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ADEME-WEC Workshop on Energy Efficiency Policies London 17-18 June 2010. Financing measures in buildings with a focus on North Africa and Middle East. Rafik MISSAOUI, Energy & Environment Expert Adapted by B Lapillonne, Enerdata. Overview.

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Financing measures in buildings with a focus on north africa and middle east

ADEME-WEC Workshop on Energy Efficiency Policies

London

17-18 June 2010

Financing measures in buildings with a focus on North Africa and Middle East

Rafik MISSAOUI,

Energy & Environment Expert

Adapted by B Lapillonne, Enerdata


Financing measures in buildings with a focus on north africa and middle east

Overview

Building sector issues and energy saving potential

Barriers to enery efficiency development in buildings

Financial mechanisms of energy efficiency in buildings

Conclusion


Financing measures in buildings with a focus on north africa and middle east

Strong growth of energy consumption of buildings in MENA region; lower potential in low emission scenario

Share of buildings in final energy consumption

2007

2030 (IEA)

Reference scenario

World

1,2%/year

MENA region

2.6%/year


Financing measures in buildings with a focus on north africa and middle east

To reach the objective of the IEA 450 scenario, the biggest part of energy saving will come from the building sector In the MENA region (40%).

Share of buildings in energy savings (2030, IEA, 450 ppm scenario)

World

MENA region


Financing measures in buildings with a focus on north africa and middle east

To reach the objective of IEA 450 ppm scenario, the total additional investment amount is estimated to ~ 10500 billions $, of which 25% in building sector


Financing measures in buildings with a focus on north africa and middle east

Energy efficiency in building sector represents a high potential opportunity to reduce GHG emissions. Buildings can also deliver large potentials at negative costs. Key areas are improved insulation (40%), appliances (30%), lighting (10%).

Cost curve of GHG abatement (IPCC, 2007


Financing measures in buildings with a focus on north africa and middle east

Economic barriers for the diffusion of energy efficiency options

Barriers typology

  • Low profitability for the end-user

    • tariff distortions

    • Absence of scale economy and high technology cost

    • Wrong choice of technology mix

  • Investissement barriers

    • Investment capacity of hoouseholds

    • Access to finance


Financing measures in buildings with a focus on north africa and middle east

Economic barriers for the diffusion of energy efficiency options: tariffs

Profitability of measures for end user depends first on the cost of technologies and secondly on energy prices., that are still heavily subsidized in many developing countries.


Financing measures in buildings with a focus on north africa and middle east

Payback period of purchasing a solar water heater compared to LPG water heater in Egypt is more than 100 and is about 30 years in Algeria and Syria. The payback period is less than 2 years in Turkey

Energy tariff effect on measures profitability: solar water heatres


Financing measures in buildings with a focus on north africa and middle east

Energy tariff effect on measures profitability: solar water heaters


Financing measures in buildings with a focus on north africa and middle east

Dissemination of efficient lamps is usually profitable for end users with a payback period of usually < 2 years.

Efficient household appliances are also profitable and rank after efficient lamps (payback usually about 2 years except for three countries where electricity is still heavily subsidized, namely Algeria, Egypt and Syria).


Financing measures in buildings with a focus on north africa and middle east

Initial investment: a barrier to EE diffusion

Even if the payback period is attractive, the diffusion of EE equipment could still be inhibited by the a high upfront cost that exceeds the capacity of payment of a large class of households. In this case, only a small part of the potential market could be mobilized.


Financing measures in buildings with a focus on north africa and middle east

Financial mechanisms of energy efficiency in buildings

Measures aiming at reducing the payback period for the end-user

  • Objective

    • Reducing the payback period for the end-user :Improvement of EE option attractiveness;

    • Using the measure as a communication vector;

    • Stimulating the offer by market initialization : progressive decrease of investment costs .

  • Types of measures

    • Public investment subsidy;

    • Indirect taxes advantage (VAT, customs duties, etc.);

    • Reduction of direct taxes : tax credit .


Financing measures in buildings with a focus on north africa and middle east

Financial mechanisms of energy efficiency in buildings

Measures aiming at reducing the payback period for the end-user


Financing measures in buildings with a focus on north africa and middle east

Financial mechanisms of energy efficiency in buildings

Measures aiming at overcoming the investment barrier

  • Objective

    • Overcoming the initial investment barrier

    • Using the measure as a communication vector

    • Market transforming by involving the banking sector (leverage effect)

  • Types of measures

    • Specific credit line ;

    • Interest rate subsidy;

    • Credit guarantee systems


Financing measures in buildings with a focus on north africa and middle east

Financial mechanisms of energy efficiency in buildings

Measures aiming at overcoming the investment barrier


Financing measures in buildings with a focus on north africa and middle east

Financial mechanims of energy efficiency in buildings

Example

Tunisia: PROSOLProgramme (diffusion of SWHs)

  • Bank credit , reimbursed via the electricity bill :

    • Interest rate: TMM+1,5

    • Amount: 750 DT, 950 DT and 1150 DT

    • Credit period : 5 years Public subsidy

    • 20% with a maximum of 100 DT/m²

    • Financed by the FNME

  • Indirect taxes reduction

    • VAT= 0

    • Customs duties: reduced to a minimum rate (10%)

  • Carbon revenues

    • Programmatic CDM

    • Use of carbon revenues for reinforcing the programme sustainability


Financing measures in buildings with a focus on north africa and middle east

Financial mechanims of energy efficiency in buildings

Example

Tunisia: PROSOLProgramme (diffusion of SWHs)

  • Bank credit , reimbursed via the electricity bill :

    • Interest rate: TMM+1,5

    • Amount: 750 DT, 950 DT and 1150 DT

    • Credit period : 5 years Public subsidy

    • 20% with a maximum of 100 DT/m²

    • Financed by the FNME

  • Indirect taxes reduction

    • VAT= 0

    • Customs duties: reduced to a minimum rate (10%)

  • Carbon revenues

    • Programmatic CDM

    • Use of carbon revenues for reinforcing the programme sustainability


Financing measures in buildings with a focus on north africa and middle east

Financial mechanism should not be removed too early and should be part of an integrated packages


Financing measures in buildings with a focus on north africa and middle east

ConclusionIdeal profile of a financial mechanism adapted to the most MENA countries… :

Mechanisms combining several types of tools, instruments and measures

  • Financial instruments:

    • Win –Win Public subvention to reduce the payback period for the end-user

    • Indirect taxation measures

    • Bank credit over an enough long period to alleviate the payment capacity barrier

    • Sufficient upstream ressources for both public subsidy and loan distribution

  • Institutional and organizational instruments

    • Simple and effective distribution system of loans;

    • Effective Operators, accredited to be eligible to the programs;

    • Effective quality control, but simple and cost-effective;

    • Accompanying measures including awareness and capacity building.

    • Coordinating agency to monitor all the mechanisms


  • Financing measures in buildings with a focus on north africa and middle east

    Annex


    Financing measures in buildings with a focus on north africa and middle east

    Economic barriers for the diffusion of energy efficiency options: tariffs


    Financing measures in buildings with a focus on north africa and middle east

    Economic barriers for the diffusion of energy efficiency options

    Energy tariff effect on measures profitability :

    Example 1: MED-ENEC pilot projects


    Financing measures in buildings with a focus on north africa and middle east

    Economic barriers for the diffusion of energy efficiency options

    Impacts of technology mix optimization and of scale effect : example


    Financing measures in buildings with a focus on north africa and middle east

    Economic barriers for the diffusion of energy efficiency options

    Impacts of technology mix optimization and of scale effect : example


    Financing measures in buildings with a focus on north africa and middle east

    Financial mechanisms of energy efficiency in buildings

    Principles

    Necessary investment subsidy to guarantee consumer’s profitability

    7 years


    Financing measures in buildings with a focus on north africa and middle east

    Financial mechanisms of energy efficiency in buildings

    Public subsidy profitability for the State: example

    Win –Win situation establishment


    Financing measures in buildings with a focus on north africa and middle east

    Financial mechanisms of energy efficiency in buildings

    Other financing sources

    • Carbon revenues

      • tool:

        • Clean Development Mechanism (or equivalent)

        • Programmatic CDM very suitable for buildings

      • Objectives:

        • Improving the measures profitability for the end-user

        • Improving the programmes sustainability

    • Certificates : white, green

      • Valorisation of energy savings for an operator either on voluntary or mandatory basis

      • Instrument not common in developing countries


    Financing measures in buildings with a focus on north africa and middle east

    Financial mechanisms of energy efficiency in buildings

    Example

    France: home energy conservation

    • Tax credit

      • 25% for buildings after January 1977

      • 40% for a finished building before 1st January, 1977

        Relieved often by:

    • bank credits offered by different banks

    • Interest rate subsidy offered by the regions


    Financing measures in buildings with a focus on north africa and middle east

    Financial mechanims of energy efficiency in buildings

    Example

    Tunisia: PROMO-ISOL Programme (ceilings insulation)

    • AFD credit line

      • Interest rate: subsidized

      • Amount : About 20 DT/m² of insulated roof

      • Credit period : 5 to 10 years

    • Public subsidy

      • 20% à 30% limited by m²

      • Limited roof area

    • Indirect taxes reduction

      • VAT = 0 insulation materials

      • Customs duties: reduced to a minimum rate (10%)


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