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                         APEC ENERGY WORKING GROUP
                    FRAMEWORK PROPOSAL FOR IMPLEMENTING
                     ENERGY INVESTMENT RECOMMENDATONS
                      APPROVED BY APEC ENERGY MINISTERS
                               (NOVEMBER, 2004)

Ministerial Directive: At the 6th APEC Energy Ministers‘ Meeting in June 2004, Ministers
directed the Energy Working Group (EWG) ―to implement the recommendations of the ‗Energy
Investment Report: Facilitating Energy Investment in the APEC Region,‘ (Energy Investment
Report) recognizing the important contribution of the private sector and financial community in
developing the recommendations.‖ These recommendations, which resulted from three
financing workshops, carried out the direction of the APEC Economic Leaders in October 2003,
who, in agreeing to the ―APEC Action Plan to Enhance Energy Security,‖ called on the EWG ―to
work with the private sector and financial institutions to facilitate greater investment in clean and
more efficient energy infrastructure and technologies.‖

Need for Action: APERC‘s research indicates that, by 2020, total gross domestic product in
APEC is expected to double and energy demand in the APEC economies is forecast to grow by
about 60 percent. These projections highlight the need for significant investments in energy
infrastructure and an economic and environmental imperative to rationalize energy use through
reducing energy demand and energy intensity.

Plan to Meet Challenge: To help address this challenge for significant investment to meet the
APEC region‘s energy needs, this Proposal recommends four steps for action:

      EWG Task Force on Energy Efficiency and Renewable Financing. Establish an
       EWG Task Force to coordinate and facilitate, through the EWG‘s mechanisms and
       programs, implementation of the energy investment recommendations approved at the 6th
       Energy Ministers Ministerial.

      IFAT to Help Build Local Commercial Capability. Develop an IFAT technical
       assistance program to train and assist local financial institutions and commercial entities
       in host economies in developing and marketing specialized financial products and
       services and using standardized tools and documents to mobilize private capital for
       energy efficiency and renewable energy projects.

      Databases and Information Sharing Systems. Expand, through the Expert Groups,
       database and information sharing capability to, among other things:
           o Provide information and assistance on best practices and lessons learned; financial
              programs; policies and incentives within APEC economies; project identification
              and assessment, financing sources and partners, and
           o Develop market facilitation networks for building partnerships.

      Project Development. Encourage and facilitate project development through such
       funding options as, self-funding, TILF account and operational account.




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 This Framework Proposal focuses on developing partnerships, building market capacity, and
creating incentives and specialized products and services to facilitate investments in energy
efficiency and renewable energy projects.


            I. EWG Task Force on Energy Efficiency and Renewable Financing

Recommend establishing an EWG Task Force that will coordinate and facilitate, through the
EWG‘s mechanisms and programs, implementation of the energy investment recommendations
approved at the 6th Energy Ministers Ministerial. These recommendations focus on developing
sustained financing for clean, more efficient energy technologies, products and services. To
support and facilitate energy efficiency and renewable energy investments, the Task Force would
promote the guiding principles set forth in the Energy Investment Report that underlie the
approved energy investment recommendations:

                                   GUIDING PRINCIPLES

       Public/private partnerships are needed to design and implement market-based remedies
        to financing barriers, with funding and support mechanisms locally managed and
        operated.
       The public sector‘s role should focus on providing effective incentives for private sector
        investments in clean and more efficient energy projects.
       Host country initiatives should take a holistic approach, combining policy drivers,
        economic incentives and financial intermediation.
       Investments in clean and more efficient energy infrastructure and technology should be
        integrated into developmental work in agriculture, health care, housing and other sectors.

                                         OBJECTIVES

A major objective of the Task Force would be to help spur the development and
institutionalization of new business models to deliver clean, efficient energy services. The Task
Force‘s promotional activities will focus on mobilizing private capital through commercially-
based investment to assure a lasting developmental impact by building self-sustaining markets
for financing energy efficiency and renewable projects. In this regard, the Task Force will
coordinate with and assist EWG members in finding ways to engage the private sector and
financial institutions and to reduce investment risk, including through policy and regulatory
mechanisms, partnerships, and financial intermediation and specialized financial products and
services.


                              FUNCTIONAL ACTIVITY AREAS

The Task Force would focus on promoting activities in the following four functional areas that
cover the approved recommendations for energy efficiency and renewable energy investments
and would seek to facilitate and coordinate implementation of the recommendations through the
programs and mechanisms of the EWG, which are well-positioned to advance these



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recommendations. These investments can include improvements in the production and delivery
of energy, as well as investments in equipment and services that improve efficient use of energy
in the residential, commercial, industrial, transport and institutional sectors.

          Engage International and Private Financial Institutions through the EWG
           Business Network and Expert Groups (See, Energy Investment Recommendations
           (EIR) 1, 2 and 12).
              o Tap into the market and technical expertise of the financial sector, their
                  extensive industry contacts, and practical experience appraising, developing
                  and structuring Energy Efficiency and Renewable investment projects;
              o Link to Financing Efforts of Business and Financial Community.

          Promote Supportive Policy and Regulatory Frameworks, including
              o Energy Performance Standards, Testing Procedures and Labeling (Energy
                Investment Recommendation 5);
              o Development and Accreditation of Energy Service Companies (ESCO‘s) (EIR
                8);
              o Market Reform and Pricing Practices that Reflect Economic and
                Environmental Costs (EIR 9);
              o Public Sector Energy Management Programs (EIR 4 and 9);
              o Adoption of More Comprehensive Methods for Assessing Costs of Energy
                Projects (EIR 10);
              o Reporting through the Pledge and Review Program on Policy and Financial
                Programs to facilitate Energy Efficiency and Renewable Investments in the
                Public and Private Sectors (EIR 4 and 9);
              o Harmonize Technical Standards for Renewable Energy Equipment and
                Products (EIR 11);

          Increase Awareness of the Benefits of Energy Efficiency and Renewable Systems
           and Expand Database and Information System Capability
              o Compile and disseminate information on case studies illustrating best
                  practices and lessons learned; financial programs and intermediation; policies
                  and incentives within APEC economies (EIR 3 and 14);
              o Promote interactive facilities to assist on project identification and assessment,
                  financing sources and partners and promote market facilitation networks to
                  build partnerships (EIR 14 and 15);
              o Increase awareness of energy efficiency and demand-side management efforts
                  within the APEC region (EIR 4);
              o Increase awareness on the costs, benefits and applications of renewable
                  energy systems (EIR 17);


          Develop Market Capacity and Mechanisms to Commercialize Financing
              o Provide assistance in developing tools to Standardize Transactions and
                 Measure Energy Savings and Emissions Reductions to Support Non-Asset
                 Based Financing (EIR 6 and 13);



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               o Provide assistance in developing Financial Intermediaries to Bundle
                 Transactions, Pool Resources and Apply Standardized Tools and Documents
                 (EIR 7 and 13);
               o Provide assistance in developing Pre-Feasibility and Risk Mitigation Facilities
                 (EIR 16);
               o Provide assistance in developing Specialized Products and Services to Build
                 Local Commercial Infrastructure (EIR 13 and 16).

To ensure that EWG activities respond to the directions of Ministers and Economic Leaders, the
Task Force would put together an agenda for each fiscal year, providing a list of activities to be
undertaken that includes performance indicators/outcomes, and sets milestones for performance.
This agenda would be included in the EWG‘s ―Operational Plan‖ for Longer-term Policy
Responses on Energy Investment.




                 II. Implementation Facilitation Assistance Team Program to Build Local
                                          Commercial Capacity




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Recommend developing an IFAT technical assistance program that is practically oriented and
flexibly designed to provide training and assistance to local financial institutions and commercial
entities in participating economies in developing and marketing specialized financial products
and in using standardized tools and documents to mobilize private capital for energy efficiency
and renewable energy projects. A framework would be developed for this program to guide
teams in providing assistance to participating financial institutions in evaluating the financial and
technical aspects of projects and in using procedures to mitigate risk on a portfolio basis. This
program also would provide technical support for project developers in developing bankable
projects for financing by participating financial institutions.

The aim of this IFAT program would be to build energy efficiency and renewable finance
expertise in the local financial sector, among local project developers and among service and
product providers. In particular, training and assistance would be provided to:

      Develop local financial intermediaries to link multilateral development and private
       capital with qualified projects through specialized products and services;
      Build support for standardized methods for financing energy efficiency and renewable
       projects that could be promoted by multilateral development banks, but also tailored to
       specific country needs for use by local banks;
      Develop and use tools and procedures for measuring and verifying the performance of
       projects to improve energy efficiency in buildings, industrial plants and public facilities
       to support non-asset based financing; and
      Develop procedures to mitigate risk on a portfolio basis, using risk-sharing financial
       structures.

Overall, these IFAT efforts would be aimed at building the capacity of participating financial
institutions and commercial entities to develop profitable new business lines, contributing to the
competitiveness of their economies, and improving local and global energy and environmental
conditions.




                 III.    Expanding Databases and Information Sharing Systems

Recommend EWG support for Operational Account funding proposals to expand database and
information sharing capability in furtherance of the approved energy investment



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recommendations. Specifically, recommend support for the following two operational account
proposals:

      Energy Efficiency Database and Information Sharing System – Through the Expert
       Group on Energy Efficiency and Conservation develop a database containing information
       on case studies illustrating best practices and lessons learned; on tools for analyzing
       energy performance to support non-asset based financing, as for example, developing
       capabilities to verify Energy Conservation Measure (ECM) performance, using a
       framework for assigning and managing contractual energy savings risks; on models for
       energy management; and on other matters taking into account how the EGNRET is
       developing its information system. Through the development of the database and
       information sharing system, contribute to integrating the Energy Efficiency Investment
       Recommendations into the EWG Pledge and Review Program as proposed by Chinese
       Taipei.

      Expand the APEC-Collaborative Project Integrator (CPI) and EWG Website –
       Through the Expert Group on New and Renewable Energy Technology, provide
       information on best practices and lessons learned, financial programs and intermediation,
       and policies and incentives within APEC economies; develop an interactive facility to
       assist on project identification and assessment, financing sources and partners based on
       the collaborative activities of the EWG‘s 21st Century Renewable Energy Development
       Initiative; develop a market facilitation network for building partnerships; provide
       technical assistance on full-cost accounting methods for assessing costs of projects and
       for standardizing terms of reference for technology deployment.




                                   IV.    Project Development

   Recommend EWG support for the following project concepts, which will be elaborated upon
   later in more detailed project proposals:




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Self-Funded Proposal. Subject to availability of funding, the United States offers to use
best efforts to underwrite an energy efficiency and renewable market development project
and to elicit support from other EWG economies to use their best efforts, subject to
availability of funding, to contribute financially and in-kind to the project. This project
would seek to build upon experience gained through the Expert Group on Energy Efficiency
and Conservation‘s financing projects in Mexico and the Philippines (―Sustained Financing
Systems for Energy Efficiency Projects‖) and to support Pledge and Review Program
activities by member economies.

This project would focus on building self-sustaining markets for financing energy efficiency
and renewable projects (EE/RE), by working with a number of EWG economies or an APEC
sub-region to develop local financial institutions as intermediaries or ―special purpose
entities‖ to catalyze investment across a broad range of end-user groups and market
segments. The work of this project would be targeted at standardizing transactions,
developing financial structures and tools for non-asset based financing, and expanding credit
facilities to mitigate the risks and reduce the capital and transaction costs associated with
energy efficiency and renewable investments.

Key components of the self-funded project proposal would include:

      Financial Intermediaries/Special Purpose Entities – Train and develop local
       financial intermediaries in participating economies to link technical capacity building
       with international financial products and local financial management. Local financial
       institutions would be trained to develop, bundle and mobilize financing for a portfolio
       of investments in targeted small-scale energy efficiency and renewable projects.
       These special purpose entities would develop and use standardized tools and
       documents and specialized products to provide replicable financial structures for
       raising capital at the lowest cost to project developers.

      Integrative Public-Private Sector Financing – Building on the financing models
       developed in the EGEE&C‘s projects in Mexico and the Philippines, develop
       opportunities for innovative underwriting of efficiency improvements to public
       facilities, partnering public sector entities with local community financial institutions
       and regional and multilateral financing institutions.

      Capital Market Projects that Provide Incentives for Energy Efficiency and
       Renewable Lending – In connection with facilitating EE/RE transactions and
       building local commercial infrastructure, develop opportunities to establish and
       expand innovative financial structures and incentives to mitigate risks, reduce costs,
       provide additional economic value and leverage capital investments—incentives that
       will buy down the cost of capital, extend financing terms, and guarantee loans for
       banks, as for example Public Benefit Funds and Credit Facilities. This project would
       seek to promote the establishment of pilot finance guarantee facilities at the national
       and/or sub-regional level to increase lending for EE/RE projects. The project also
       will explore promoting standardized financing of small-scale distributed energy
       projects so that the underlying loans can be bundled and ―securitized‖ in order to



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           generate more financing based on the accounts receivable, similar to ―white goods‖
           financing and credit card debt securitization.


TILF Account Proposal for Standardizing Financing Procedures and Transactions.

To address certain significant risks and uncertainties associated with the financing of EE/RE
projects and build local financial sector expertise, this TILF account proposal would focus on the
following activities and link to ongoing multilateral development bank work in these activities:

          Standardized Documentation and Procedures for Financing Transactions -
           Build support for standardized methods and procedures or a ― protocol‖ for financing
           that could be promoted by multilateral development banks, but also tailored to
           specific country needs for use by local banks. Standardization would enable long-
           term financing for facility owners, project developers, service providers and vendors
           from local banks on a ―cash-flow‖ lending basis. Standardization would address
           qualifying criteria for financing projects, procedures for evaluating financial and
           technical aspects of projects, documentation terms and provisions, training manuals,
           evaluation and approval procedures for mitigating risks on a portfolio basis.

          Standardized Methodologies and Procedures for Measurement and Verification
           of Energy Performance and Emissions Reductions Associated with Projects –
           Develop for general application tools and procedures for measuring and verifying
           (―M&V‖) the performance of projects to improve energy efficiency in buildings and
           industrial plants. M&V is a critical element of shared savings and guaranteed savings
           contracts, where debt repayment is based on the performance of efficiency measures.
           M&V also will form the basis of emissions reductions calculations against a baseline.
           Accurate and consistent M&V methods for quantifying the energy savings stream
           arising over a project‘s term can reduce associated performance risks and attract
           investment on a cash-flow basis.




                                   RECOMMENDATIONS

To carry out the APEC Energy Ministers directive to implement the Energy Investment
Report Recommendations to facilitate Energy Efficiency and Renewable Energy Project
Financing,

Recommend that Member Economies endorse at this 28th EWG Meeting the Proposals to:

      Establish an EWG Task Force on Energy Efficiency and Renewable Financing; and

      Develop a Framework for an IFAT Program to Build Local Commercial Capacity
       to Finance Energy Efficiency and Renewable Projects.



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Recommend that, out-of-session, Member Economies consider and endorse the Self-
Funded Project Proposal to Develop Financial Intermediaries and Self-Sustaining
Structures for Financing Energy Efficiency and Renewable Projects within Participating
APEC Economies.


Recommend that Member Economies consider out-of-session and endorse at the next EWG
Meeting that will determine project proposals for funding the:

      Operational Account Proposals to Expand Database and Information Sharing
       Capability; and

      TILF Account Project Proposal to Standardize Documentation for Financing
       Transactions and Methods for Evaluating the Performance of Projects to Improve
       Energy Efficiency in Buildings and Plants.




                                      APPENDIX


DECLARATION ISSUED AT THE 6TH MEETING OF THE APEC ENERGY
MINISTERS, in relevant part:

“We direct the EWG to implement the recommendations of the „Energy Investment
Report: Facilitating Energy Investment in the APEC Region,‟ recognizing the important
contributions of the private sector and financial community in developing the
recommendations.”




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ENERGY INVESTMENT REPORT: FACILITATING ENERGY INVESTMENT IN
THE APEC REGION, in relevant part:

Recommendations for Financing Energy Infrastructure, Energy Efficiency and Renewable
                                 Energy Projects

That the EWG:

  1. Invite multilateral financial institutions (e.g., Asian Development Bank, World
     Bank) to join the EWG Business Network.
  2. Encourage, through direct consultations and via the EWG Business Network and
     Expert Groups, multilateral financial institutions and bilateral credit programs to
     develop and deploy financial products to facilitate private investment in energy
     infrastructure, energy efficiency and renewable energy projects.

                          Financing Energy Efficiency Projects

That the EWG:

  3. Produce and disseminate a series of Case Studies to illustrate how APEC economies
     have sought to facilitate energy efficiency financing (e.g., through the identification
     of policy drivers, barriers, financial programs and intermediation); Case Studies
     should identify best practices and lessons learned to inform policy and program
     formulation within APEC economies.
  4. Support APEC economy efforts to promote awareness raising of energy efficiency
     and demand-side management within the APEC region through mechanisms such
     as the EWG Expert Groups, APERC, the EWG Business Network and the EWG
     Pledge and Review Program.
  5. Continue, through the Expert Group on Energy Efficiency and Conservation,
     efforts to harmonize standards, labeling and testing for products including, where
     appropriate, to work with the APEC Sub-Committee on Standards and
     Conformance and other relevant regional organizations (e.g., Pacific Area
     Standards Congress, Asia-Pacific Laboratory Accreditation Cooperation).
  6. Support the development of an international „Energy Efficiency Financing Protocol‟
     for application within the APEC region; Protocol may include standard procedures
     and documentation, and training on non-asset based financing for financiers,
     ESCOs and project hosts.
  7. Assist APEC economy efforts to establish and support financial intermediaries and
     special purpose vehicles to help engage financial institutions and channel private
     investment into energy efficiency projects through techniques such as local debt
     mobilization, project aggregation, packaging, non-asset based financing, and
     streamlining and standardizing investment processing and documentation; This
     could be achieved through mechanisms such as the Implementation Facilitation
     Assistance Teams.




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   8. Encourage the accreditation and promotion of Energy Service Companies (ESCOs)
      operating within the APEC region through organizations such as the Pacific
      Accreditation Cooperation.


                                  Financing Renewable Energy Projects

That the EWG:

Adoption of Supportive Policy Frameworks

   9. Support policy and regulatory frameworks that stimulate renewable energy
       investment and market development and promote “best practices,” including
       incentives structured for sustainability, pricing practices that reflect economic and
       environmental costs, net metering and policies tailored to different stages of
       technology development and deployment.
   10. Encourage, through consultation with the Expert Group on New and Renewable
       Energy Technology (EGNRET) and APERC, the adoption of more comprehensive
       methods of assessing costs of energy projects (e.g., analysis of end-user life-cycle
       costs, including the valuation of environmental impacts, as opposed to dollars per
       kilowatt cost) as a basis for developing energy policies and incentives.
   11. Standardize terms of reference for new and renewable energy projects; through the
       EGNRET, continue to work with APEC economies to harmonize technical
       standards for renewable energy equipment and products.

Development of Financial Mechanisms:

   12. Invite representatives of multilateral financial institutions (e.g., Asian Development
       Bank, International Finance Corporation, Inter-American Development Bank,
       World Bank) to work closely with the EGNRET to facilitate investment in project
       development through services such as independent analysis and evaluation, risk
       mitigation, debt provision to cover payback periods and credit guarantees.
   13. Through direct consultations and via the EGNRET, encourage multilateral
       financial institutions and bilateral credit programs to increase renewable energy
       lending by:
        Standardizing procedures and documentation for project assessment and
           review;
        Integrating renewable energy lending with agricultural, health, housing and
           other sector lending;
        Incorporating environmental and social factors into the design of financial
           programs;
        Developing and expanding credit enhancement facilities through export credit
           agencies (e.g., renewable energy licensing companies, guarantee facilities);
        Designing risk sharing and mitigation instruments to reduce capital and
           transaction costs.




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Capacity Building and Information Sharing:

   14. Expand the APEC-Collaborative Project Integrator (CPI) and the EWG website to
       provide information and guidance on best practices and lessons learned, financial
       programs and intermediation, and policies and incentives within APEC economies;
       in particular, promote the development of an interactive facility to assist on project
       identification and assessment, financing sources and partners based on the
       collaborative activities of the EWG‟s “21st Century Renewable Energy Development
       Initiative.”
   15. Use the capabilities of the EGNRET, the APEC-CPI and the EWG website to
       develop a market facilitation network that will build public-private partnerships
       between key NGOs, financial representatives, government agencies, and
       entrepreneurs in order to link private capital to project development.
   16. Using such mechanisms as Implementation Facilitation Assistance Teams (IFAT)
       and the Expert Groups, promote the development of pre-feasibility and risk
       mitigation facilities that provide training and assistance to:
        Local financial institutions to increase lending in local currency and to establish
           consumer/micro-credit facilities; and
        Local entrepreneurs, including on early stage business planning, market
           assessment and pre-investment support.
   17. Use the capabilities of the EGNET, EBN, APEC-CPI and the EWG website to
       increase awareness of and support outreach activities on the costs, benefits and
       applications of renewable energy systems.




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