3ES1 1W 1

A Synopsis of the

Roundtable on

Energy EfficiencyWshinton-D.C.

September 14-15, 1994

Report 171/95

EneiWySectrMnaeet Assistaceftprogame

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JOINT UNDP / WORLD BANKENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP)

PURPOSE

The Joint UNDP/World Bank Eneagy Sector Management Assistance Programme (ESMAP) waslaunched in 1983 to complement the Energy Assessment Programme, established three years earlier.ESMAP's original purpose was to implement key recommendations of the Energy Assessmentreports and ensure that proposed investments in the energy sector represented the most efficient useof scarce domestic and external resources. In 1990, an international Commission addressed ESMAP'srole for the 1990s and, noting the vital role of adequate and affordable energy in economic growth,concluded that the Programme should intensify its efforts to assist developing countries to managetheir energy sectors more effectively. The Commission also recommended thatESMAP concentrateon maldng long-term efforts in a smaller number of countries. The Commission's report wasendorsed at ESMAP's November 1990 Annual Meeting and prompted an extensive reorganizationand reorientation of the Programme. Today, ESMAPisconducting Energy Assessments, performingpreinvestment and prefeasibility work, and providing institutional and policy advice in selecteddeveloping countries. Through these efforts, ESMAP aims to assist governments, donors, andpotential investors in identifying, funding, and implementing economically and environmentallysound energy strategies.

GOVERNANCE AND OPERATIONS

ESMAP is governed by a Consultative Group (ESMAP CG), composed of representatives of theUNDP and World Bank, the governments and institutions providing financial support, and repre-sentatives of the recipients of ESMAP's assistance. The ESMAP CG is chaired by the World Bank'sVice President, Finance and Private Sector Development, and advised by a Technical AdvisoryGroup (TAG) of independent energy experts that reviews the Programme's strategic agenda, itswork program, and other issues. ESMAP is staffed by a cadre of engineers, energy planners andeconomists from the Industry and Energy Department of the World Bank The Director of thisDepartment is also the Manager of ESMAP, responsible for administering the Programme.

FUNDING

ESMAP is a cooperative effort supported by the World Bank, UNDP and other United Nationsagencies, the European Union, Orgarization of American States (OAS), Latin Amencan EnergyOrganization (OLADE), and countries including Australia, Belgium, Canada, Denmark, Germany,Finland, France, Iceland, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal,Sweden, Switzerland, the United Kingdom, and the United States.

FURTHER INFORMATION

For further information or copies of ESMAP reports, contact

ESMAP

c/o Industry and Energy DepartmentThe World Bank

1818 H Street N.W.

Washington, D.C. 20433U.SA.

A Synopsis of the

Roundtable on Energy Efficiency

Washington, D.C.

September 14-15, 1994

Report No. 171/94

The UNDP/World Bank Energy Sector Management Assistance Programme

(ESMAP)

This paper is one of a series issued by the Industry and Energy Department and the Joint UNDP/World Bank Energy Sector ManagementAssistance Programme (ESMAP). The paper may notbe published or quoted as representing the views of the UNDP, World Bank Group, ESMAP, orany of their affiliated countries and organizations, and none of the foregoing are responsible forthe accuracy or completeness of the material pTesented.

Contents

Introduction .................... I

Roundtable Structure .................... I

Issues and Findings .................... 2

Key Points of the Sessions ....................... 4

Follow-Up Agenda ............. .... 7

Hi

A Synopsis of theRoundtable on Energy EfficiencyWashington, D.C., September, 1-15, 1994

Introductionbanks (i.e., the Asian Development Bank, the In-ter-American Development Bank, and the Euro-

Energy efficiency, in its broadest sense, is a set of pean Bank for Reconstruction and Development;policies and actions that lead to more economi- ADB, IDB, and EBRD, respectively). World BankcalEy efficient production, distribution, and use of staff constituted about half of the 175 participants.energy. This theme is becoming a central interest A wide range of viewpoints on energy efficiencyof the World Bank, as well as of its clients and strategy was represented, and some of the mostexternal partners. vocal critics of World Bankl practice participated

In response to the increasing priority of en- in the eventergy efficiency, the joint UNDP/World Bank En- Although the roundtable focused primarily onergy Sector Management Assistance Programme electricity end-use efficiency, the issues and les-(ESMAP) sponsored a roundtable in September sons presented were also pertinent to other energy1994 to discuss policy and implementation strate- sources, such as natural gas and coal, and to thegies for energy efficiency measures. This was the traditional fuels, such as woodfuels. Transporta-first ESMAP-sponsored event to focus broadly on tion issues were not included, however, becausethe energy efficiency needs and circumstances of of the breadth of issues already on the agenda anddeveloping and transitional economies. It sought the priorities ofthe participants. The broad agendato provide an open forum for participants to exam- of the roundtable also meant that specific energy-me and understand determinants of workable en- consuming sectors or industries could not be ex-ergy efficiency and demand-side management amined in detail, butthis selectivity in turn allowed(DSM) strategies that might be incorporated into participants to examine many essential institu-energy sector development initiatives for develop- tional, policy, and .mplementation issues in the twoing and transitional economies-notably, the cli- days of deliberations.ent countries of the World Bank. Another objec- Roundtable Structretive ofthe roundtable was to consider complemen-tary strategies forpromotng energy efficiency and The roundtable was organized according to cur-to assess their potential advantages and limitatons. rent and emerging areas of interest and structuredThe staff of the World Bank's Industry and En- into five topical sessions:ergy Department organized the event. * Energy Efficiency and Economic Develop-

The roundtable was intended to bring together ment: The Issues, Linkages, and Optionsprofessionals and policymakers from diverse re- . Energy Efficiency and Power Sector Reform:gions to meet others with similar interests. Par- Seeling Common Groundticipants came from countries in East and South * Energy Efficiency FinancingAsia, Africa, Latin America and the Caribbean, andCentral and Eastern Europe. Organizations par- * Energy Efficiency and the Role of Energy Ser-ticipating included energy consulting and service vice Companes.firms, nongovernmental organizations (NGOs), Each session began with presentations by ex-bilateral aid agencies, and multilateral development pert panelists. The formal presentations were fol-

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lowed by an open discussion moderated by the efficiency. This debate may be divided into twochair. "schools," which might be termed the arms '-length

In an opening address, Lee Schipper (visiting school and the hands-on schooL The formerWorld Bank Fellow from Lawrence Berkeley stresses economically efficient overall policy andLaboratories) reviewed the energy efficiency trends the discipline of competithie markets in the elec-of the past 20 years, which he characterized as tic power sector. The latter points to the need for"modest energy price increases accompanied by specific interventions by government or utilitiesgreat technical progress in efficiency." The two to overcome market barriers and failures. Bohtrends, he noted, have combined to yield a widen- schools are surprisingly in accord on many issues,ing gap between "technical" energy efficiency po- but they differ in terms of preferred policies andtential and "economic' or "market" energy effi- strategy. A recuring theme throughout the work-ciency potential. shop was the need to distinguish market distortion

Other invited keynote presentations furthered from market failure and to define the institutionalthe exposition of recent and significant energy ef- mechanisms and proper limits of market interven-ficiency trends. Amory Lovins (Negawatts for tions.Development") and Howard celler (' Transform- A fundamental question posed by the keynoteing Markets for End-Use Efficiency') added the speaker was whether energy efficiency policyfollowing points: should be an exclusive energy sector issue or- Developing countries have even greater tech- should be addressed through a more comprehen-

nical potential for energy efficiency improve- sive, multisectoral approach. Case studies werements than OECD countries. used to underscore this distinction between single-

* Slowness of innovation, risk-averse behavior, sector and comprehensive approaches. The inclu-trade bariers, and certain features of consumer sion of environmental costs and benefits to facili-purchasing behavior have all slowed the pace tate improved. conservation and energy supply de-uf energy efficiency improvements in devel cisions was cited as a key area where the policyofpenergy eonomiency ,np-Tovements in devel- issues stretched beyond the purview ofthe energy

oping economies. sector. The recognition and imputation of envi-• Key strategies for developing economies ronmental impacts is influenced by political-

should include energy pricing based on actual economic concems such as increasing tax burdens,costs, reduction of barriers to trade and to com- short-term inflation, and industrial competitive-petition, and encouragement of local produc- ness. Consequently, although optimal conserva-tion. tion levels may be achieved with appropriately im-

The roundtable concluded with a final session, puted envirorunental costs, it is clearly not an en-Strategies for Promoting Energy Efficiency: A ergy policy issue alone. Interestingly, this exampleSynthesis. In view of the positive response to the shows that more comprehensive correction is re-meeting's benefits in facilitating exchange of view- quired to achieve efficient energy conservation-points, lessons of experience, and information on a point emphasized again the next day,when a cios-energy efficiency, the World Bank intends to fol- ing-session speaker advocated that abroader, cross-low up on the roundtable with further meetings that sectoral approach would lead to more appropriatewill engage smaller working groups and address policy and decentralized implementation.in more detail the specific issues, findings, and top- The substantial number of common elementsics covered in each ofthe roundtable sessions. The in the concluding thoughts of many participantsissues and findings of each of the roundtable dis- gave some indication that a greater strategic andcussions of the September conference are described policy consensus developed during the roundtable.in some detail below. The final roundtable session, Strategies for Pro-

Issues and Findings moting Energy Efficiency: A Synthesis, was struc-tured around the observations of a group of senior

It is useful at the outset to make a broad generali- professionals representing the institutional andzation regarding the economic debate on energy ideological diversity at the roundtable. These in-

3

cluded Richard Stem and Karl Jechoutek (direc- tional presence tend to focus on projects thattor, Industry and Energy Department, and division are relatively large and require imported equip-chief, Power Development, Efficiency and House- ment and expertise. Such large-scale, exog-hold Fuels Division, respectively, of the World enous solutions can be expensive, inappropri-Bank); Dr. Krishnaswamy (deputy director of the ate, or short-lived. Local resources, local skills,Industry and Energy Department, ADB); Amulya and locally tested solutions therefore provideReddy (president, International Energy Initiative); a means of leveraging or maximizing the im-Jaime Millan (Private Sector Development Depart- pact of energy efficiency programs and devel-ment, IDB); David Rubin (International Energy oping a local energy efficiency industry.Agency); and David Jhirad (U.S. Agency for In- . Energy efficiency strategies shouldbe related toternational Development). Key issues, findings, "god"ecnnicLndrepuato?yirinciples. Notand concluding thoughts included the following: sustainable in the long term are energy efficiency

* Although each country and energy efficiency solutions that rest on pardal efficiency conceptssituation requires a customized solution some (e.g., narrow interpretations of regulatory theoryestablished approaches and common prin- to justify subsidies for energy efficiency or solu-ciples should be kept in mind and included in tions that institutionalize the role ofan inefficientmost country-speciJfic strategies. Generic strat- public sector entity when the trend is towardegies considered repeatable, with appropriate privatization and corporadzation).modifications, include third-party financing * Increasing private sector involvement in thestrategies for energy-efficient equipment and provision of energy-efficiency services, prod-variants of the contract energy savings ap- ucts, andfinancing is an essentialpillar in theproach of energy service companies (ESCOs). structure of a sustainable energy efficiency in-

• Sectorwide reforn and economically efficient dustry. Although the private sector was rec-pricing are key conditionsfor end-use energy ognized for contributing to the growth of mar-efficiency. The lack of stable macroeconomic kets for energy efficiency services and tech-conditions can retard energy-efficient decisions nologies, it was also upbraided by several dis-by end-users. Movement toward efficient en- cussants for failing to shoulder its share ofrisks.ergy prices, which in most cases means higher Evidence for this shortfall was the repeatedenergy prices, is likely to be a slow political solicitation of many private sector participantsprocess, especially given estimates that for development-bank-provided capital or as-underpricing of electricity in developing econo- sumption of risk for their projects in develop-mies totals almost $100 billion annually. Since ing economies.market distortions other than inefficient pric- * Successful energyfinancing strategies will re-ing serve as impediments to energy efficiency quire that investors be provided with adequateimprovements, complementary efficiency-en- security that the projects can generate an in-hancing activities can proceed in tandem. Ex- cremental cashflow to provide a reasonableamples include transforming the market by return on the investment. Investors are notsetting equipment standards, creating local "en- convinced by theoretical engineering esti-ergy efficiency centers" for information ex- mates-only by tangible energy savings andchange, and building the infrastructure for an improved cash flows. Improved efforts forenergy efficiency industry. The challenge is monitoring and verifying savings in energyin choosing strategies that neither distort the conservation projects will be key to deliveringfunctioning of the market nor impede the tran- the required level of investor comfort.sition to efficient markets. "Efficiency standards" in the procurement

* The impact and influence ofgrass-roots efforts guidelinesfor projectsfunded by developmentto increase energy efficiency should not be ig- institutions would nurture -a culture of effi-nored Many bilateral, multilateral, and non- ciency-orientedequipmentprocurementwithingovernmental organizations with an interna- a country. Such an approach would be con-

4

ceptually similar to the use of minimal envi- tors were crucial, other structural rigidities, such asronmental standards in projects financed by industrial exit policies and sectoral priorities, had tomultilateral development banks. However, in be considered when developing energy efficicncypractical terms, environmental standards are at strategies. Garth Hariss pushed the discussion fur-a macroproject level, whereas efficiency stan- ther by outlining the other potential barriers to en-dards are technology-specific and thus at a level ergy efficiency once economically efficient price sig-of detail that makes review administratively nals were established. Even with econornically effi-burdensome. cient pricing, energy efficiency strategies would be

Key Points of the Sessions greatly influenced by the existing governnental andbureaucratic structure, structure ofthe economy, and

Session I, Energy Efficiency and Economic extent of regulation. In effect, this observation sug-Development: The Issues, Linkages, and Options. gests greater emphasis on institutional strengthen-This session placed energy efficiency within the ing to facilitate energy efficiency. Finally, Deborahbroader economic development mission of insti- Bleviss underscored the need for balance betweentutions such as the World Bank. Dennis Anderson demand- and supply-side resources, especialy given

(gDepartment); the growing potential of independent power produc-(senior adviser, Industry and Energy er uPs ad enwaleenrgtsuresDeborah Bleviss (president, International Institute ers (IPPs) and renewabte energy soueecesfor Energy Conservation); Garth Hariss (energy Tsgnals were by themselves not sufficient to rieldplanning consultant, New Zealand); and Istvan desig red leve s of enefficien st theDobozi (senior energy economist, Eastemt & Cen- desired levels of energy efficiency suggests theDoboi (sniorenery eonomst, asten & en-possibility of pursuing a parallel strategy, in whichtral European Department) constituted the panel.Vinod Thomas (director, Economic Development an appropriate pace of economic price rationaliza-Institute) moderated the panel deliberations. ton is accompanied by interventions to promote

The session sought to build a clear linkage be- energy efficiency (rather ta employing a strictsequencin of rice rationalization followed b en-tween the broader economic efficiency view of qr ~'ydevelopment and the sectoral energy efficiency ergy efficiency interventions). More importantly,devieloens And d the sengy effcency the finding prompts us to consider how to proceed

that must be in planersonout e to eeonomcally with the implementation of energy efficiencythatcmust beiner polace: to ensureaneconomicallyprojects in countries where economically efficient

efficient energynpolicy: prices are still being introduced. Those consider-1. Stable economy ing such a parallel strategy might also recognize2. Price efficiency that certain conservation opportunities offer sig-3. Corporatization and independent regulation nificant economic and social benefits even in the4. Openness to private investmnent absence of economically efficient pricing. The5. Availability ofnonprice DSM programs question of who should bear the cost of such

Availabienlt poflnpicis D projects in order to ensure sustainability and re-6. Environmental policiey peatability remained unanswered. As noted ear-

7ler, this question arose in differing contexts8. An R&D component wiffiin the energy sector. throughout the two-day deliberations.

Successful and sustined energy efficiency re- Session I, Energy Efficiency and Power Sectorquires economically efficient (marginal-cost-based) Refon Seeking Common Gndenergy prices Usng examples from Eastem Europe, Reform: Seeng Common GrounIstvan Dobozi illustrated the influence of industeial This session examined the econornic efficiency andrationalization in transitional economnies on energy effectiveness of energy efficiency mandated byintensities and usage patterns. His findings indicated regulators. The principal policy focus was whetherthat changes in industry structure and composition utility DSM programs that are mandated by thewere important factors contributing to the pace of regulatory process in the United States and sev-energyefficiency improvemensintrstionalecono- eral European countries were consistent with effi-mies. The implication was that although price fac- cient electric utility policy in the developing world.

5

This was posited in the context of the global trend ties represented a superior agent for deliveringtoward transforming power utilities into deregu- these services, especially in the developing world.lated competitive entities rather than instruments Otlers held the view that the existing utilities inof govermnent policy. The panelists represented the developing world were institutionally weak,both informed proponents and objective opponents which precluded using them effectively to pursueof utility-based DSM. Bruno Phillipi, the former DSM programs. Burdening financially weak state-Chilean secretary of energy who was instrumental owned entities with DSM obligations could slowin restructuring his country's power sector along the privatization and corporatization processes.commercial lines, chaired the panel. The panel This institutional dimension led to the ques-included Barbara McKellar (of the Wisconsin- tion of using independent or third-party providersbased Canyon Group); Jayme de Hollanda of energy efficiency services (i.e., ESCOs) under(ELECTROBRAS, Brazil); and Larry Ruff (man- performance contracts. This topic was addressedaging director, Putnam Hayes and Bartlett). in greater detail in session IV.

The session clarified that utility-based DSMmandated by regulators was inconsistent with a Session *II, Energ Effiiency Financingmore competitive and efficient power sector. The Roundtable participants here focused on an areachief reason was that requiring businesses to seek that has not been as thoroughly examined as otherways to reduce consumer demand for their princi- energy-efficiency policy and strategy issues. Con-pal output (i.e., electricity) was incompatible with sequently, there is little tangible experience to guideintroducing competition within that industry. In energy efficiency financing initiatives in the de-fact, such measures could compromise possible veloping world. The panelists included Gregefficiency gains in supply within utility operations. Kats (U.S. Department of Energy); Chet Lyons

Other issues that relate to the design of utility (from INTESCO, a U.S. firm that has formed anDSM programs-such as utility revenue losses, rate Indian joint venture ESCO); and Cary Bullockimpacts of a program on nonparticipating custom- (Kenetech Energy Services, Boston). Anandaers, and evaluation of program savings and cost- Covindassamy (team leader, utilities-South, Eu-effectiveness-were addressed. Discussion of ow ropean Bank for Reconstruction and Development)erational refinements, such as shared savings was the moderator.schemes and impacts verifications, noted that these All the participants, orgarnizations, and entitieswere designed to cope with a regulatory mandate involved in the roundtable agreed that lack of ac-and were therefore subsidiary to the basic issue of cess to capital for energy-efficiency projects waswhether utilities should deliver energy-efficiency the most significant impediment to energy-effi-programs and services. Although program costs and ciency improvements in the developing world.lost utility revenues are recoverable under traditional Even though all agreed about the significance, notrate-of return regulation, the fact that commercial all agreed about the source of the problem. Somefinancing for investment by utilities in DSM has discussants considered it a market failure, whereasbeen less successful raises the question of whether others noted that the problem of energy-efficiencyregulation has been an inducement or an iInpedi- financing exists even in countries with developedment to the growth of independent energy conser- and efficient capital markets-indicating the needvation service providers. In fact, it may be that DSM for improved security arrangemb1.s for lenders andprograms conducted by utilities, the cost of which investors. These variations in the assessment ofcan be recovered with certainty, distort market con- the energy financing problem led to different policyditions by providing an unfair advantage to utilities prescriptions and strategies-in terms of marketvis-a-vis other energy service providers. interventions to reduce the costs of capital or di-

Such a possibility invites the consideration of rected funding schemes.alternative institutional arrangements for the de- Financing schemes advanced by the panelistslivery of end-use efficiency services. Some par- and participants ranged from basic debt financingticipants persisted in their support of utility DSM to leasing arrangements and the creation of equitymandated by regulators on the grounds that utili- funds for efficiency investments. Almost all the

6

schemes presented required the earmarking of a Although the session did not yield blueprintsbody of funds for efficiency projects (this is com- of workable financing strategies, it did provide in-monly termed directed credit). However, the dis- sights that are often overlooked by policymakerscussion did not focus sufficiently on the policy and and strategists who assume that financing is exog-enabling environment to attract commercial enous to the development of energy efficiency strat-sources of capital for energy efficiency invest- egies. Providing investors with tangible securityments, Energy efficiency investments in general for their invested capital and exploiting economieshave above-market rates of return and provide a of scale in project identification and design are tworapid payback. -1,x retically making them commer- approaches to minimizing the financial impedi-cially very attractive. These characteristics should ments to energy efficiency improvements in themake these investments attractive and viable even developed or developing worlds.in instances of "high" inflation and where debtmarkets provide funds with a short maturity. In Session IV Energy Eficiency and the Role oftheattempting to understand the paradox of why theo- Private Sectorretically attractive investments fail to attract suffi- This group addressed the use and applicability ofcient commercial credit, two insights emerged: energy service companies (ESCOs) in identifying* Providers of finance require some form of guar- energy savings opportunities, designing cost-effec-

antee that the investments in question will ac- tive projects to achieve the savings, and structur-tually deliver a cash return that will allow the ing appropriate financing strategies to enableuser to repay the funds. Financiers are uncom- ESCO operations.fortable with engineering estimates and other Thomas Dreessen of Energy Performance Ser-presumptive computations that are not measur- vices, Inc., spoke on the evolution of the energyable in a physical sense (actual kWh savings) service company in the United States, both in termsand that sometimes are not directly apparent of scope and function. A typical ESCO deals prin-in a cost-accounting sense (i.e., reduction in cipally with commercial or industrial energy con-production costs). This pointed to a need for sumers (providing some indication of the transac-better monitoring and verification strategies tion cost disadvantage, noted earlier, of dealingwhen conceiving energy efficiency invest- with small consumers). An ESCO may providemnents. In practical terms, it is not sufficient to the customer with options for instituting energy-tout an investment as attractive without pro- efficiency programs and also a qualified guaran-viding financiers with some form of security tee on the achievability of these savings. Thethat the cash savings would indeed be realized. ESCO often assists in implementing the project

* The small size of many energy-efficiency and could assist in the financing through either itsprojects makes for high transaction costs. Even own or third-party sources.if the projects are to use mature technologies, The panel consisted of Peter Garforth (director,the need for administrative expenses for fol- Landis & Gr, Switzerland); Ian Jarvis (managinglow-up and data collection on each project can director, Rose Technologies, a Canadian ESCO);make them unattractive. Strategies based on Emad Hassan (director of ENVEST, an ESCO sub-wholesale lending by a multilateral institution sidiary of Southern Califormia Edison; SCE); andto an intermediary who interfaces with several Pradip Sen (director, Thermax Pvt Ltd., an Indianend-users do not eliminate this problem but ernergy systems manu g firm now providingmerely transfer it to another institution. This some ESCO-like services). The panel was moder-is true also for financially sophisticated strate- ated by Ms. Shirley Hansen, author of a key book ingies for pooling and securitizing energy financ- this area, Energy Performance Contracting.ing receivables. In effect, the crucial need is Based on their hands-on perspective, Ian Jarvisfor an efficient means of transacting with many and Peter Garfort described ESCOs as interme-small end-users, because the administrative diaries who delivered a range of services that madecosts could add 3 percent or more to the cost industrial and commercial energy efficiencyof fumds, affecting the demand for these fimds. projects a reality. These services spanned project

7

identification, engineering, and design; contractual sults of this experience should prove instructive toand financial arrangements; project implementa- other countrics where utilities are pondering tran-tion, measurement, and verification; and operations sition strategies away from regulator-mandatedmanagement. Although not all services were DSM or seeking a hybrid of utility- and ESCO-needed in every case, the flexibility of an ESCO sponsored energy efficiency programs.was reflected in its ability to deliver the requisitepackage of services with a great degree of flexibil- Follow-Up Agendaity. In this view, ESCOs are the purveyors of cus- The Industry and Energy Department plans a num-tomer- driven energy-efficiency solutions-a cru- ber of specific follow-up actions; the key ones arecial requirement, since energy consumers have outlined below under the same topical categorieswidely varying needs and priorities. used for the September roundtable.

Equally important to its role in providing tech- Session I, Energy Efficiency and Economicnical and management expertise, an ESCO also Development The Issues, Linkages, and Options.provides a contractual framework linking energysavings to monetary savings or cash flows. This, The World Bank will sponsor a workshop in latein turn, provides the necessary security to the lend- Spring 1995 under the title Energy Efficiency iners and investors who finance the conservation Transitional Economies-is There Market Failure?project or program. This workshop is being organized by Lee Schipper,

Because of the inherent complexity or unique- a visiting World Bank Fellow at IEN. Participantsness of each ESCO-based energy conservation will include advocates for energy efficiency andproject, ESCOs select projects carefully. An im- also for energy sector reform policy from both theportant factor is the ability to specify the precise "arms'-length" and "hands-on" ends of the energydetails of the energy efficiency project and the ex- market intervention spectrum. Participants will bepected savings from a client's operational and drawn from World Bank staff, but discussants willmaintenance cost structure. Circumstances are not include energy economists and social scientistsconducive to ESCO involvements when measure- from Western Europe and North America, alongment or other verification techniques are not fea- with key experts from Eastern Europe.sible, or when mutually agreeable presumptive The World Bank and ESMAP have also initi-computations are not possible. ESCOs also select ated a major review of strategy for the district heat-clients 'oased on their creditworthiness and have a inj sector in Central and Eastern Europe. The strat-tendency to go for projects that although innova- egy review exercise will consider how to cost-ef-tive are also not overly risky. This might give the fectively integrate demand-side and supply-sideimpression of cream-skimming, but it is important efficiency measures into ongoing and planned re-to bear in mind that ESCOs are business entities habilitation schemes. Moreover, the Europeanthat must pursue commercial gain as well as en- Commission's Directorate General for Energy willergy efficiency. collaborate in this effort by sponsoring the partici-

Emad Hassan described SCE's ESCO subsid- pation in fieldwork.iary, ENVEST. This is a novel initiative that com-bines nonregulated DSM activities and value- Session IS Enerkg Eficiency and Power Sectoradded services to SCE customers using a combi- Reform Seeking Common Groundnation of shareholder and ratepayer financing. The World Bank and EPRI have concluded aENVEST operates very much like an ESCO, as Memorandum of Understanding (MOU) that setsdescribed above, save for the present financing up an umbrella agreement covering the exchangestructure, which relies on SCE equity and regula- of information and technical cooperation betweentor-approved DSM cost-recovery. ENVEST de- the two organizations. Specifically, the MOU es-rives a business advantage by drawing on SCE's tablishes a framework for the development of spe-knowledge ofcustomerdemand characteristics and cific joint business activities, programs, andexisting customer relationships to develop fman- projects-"initiatives"---that would be undertakencially viable energy efficiency projects. The re- via separate agreements.

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The first "initiative" under the MOU waslaunclhed in December 1994 by the Power Devel-opment, Efficiency, and Household Fuels Divisionof lEN. The "DSM Initiative" aims to provideWorld Bank staff with comprchensive technicalsupport for developing, appraising, and supervis-ing a pipcline of World Bank projects in the areaof utility-based demand-side management. Fur-thermore, the initiativc will develop and conductin-house training events for World Bank staff onDSM". topics and will contribute to developing fur-tlher collaborative work between the World Bankand external organizations, including NGOs.Sessions HII and IV, Energy Efficiency, Finance,and Private Sector Development Linkages.

The deliberations at the roundtable will shortly besupplemented with the publication of a set of IENEnergy Practice Notes highlighting the "Lessonsof Experience" with private sector delivery of en-ergy efficiency services and with third-party financ-ing mechanisms. The topics to be covered includethe following:* Energy Monitoring and Target Setting: Case

Studies and Strategy for Technology Transfer* Energy Performance Contracting in the USA:

An Assessment by NAESCO* Contract Energy Management and Third-Party

Financing in the U.K: An Overview.In parallel, IEN will convene a Working Group

on Energy Efficiency, Finance, and Private SectorDevelopment comprising staff of the World BankGroup and experts from extemal organizations, in-cluding NGOs. The Working Group will contrib-ute to identifying and/or developing operationalmodels and strategies that would be applied to in-crease private sector participation in this field. In-novative approaches-including energy perfor-mance contracting, energy monitoring and targetsetting, and third-party financing of energy effi-ciency measures-will be the focus of the group.

In line with the above goal, TEN is anrangingfor collaborations with the EBRD's newly createdEnergy Efficiency Unit, with the European Union'sDirectorate General for Energy (i.e., under theThermie Program), and with several NGOs.

-IENPD Energy Efficiency and ConservationT'hematic Group

ESMAPdo Industry and Energy DepartmentThe World Bank1818 H Street, N. W.Washington, D. C 20433U.S.A.

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