By Michael Carmada
ENERPO hosted its sixth and final workshop series of the year 2015 with Maxim Titov of the Energy Efficiency Finance Program of the International Finance Corporation of the World Bank Group. Titov’s presentation was a first for ENERPO as it addressed the very important, but somewhat ignored topic of energy efficiency and the process of financing it.
Energy efficiency is not only environmentally friendly but also saves money, making it one rare policy that can unite both environmentalists and businessmen. However, the amount of investment needed runs into the hundreds of billions of dollars, so getting capital into the right hands in order to effect these changes is a key issue. Titov cited the interesting statistic that for every billion dollars allocated, roughly 1000 investment decisions, on average are made. How to most efficiently steer investments in the right direction in a system where so many investment decisions are being made by such a widely dispersed group of people? These are the challenges that Titov faces in his daily work.
His talk addressed these issues in the context of Russia’s energy efficiency and investment climate. He addressed the myths and realities of Russia’s energy efficiency and investing. One main challenge is how to convince businesses of the need to invest so much money in energy efficiency in a country with cheap, abundant, and often subsidized energy. Titov gave what some would consider a very Russian answer to this issue: “Find the main decision maker and convince this person of the benefits of change”. The World Bank accomplished this specifically by producing and printing a study they conducted showing that the Russian Federation could save 45 billion USD in energy consumption and that its total energy waste was equal to the consumption of France. Once this information found its way to President Vladimir Putin, there was serious overhaul in the way Russia addressed its energy efficiency policies.
From 2003 to 2009, Russia improved its energy intensity by 23%, dropping from 19 to 14 Gigajoules (GJ), and remaining around that level ever since. If Russia were to make the needed investments toward energy efficiency, it would mean 320 billion USD in energy investments that would pay itself back in savings in four years, or 80 billion USD a year. His team discovered these numbers through administering surveys throughout Russia, from the level of the federal districts to the small-and-medium enterprise level. Banks were more likely to lend than many believed, leading to what he called an energy efficiency paradox: why Russia isn’t more energy efficient despite funding being available. He found that businesses often underestimated their savings potential, had scepticism toward energy efficiency in general, or were unfamiliar with market players in energy efficiency that could help their businesses among other reasons.
The IFC developed financial products and advisory services for banks in the three key areas of energy efficiency, renewable efficiency, and resource efficiency. These banks then passed this on to end-users: SME’s, Housing Loans, etc. These advisory services included market strategies, product development, pipeline development, and result measurement tactics. The three sectors that yielded most of Russia’s energy savings under this program were in the food (35%); general services (17%) and metals and machinery (17%) sectors. Some concrete examples given were a confectionary factory, sunflower oil producer, and a car manufacturing plant that all received loans, made required efficiency updates and with the savings were all able to pay back the bank with interest within 2-3 years just by using the increased revenues from efficiency projects.
Michael Camarda is ENERPO Program Associate Director. Graduate of the ENERPO program (2014). Michael received his BA degree in History at Yale University.
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