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

1. 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

2. Overview Building sector issues and energy saving potential Barriers to enery efficiency development in buildings Financial mechanisms of energy efficiency in buildings Conclusion

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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.

9. 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

10. Energy tariff effect on measures profitability: solar water heaters

11. 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).

12. 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.

13. 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 .

14. Financial mechanisms of energy efficiency in buildings Measures aiming at reducing the payback period for the end-user

15. 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

16. Financial mechanisms of energy efficiency in buildings Measures aiming at overcoming the investment barrier

17. 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

18. 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

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

20. 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

21. Annex

22. Economic barriers for the diffusion of energy efficiency options: tariffs

23. Economic barriers for the diffusion of energy efficiency options Energy tariff effect on measures profitability : Example 1: MED-ENEC pilot projects

24. Economic barriers for the diffusion of energy efficiency options Impacts of technology mix optimization and of scale effect : example

25. Economic barriers for the diffusion of energy efficiency options Impacts of technology mix optimization and of scale effect : example

26. Financial mechanisms of energy efficiency in buildings Principles Necessary investment subsidy to guarantee consumer’s profitability 7 years

27. Financial mechanisms of energy efficiency in buildings Public subsidy profitability for the State: example Win –Win situation establishment

28. 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

29. 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

30. 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%)