James Maguire - The Energy Efficiency Opportunity

7/31/2019 James Maguire - The Energy Efficiency Opportunity

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Asia Clean Energy Forum

2012

Managing Risks in Clean EnergyProjects Session 22

7 June 2012


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Agenda

1. The Energy Efficiency Opportunity

2. Climate Change and the Insurance Industry

3. Financial Risk Management Instruments and Energy Efficiency

4. China Case Study

5. Practical Lessons Learned


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The Energy Efficiency Opportunity


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The Energy Efficiency Opportunity


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Energy Efficiency Projects (EEPs) in Asia

Accelerate EEPs in Asia requires financial risk management innovation

Scale and scalability impacts financing - Hosts and ESCOs

Key barriers to development of EEPs in Asia

Credit Default and/or Counter Party risk

Performance Risk Utilize insurance platforms and financial risk management instruments

Financial Risk Management Instruments to accelerate EEPs in Asia Pacific


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Major catastrophic event patterns 1989 - 2011

8

Since 2004, focus has been on Windstorm losses in the USnow shifting to Earthquake risks, with an international concentration of events

(Insured losses, $ billions)Major catastrophic property risk exposures and events

Hard Market Turn

Katrina / Wilma / Rita

1H 2011 Total CAT lossesestimated at $80 to $90 bn

Australia Cyclone /Australia

Flood / New Zealand II /Japan / US Tornadoes /

New Zealand III

Event Year

Insuredl

ossin

$

bn

Earthquake

Windstorm

Terrorism

Flood

Hugo

Andrew

Northridge

9/11

CharleyIvan

FrancesJeanne

GustavIke

XynthiaChile

New Zealand

HardMarketTurn

HardMarket

Turn

7.3

23.8

11.3

22.8

4.2 6.212.5

5.02.3

5.2

11.3

2.2

8.0

1.0

8.1

45.3

2.9

12.0

8.5

1.4

39.0

15.0

1.07.0

5.0

0

10

20

30

40

50

60

70

80

90

1989 1992 1994 2001 2004 2005 2008 2010 2011


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Financial Risk Management Instruments - Energy Savings Insurance

Address counterparty credit default exposure in Energy Efficiency Projects andconsequential impact to debt service obligations. Two key perils to be insured: Performance Shortfall

Credit default and/or insolvency of host facility (ies)

Reimburse the Loan Provider(s) and Loan Recipient(s) when a reduction in expectedperformance levels exceeds a fixed % of the expected savings

Reimburse the Loan Provider (s) and Loan Recipient (s) for up to 90% of lossesresulting from non-payment due to: Customer or host bankruptcy,

default on payment, and /or

energy management contract cancellation.

Term of Coverage: Term of the Loan or maximum 5 years

Per project and annual aggregate caps to be negotiated - linked to debt/equity ratios


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Financial Risk Management Instruments Energy Savings Insurance

Investors

Payment fromMeasured andVerified SavingsAchieved

EnergyEfficiencyServices

Host Facility

ESCO Credit Facility

Finance forEnergyEfficiencyProject

Source: Aon Risk Solutions

EnergySavings

Insurance


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Financial Risk Management Instruments - Performance Guarantee Facility (ies)

Investors

Payment fromMeasured andVerified SavingsAchieved

EnergyEfficiencyServices

Host Facility

ESCO Credit Facility

Finance forEnergyEfficiencyProject

Source: Aon Risk Solutions

PerformanceGuarantee

Facility


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Financing Energy Efficiency Projects (EEPs) - China Case Study

Concept of Supply Chain Carbon Risk Management

Chinas emissions could grow as much as 90% from 2005 to 2020

Over 50% of Chinese exports manufactured for foreign companies Scale and scalability impacts financing costs - Hosts and ESCOs

Global Corporates and supply chain carbon risk management

Chinas 12th Five Year Plan Energy Efficiency Regulation - Suppliers need to prepare

for regulatory or other changes associated with climate change and GHG emissions

A new paradigm EEP platform based on supply chain risk management and

product liability insurance procurement model


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EEP China Case Study Practical Lessons Learned

Lenders/Insurers perception of ESCO and Host Facility credit risk

Lack of reliable data on credit risk/default

Scale and scalability is objective for both equity, debt and insurers

ESCO bandwidth global versus local and horses for courses

Role of Sponsor

Provide incentives to supply chain (increased orders, longer contracts)?

Secure payment streams?

Participate in funding?

Public private partnership framework to address market barriers

Insurance Industry must lead by example:

Presently funding the cost of extreme weather

Financial risk management instruments to support investment in Energy Efficiency


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Contact List

James A. Maguire Gary Swinfield

Regional Managing Director, Asia Regional Director, South & Southeast Asia

Construction, Power & Infrastructure Specialty Construction, Power & Infrastructure Specialty

+852.2862.4293 +65.6231.6315

[email protected] gary.swinfield @ aon.com

Brian DeBruin

Regional Director, North Asia

Construction, Power & Infrastructure Specialty

+852.2862.4296

[email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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Statement of Confidentiality

This document and all/any supporting papers (collectively known as the Document)

contain information which is confidential to:Aon Corporation

Accordingly, we trust you will understand this Document may

not be reproduced in any form and communicated to any

other person, firm or company without the prior written approval of

Aon Corporation

In addition, unless otherwise agreed to in writing, this

Document remains at all times the property of Aon Corporation

and,

Aon Corporation reserves the right to recover all copies of the Document.


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Hong Kong

www.aon.com

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James Maguire - The Energy Efficiency Opportunity