Thai ESCO Association ESCO Business Model - UNECE … · Thai ESCO Association & ESCO Business...

©Thai ESCO Association All Rights Reserved

Strictly confidential – For discussion purposes only

Thai ESCO Association

&

ESCO Business Model

Inter-regional Workshop on Energy Efficiency

Investment Projects Pipeline

Session 7: Experience of Financial Institutions with

Energy Financing Instrument

At UNCC

: April 24th ,2014

© Thai ESCO Association All Rights Reserved

2 Strictly confidential – For discussion purposes only

Speaker

Mr. Arthit Vechakij

President of Thai ESCO Association

Thailand, Thai ESCO Association was established

at the end of 2012 to play a central role to conduct

projects. Commendation system for excellent

ESCO projects is performed by government, and

in Thailand, Ministry of Energy has being doing

this. The role of nucleus organizations of ESCO

promotion is greatly important.


475 Siripinyo Building, 12th Fl, SriAyudhya Rd,

Thanon Phyathai, Rajthevee, Bangkok 10400

Tel: 02- 2013466-7

Fax: 02- 2013465



Content


ESCO Business Model

1.

2.



1

•Employ integrated compulsory measures through laws, regulations and standards, together with promotion through various incentives

2

•Employ energy measures which create widespread effects on awareness, behavior change, decision-making of entrepreneurs & market transformation

3 •Promote public-private partnership for supporting and implementing energy conservative measures

4

•Distribute promotion activities to various public and private organizations which possess resources and experiences readiness

5

•Employ professional and ESCO, as vital mechanisms, in terms of consultation & implementation of EE projects requiring high technology

6

• Increase self-reliance on energy technology to foster technology accessibility, together with promoting high EE products, manufacturers & businesses

Key Strategic Issues

Thailand Energy Policy at a Glance Energy Efficiency Plan: 20 Yrs. (2011 – 2030)



• Thailand, Thai ESCO Association was established

at the end of 2012 to play a central role to conduct

projects. Commendation system for excellent

ESCO projects is performed by government, and

in Thailand, Ministry of Energy has being doing

this. The role of nucleus organizations of ESCO

promotion is greatly important.

• ESCO Definition

“ An energy service company (acronym: ESCO or

ESCo) is a commercial business providing a broad

range of comprehensive energy solutions including

designs and implementation of energy savings

projects, energy conservation, energy infrastructure

outsourcing, power generation and energy supply,

arrange financing for projects and risk

management for which performance contract and

measurement and verification is a core part to

ensure that the project technical performance is

fully guaranteed during the contract period”


Background

Energy Price/

Energy Expenses

Government Policies &

Regulations

In House / Outsource/ Consultant/

Suppliers / ESCO

RE/EE Technology

Suppliers/Manufacturers

Financing Support Business

Owner

1. Proper Business Situations? 2. Business Policies to save his

business & to save the world?

Thai ESCO Association Background & ESCO Definition



A number of economies believe that promoting ESCO industry leads to promote

energy conservation. This is due to the fact that ESCO has the following features.

It guarantees the energy savings.

It makes a reliable proposal which is based on energy audit.

It can sustain the energy-saving performance over a long period of time by

providing M&V

It makes a financial arrangement, and sometime it provides funding.

Although energy services have been traditionally provided by the supply

side, ESCO represents the interests of customers by providing a service from

the demand side.

By performing M&V, ESCO can not only verify whether the effect of energy saving

achieves the guaranteed level, but can also detect a failure and

deterioration of implemented equipment or management, and the

workarounds applied to each found trouble will lead to a long-lasting energy

saving effect.

Thai ESCO Association Why focus on ESCO promotion?



To be a source of investment information in the Energy Saving and Renewable Energy project

under the service of Thailand ESCO.

Publication of information about technology development in energy saving and renewable energy, including guideline for suitable application.

Ensure that the entrepreneurs will receive optimum benefits from using ESCO service in running the Energy Saving and Renewable Energy project.

Find the opportunity to broadcast and publish about the benefits received from investment in

the Energy Saving and Renewable Energy project, including achievement of the Energy Saving and Renewable Energy project under ESCO service.

Monitor and follow up for movements of energy management business, both internationally and domestically, to facilitate in running business of industrial trading, financial, economic, or public security.

Support “Qualified ESCO certification plan”.

Stimulate good governance in business operation for industrial ESCO.

Support in sufficient service for the market, both internationally and domestically.

Take part in issuance of law, regulations, and provisions which affect on the energy policy.

Thai ESCO Association Overview Role and Responsibility



Thai ESCO current status

1. Not all ESCO are currently members of the association. Needs

to harmonize the approach.

2. Very low demand in the market. Low demand from government

sector as there is still issue with regulation/procedures. The

private sector is still low because private sector has low

understanding of ESCO business. Low understanding on

EPGC.

3. Difficulty for customer to identify qualified ESCO. Lack of

confidence from market actors.

4. Current ESCO fund manager do not fully comprehend the

risk/benefit of EPGC offering. Not qualified to take calculated

risk and go beyond financial institution business as usual loan

evaluation.




Background

Financial

Barriers

Technical Barriers

Management Barriers

Accessibility to financial resources

Limited Credit line

Concern on Liquidity

Financial source was reserved and/or

delegated to other projects which are

direct to core business

Financial Institutes (FI) have realize in all

risks of energy saving project , so ESCO

help FI to assess project risks before loan

granting. Unfamiliar to Energy

Efficiency Technologies

Lack of confidence in the

unfamiliar technology

Lack of manpower to

develop the project

Bad experience from the

previous project ( Non-

Qualify Consultant/EPC)

A short list of technology

owners domestically.

Imported technologies are

more difficult to do O&M.

Costly after-sale services.

Lack of time and focus to

initiate/ oversee the

project

Company policy not to

invest in non-core business

project

Unable to acquire

professional service from

qualified consultant due to

lack of budget

Lack of internal capability

to manage an Energy

Saving Projects

Common barriers that prohibit many

companies to invest in Energy Efficiency

Project can be categorized in three

categories; Financial Barriers, Technical

Barriers, and Management Barriers ESCO &

Equity Fund

ESCO &

Equity Fund ESCO

Thai ESCO Association ESCO: RE/EE Barriers Remover



ESCO : RE/EE Special Market

1. Responsibility and provide guarantee

on overall project success.

2. Audit/Measurement and Verification

(M&V)/Baseline are mandatory

requirement.

3. Operation and Maintenance (O&M)

and M&V report after commercial

operation date (COD) are critical

factors which are normally ignored

by all Stakeholders of non ESCO’s

project (especially government

project).



ESCO Business Model Basic Model

Energy Savings Performance

Contracting (ESPC)

Implementing Energy Efficiency

Projects

Turn-key basis

Offered by Energy Service Companies

(ESCOs) or other energy service providers (ESPs)



ESCO

Services

Engineering

Cost savings Commissioning

Construction

Design Installation

Measurement & Verification

ESCO Business Model Range of ESCO Business Services

Additional

ESCO Services

Providing or Arranging Financing

Operations and Maintenance

Training



ESCO Business Model

Outsourced Energy Management

Shared Savings

Guaranteed Savings



ESCO Business Model Shared Saving Model

• ESCO finances project

• No customer investment needed

• ESCO borrows funds from FI

• ESCO and customer defined

share savings over contract

period

• Useful when customer does not

want to invest own funds

Financial

Institution

ESCO Customer

Repayment from

Portion of Savings Share Loan

Project Development, Financing, and Implementation

Payment Based on Savings Share according to ESPC



ESCO Business Model Guarantee Saving Model

• Customer finances project

• ESCO provides performance

guarantees

• Customer pays ESCO upon

satisfying performance

Guarantees (one-time or over

contract period)

• Useful when customer can

invest/borrow funds at lower cost

Financial

Institution

ESCO Customer

Repayment with Funds According to ESPC

Payment for Services According to ESPC

Savings Guarantee

Arrange Financing

Project Development and Implementation

Loan



ESCO Business Model Outsource Energy Management

• Customer outsources energy

management for entire facility

• ESCO invests in

equipment/efficiency

• Customer signs long-term

contract for payments at fixed

price

• Useful when expert help is

needed for efficient energy

management

Build/Own/Operate (BOO)

or

Build/Own/Operate/ Transfer (BOOT)

ESCO assumes costs for all

equipment investment, upgrades, etc.

Customer pays a fixed price with a ling-term contract

Sale of Energy Services (lighting, chilled water, etc.)

Payments for Energy Services under long-term contract

ESCO Customer



Business Case Example: Thailand ESCO Pilot Project

Bangkok Produce Merchandising Public Co., Ltd.

(SET: BKP) Location : Saraburi

Cogeneration Power Plant

4.5 MW, 12 TPH, Gas Turbine

Generator (GTG) (Fuel: Natural Gas)

BKP Cogeneration, the one-and-only Thailand ESCO Pilot

Project since 1999, has been supported by World Bank, Thai

Government , EGAT, and private co-operations as to drive

ESCO business in Thailand. Located: Saraburi, Thailand

Gas Turbine Generator (GTG)

Cogeneration Power Plant Project Investment Cost = 183 MB

Energy Cost Savings = 47 MB/Year

Payback Period = 4.95 Year

IRR = 20%

Operation and Maintenance Phase

G:/../Local Settings/supaporn/Desktop/EEI/Local Settings/Temporary Internet Files/Local Settings/morakot/Desktop/Thanyathorn Documents/Presentation/Intro EEI 2002 (Current Updated)/BKP Variety DSM.mpg



Business Case Example: Cogeneration Power Plant for Saw Mill

Plan Ecoenergy Co., Ltd. (PEC)

Location: Trang

Cogeneration Power Plant

5.2 MW, 3.4 TPH, Gasification + Gas Engine

(Fuel: Biomass)

Project Investment Cost = 340 MB


Payback Period = 4.8 Years

IRR 15 Years = 19.6 %

NPV (15 Year [email protected]%) = 326 MB

Start Savings = June 2013

Plan Ecoenergy project will be the first successful large scale

commercial project of gasification project in Thailand. The

project needs the real expert who can develop, implement, and

guarantee the technical thus financial feasibility of gasification

project. The Power Plant will be designed to export electricity

to Grid and supply steam to existing process of saw mill.

Supported by

Operation & Maintenance Phase



Business Case Example:

Low Pressure Boiler for Food processing Plant

Pataya Food Industries Co., Ltd. (PFI)

Location: Bangkok

Low Pressure Boiler 15 TPH

(Fuel: Solid Fuel)



Payback Period = 3 Years

IRR 15 Years = 34.74 %

NPV @ 8%Discount Rate = 168 MB

Start Savings = Feb 2012

As future crude oil price still go up and the policy of the

executive of PFI foresee the importance of cost reduction for

competitive advantages.LPB use such solid fuel to replace

existing Heavy Fuel Oil (HFO) boiler to reduce the expenses

of energy because of cheaper and higher heating value of

solid fuel comparing to HFO.




Chiller Replacement

237 RT

Heat Pump

500 watt



Payback Period = 3.5 Years

IRR 10 Years = 29.24 %

NPV (10 year DR @ 8%) = 15.90 MB

Start Savings = December 2008

End of Contract Period = February 2014

Grand China Princess Hotel Bangkok

Located: China Town, Bangkok, Thailand

ECM: Heat Pump

GCP got the best opportunity to execute energy

conservation project with supporting investment capital in

this Project from ESCO Venture Co.,Ltd, the Investment

company affiliated to EEI. Implementing ESCO Shared

Saving Option, not only GCP could utilize their capital to

focus in their core business but also they will have project

assets transferred at the end of contract.

ESCO Project Award 2009 By F.T.I


Business Case Example: Grand China Hotel : ESCO Shared Saving Example Case



Thank You

Thai ESCO Association 12th Fl., Siripinyo Bldg., 475 Sri-Ayudhaya Rd., Thanon Phyathai, Rajthevee, Bangkok, THAILAND, 10400 T. +66 (0) 2201 3466-7, +66 (0) 2640 0270 F. +66 (0) 2201 3465

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