Engaging Financial Community for Energy Efficiency

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Introduction:
Steve Fawkes has 30+ years’ experience in Energy Efficiency and he is a recognized international expert in this field. He has delivered energy management programs for large public and private sector clients and developed innovative energy services for Enron and RWE . He was the Head of Clean-tech for Matrix and has Co-founded two ESCOs. He was Previously Non-Executive Director of listed smart meter provider, and he has provided policy advice to several governments, and he has published three books, 250+ papers & articles and writes an influential energy efficiency blog. He is a Senior Adviser to Investor Confidence Project, member of the Investment Committee of the London Energy Efficiency Fund, Trustee of the National Energy Foundation, and Member of High Level Advisory Board of the Centre for Industrial Sustainability, University of Cambridge Member of Steering Board of the Centre on Innovation and Energy Demand and the Sussex Energy Group, University of Sussex. For accessing audio recording, click here

 Steve, what got you interested in Energy Efficiency?
As a child, Steve visited a Hydro Electric project in Wales. In the early 1970s, the coal miners’ strike and the oil crisis and the resulting experience with power cuts and energy crisis made him realized the importance of energy efficiency. According to Steve,“In today’s world we are competing for limited resources. Most forms of energy have environmental impact, both globally and locally. Energy Efficiency can help in mitigating these impact, and also address issues such as energy security and energy supply.”

What is ICP And what does it aim to achieve?
A. Investor Confidence Project was started by Environmental Defense Fund int he US and it aims to make EE more investment friendly. There are many barriers to investing in EE, lack of standardization in the way EE projects are developed and documented is one of them. This has several negative effects.
The transaction and due diligence cost is higher, the real risks and the perceived risks are also higher. To overcome some of these challenges, the ICP has developed a set of protocols for buildings that guides people from financial sector and building professionals to collaborate and develop documentation in a standard way. There is an accreditation program called Investor Ready Energy Efficiency, which means that a project developed as per the defined protocols can be ready for EE. An investor knows that a project developed using this protocol is ready for investment. ICP may expand its scope to industrial and infrastructure projects.

What are the similarities and the differences in the way building managers and investors view building energy efficiency?
Investors look for certainty of outcome, and how they will recover the investment. The projected savings are questioned, including say the payback period. Every project carries risk, and energy efficiency projects carry lower risk compared to many projects, But this needs to be highlighted. The proposed savings need to be delivered. Factors such as change in energy prices also need to be factored in. Measurement and verification of the building performance also has to be considered.

Q. The market for Energy Efficiency in India is very small, compared to North aAmerica or Europe. But it is expected to grow in the coming years. What is the relevance of projects such as ICP in India?
A. ICP’s approach can be applied to both internal and external projects. CFOs of companies are investors in internally funded project, for example. As the ESCO and financial markets grow in India, standardization of process early on will give confidence to the investors. This will help in scaling the projects. Financing and re-financing (through Green Bonds or secondary financial markets) will also become easier. ICP could be useful tool for that.

In Indian capital markets, the interest rates are very high, and the end customers lookout a payback between 3 and 4 years. How do you think these factors influence the market for EE in India?
Even in low interest situations, most investors look at rapid returns. The underlying project economics are not very different, but the higher financing cost will be the factor that needs to be looked into.

What is ICP’s approach towards creating insurance products?
Insurance is a critical piece of the jigsaw puzzle. US and Europe have seen interest by insurance and reinsurance companies for project performance. Their products are available, that is the good news, but projects such as ICP help in creating a database of performance. The insurance markets need the actuarial data for assessing the risk. Over a period of time, more and more insurance products will help in the growth of the market. Project performance will help in the insurance sector working in this space. Once this happens, the market will develop like any other part of the financial market.

Is this an area where you think Measurement and Verification will have a big rule to play?
IPVMP has done a lot of work in this space. M & V in various forms is built into the ICP as an absolutely essential element. Advent of technology and smart meters will only help in the growth. Inspite of this, M& V is a hard sell because we compare savings against the cost of doing nothing. The end users and investment community will both benefit because of this.

Business, policymakers and investors in India are upbeat about M & V. But where does it work and what are the limitations of M & V?
M & V works well in large scale projects. But in smaller projects such as residential, M & V is very difficult, because of variation in usage, human factors. That is where statistical tools help. There is some work being done in California in the residential space. For energy performance contracts, such as for a large hospital projects, the understanding between the ESCO and the client or the host is very important.

 How can listeners connect with you?
Ways to connect with Steve:
Blog: onlyelevenpercent.com
email: steven.fawkes@energyproltd.com
Twitter: @drstevefawkes