Scaling Up Energy Efficiency Investment in Emerging Markets

An expert panel of developers and investors from the private sector discuss how to unlock the growing energy efficiency market in the developing world.

IFC’s Climate Investment reports that global energy efficiency potential is large and growing—governments and business invest more than $300 billion each year to improve the efficiency of power grids, transport, industry, and buildings. To put this into perspective, this is equal to or higher than annual investments in coal, oil, and natural gas power generation. The global green buildings market continues to double in size every three years.

Private sector engagement is fundamental to USAID’s goal of ending the need for foreign assistance. As one of the most-powerful forces for improving lives, strengthening communities, and accelerating countries towards self-reliance, private-sector engagement—and the market-based approaches it leverages—builds the skills, resources, knowledge, local institutions, and incentives that enable local systems and markets to be self-sustaining long after USAID support has ended.

In order to better apply these principles to developing country energy sectors, USAID and the U.S. Department of Energy’s (DOE’s) National Renewable Energy Laboratory (NREL) have reached out to private sector experts in this webinar series to better understand the barriers to private investment in developing country energy sectors.

The U.S. Agency for International Development (USAID) and the National Renewable Energy Laboratory (NREL) are partnering to support clean, reliable, and affordable power in the developing world. The USAID-NREL Partnership helps countries with policy, planning, and deployment support for advanced energy technologies.

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Video Transcript 
[Monica] Good morning everyone. I am Monica Bansal, acting director of USAID's energy division in Washington. Thank you very much for participating in this second webinar in our Private Sector Perspective webinar series. We have a great panel of experts to talk to us today about scaling up energy efficiency and investment in the developing world. Like I said, this webinar is the second in a four part series, the purpose of which is to hear directly from the private sector about what the barriers to market entry and participation are and what they need from the public sector to sustainably create a level-playing field for private sector investment. This webinar will be followed by one on smart grids on Wednesday this week, and the last one on off grid, Mini-Grids, and MicroGrids on September 6th. I wanted to start with a few global context slides. All of these graphs come from the IEA Energy Efficiency 2017 Report. The premise of this webinar is that we'd like to scale up energy efficiency in the developing world, implying that this should be possible but is not yet happening. In fact, in the developed world, energy efficiency is the primary reason that electricity demand has flattened and decoupled from GDP growth. The energy savings from efficiency gains were approximately four times larger than the savings associated with structural economic change. These graphs from the IEA report show that there's been a lot of progress in the developing world but not enough. This is particularly true when considering so much demand growth in the developing world is potentially yet to come. This graph shows the share of peak load attributable to air conditioning usage in 2016, projected out to 2050, and then in 2050 under a scenario with improved efficiency standards using existing technology. If you look at countries like India, Indonesia, and Mexico, you are looking at tremendous growth. In Mexico, where USAID and the Lawrence Berkeley National Lab have recently begun addressing this issue together, peak load from cooling is expected to grow by 25 gigawatts, which is significantly more than the new generation capacity procured by Mexico in the last two years of auctions. This growth not only requires enormous capital expansion investment, but will cause energy subsidies to grow to billions of dollars each year. Energy inefficiency is also a suck on domestic resources. USAID is a development agency working toward building the self reliance of our partner countries. This graph shows the amount of savings per person due to energy efficiency, putting more money back in the pockets of households to invest in the local economy. Efficiency also reduces public energy subsidies. For example, in Bangladesh, energy subsidies are higher than health and social welfare expenditures and they're equal to education expenditures. But, there is a gap in energy efficiency investments in the developing world. The chart to left here shows investments by region, with the orange box at the top encompassing the portion going to the developing world. We have a great panel today to talk about why this box isn't bigger and how the public sector should focus its efforts to growing this investment. With that, I would like to introduce our panel. Our moderator today is Steven Kukoda, the Executive Director of the International Copper Association. And our panelists are Gina Hall, Investment Director of the Carbon Trust, Julia Panzer, Head of Public Affairs and Sustainability at Danfoss, and Clay Nesler, Vice President of Global Sustainability and Industry Initiatives, Building Technologies and Solutions at Johnson Controls. Thank you very much to our panelists for your participation to all of you attending. And I will pass it off to Steve to start this dialogue.

[Steven] Great, thanks very much, Monica. Thanks again to you and the USAID team for organizing this webinar. Good to know our panelists who are contributing to this discussion. I'll just spend a few seconds just introducing my organization because I'm sure I'm not familiar to all of you. The International Copper Association, as its name implies, represents the world's copper industry. Our members are the larger producers of coppers and some of the more globally focused fabricators of the end use products that are critical to energy efficiency. We bring more than 20 years of experience in energy efficiency programs in 60 countries and growing. As an example, we've helped nearly 40 countries to adopt minimum energy performance standards for electric motors, and we partner with more than 500 organizations around the world. So just a little bit of perspective as to why energy efficiency is so important and thanks to Monica for framing the discussion already. Following the Paris Agreement, the International Energy Agency published a report of the actions that would be needed for the Paris Agreement to be achieved. And the report stated that at least half of the actions required to keep climate change to well below two degrees Celsius would come from energy efficiency. The dates on here are a bit old, I apologize for that, but the trends are still accurate. If you look at overall energy growth, it's not enough just to look at the top line numbers. You really need to segment between the developed and the developing world. And you see in the Non-OECD that electricity usage is outpacing the developed world by between four and five times. And yes, that's largely attributable to a growing population, but it's also attributable to a growing spending class, and I read a report that stated that today there's something like two billion people worldwide that you can consider to be in middle class or spending class, whatever you'd like to call it. And in the next two decades, that number is set to grow from two to five billion people. With that increased spending ability, comes a desire to emulate the lifestyle that we enjoy in the developed world. And that means more appliances and more electricity usage as a result. Building on the graph that Monica showed earlier, just on cooling, if we take that overall energy trends, and then segment between the OECD and the Non-OECD, and we just look at residential air conditioners and refrigerators. Again, for the OECD we see growth that is largely matched with population trends, but you see a much greater growth in the Non-OECD. And it's important that we focus in areas like residential appliances when we speak about energy efficiency. One of the primary challenges is that in the Non-OECD, standards for these products are either completely nonexistent or far behind best available technology. So in this period leading up to 2030 the potential exists for a billion refrigerators and air conditioners to be bought and sold without an efficiency standard attached to them. So it's critical that we make quick inroads in the developing world if we're going to get a handle on this. This brings me to the just one program example I'd like to provide, and it's an initiative called United for Efficiency or U4E. U4E is part of the UN Sustainable Energy for All initiative, which has identified a number of high impact areas for energy efficiency interventions and U4E focuses on lighting and appliances in that space. The other presenters on the panel today are also in the SE for All space and handle other high impact areas. We can talk more specifically about the work of U4E, which is focused on lighting, refrigerators and air conditioners, residential. On the industrial side, we focus on electric motors and distribution transformers and in the future we would like to also put some effort into information technology. And by focusing on so many products, we're addressing a majority of global electricity consumption. And this also gives us a needed scale to make significant impacts. So if we can transform the markets for these six products towards energy efficiency, the potential exists to reduce global electricity consumption by 2030 by 10 percent and at the same time to reduce CO2 emissions equivalent to taking a half a billion cars off the road. And since energy efficient products use less electricity than their inefficient counterparts, the uses of these products for individuals and businesses, have the potential to save 350 billion dollars each year. And they will also help countries avoid investments in new power generation, and we estimate that these investments could approach half trillion dollars. Before I turn over to the panelists, I just wanted to provide some of my own quick perspectives on the barriers as to why we're not seeing the greater uptake in energy efficiency primarily in the developing world. The International Energy Agency each year publishes a status report on global energy efficiency and one of the components of that is on the investment side. And the most recent report states that the investments being made today in energy efficiency need to triple if we have any hope of meeting Paris Accord. Last year, I was at a clean energy finance conference and a speaker from the World Bank said that number is actually probably closer to nine times. Whether it's three times or nine, I think it's obvious that we need to be spending more in energy efficiency if it's going to be able to make the needed contributions for the Paris Agreement. From my perspective, and in my discussions primarily with finance people, the barriers that we see are that projects are just often too small for the banks to get involved. So it's important that we either aggregate projects to bring scale or to just start out with much bigger projects that are more in line with the type of investments that the banks are willing to make. There's also challenges in verifying the savings which gives the banks pause before they want to make investments in energy efficiency. So managing the risk behind the energy efficiency savings is critical when defining these projects. We also see, and I don't think that this is a secret to anyone, that it's really the other clean technologies that get more of the attention. A renewable energy project is often seen as more attractive and a lot of that is just related to perception. If you invest in wind's energy, you can see a wind farm at the end of your investment. With energy efficiency, it's a bit more difficult. And then payback periods are a challenge and I'm going to come to this point one or two more times before I turn over to the panelists. I think that the policy environment is also a significant barrier to why we're not seeing energy efficiency scaled up more. I mentioned that there's a lack of minimum energy performance standards in the developing world. And if you're a country looking at opportunities and there's limited resources available, how do you prioritize energy efficiency over other things that may be more important? Infrastructure, for example. First cost is also a barrier. If an inefficient product costs more than a less efficient one and you're asking a country to put in place standards for more efficient products, then in essence, that country is making the commitment that will put a cost disadvantage to their consumers and to their businesses, at least in the short run. The payback periods can be attractive, but that first cost is a real barrier so the financing for that first cost is critical when defining energy efficiency products. And I think just in general, there's a lack of awareness on the benefits of energy efficiency. And in my last slide I'm going to come back to that point. Just a very simple photograph to talk more about this notion of the first cost. Whether you're in the developed world or the developing world, it's easy just to look at the first cost and then to declare that's the end of the story. But that really is the proverbial tip of the iceberg when we're talking about energy efficiency. So decisions on energy efficiency should take a more holistic approach where yes, the first cost is recognized but that has to be counter balanced over the myriad of lifecycle benefits that come from something like energy efficiency. This chart was prepared by the International Energy Agency, who call it the Energy Efficiency Flower. I could spend quite a long time talking about this and I won't, but there are a myriad of benefits that come with energy efficiency. And it's not just the obvious ones related to energy itself and consumption, there are a myriad of socioeconomic benefits, including poverty alleviation, health benefits, education, etcetera. I think that energy efficiency and probably clean energy more broadly are the golden thread that links all of the sustainable development goals. I'll turn this over to the presenters and I will just invite the USAID program managers that are on the line that are interested in partnering with us and U4E or other areas in energy efficiency. Our primary areas of focus are in the ASEAN and SADC and East Africa and Central America, and please feel free to contact me offline and we can start a dialogue. With that, I'll turn the microphone over to our first presenter which is Gina Hall from the Carbon Trust. Gina?

[Gina] Right, thank you, Steve. And thank you to USAID for the invitation for this and for putting a spotlight on energy efficiency. We often consider this area to be the unloved area of energy but there is a lot that we can do in this area and the benefits, just going off that last energy efficiency flower diagram that you had, Steve, is really important because there are development benefits that are very important in energy efficiency along with just simply the need from a climate change perspective to reduce our energy demand. My name's Gina Hall, I'm the Investment Director at the Carbon Trust. I'll spend just a minute or two on what the Carbon Trust is, who we are. We're a UK based nonprofit climate change consultancy. We work with both public sector and private sector clients. We're about 180 people spread across five continents, more than 30 nationalities and our business is about 50/ between working with public sector clients and private sector clients. We were founded in so we've been working in the area of climate change for a long time. Created as a delivery body for the UK government, by the UK government, for all things related to reducing climate change, CO2 emissions. We work in energy efficiency, we work in renewables, we work in clean tech, new technologies. We've helped organizations measure and reduce their CO2 emissions along their supply chains. So we've worked in all areas really of climate change mitigation. We were spun out of government about six years ago but we remain independent, we remain nonprofit, and we remain mission driven and our mission is to, as the slide says, accelerate the move to a sustainable, low carbon economy. We have offices in Beijing, Mexico City, Johannesburg, our headquarters is London, I sit in Washington, DC, where I mainly work with public sector or what we call manifesto clients, organizations like the World Bank, Inter-American Development Bank, and also US based philanthropies such as ClimateWorks. I also have a colleague in Brazil, we're working on some energy efficiency across the supply chain of Brazilian beef which is a very interesting project. In the area of energy efficiency specifically, we're involved in several initiatives. As Steve mentioned, there's the Global Sustainable Energy for All initiative which has several components to it. We are the co-convener with UNIDO for the Global Industrial Energy Efficiency Accelerator. We also are managing an industrial energy efficiency accelerator for UK government for what's known as BEIS, Business Energy and Industrial Strategy, that department of UK government. We're also involved as an advisor to United for Energy, U4E, which Steve already described. And we're also supporting ClimateWorks in their K-CEP initiative and that stands for The Kigali Cooling Efficiency Program. As Steve showed in his slides, there's a huge amount of energy demand coming our way from the need for people for cooler environments both in their homes and in their businesses. So those are just four of the areas related to energy efficiency. So we can go to the next slide, I only have two slides, keep it simple. I thought I would just speak to what we see as the building blocks for developing an energy efficiency market or designing an intervention, however you want to look at this. This comes from a case study that we carried out fairly recently, looking at 10 different energy efficiency programs across five different continents. And we're looking to identify the components of those interventions that pointed towards success. There's six different steps in this. I think what's really important is before anyone starts on step number one, which is what is the target market, do I want to work on energy efficiency for residential or for the commercial market or for industrial? Start that first step with the very last one in mind which is how can the change be sustained? How can it be a sustained development of an energy efficiency market? And if you keep that in mind, you're much more likely to have some success down the road. In any case, the first step, of course, is defining your target market because there are a lot of different areas where energy efficiency can make a huge difference. That would depend on the country you're looking at, the particular market, the national development goals, the NDCs that a country may have, what's most important for them? Second, drivers for action, Steve mentioned this a bit. There are economic drivers for action and energy efficiency, can be energy price, carbon price, competitiveness. They're also policy drivers. There are other standards. Do they need standards? Regulation? Are there incentives? Next you want to look at the course at the supply chain. And that's that link between sources of capital, the financiers, local financiers institutions, your target market. The key between your target market and your financiers are your suppliers. And you're going to need technology providers, technology installers, ESCOs, auditors, accreditors. And it's that area of support to suppliers where we as Carbon Trust think there needs to be a lot more focus around technical assistance to that segment of the supply chain. And the next block is barriers. I won't go into that in detail now. We've, again, covered quite a few of the barriers. We tend to bucket them in three different ways. You have awareness and commitment barriers. By commitment I mean how committed is perhaps a government really making progress. If you have heavily, heavily subsidized fossil fuels it's going to be very, very difficult. Second bucket is technical solutions and expertise. And lastly the financial resources and maybe barriers to that. We've seen, for example, in our sustainable Brazilian beef project, there's quite a barrier around collateral. Local banks acquiring quite a lot of collateral from players in the supply chain which makes it difficult for them to borrow more funding in order to become more resilient and more robust by having a more efficient process. The fifth is solutions to addressing those barriers. There are at least a dozen in our report ranging from pipeline generation, which I think we are going to talk about at some length with the group, accreditation of suppliers, to providing insurance products. Some interesting ideas and pilots coming out of IDB, for example around Inter-American Development Bank, around energy savings insurance. And finally, as I mentioned, how can change be sustained? Need to transfer the expertise to the local supply chain. These solutions need to be financially successful where people will have demonstrators and pilots that they can point to. And you really know you've created some sustainable success if you are attracting new entrance into the supply chain. And I'll close this with just three overall core recommendations around the building blocks. One is the business case for investment needs to be strengthened with strong policy frameworks with the right economic and regulatory drivers. That's just fundamental. Influencing these is really key and I've been hearing, I have seen, and some of the other multilateral development banks are seeing the need to spend more time and effort and money at that level which is great. We believe more resources need to be devoted to technical assistance. When I say technical assistance I mean awareness-raising, pipeline generation, de-risking of projects so that finance can come in. And finally, upscaling, equipping, and accrediting local suppliers and technical advisors. Again, trying to embed energy efficiency in the local supply chain so that when maybe some of the incentives of the project go away, there is still a market there and it's growing. Right? Thank you.

[Steven] Thanks very much, Gina. And if we have time, we'll see if we can come back to some of the points she made, in particular I would like to talk a little bit more about technical assistance. I mentioned in my statistic earlier from the World Bank that talks about a need to almost increase energy efficiency investments by an order of magnitude. That same speaker stated that of that small pot of money going towards energy efficiency less than one percent goes towards capacity building and technical assistance. So an important point was made that we will see if we can come back to. We'll go on to our next speaker, Julia Panzer, from Danfoss. Her slides are appearing on the screen now, and Julia, we'll turn it over to you.

[Julia] Thanks, Steve and thanks everybody for hosting this webinar on energy efficiency financing. I'm Julia Panzer, head of Public Affairs and Sustainability at Danfoss. I will bring in the perspective from a smaller supplier of energy efficiency parts. That means we are selling in over 100 countries and when energy efficiency projects are coming through, that's exactly what we're talking about here. And we note that right away because you can see themselves and that's where we have this climate change and energy efficiency. It's also good for the business and that's the angle that I come from and where I will go through a couple of case studies. What we see that's needed to overcome these barriers. As a company, Danfoss is also the co-convener of one of the- which has been the latest of sustainable energies and energy efficiency accelerators. We host or pro-convene the district energy part. Today I will look a bit more on India and the specific barriers that we see there that can be seen in all the developing countries. So what we do, just in a nutshell actually, is control the components that control the energy flow. That's a small part of the equation. And like energy efficiency often is invisible. So just to put again out the barriers as we see it. A lot of them have been already addressed. But it is very key that since energy efficiency is such a small, oftentimes, an unmeasurable part. As Steven and Gina and many before me have mentioned it kind of falls between chairs and across the table. It's not as sexy as renewables, you can't open an energy efficiency park. Well, you should be able to do that. So what are the measures? Even though when we see policies that we can do more. One of the questions that we get up front was where do you invest in and why? And I wanted to go to that question because as Danfoss as a company, we are supplying these components of safety and energy. We are actually not investing ourselves and that often is a barrier because you would have to aggregate projects together or find someone like the Escrow model like Clay is going in later on, and to make sure that these energy efficiency gains are quantified. We see that as a challenge because especially when you go into cities and there is this entity missing. Where we believe USAID and other project developers could really come in because the market is not there yet even though you have different standards. So what we see even in Europe where we have joined up Energy Efficiency Financial Institutions Group is that it's not quantifiable. So what is an energy efficiency gain? How should a project look like? So there, in that case, they came up with a database of projects to show that it actually pays off. How many projects you need just to help banks, in a way, to see the big potential that comes from energy efficiency projects. We're seeing that here with EEFIG. But the same goes for the UNECE building code trends that has started in Europe to bring that to other countries or to work under the building energy efficiency accelerator which Clay goes into later on. Just demonstrating that there are actually projects out there, how do they look like, and especially why do we invest in them? What are the benefits on an overall scale? We've found enough useful in Europe but also in developing worlds. And this is why we started with raising awareness in India specifically. They are very good examples but they're not standing out. So in ACREX we have the Hall of Fame which is like an industry benchmark to really showcase what buildings can do and how energy efficient buildings would look like in this specific location. To use as showcases for politicians to raise awareness but also in general to make sure that this has a place to be. Amongst others, the criteria would be something like energy performance, indoor air quality, energy saving initiatives, or building management systems. To really make something that is normally hidden and invisible visible to a general audience. So they would go even to producing a coffee table book with these buildings to show how great it is, right? To make it something that people can be proud of because that's one of the things that oftentimes is missing. In the case of India, you have even clear and ambitious targets. There were just recently an article where they want to reduce the precept temperatures for A/C's like in Japan. Good initiatives as such, but what's lacking, and I think that's something where we see organizations such as yours really to come in, is to part on one as I already mentioned, the bringing together projects, project development. But on the other side education and training and we can do that as a company but of course that's not the same as a big organization doing it. We see the delight as we work with installers on a very small scale, that especially in the non-OECD countries. There might be a standard, there might be a project, there might be a project proposal and so on. But what then mainly comes down to when you talk to people, they don't have necessarily the knowledge, training, or education. What we see that, you know, if you compare to a car, back in the days you could probably 10, 20 years ago, you could go under your car with your neighbor or your brother and fix that car. Right now, it's very kind of not anymore so mechanical but there's a lot of IT in it. So you go and someone puts in a reader and some kind of report comes out. So that's a little bit where we're moving as well. The more energy efficient technologies are more advanced now and you need more knowledge about what is there or just knowledge about which refrigerants can I use or which equipment is there? So that's a strong need we're working with a couple of industry boards in India and other places to do that where we have bigger production plants. There's a big need and something to focus on. So last but not least, to just give a little bit of sum up here. The raising awareness part can't be underestimated. We have, of course, we need the policy and so on. We need the banks to be aware of it in general like when it comes down to the ground. There needs to be some more knowledge sharing and training. And with that I think I will hand it over to the presenter to host again because we have some more exciting things to do. So thank you and I'm looking forward to questions.

[Steven] Great, thanks very much, Julia. Interesting presentation and particularly the India example. If we have some time we might come back to that later on during the Q&A portion. And now we'll switch over to our, last but not least, presenter is Clay Nesler from Johnson Controls. And Clay, over to you.

[Clay] Thanks, Steve, and thanks to USAID for hosting this webinar on energy efficient finance. My name is Clay Nesler, Vice President Global Sustainability for Johnson Controls, and we're a 130 year old company, operationally based in the United States. Our founder, Professor Warren Johnson, invented the thermostat back in 1883, so we've been involved in building efficiency for over 100 years. Our products include a heating ventilating air conditioning products, building controls, security, lights, safety, as well as electric batteries. I'm going to focus primarily on my involvement in the building efficiency accelerator. It is one of the sector-based accelerators that was mentioned before. The building efficiency accelerator is entering its second phase, it's about two and a half years old provided through funding form the JEFF under the coordination of the UN Environment. Johnson Controls is the industry co-convenor of that particular accelerator. Said simply, the building efficiency accelerator works with cities around the world, particularly in emerging economies, to implement a policy to drive investment in energy efficiency, to implement projects or programs to demonstrate the value of those investments, and to put in place a tracking mechanism to create a baseline and track the improved performance. Those three simple steps are a way of engaging with cities around the world where they are. Whether they are relatively mature and advanced, large cities potentially already working with C or ICLEI or whether they be a little bit less mature and just starting out. The word accelerator was chosen on purpose to act as a catalyst for advancing a city's activities. We are currently working in 35 cities around the world, mainly, again, in developing and emerging economies. We are working in a number of cities in Southeast Asia, in Latin America and the Caribbean. We have a large number of cities in central and eastern Europe and Africa. During phase two of the BEA we will be expanding that to 60 cities and we will also be beginning work with countries. Our theory of change is to start with willing and ambitious cities that are very anxious and have the political will and capabilities to implement new policies and projects and then they become sort of a beacon for other cities within their country. We then engage with national governments who can not only support but also implement enabling national policies and regulations and they then assist in the scale of the energy efficiency policies and programs within other cities. This is the way we believe we can very effectively create change and impact over time. Looking at this map, I'm sure that many of the USAID folks on the phone are actively engaged in these countries and in these cities in particular. For now the twelfth year, Johnson Controls has implemented a global survey called the energy efficiency indicator and we are almost done with our twelfth year. So this is sort of a sneak preview of the results. We have a few more organizations in countries to respond and we'll be reporting officially and formally on the study results in the November timeframe. But we are serving organizations in 20 countries around the world both developed as well as developing. And we are interviewing energy and facility management executives that are responsible for either buildings or a portfolio of buildings that could be within a single location within a single country or global that have responsibility for investments in energy efficiency, renewable energy, and other clean and resilient energy technologies. What's been interesting is over 12 years to look at the progress or lack thereof in certain areas. One of the questions we've been asking for over a decade is what's the top barrier to energy efficiency investment? And you see here, per preliminary results for some of the countries that are emerging as well as the last column are the global aggregate results, again, at this point. In the early days, a decade ago, the number one barrier was lack of awareness of opportunities. Energy efficiency was often viewed as energy conservation which involved sacrifice and lack of services as opposed to the current definition of providing the same or greater services with less energy and expense. So lack of awareness is now at the lower end of the chart as well as organizational ownership for those changes. But generally the number one barrier is lack of technical expertise to develop projects. And it's sort of like a hurdle race, you need to be aware of an opportunity, then you need to have the technical expertise to be able to develop that, engineer it, create the business case, and obtain financing. Then you need to be able to predict the savings and measure it in a meaningful way. Finally, you need to meet sufficient payback and return on investment. Finally, you need to have a source for funding. And in many cases in developed countries the funding is available but it's competing with other uses for the funding whether that be productivity, whether it be marble in the lobby of a hotel or other things. By far, from Chile, China, Columbia, India, Mexico and South Africa, it is lack of technical expertise to develop the projects which is the so-called Valley of Death. Great ambition, goals, awareness, and inability to get projects that are financeable and that are scalable through aggregation to the size necessary for funding. Just a summary of the accomplishments of the building efficiency accelerator. We engaged with over cities through our resources which include over 40 organizations, multilateral banks, non-profits such as ICLEI, C40, the World Green Building Council, many many others as well as industry. We have 24 multi-national companies that are industry partners supporting the work of the building efficiency accelerator on a global basis. 25 cities have made 47 commitments. We hold a number of local, regional, and global events. We've held 21 webinars in our first two and a half years with over 1,000 participants from 121 countries. The number I really like to focus on is the number in the lower left, one and a half billion dollars. Last year, in 2017 at the Sustainable Energy for All forum in New York City, nine of our building efficiency accelerator cities developed briefs on project opportunities. Identified projects that were interested in attracting external finance to be able to implement in support of their policies and their programs. One and a half billion dollars is an awful lot of money seeking projects. Those projects, when implemented, will save over eight million tons of carbon dioxide equivalent and save those cities a billion dollars in energy costs. Unfortunately, I wish I could say that all one and a half billion has been financed, funded, and there are shovels in grounds implementing projects. But in fact, that is not the case. The development of those projects to get it to the point where that funding can be matched, we've all been in conferences, I believe, where the cities and other governments raise their hand and say, "We have lots of projects to be financed." The banks all raise their hand and say, "We have lots of money for projects," and they just stare at each other, and the gap, in my opinion, is the project development, the technical assistance that takes an identified opportunity, details it, creates a business case, puts together the securitization, the collateral is necessary to secure that investment and works it through the process. I'm hoping that USAID and you folks that are on the ground can work in partnership with the building efficient accelerator, our organizational, institutional, and industry partners to unclog that pipe and let the flow of money go to projects that can make a significant impact on the environment and local economies. Thank you very much, and back to you, Steve.

[Steven] All right, Clay, thanks very much. In particular, thanks for sharing the results of the survey. I think it highlights this theme that has come through from all of the speakers about the need for more technical assistance in capacity building in this area. It's a theme that I'm going to come back to now in the Q&A. But maybe I'll kick it off with some moderator's questions as people get their thoughts organized and put questions forward. Building on this notion of technical assistance, on policy work, maybe a question for you, Julia. We know that the role of policy is critical. I'm just wondering if you have any perspectives in that area on things like nationally determined contributions, or NDCs, when they come to find the change. How does this all relate to energy efficiency? Are you seeing any difference, any positive impact being made?

[Julia] That's actually something I wanted to mention, also, because this is the perfect hook to say, "Well, you have this and you see how do you move from here?" Despite a lot of obstacles, of course, but that's how, basically the countries that have the NDC, I think it was around 60 percent that have energy efficiency in there. And so now it comes to us and these four accelerators are perfect examples. There are very easy ways with technology today that you can capture these potentials for savings. Is it buildings? do you wanna work on your A/Cs and appliances, is it the district energy project? You have new built in India; again, four years ago, my colleagues would ask me, "What is district cooling?" Today after this work market creation deal, well, this is perfect. We have it in 400 cities in there and this for me is the perfect hook as a following space. I haven't seen like the silver bullet yet that people actually use these in, and it's even other countries requested that my company, the idea really behind having these accelerators is that you have something more or less off the shelf, a plan of what you can do with the country of national government or city. So far, I think there is more potential to benefit of, but maybe Clay can actually answer that, since he sees it as well in his things.

[Steven] Yeah, sure, Clay, if you wanna pick up on that, feel free.

[Clay] Yeah, so great question and I think I forgot to mention that the building efficiency accelerator is actually organized and run by the World Resources Institute, which is involved in a number of different levels of working with countries and their nationally determined contributions. Our research that I had referred to before, one of the key findings in recent years has been that organizations that make a public commitment around climate change or greenhouse gas reduction or energy reduction, whether those are national governments, whether they be state, sub-national jurisdictions, whether they be universities, whether they be businesses or cities, they tend to invest more. They both invest more in energy efficiency, but also in a wider range of measures. In other words, investing more deeply for energy efficiency improvements. The other key factor that we found was availability of finance. Those people that make commitments and use other people's money and leverage financial models, invest significantly more by a factor of two and almost three than other organizations. So I think things like the Paris Agreement, I think things like the sustainable development goals are important motivators which can drive the demand for energy efficiency. There's this little thing about financing in between that we need to solve.

[Steven] That's right, Clay. Thanks very much for those perspectives. And maybe before we go before the audience, maybe Gina, if you'd like to contribute in this area. You talked about technical assistance, maybe if you'd like to expand on that, I'd like to hear from you, some of your perspectives. We speak about technical assistance when it comes to energy efficiency. What are we speaking about that is critical to make sure that we have successful energy efficiency programs out there?

[Gina] Well, I think the technical assistance that we feel there needs to be more of a focus on is around accreditation and it's all about, I'll go back to Clay's comment. We've seen this before, we've both seen it at events. You have whether they're public sector players, or they could be private sector players, say, "We have projects we wanna do." And then you have financiers saying, "We got lots of money." How do you get this money to flow? And one of the barriers, in a grand sense that you have to overcome, is uncertainty, right? Because the banks, financial institutions need to have the risk in the right place for them to make a positive determination for their credit. The organization who can undertake the energy efficiency project, new equipment, maybe a new way of doing things, needs to feel confident that the actions that they're gonna take are actually gonna reduce their cost, such as payback that's been projected two years, three years, five years is true so they can repay that loan. So it's all about how do you get the uncertainty reduced to a manageable level. There will always be some uncertainty, so that you can the clients and the financier together to do a project. And how do you reduce uncertainty? I think you reduce it by giving more confidence to both sides around the equipment, so that can be things like energy technology lists, things like if you have some minimum standards. People know that at least we know this HVAC equipment is at least, it meets the minimum. And they have something that's terrible, so they need to know, we know what it's gonna do. We know what that payback's gonna be, so standards around equipment, accreditation around the equipment, and also, very importantly, accreditation around the installers and energy auditors. We for some years ran a program around energy efficiency in South Africa, a private sector energy efficiency initiative. And one of the things that we spent an awful lot of time doing was training local energy auditors, and we would accredit those local energy auditors so that when they walked into a small business, a medium size business, that as a target market, and came up with their menu of intervention, they had some credibility going in. And then the bank could look at that and say, "Ah, this has been reviewed "by an accredited energy auditor." So it's accreditation and training and best practice around the equipment and the installers. I think that TA is really important. There's of course technical assistance around building capacity in the banks themselves, but I think I would focus on those things as being, we think, very, very important parts to the TA.

[Steven] Yeah, I think those are important points that you bring up, Gina. I think often the banks just don't have these levels of expertise within and bringing that level of expertise in associated accreditations through the projects of the finance are important to get the bank's confidence to move forward with energy efficiency projects, yes. Thanks for that. All right, we have a number of questions that have come in. I'm not going to go through these in any particular order, and maybe we'll just start with the one from Rabia Bukhari, she's asking about how we've highlighted in these presentations a number of barriers, in particular the lack of investment in energy efficiency and that financial institutions don't see energy efficiency as particularly attractive investments, so she talks about how the payback periods are not appealing. So, I'll open it up to the floor, just if you can expand upon some of the points that you've made already, introduce new points of these barriers, particularly on the investment side in energy efficiency, so any of the panelists, feel free to jump in. Clay, maybe you want to start. Okay, go ahead, Julia.

[Julia] Then you can add to what I talked about being energy efficiency, and a kind of group where we saw that particularly. And even in Europe, we're taking that as an example, and where we collected the different cases and successful energy efficiency projects and then the database that brings together the collection of cases, the different energy savings, what was the investment, what were the financing models and so on to aggregate the evidence that there is incentive payback when you invest in energy efficiency, and that's actually specifically meant for banks to show that there, you can trust in it, that it won't come back, and show what's the model. The same goes for the ACREX example that I have shown. There as well, there you can collect even more and say, "Well, this is the way to show all these projects "have gone through and all "of those we had extensive investments from banks." How did that work and aggregate that? It could be just a couple of read notes, in terms of right-sized projects and that's also what the building efficiency accelerator does but showing that it's possible and how it works. And then come up with a list that is almost a catalog of investments and projects to show that it can be possible.

[Steven] Thank you, Julia. Clay or Gina, anything to add there?

[Clay] Mark's question is kind of related, I would be prepared to answer that.

[Steven] Let me summarize a little bit. Mark Newton is asking if there're any examples of energy efficiency within large public sector energy consumers, where they don't have to pay for their electricity bills and it has a large negative impact on power sector costs and recovery. You're saying how that's a bit counterintuitive, so yeah, Clay, if you want to address that question and comment, that would be great.

[Clay] Yeah, so that is a very long and fairly complex question. Perhaps better answering Rabia's question. The best public sector example of energy efficient finances, in fact in the United States and Europe and it relates to the ESCO Market. In the United States, there's about six billion dollars worth of annual investment through ESCOs in public sector projects. State government, city government, as well as hospitals, universities and schools. And it's taken frankly since 1985 to develop that market, but the advantages are, those institutions tend to keep their buildings for a long period of time and they don't flip them like the private sector, commercial buildings market and they're generally credit worthy and they essentially have the ability to trade off a fixed utility cost and invest that money in infrastructure improvement, so this market is very large because essentially public entities can enter into a long-term contract with deep energy savings and do it without impacting taxpayers or rate payers and there's some new financial models which allow it to be done off balance sheet and off credit, which means that they aren't limiting their bond rating or their finance raising capabilities through the project. Large ESCOs are essentially a wonderful aggregation method. We have projects that are 100, almost $200 million in size, where we would aggregate every street light in the entire state of Hawaii in their traffic and harbor system. We would do all the universities things such as that, so the projects are getting very, very large and capital is low cost. It is either through municipal bond, which are very low interest rate at the current time, or through infrastructure investment by captive, patient capital, such as pension funds and insurance companies, so that's like the perfect case study. So the question is, why hasn't the ESCO model been very successful elsewhere in the world? I think all the banks have tried it everywhere, and the even larger ESCO market is in China. It's about nine billion U.S. dollars. It's very different. It primarily supports the private sector and industrial, as opposed to public sector. But the projects are very different. They tend to be much shorter paybacks, they tend to have shorter guarantees. They do use measurement verification standards, but the fact that they're really looking for minimizing their risks for a one or two year guarantee makes it very easy for those institutions, particularly state owned enterprises to raise capital. So I believe there's a great opportunity for a model, which is a hybrid, and it's a model that seems to be gaining interest in Mexico, in Brazil, in other Asian countries, which is a short-term guarantee. A third party, basically provides independent verification of the savings and it's essentially a fee at-risk structure where the profit for the ESCO goes into the escrow which is unleashed by the third-party verifier. And we had hoped that that could be a model that would be applicable in other areas of the world.

[Steven] Long answer to a long question, but hopefully a thoughtful one. Now, thank you very much for that, Clay. I think we could probably have a separate webinar devoted entirely to ESCOs, but thanks for bringing that part into the discussion. We've actually gone just a little bit over time, I recognize that there are a couple questions that haven't yet been, that we've been going forward, that we haven't addressed. One is about energy efficiency awareness raising, and the other one is related to corruption. That one on corruption, I'm not sure that the panelists would have much to offer, but I encourage the panelists just to take note of the questions and if there's anything that you could contribute to, even the ones that have been asked already that can be taken offline, please feel free to do so. And with that, thanks very much to the panelists for an interesting discussion. It's an important topic and I had a slide up earlier that showed an iceberg. I think we've only scratched the tip of the iceberg in this discussion, so as I stated much earlier in the presentation, we're all available and looking forward to partnering with USAID and the various work streams where we're operating in terms of energy efficiency and I encourage anyone on the line to reach out to any of us to see where there's areas that we might be able to collaborate together. And with that, I'll turn it back over to Monica, and thanks again for organizing and thanks everyone for joining.

[Monica] Thank you, everyone. Thank you to the panelists, thank you to Steve for moderating, and thank you to all the attendees.

Last updated: April 21, 2020

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