glte san francisco november 2011
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Made to GLTE San Francisco November 2011TRANSCRIPT
THE MAGIC OF ENERGY EFFICIENCY
STEVEN FAWKES
ECOSUMMIT 22nd March 2012
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20%
It is not all about CO2
Air pollution causes 2 million premature deaths a yearWorld Health Organisation
Air pollution causes nearly 170,000 deaths a year in ChinaWorld Bank
1.3 billion
How efficient are we?
475
5555
Source: University of Cambridge, global figures , in EJSource: University of Cambridge
11
INEFFICIENCY EVERYWHERE
The US runs at least 8 large power stations just to power stuff that is turned off
Less than 10% of the power plant fuel that makes electricity for pumping applications actually creates customer value
Less than 1% of the power plant fuel that makes electricity for a data centre actually creates customer value
Source: Rocky Mountain Institute
Global potential for energy efficiency
$170bn a year investment would:
-halve the projected growth in energy demand (reducing demand by ~ 64 million barrels a day)
-produce half the emissions abatement required to keep atmospheric CO2 at 450ppm
-have an average IRR of all projects 17% (at $50/barrel oil)
Source: McKinsey
barriers
14
15
Some of the money is nailed down
Many and various barriers to improving energy efficiency including;
- Supply side domination
- Low priority in many organizations
- Run by engineers / not strategic
- Split incentives – landlord / tenant problem
- Measurement of results
- Limited capacity – technical skill shortages
- Access to capital
- The ribbon problem
16
Conclusions
Energy is at the start of a technological revolution
The future will be:-radically more efficient-significantly cleaner-more diverse
Some of the money is nailed down
Many and various barriers to improving energy efficiency including;
- Supply side domination
- Low priority in many organizations
- Run by engineers / not strategic
- Split incentives – landlord / tenant problem
- Measurement of results
- Limited capacity – technical skill shortages
- Access to capital
- The ribbon problem
19
Capital requirements
• $170bn a year investment would half the projected growth in energy demand (reducing demand by ~ 64 million barrels a day)
• up to half the emissions abatement required to keep atmospheric CO2 at 450ppm
• average IRR of all projects 17% (at $50/barrel oil)• $83bn a year invested by 2020 would allow
industrial sector to abate ~25 million barrels a day
Source: McKinsey
20
Us real estate to 2050
21
$0.5 trillion invested
$1.4 trillion NPV
Source: Lovins
Investor appetite
“Institutional income investors are looking for an iconic investment in this area”
Fund Manager
Several investors have committed funds in principle but………….few examples
22
Business models – esco / EPC
23
Not a new idea
Boulton and Watt – 1770s
Associated Heat Services – 1966
Utility Management Company – 1982
US ESCO industry been very active- 1,473 projects- $2.3 billion investment- 74% in public sector (MUSH)- not really spread into commercial real estate
24
Problems with the esco model
ESCOs have limited balance sheets
Energy Performance Contract model requires client to take on debt
Accounting standards – on / off-balance sheet question
Even the largest projects are too small for institutional income investors who have cheque sizes > $100m/£100m
25
BUSINESS MODEL INNOVATION
Need to scale and structure projects in a way that allows institutional investors to invest at scale
Two innovations are emerging:
• Managed Energy Service Agreements• Transaction vehicles
26
Mesa structure
27Source: Deutsche Bank
Vendors
The mineral rights analogy
28
Asset owner (farmer in PA/building owner) does not have capital or technical knowledge to access asset (shale gas/efficiency savings)
3rd party pays “access fee” to have the right to exploit the resource
3rd party uses external capital to develop the projects
Royalty payment / profit sharing over time
Source: Deutsche Bank
A new industrial revolution?
contentS
• Potential for energy efficiency
• Barriers
• Capital requirements
• Business models
• Summary
31
Inefficiency is everywhere
Central power stationsTypically 30-40% efficient
Power amplifiersTypically 15% efficient – 85% goes to heat
BuildingsUS building stock consumes 2.5 x energy European building stock after
correcting for climate
Data centresUseful computing uses 2.5% of energy input
etc etc etc
32
barriers
33
Some of the money is nailed down
Many and various barriers to improving energy efficiency including;
- Supply side domination
- Low priority in many organizations
- Run by engineers / not strategic
- Split incentives – landlord / tenant problem
- Measurement of results
- Limited capacity – technical skill shortages
- Access to capital
- The ribbon problem
34
Capital requirements
• $170bn a year investment would half the projected growth in energy demand (reducing demand by ~ 64 million barrels a day)
• up to half the emissions abatement required to keep atmospheric CO2 at 450ppm
• average IRR of all projects 17% (at $50/barrel oil)• $83bn a year invested by 2020 would allow
industrial sector to abate ~25 million barrels a day
Source: McKinsey
35
Us real estate to 2050
36
$0.5 trillion invested
$1.4 trillion NPV
Source: Lovins
Investor appetite
“Institutional income investors are looking for an iconic investment in this area”
Fund Manager
Several investors have committed funds in principle but………….few examples
37
Business models – esco / EPC
38
Problems with the esco model
ESCOs have limited balance sheets
Energy Performance Contract model requires client to take on debt
Accounting standards – on / off-balance sheet question
Even the largest projects are too small for institutional income investors who have cheque sizes > $100m/£100m
39
BUSINESS MODEL INNOVATION
Need to scale and structure projects in a way that allows institutional investors to invest at scale
Two innovations are emerging:
• Managed Energy Service Agreements• Transaction vehicles
40
Mesa structure
41Source: Deutsche Bank
Vendors
The mineral rights analogy
42
Asset owner (farmer in PA/building owner) does not have capital or technical knowledge to access asset (shale gas/efficiency savings)
3rd party pays “access fee” to have the right to exploit the resource
3rd party uses external capital to develop the projects
Royalty payment / profit sharing over time
Source: Deutsche Bank
summary
• Potential for energy efficiency is very large• Energy efficiency does not require subsidies• Improving EE addresses supply, cost and environmental
problems• EE is gaining political support• Capital requirements are large but manageable• Returns are in line with or exceed expectations• Institutional income investors would like to invest• ESCO / EPC type model is only part of the answer• Managed Energy Service Agreements and Transaction
Vehicles are beginning to emerge• A few large scale examples will catalyze change – expect
to see them soon
43