Ambrosini_IFC - SEF Market Potential in Pakistan v01

Report
SUSTAINABLE ENERGY FINANCE
THE OPPORTUNITIES IN PAKISTAN
Dr. Riccardo Ambrosini
Senior SEF Specialist, IFC
Karachi, November 27th 2014
SEF Market Opportunities in Pakistan
IFC global experience tailored to Pakistani context
2
SEF Market Opportunities in Pakistan
5
How can IFC help Pakistani Fis in Maximizing SEF Market Potential
14
Annexes
21
2
These are some typical examples of SEF investments financed by
Banks, Leasing Companies, MFIs around the world...
Sector
Potential Borrower
Energy Efficient /
Renewable Energy Equipment
Agriculture
Farmers, Cooperatives,
Supply chains
Biomass/biogas digesters, Drip irrigation systems, efficient MF and Retail for Farmers, SME and
and/or solar/biogas powered pumps, Efficient agroCorporate depending on company size.
machineries, storage facilities
Leasing
Residential/
Retail
Builders, home owners,
home owner associations,
individual households
Solar water heaters, wall/roof insulation, Water-saving
shower heads, Solar lighting, CFL, improved cook stoves,
water purifiers, efficient refrigerators, efficient HVAC units,
double glazing
Mainly MF and Retail for households, SME
and Corporate depending on size. Real
estate leasing
Commercial
Housing complexes
operators, maintenance
companies;
Housing developers,
Property Operators
Heating and ventilation equipment, Control and metering
systems, Electricity peak-load control systems, Airconditioners, Heat pumps, solar water heaters
Corporate and SME. Leasing for major
equipment
Municipal
Municipalities, district heating Boilers for district heating as well as for public/municipal
Mainly SME and Corporate, Public Finance
companies, street lighting
buildings, Heat exchangers, pipes for infrastructure projects,
operators, public buildings
Cogeneration units, Complex EE projects
operators
Industrial
Industrial companies,
SMEs and MSMEs
Energy efficient production lines, Waste heat recovery
devices, Heating systems upgrades, Efficient boilers and
heaters, Fuel switching (from coal to gas or biomass),
Electricity peak-load control systems, Cogeneration units
SME and Corporate. Leasing for major
equipment
Renewable
generation
Project developers,
Corporates/SMEs
Wastes to energy (wood waste etc.), production of fuel,
biogas, biodiesel, solar (PV and thermal), hydro and wind
power, geothermal
Corporate and SME lending on captive
generation. Project Finance for grid attached
RE plants. Specialized insurance product for
solar PV
3
Typical Banking Segment Interface
The main objective of IFC’s market study was to review the opportunities for
Sustainable Energy Finance in Pakistan given the needs of national economy
Unfortunately for the local economy, in Pakistan
high energy prices are coupled with high energy
intensity. Additionally, there is an increasing
supply-demand gap, estimated to be around
5,000 MW, high transmission and distribution
losses, low levels of grid penetration, etc...
This market review of SEF opportunities has been
conducted by IFC in the following economic
sectors of Pakistan:
 Industrial
 Residential
 Agribusiness
Given the market drivers pushing towards a
more sustainable use of Energy, it is of little
surprise that this market review indicates:
 Relatively low payback periods / high IRRs for
EE/RE investments
 Positive cash flows for potential customers of
FIs
4
SEF Market Opportunities in Pakistan
IFC global experience tailored to Pakistani context
2
SEF Market Opportunities in Pakistan
5
How can IFC help Pakistani Fis in Maximizing SEF Market Potential
14
Annexes
21
5
Pakistan’s Energy Supply and Demand
 Total primary energy supply for year 2011-12 was 2,710,000 TJ (or 64.72 MTOE)
 More than 99 % of use through conventional energy sources
 Heavy reliance on expensive sources of energy, as 80 % from petroleum products
 12.5 % from large hydro and nuclear power
 6.6 % from coal
 Less than 1 % through micro/mini renewable energy (RE) sources
 Pakistan's total energy savings potential: 418,807 TJ (11.16 MTOE)
 In FY 2011-12, this amounted to 17.25% of primary energy use!!!
 Installed power generation capacity: 22,797 MW
 Insufficient considered increasing population and industrial requirement
6
Identified Investment Potential in Energy Efficiency (“EE”) &
Renewable Energy (“RE”) in Major Sectors in Pakistan
Potential Investment
Sector
type
Industrial
SubSector
Main Equipment for investment
EE
(M PKR)
RE
(M PKR)
Textile
173,000
133,500
Sugar
105,000
16,700
Leather
1,150
12,000
Paper
7,800
1,400
Cement
30,600
33,000
Co-generation, meters, motors, power factor, main process,
process control, VFDs
Wind power,
concentrated solar
power
Fertilizer
5,800
10,800
Heat recovery, heat transfer, main process
PV
Other
sectors
80,800
52,000
Diverse process and ancillary equipment
Various technologies
EE
RE
Compressors, heat recovery, heat transfer equip., lights, meters,
motors, power factor correction equip., main process, process
control, steam system, variable frequency drives (“VFDs”)
Co-generation, heat recovery, transfer equip., motors, general
process, process control, steam system, VFDs
Compressors, heat recovery, heat transfer, motors, power factor,
main process control, steam systems
Compressors, heat recovery, motors, power factor, main
process, process control, VFD
Solar water heaters
(“SWH”), wind power,
photovoltaics (“PV”)
Agriculture
168,000
647,600
Tubewell replacements, trickle irrigation systems (drip and
sprinklers mainly)
Residential
111,000
166,000
Lighting, fans, air conditioning units, refrigerator replacement
683,150
1,073,000
Nonindustrial
Total Investment
Potential
7
Biomass, PV
PV, SWH
Biomass, SWH
Direct combustion of
biomass, biogas, solar
water pumping
Biomass from
municipal waste and
animal manure, SWH
Industrial EE Market Potential in Pakistan
Combined
Technology
investment for
other sectors
20%
VFD
2%
Co-generation
31%
Steam system
1%
Process Control
4%
Process
5%
Power Factor
0%
Compressor
3%
Motors
7%
Meters
2%
Lights Heat transfer
1%
5%
Heat recovery
19%
The overall investment potential for these energy efficiency measures in the
industrial sector is about PKR 400 billion, with typical 3 to 5 years payback periods
8
Renewable Energy Potential in the Pakistani Industry
Investment Matrix – Sector vs. Technology
Sector \ Tech
Photovoltaic
SWH (Solar
Water Heater)

Cement
Leather

Paper
Sugar
Fertilizer
Others


Others
20%
Fertilizer
4%






Cement
13%
Leather
5%
Paper
1%

Textile
Processing
Textile Spinning
Wind Energy
Total RE Industrial Investment
(by Sector)

Sugar
6%
Textile
Processing
12%
Textile
Spinning
39%
The industrial sector in Pakistan has long been suffering owing to unavailability of energy
(load shedding for gas and electricity):
 Part of this energy deficiency could be met by Renewable Energy (“RE”)
 Potential for private sector involvement: about USD 2.0 billion for 800 MW of installed
capacity
9
Investment Potential for EE & RE Equipment
in the Agricultural Sector
Intervention
Potential Sector
Investment
(M PKR)
Saving
Potential
Use of mechanical seal pumps instead
of gland-packed pumps
1-2 %
Use of energy efficient electric pumps,
motors and diesel engines
20 %
Installation of properly sized pumps
5%
Proper maintenance of pumping system
5%
Installation of Variable Speed Drive
(“VSD”)
5%
Widely Spaced Crops suitable for Drip
Irrigation
Closely Spaced Crops suitable for Drip
Irrigation
Crops suitable for Sprinkler Irrigation
The major water-saving potential
exists in the Agri sector, as irrigation
accounts for ~93% of total water
consumption in Pakistan today

Drip irrigation could potentially
increase farmers’ water efficiency by
40-70%, at the same time improving
yields by 30% or more

Sprinkler irrigation is suitable in all
types of soil except heavy clay and
water, saving up to 30-50%

Considering that in most locations
water is not paid, the financial
benefits of water efficiency exercises
are fuel saved on pumping and
increased yields
10,000
Average annual Energy
Requirement, (kWh / hectare)
Crops

Conventi
onal
Irrigation
Trickle
Irrigation
Savings
1,667
1,389
278
Potential
Sector
Investme
nt (M
PKR)
58,000
3,148
2,778
370
926
810
116
100,000
10
SEF Market Opportunities in Pakistan
IFC global experience tailored to Pakistani context
2
SEF Market Opportunities in Pakistan
5
How can IFC help Pakistani FIs in Maximizing SEF Market Potential
14
Annexes
21
11
Banks in Pakistan are already lending in most of the major
economic sectors where SEF lending is relevant
Sector-wise Bank Advances & NPLs as of June 30, 2014
Sectors
Insurance
Sugar
Production/Transmission of Energy
Financial
Chemical & Pharmaceuticals
Agribusiness
Individuals
Shoes & Leather Garments
Automobile/Transportation
Electronics
Cement
Textile
Others
Totals / Average
Loans
USD Million
9
1,675
5,666
1,273
1,890
3,955
4,070
218
633
619
437
7,300
19,487
47,232
NPLs
USD Million
53
313
83
129
403
498
31
110
125
94
2,050
2,141
6,031
NPL Ratio
0.1%
3.2%
5.5%
6.6%
6.8%
10.2%
12.2%
14.1%
17.4%
20.2%
21.4%
28.1%
11.0%
12.8%
12
The Pakistani SEF Paradox
There is an urgent need for capital investment in EE and RE, among
various sectors of the Pakistani economy, with an overall investment
potential of about 1.75 trillion PKR:
 Agriculture 46%
 Industrial 38%
 Residential and commercial 16%
There is liquidity available with FIs to invest in power generation and EE
projects.
However, demand and supply are not converging into substantial
levels of energy related financing portfolios for the banks…
WHY?
13
Feedback from the Industry
Challenges:
Initiatives:
 Lack of awareness, and lack of
skilled workforce
 Shift towards coal power generation
 Exhausted/depleted tires for
extracting furnace oil through
combustion
 High investment/capital expenditure
 Perceived high payback period (in
case of solar energy PV projects)
 Third party energy and / or
environmental audits
 Non tested technology (in Pakistan)
 Large industrial setups having sound
financial base are ready to invest in
energy efficiency and later in
renewable energy projects
 Absence of government policies and
incentives, no preferential treatment
 Illegal and refurbished market
 Key performance indicators (KPI) for
efficient use of energy still being
developed
 Political instability of country
14
Feedback from Industry Associations
Challenges:
 The associations are tackling energy shortages issues and environmental obligations
with limited technical capacity
 The emergency preparedness is dealt by individual industry and not at the associations’
level diluting the overall effectiveness
 Lack of mandate for utilities distribution & bill collection
Initiatives:
 Plans for combined power plants and wastewater treatment plants at industrial estate
level
 Awareness raising campaigns
 Partnered with international donors for energy / environmental projects
 Some have established technical cells
15
Feedback from non-Industrial Consumers
Challenges:
 Very high cost of alternative arrangements
 Limited capacity of alternative arrangement
 Rising cost of diesel operated tube wells
 40,000 off-grid villages where taking the national grid would not be cost effective
 Lack of access to finance and incentives from government (i.e. on import duties)
Initiatives:
 Few tubewells utilizing solar panels
 Biogas plants for domestic fuelling needs have met with increasing success during
the past 5 years
 General switch over to energy efficient equipment
16
Feedback from Banks and other FIs
Challenges
 No skills for technical details of any energy related financing application
 Serious lack of demonstrated successful alternate energy technologies
 Unavailability of performance guarantees and/or after-sale service from vendors
 Low levels of technology sales and support networks throughout the country
 Secondary market for energy equipment is not developed
 Slow arbitration of banking disputes
 Collaterals for SMEs are generally difficult for them
Initiatives
 On an opportunistic basis, without detailed knowledge of SEF concepts and benefits
17
Feedback from Equipment Vendors
Challenges:
 Lack of awareness in clients
 No criteria for assessing existing equipment
 Reluctance in major investments
 Limited promotion of equipment and services
 Lack of coordination with FIs
18
Feedback from Government Institutions
Challenges

Lack of coordination for mandates of different ministries and line departments

Absence of regulations

Low level of awareness

WAPDA infrastructure does not support feed-in tariff for small projects

Current pricing of gas is hampering RE

Energy inefficiency is widespread, hence its cost can be generally passed through the value chain,
resulting in low levels of major investments in the industrial sector

Corrupt practices including electricity theft

Low emphasis on EE within environmental approval mechanisms of projects (EIA/IEE)
Initiatives:

RE & EE products exempted for ST and customs duty.

Revival of Motor Vehicle Tune Up centers program by ENERCON

New sector wise guidelines for preparation of IEE and EIA by MOCC.

WAPDA is executing CFL (compact fluorescent lamp) project

AEDB is facilitating investors for on-grid RE projects

MOCC negotiating with the World Bank and ADB to fund the CDM documentation and preparation
charges for new projects on Success Rate Model
19
Consultation with market players indicates the following as positive
steps to be taken in order to develop SEF in Pakistan
Regulatory:

SBP to encourage increasing SEF transactions in portfolio of commercial banks, for example through
directives related to FIs‘ portfolio structuring

Encourage use of ADR mechanisms to resolve disputes
Market Development:

RE has been widely developed worldwide. However local technical expertise needs to be developed,
initially leveraging on partnerships of FIs with equipment vendors

A secondary market for industrial equipment already exists in Pakistan, however asset managers,
vendors, etc. need to be made aware of the business opportunities for EE. For RE, a secondary market
is already in place in Western Countries, this could offer some opportunities
Financial:

Energy financing can be tailored to energy conservation/efficiency and RE generation projects

EE products are specific to defined industrial sectors, hence are suitable for FIs that are used to work
within these business areas. Here a financial product matching technical requirement is most
competitive

Banks in Pakistan are not generally aware of the benefits (for the banks, their client and society) of
implementing EE measures or developing RE projects, hence training of banks on simple SEF
methodologies should be one of the top priorities
20
SEF Market Opportunities in Pakistan
IFC global experience tailored to Pakistani context
2
SEF Market Opportunities in Pakistan
5
How can IFC help Pakistani Fis in Maximizing SEF Market Potential
14
Annexes
21
21
IFC’s Value Proposition
IFC works with banks in the following areas
•
•
•
•
•
•
•
•
•
•
•
Strategy development
Seminars, awareness raising for the sector-> informed clients
ESCO development-> business management, deal generation
Facilitate interaction between potential clients and FIs (i.e. textiles, poultry, zones) -> awareness, access
to audits
Identify key aggregators and sectors for financing
Periodic mining of bank’s portfolio
Work on public policy related to EE/RE scale up
Publications, marketing and communication materials
Customized training for bank staff
Specialized products for the niche market
Share different calculation tools
The Bank/Leasing Co/MFI:
•
•
•
Direct Sales
Advertising
Specialized team to drive this effort
22
Main Areas of Intervention for IFC’s SEF Advisory
1
4
3
5
2
IFC consistently delivers – all around the world – structured SEF products and build FIs’
capacity to independently manage a broader service offering to meet their client needs for
financing of RE projects, EE measures and clean technology upgrades
23
24
RE equipment suppliers
EE equipment suppliers
Energy auditors and consultants
Green buildings - potential,
investments and drivers
RE - potential, investments and
drivers
Energy and resource efficiency
ESCOs
Municipal/public
Corporate segment
Sustainable energy market
Financial Products
Financial Aggregators
Service and
Technology Providers
SEF Sectors
Market Segments
Energy Market
Economy
Broad market context
SMEs
Rural/off grid
Green Mortgages
Residential EE
Micro
Activities of IFIs and donors: climate
related EE/RE projects, work with FIs
Supply side – RE tariffs: feed-in
tariffs, hydropower, biomass, biogas
etc.
Demand side - Energy prices and
outlook. Subsidies.
Energy – mix, grid, power quality and
reliability, policy plans and priorities
Growth, inflation, trends
Module 1: Assessment of FI’s SEF potential
within the Pakistani context
Financial
market
Residential Energy Efficiency Offering
As Residential EE transactions are normally small in size, they are normally best suited for
the Retail and Microfinance segments

Due to high replicability of these transactions, the first option is usually the production of financial
products with marketing/information material available in branch, although the marketing channels
can vary considerably depending on local context

Use of aggregators – ESCOs/consultants, equipment suppliers, Municipalities, larger retail chains –
with different partnership models available

Typical EE measures to include solar water heaters, efficient lighting/heating/cooling equipment,
domestic equipment, wall/roof insulation, double glazing and smaller solar PV installations
EE Credit Lines in the SME/Corporate Segments
Typical equipment financed by Banks in the MENA region
include:






Energy efficient production lines
Waste heat recovery devices
Heating/cooling systems upgrades
Efficient boilers and heaters
Electricity peak-load control systems
Cogeneration units
These opportunities are present in all industrial and
commercial sectors of MENA’s economy
These are familiar sectors for Commercial Banks already,
best fitting Corporate, SME, Leasing and Islamic Banking
operations
RE Financing
Main renewable energy equipment to be financed:
 Solar water heaters (“SWHs”)
 Biogas/Landfill gas (cogeneration) units
 Solar photovoltaic (“PV”) units
 Concentrated solar power (“CSP”) plants
 Wind farms
 Hydro power plants
Best fitting SME, Corporate and Leasing
operations, depending on type and size of projects
Sustainable Energy Finance for Rural Banking
Borrowers in the Rural sector include farmers,
cooperatives, supply chains operators
Potential projects include installation / replacement of
the following equipment:
 Biomass/biogas digesters
 Irrigation systems
 Efficient and/or solar/biogas powered pumping
 Efficient agro-machineries
 Cold storage facilities
 Rural (off-grid) power solutions
Financial products cutting through Microfinance,
SME, Corporate, Rural and Islamic Banking
operations
Energy Performance Insurance
An EPI is an instrument that a service provider (equipment supplier/ESCO etc.) or endbeneficiary can procure to hedge against underperformance of EE/RE installations
 The insurance premium is priced based on the expected energy savings/energy
generation
 If the guaranteed EE savings/RE generation are not met, the insurer compensates
the end beneficiary for the shortfall
With the technology risk mitigated, financial institutions “only” need to evaluate the
payment/credit risk of the client, which is their core business
An EPI is a good fit for both ESCO’s and vendor’s EE implementation needs:
 Currently, ESCOs are using their own equity to absorb any EE implementation risk,
which is limited and finite. EPI will help to secure external debt and allow them to
upscale
 Equipment vendors are looking to expand their offering to clients but are reluctant
to guarantee their sub-contractors. With an EPI, vendors can offer service as well
as performance contracts without taking on additional risks
SEF Market Opportunities in Pakistan
IFC global experience tailored to Pakistani context
2
SEF Market Opportunities in Pakistan
5
How can IFC help Pakistani Fis in Maximizing SEF Market Potential
14
Annexes
21
30
EMENA SEF program:
Over $ 400m portfolio, over $50m annual energy savings
IFC Credit line + Advisory
LOCKO-Bank
Credit Bank of Moscow
Center-Invest Bank
NBD Bank
MDM Bank
URSA Bank
USD 18 million
USD 20 million
USD 20 million
USD 10 million
USD 8 million
USD 50 million
USD 53 million
2011
2010
2010
2010
2008
2008
2008
RUSSIA
TCB Bank
USD 4 million
USD 35 million
2008
2007
IFC Advisory
SME Bank
Prime Finance Bank
Agropromcredit Bank
Tatfondbank
2011
2009
2009
2007
EMENA
IFC Credit line + Advisory
Ukraine
Belarus
Armenia
Jordan
Lebanon
Jordan
Lebanon
Erste Bank
MTBank
AmeriaBank
Tamweelcom
Banque LibanoFrancaise
Ejara Leasing
Fransabank
2010
USD 10 million
USD 15 million
USD 3 million
2011
2010
2011
2012
2013
2014
31
China SEF Program
 Started in FY 2007
 As of 2013:
•
•
•
•
•
32
3 partner banks
Total loan amount: > $ 783 million
Total investment: > $ 1.7 billion
Annual GHG emission reduction:
19.33 million tons CO2e
Annual energy saved: >44.2 million
MWh
Philippines SEF Program
 Started in FY08
 As of end 2013:
•
•
•
•
•
•
33
3 partner banks
Total loan amount: > $ 257 million
Total investment: $ 422.5 million
Annual energy saved: 82,526 MWh
Annual RE generated: 345,250 MWh
Annual GHG reduction: 703,743 tСО2
Key Success Factors:
SEF aligned with bank’s strategy
Russian commercial bank, pioneer of Sustainable Energy Finance:
 Focus on industrial SMEs that are using old, energy inefficient production equipment and
technologies
 In 2005 the bank launched its Sustainable Banking Framework, integrating SEF in its
business model
From $ 4 million in 2006 to $ 200 million in 2012
Portfolio growth and diversified sources of funding
• IFC assisted the bank in the development of SEF
internal capacity to identify, assess and process SEF
deals. The bank has demonstrated SEF portfolio growth
from $ 4 million up to $ 200 million in 6 years.
• Proven SEF methodology, trained staff and solid track
records helped the bank to attract several multinational
investors to fund its SEF lending operations.
• The bank reports a two-digits profitability of its SEF
operations and is considering to further develop its SEF
operations.
• The bank’s leadership has been recognized by
international community, including The Financial Times
Sustainability Awards in 2007 and 2013
34
Key Success Factors:
Building SEF Portfolio with existing clients
Leading bank in the Middle East, an
IFC client, launched SEF project in
2012
In two years the bank has achieved
results as follows:
IFC advisory helped the bank to create
internal capacity and build the pipeline:
 $ 200 million of total project costs
 $ 110 million portfolio of SEF projects
 Experience in different sectors from
EE industrial equipment to RE solar
PV, Green Buildings, Residential EE
 Detailed analysis of the existing
portfolio in order to identify SEF
potential
 High conversion rate from site visits
and energy audits completed into
financed transactions
 Comprehensive training program for
loan officers and branch managers
 Transaction support:
• Joint client site visits to identify
eligible projects
• Supervision for energy audits
• Sector industry guides for loan
officers
35

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