It aims to provide a basis for demonstrating emission reduction and delivering enhanced environmental quality; also to provide a basis for negotiating the contractual terms to ensure that an energy efficiency project achieves or exceeds its goals of saving money and improving energy efficiency. The Efficiency Valuation Organization also provides training in Measurement and Verification, and has established the Certified Measurement and Verification Professional qualification in association with the Association of Energy Engineers. The choice among the options involves many considerations. Parameters not selected for field measurement are estimated. Documentation of the source or justification of the estimated parameter is required.
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Hope that you enjoy and remember to check in and give us any feedback that you have at evo-blog. Thanks a lot. Nathan: Hey everybody. Today we have Thomas Dreessen with us who was one of the main people behind the International Energy Efficiency Financing Protocol, the new protocol that was published by EVO this year. Tom how are you doing? Where are you at this morning? Nathan: Oh great, so even in the Caribbean working in China [laughs] the world has gotten small.
Tom: Correct. Nathan: Thomas, tell us a little bit about how you got started in energy efficiency and how you ended up at EVO. It became clear to me that the only real cost effective way to fund energy efficiency projects was to bring in and try to get the local banks engaged in providing funding.
Otherwise the cost to capital was just way too high to do it on a totally equity basis. It became clear to me when I went into all of these different countries that there were common methodologies, common ways for efficiency projects to be evaluated and to be funded. It was also clear to me that the banks had essentially had very little knowledge or capacity on how to evaluate and how to look at finding projects which is really what was the foundation for me to really initiate the idea of an international energy efficiency financial protocol.
I did this back in July The U. I threw out this idea of an energy efficiency international financing protocol and they agreed that the local banks clearly lacked guidance and expertise in order to lend money to it and this was a good program, if you will, to start setting up around the world.
Nathan: Sounds like a great match with EVO. I know one of the more complicated things, working in kind of the ESCO and measuring and verification world myself, is trying to explain how you can evaluate the value of an energy efficiency project where basically you are selling a reduction in usage of a service.
Going through IPMVP, I think that it was a great way to get people to understand the value that want to do a project, but wanting to do it and convincing a banker to do it are totally different things.
How did you end up with EVO? He agreed and suggested I join the board, which I did. That goes back maybe five six years ago, I guess in that range, in that timeline. Nathan: That great, and then after that it must have been a long time in coming. This started a number of years ago. How did things move forward? What happened? Tom: In addition to this protocol, one of the key elements of it was a conclusion I came up with because I saw it and many people agreed. That conclusion is that there are already a number of documents, materials, and other tools that are active in the marketplace but they are disseminated in a fragmented basis.
One of the key objectives of this IEEFP was to create some sort of repository to collect in one place all these common methodologies, documents, and materials to eliminate replication of them being developed in multiple markets. The outcome of that was that we developed some Best practices for ports.
I formed 2 local teams who did Best practices reports on what is going on currently in those 2 countries related to banks, financing, energy efficiency projects. Also developing a business plan for developing a financing protocol, which the ultimate thing ended up being an absolute training program for local banks that could be put within one of their nonprofit, or one of their governmental agencies, and could be used as a training program in a cost effective way to train bankers and create capacity on how to evaluate and finance energy efficiency projects.
So we developed those 2 business plans and then I had to go out and try to get funding for both of those countries, and I was only successful in really getting funding for Mexico. I got funding from a couple of sources. One of them was the U. Global Opportunity Fund. We actually conducted and created that training program.
We had a pilot and 2 training sessions and trained some 6 or 7 financial institutions, some seventeen to twenty people.
It was extremely well received. The real true asset value in an energy efficiency project is the cash flow stream. So, the ultimate goal of the IEEFP is to get bankers to acknowledge and recognize that cash flow stream, and have it start to become the basis for them financing the project as opposed to their traditional methodology which would have it all collateral based.
Around the world,iIs that something that bankers are able to take up and shift their traditional way of thinking and looking at capital, and look at this more cash flow based system. Have you had any resistance? The bankers are generally very interested because of the focus now. Green energy and energy efficiency, as most people know, is now being counted as the major solution for CO2 reductions.
So, the bankers are generally very receptive to it. Nathan: McKinsey just released a report yesterday; I think they said America could save 1. An enormous amount of capital up font, but really a very positive deal overall for the country if we were to start investing in energy efficiency.
We talked about replacing a boiler or replacing equipment. A lot of this, the harder parts to grasp is the usage habits of individuals. How have you seen the reaction to bankers to that where, "At least if I put in the chiller I can say this is definitely using this much less energy"?
Tom: No. You have to be running before you can take that leap of faith. That requires behavioral changes which is unpredictable as we all know in human beings. You have employee changes. Things change all the time. We can warranty it with manufacturers. But, it gives you those options to be used in an IPMVP plant to be developed by the engineering community.
So, what IEMP does, it takes that information requires an MVP that complies with IVMVP that will then take those savings and equate them to dollar savings, and methodologies and calculations that are included in a loan document or a financing document. Therefore, the host agrees to pay based on that methodology. So, it takes the very beginning of the IPMVP Efficiency Valucation Organization option for technical under the plans and pulls it all the way through the market place to a financial calculation of the savings being provided that can be used as collateral for a loan.
If you, how does, how do bankers look at this and compare the risk of a general ESCO project versus any other opportunity where they may have to invest capital? Is it more or less risky? And, and the problem is, in most industrial sites and private companies, energy efficiency project has two major barriers. One is competing with existing capital requirements for their core business.
And a lot of industrial sites, have a hurdle rate of no greater than one to two years. So the payback might be three months. Tom: On the infrastructure… go ahead… Nathan: Is that just a general lack of kind of the understanding of energy efficiency or what causes that kind of… Tom: Yes. Nathan: …comparison.
Tom: Yes, I do. Yes it is. Well what they did, then they went out and did audits, and, to determine what was the real savings being achieved from this program and they found that a substantial number of them had never been installed. The motors… Nathan: Huh. Tom: Yet, yet the customers were paying this additional utility bill.
No problem. They just continued to pay it. And so they went and asked these customers, why are you doing this? And they said, well why would we replace this motor? I mean this, the old one works perfectly fine. Why would we replace it? Nathan: Hm. Tom: So I think it, that says a couple things, I think. As an infrastructure item. Why would we replace this good motor, it works fine.
Why would we do that? Nathan: Yeah. What about some other experiences in this training programs? Were there some successes in Mexico? How did that end up? Tom: Well actually it ended up generating lots of interest by the bankers. We had two substantial banks, international banks, that are operating there who now want to finance projects from savings. Even though we you IPMVP, they still want to — they still will have some hesitancy to accept the savings as a method for collateral.
So we need to get the local banks engaged to provide cost effective financing that is not going to be — that they will accept the savings as a form of payment so it does not impact the credit capacity of the host end user consumers. Nathan: It seems like the insurance product, that can kind of give a little bit of reassurance — Tom: Assurance, yeah.
Nathan: Assurance — is a really great idea. How do you see the economic climate that we see now affecting this? Is that derailed or has it brought about new opportunity. Tom: It derailed it for about months because the development bank that was going to provide that guarantee product in Mexico actually almost a year now, had others problems they had to deal with to prop up their local banks and so they were unwilling to take on any new product like this until they got it sorted out.
But we now are back on track and they are now looking to provide it.
Qué es el Protocolo IPMVP y cómo funciona
EVO - IPMVP 2007 - Espanol
¿Qué es IPMVP?
International performance measurement and verification protocol