FINANCIAL MARKETS SUSTAINABILITY Finance for ENERGY EFFICIENCY FINANCE Fuel Switching 94821 What is fuel switching? Key issues—and how IFC can help Fuel switching replaces inefficient fuels with cleaner and Financing expertise: IFC offers flexibility in finance economical alternatives, such as substituting coal or options and deal structuring to help financial institutions kerosene for natural gas. Complimented by modern (FIs) target the fuel switching market and share risks and equipment upgrades, fuel switching is a simple approach to incentives among project participants. reducing energy consumption and costs for end-users, . Technical expertise: Given the technical nature of fuel while also curbing carbon emissions. switching projects, IFC can provide a technical assess- ment of energy needs, performance specifications, and What is the market for fuel switching? analysis of necessary modifications to support fuel Commercial applications: Economic applications for fuel switching to its client FIs, technical intemediaries and switching include: air conditioning, refrigeration, other local entrepreneurs involved in the project. cogeneration and small power generation in the commercial and services sectors (e.g. offices, hotels, What are the opportunities for stakeholders? hospitals). FINANCIAL INSTITUTIONS Industrial applications : The flexibility and energy Access to largely untapped market with good growth performance of gas is beneficial for processing potential industries to improve product quality, reduce waste and Potentially large customer base spanning all sectors lower costs (e.g. glass, pharmaceuticals, food Portfolio-based approach can be used to streamline processing, electronics industries). projects Market differentiation through new business line What are benefits of financing fuel FI can lend to technical intermediary who can manage switching? and finance projects Growing market: Rising energy prices and the drive for END-USERS low carbon fuels are likely to make fuel switching Energy savings make attractive investment opportunity increasingly desirable to end-users. Cost-savings may finance total investment over time Long term energy cost-savings: Projects often finance Reduced operating costs, higher margins themselves over time. Increased overall competitiveness Performance improvements: Fuel switching can result in lower operational and maintenance costs for end-users. Simple paybacks: Typical loan paybacks are in the 2.5 to 4 year range, on average. Preferential treatment: National regulations, tariffs, or subsidies may support the switch to a cleaner fuel, thus improving the economics of fuel switching projects. Energy security: Under certain market conditions, fuel switching can enhance reliability of the energy supply. Environmental impact : Financing environmentally- friendly fuel switching can earn reputational capital with policy makers, investors and consumers due to the positive impact projects have on reducing carbon emissions. FMS-EO-EEF-FS-0306E INTERNATIONAL FINANCE CORPORATION | GLOBAL FINANCIAL MARKETS | 2121 PENNSYLVANIA AVE. | WASHINGTON, DC, 20433 | WWW.IFC.ORG/FMS FINANCIAL MARKETS SUSTAINABILITY Finance for ENERGY EFFICIENCY FINANCE Fuel Switching What does a typical project look like? Co Energy Efficiency Finance in China Financial institution extends loan to brewery to finance fuel switching A new program in China, funded jointly by IFC and the Brewery engages technical intermediary to install new Global Environment Facility (GEF), is promoting fuel equipment and manage project switching from coal to natural gas in partnership with Total investment financed in full, or in part, by energy- gas utilities and local banks. Gas utilities act as a "one cost savings over time stop shop" to help customers in the residential, IFC may provide financing and technical assistance on commercial, industrial, and municipal sectors to energy efficiency best practice, project design, and prepare and finance projects. Equipment loans to implementation. end-users will be provided by partner banks supported by an IFC guarantee. The program will demonstrate Sample Fuel Switching Project for Brewery how switching from coal to gas, supported by Switching 30 % of energy need from natural gas to biogas equipment upgrades, can generate long-term produced from waste water treatment energy efficiencies and savings, and reduce carbon emissions. Annual heat consumption 48,000,000 kWh Annual electricity consumption 60,000,000 kWh Fuel price (natural gas) $0.03/kWh Energy cost saved $540,000 Investment cost $6,000,000 Payback period 11.1 years Deal Highlight: Gas Retail Project, Hungary Purpose Energy efficiency improve- ments in multiple households by replacing oil-fired boilers with modern gas-fired boilers Initial Portfolio Size US$1.5 million Financial institution Leasing bank Borrower Households Average Loan Size $1,000 Simple payback 5-7 years Debt repayment Energy savings; family income Sustainable activities Energy efficiency to upgrades to pipes, radiators, and boiler Who contact to IFC? Eva Szalkai evszalkai@ifc.org The mission of IFC is to promote sustainable private sector investment in T: + 1 202 473 0755 developing and transition countries, helping to reduce poverty and improve people’s lives. Since its founding in 1956 through FY05, IFC has Russell Sturm rsturm@ifc.org committed more than $49 billion of its own funds and arranged $24 billion T: + 1 202 458 9668 in syndications for 3,319 companies in 140 developing countries. For more information, visit www.ifc.org. INTERNATIONAL FINANCE CORPORATION | GLOBAL FINANCIAL MARKETS | 2121 PENNSYLVANIA AVE. | WASHINGTON, DC, 20433 | WWW.IFC.ORG/FMS