scale in the US. In Europe the good news is that the EuroPACE Project has been awarded €2.4 million of Horizon 2020 funding to introduce PACE type models to Europe. I am pleased that we at EnergyPro Ltd are advisers to that important project. In the PACE eco-system there are large players like Renovate America and Renew Financial who aggregate demand, ensure contractors meet appropriate standards and access large pools of capital through bond issues.
The Carbon & Energy Fund, which is not actually a fund but rather a procurement framework, engages with NHS hospitals to develop and deliver EPCs. Hospitals join the framework and commit to implement an EPC which CEF develops in conjunction with an ESCO selected by a competitive process between the ESCOs on the CEF framework. CEF sources finance and charges a fee based on capital expenditure and an on-going fee for contract management and measurement and verification. CEF has developed about 40 EPCs.
The Dubai Super ESCo – the Etihad Energy Services Company is doing great work in the UAE and it only works with portfolios of buildings. I wrote about it here and since then they have announced new deals including; retrofitting controls and installing PV in 243 buildings owned by a leading property company, and 650 facilities, (mosques, offices and residences), under the jurisdiction of the Islamic Affairs and Charitable Activities Department (IACAD).
EESL in India has done and is continuing to do amazing things, operating a commercial model that has aggregation of demand at its heart. They have deployed 270 million LEDS and through aggregation of demand reduced the price of an LED by a factor of ten. The approach is now being applied to other technologies like high efficiency motors, pumps and fans and smart meters. EESL also recently procured 10,000 EVs for government departments in the largest ever procurement for EVs and reduced the price of EVs significantly. The 10,000 EVs are seen as a pilot and next year EV procurement will be ramped up many fold.
Whatever the choice of structure, whether it is a framework, a super-ESCO, a corporate aggregating demand and accessing finance, or some other form we haven’t seen yet, it is clear that we need more super developers.