PH team presents public ESCO mechanisms in Global ESCO Network event

Date Published: 
September 21, 2021
  • Screenshot image of the webinar panelists held on 21 September 2021 shows (clockwise from top left) Alexander Ablaza of APEIA, PE2 and Climargy, Mikhael Fiorello C. Llado of Climargy, Søren Lütken of the Global ESCO Network and C2E2 and Aristeidis Tsakiris, also of C2E2. (Image: PE2)
    Screenshot image of the webinar panelists held on 21 September 2021 shows (clockwise from top left) Alexander Ablaza of APEIA, PE2 and Climargy, Mikhael Fiorello C. Llado of Climargy, Søren Lütken of the Global ESCO Network and C2E2 and Aristeidis Tsakiris, also of C2E2. (Image: PE2)

COPENHAGEN, 21 September 2021 – Philippine Energy Efficiency Alliance (PE2) president and Asia-Pacific ESCO Industry Alliance (APEIA) founding convenor and Climargy CEO Alexander Ablaza and Climargy investment advisor Mikhael Fiorello C. Llado composed the first resource team from the Philippines to contribute energy service company (ESCO) knowledge to a global publication and a global monthly webinar series organized by the Global ESCO Network through the Copenhagen Centre on Energy Efficiency (C2E2). Using the same title of the chapter they co-authored for the publication, “Incorporating Energy Service Companies in Nationally Determined Contributions: The potential of ESCOs for meeting the climate goals in the Paris Agreement,” Ablaza and Llado led an hour-long webinar earlier today entitled, “Unshackling ESCO Potential: Public Financial Mechanisms that Enhance the Viability of ESCO Projects.”

The webinar was opened by Dr. Søren Lütken, chair of the Global ESCO Network, and moderated by C2E2 program officer Aristeidis Tsakiris.

Ablaza explained that the presentation sought to review and inspire replication of successful models of ESCO structures and mechanisms around the world which have improved ESCO response to the service demand of public sector energy efficiency (EE) projects. He said that, across developed energy service markets around the world, the public sector can potentially mobilize the bulk of that capital by creating a demand for ESCO services and introduce financial mechanisms that will enhance project viability.

He shared the team’s estimate that global EE investments made outside the balance sheets of energy end-users through 2040 to meet IEA’s Efficient World Scenario (EWS) could be as high as USD 16.15 trillion, flowing through ESCO performance contracts, public-private partnership (PPP) transactions, risk sharing facilities, budget financing, large-scale Government retrofit programs and other off-balance sheet modalities. The team believes that the business-as-usual EE capital mobilization could flow no more than USD 8.0 trillion in self-financed, debt-financed or lease-financed EE projects.

Ablaza said that the public sector has two significant roles in this EE capital mobilization. First, public agencies and facilities represent scalable EE opportunities that are largely untapped. In fact, through most developing economies, the largest inefficiencies could be harvested from public buildings, public lighting and water utility pumping services. Second, new public policies can enable off-balance sheet mechanisms such as direct government procurement of ESCO contracts and PPP performance-based services. Governments can also blend its own budget resources and climate funds to finance large-scale obsolescence or market wash-out of low-efficiency technologies.

Llado presented six prominent public sector mechanisms and used country case studies to explain their impacts on commercial viability of ESCO contracts: (1) Public utilities can use on-bill financing to lower customer credit risk by bundling project repayments with utility bills  and leverage ratepayers’ consumption behaviors to tailor fit EE offerings; (2) Energy performance contracting directly by public sector end-users distributes project and financial risks efficiently across the contract parties and reduce upfront costs for the end users; (3) Government-owned EE service providers can function as Super ESCOs to provide debt or equity financing and capacity building resources to smaller, privately-owned ESCOs and also take on large-scale public EE retrofits; (4) Long-term concessional financing from international financial institutions or multilateral development banks lowers cost of funding of a local EE financing facility and stretch investment horizons across longer project pipelines; (5) Budget financing with capital recovery from a central finance agency allow less creditworthy public agencies to gain access to financing for their EE projects; and, (6) Dedicated EE revolving funds help create a sustainable local funding source for ESCOs through local financial institutions, which could lower risk premiums as they better understand ESCO business models.

To conclude the presentation, Ablaza offered 11 recommendations: (1) Conduct EE market-mapping analyses and estimate the market potential of public-sector and less-creditworthy customer segments relative to the entire country; (2) Allocate funding to the preparation of public-sector EE projects, including budgets for investment-grade energy audits, PPP transaction support and the design of large-scale ESCO procurement programs; (3) Assess the existing ESCO industry and identify bottlenecks to the growth of project pipelines, and the accreditation and technical capacities of new ESCOs; (4) Assess the current environment for private-sector and government lending to ESCOs, and estimate the financial intervention needed from IFIs, MDBs, and the government to achieve EE market potential; (5) Review public procurement rules and how the policies allowing public-sector EPCs can be adapted; (6) Create innovative financial vehicles and structures (e.g. equity and guarantee funds, Super-ESCOs, PPP, joint venture transactions) that can enable public funding and private-sector capital flows into ESCO-led EE retrofits in public facilities; (7) Create a road map for gradually removing subsidies in energy prices in order to improve EE project economics and the viability of ESCO financing; (8) Implement an incentives framework to improve after-tax returns for a wide range of EE technologies and services, and require establishments meeting a given energy-consumption threshold to create energy-use reduction plans; (9) Identify competency gaps across the EE value chain and establish training and international partnerships; (10) Conduct technical training and marketing campaigns to raise stakeholders’ confidence in EE projects and ESCO business models; and, (11) Accelerate public spending towards ESCO-led EE improvements as a key component of post-COVID economic stimulus programs.

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