BPI Sustainable Energy Finance Program for SMEs

Competition Finalist

This entry has been selected as a finalist in the
The G-20 SME Finance Challenge competition.

The Sustainable Energy Finance (SEF) program aims to help increase SMEs’ access to finance for Sustainable Energy (SE) investments (inclusive of energy efficiency and renewable energy projects) and further promote growth and sustainability of businesses by providing financing solutions that contribute to clients’ triple bottom line: profits, people and the planet.

About You

Organization: Bank of the Philippine Islands Visit websitemore ↓↑ hide↑ hide

About You

First Name

Ma. Nanette

Last Name

Biason

Website

Your Organization

Bank of the Philippine Islands

Country

Philippines

About Your Organization

Organization Name

Bank of the Philippine Islands

Organization Website

Organization Phone

+63 2 8455855

Organization Address

6768 Ayala Avenue, Makati City

Organization Country

Philippines

Organization Type

Private Institution

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Your solution

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Name Your solution

BPI Sustainable Energy Finance Program for SMEs

Describe Your Solution

The Sustainable Energy Finance (SEF) program aims to help increase SMEs’ access to finance for Sustainable Energy (SE) investments (inclusive of energy efficiency and renewable energy projects) and further promote growth and sustainability of businesses by providing financing solutions that contribute to clients’ triple bottom line: profits, people and the planet.

Country your work focuses on

Philippines

If multiple countries, please list them here. If your solution targets an entire region, please select it below

Region(s) your solution focuses on:

East Asia and the Pacific.

Range of turnover in your target firms, in USD

$1-5 Million.

Average turnover in USD of your target firm

$2 Million

Number of employees in your target firms

More than 150.

Average number of employees of your target firm

150

Specify the size, average and range of expected loans or investments in each target firm

Range of loan:$300K to $4Million for energy efficiency projects. $540K to $6Million for renewable energy projects

What stage is your solution in?

Operating for 1‐5 years

Innovation

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What makes your innovative solution unique?

What makes our solution unique is its ability to grow business for the bank while further enhancing our social responsibility along with our clients’ triple bottom line. With climbing energy costs in the Philippines and increasing concern over energy shortages directly affecting local business operations, SEF provides clients the opportunity to improve operations, save money, gain more profit and at the same time contribute to climate change mitigation. In the process of marketing our product, we are also able to educate the business community about environmental sustainability.

BPI SEF is supported by technical assistance (TA) and a risk sharing facility (RSF) provided by the International Finance Corporation (IFC) and partially funded by the Global Environment Facility. The cooperation allows us to leverage on IFC’s international experience in SE financing. The TA gives us confidence in handling very technical projects, and the RSF helps us expand our energy loan portfolio, enhances credit of small energy players and mitigates risk of lending to the perceived high risk energy market.

The program has gained momentum within BPI and resulted in a paradigm shift in the traditional banker’s way of thinking. The available TA and RSF enabled us to veer away from collateral based lending to cash flow based lending which is a unique value-add for clients. Investments in SE projects typically have short payback period due to the energy savings attributed to project implementation. Our pitch, “your energy cost savings can pay off the investment”, coupled with the embedded expert technical evaluation, improves the risk profile of our loan portfolio. We see this as a big step towards the creation of new business and more innovative, sustainable products in the future.

How does your proposed innovation leverage public intervention in catalyzing private SME finance?

The Department of Energy (DOE) predicts the onset of an energy supply shortage within the next few years. To help ensure the country’s energy security, the DOE and other like-minded organizations have embarked on various programs and nationwide campaigns on energy conservation, energy efficiency and renewable energy. Given all the known benefits of SE investments, there are still very limited projects being implemented. These could be attributed to general lack of awareness and the lack of available financing for such projects. Companies usually invest in activities that can immediately increase profit and expand market share, rather than spend on technology improvements for cost efficiency that can provide long-term benefits. There is also a prevailing mentality of not replacing old equipment “as long as it still works” without taking into account its energy consumption. But as energy prices in the country rise, it will soon be imperative for SMEs to actively consider investing in more efficient technologies to be more sustainable.

SEF encourages these SMEs to start thinking “sustainable” now. The innovation directly addresses the financing barrier by providing clients a cash-flow-based financing solution for energy projects. In promoting SEF, we leverage on previous work done by other organizations by highlighting the advantages and the business case of SE investing and giving them the chance to implement the projects for real.

Upon technical and financial evaluation of the proposed project, our account officers come up with customized financing schemes which are designed in such a way that the client will be able to pay their loan with the savings generated by the energy project. We believe that by introducing this innovation, we will pave the way for the banking sector to get more involved in catalyzing private financing of energy projects.

What barriers does your proposed solution address?

Lack of collateral, Lack of financial capacity, Lack of SME access to skills / knowledge / markets, Unavailability of financial products tailored to SME needs, Lack of institutional capacity of financial intermediaries.

If you checked any of these barriers, describe how your solution addresses them

SEF primarily addresses the lack of private sector financing or a specific financing product available for energy efficiency and renewable energy investments. These sectors are perceived to be high risk, hence the lack of willing investors. There is little private capital mobilized for such energy investments. Through SEF, companies may access technical advisory/ assistance and financing through commercial banking.

Other barriers that SEF addresses are the lack of financial capacity of SMEs to invest in new EE technologies, lack of collateral and lack of SME access to skills, knowledge and markets. Energy projects typically form part of the capital expense budget but are shelved in favor of more direct revenue-generating and production-based projects. The SEF’s risk-sharing feature of the loan can augment the financial deficiency and mitigate other risks associated with energy efficiency projects. The energy cost savings form part of the cash-flow and improves the risk profile of the loan without need of hard collateral. SEF also ensures that energy products that are developed/ being developed curb high transaction costs for SMEs and to continue improving the products available to clients.

To address SMEs’ lack of skills and knowledge, we are committed to working closely with clients regarding their energy projects. Our technical experts are available for clients’ consultation so they can make sound decisions about their investments. This process gives our SME clients more access to knowledge and information related to energy efficiency and renewable energy. With the technical evaluation and confirmation of viability, the bank is provided with additional comfort other than the traditional review criteria such as management composition, market and financials. For the SME borrower, he learns to veer away from the lure of equipment vendors whose motive is simply to sell the product without providing for a total energy saving solution for the company.

Aside from sharing skills with our clients, SEF also helps develop the market for energy service companies (ESCO). ESCOs are a relatively new market segment in the Philippines. ESCOs provide end-users both simple and complex sustainable energy solutions and opens up additional financing avenues for SMEs. They could also provide guarantees for savings that could improve the cash-flow and substitute for loan payments on investments in energy projects.

Before BPI launched our SEF program, there were no private banks offering SME loans specifically for sustainable energy. The market was a new area that banks were not familiar with, hence the lack of institutional capacity of financing intermediaries to serve SME needs. Our SEF program was borne out of our cooperation with the IFC, the private sector arm of the World Bank group. Throughout this partnership, we undergo internal capacity-building trainings and one- on-one consultations with technical experts to enable our bank staff to understand sustainable energy. As first mover in the Philippines in the field of SE financing, we are also setting the stage for increasing capacity of financial intermediaries to handle such projects.

Impact

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Provide empirical evidence of your proposed solution's success/impact at present. If your project is in the idea phase, please provide evidence that speaks to its potential impact

Measures of SEF Activities:
1. 39 total presentations under Market awareness and education of stakeholders
(Client presentations/roadshows/event participation)

2. 95 entities assisted under Technical assistance provided to clients
(Preliminary energy audits/site visits/evaluations)

3. 39 individuals trained under Capacity building for bank staff

4. Financing:Loan Approvals – US$49 Million
Outstanding loans with Risk Sharing – US$12 Million
Target loans w/ Risk Sharing by 2011 – US$45 Million
Pipeline loans in process with Risk Sharing by 2010– US$25 Million

5. US$627 thousand per year in Energy savings

6. 53,793 tons per year under GHG Emissions Monitoring Reduction

How many firms do you expect to reach?

We expect to reach more than 70 firms within the next 2 years.

What is the volume of private SME finance you aim to catalyze?

As of this writing, the BPI SEF pipeline/ potential client list records a total of US$ 363 million potential SE investments by approximately 70 firms. We look forward to financing a portion of this identified funding need. This volume continuously grows as we conduct our marketing activities.

What time frame will be required to reach these targets?

We are targeting to finalize our participation in the above projects within the next 2-3 years.

The final target to reach the amount of US$45 million under the risk sharing facility is by December 2011. The facility is covered by a two-year ramp-up period within which the bank builds-up its loan portfolio for energy efficiency and renewable energy projects.

Does your solution seek to have an impact on public policy?

Yes

What would prevent your solution from being a success?

The SEF program seeks to be part of a set of solutions which seek to address the country’s energy security problem and to play an innovative role in climate change mitigation. Its success is highly dependent on other volatile factors such as the financial markets, regulatory bodies and individual stakeholders such as end-users, service and technology providers. The following obstacles could hinder program’s success:

- Lack of public awareness on the benefits of EE and RE investments
- Relatively high cost of technology. If the investment is high for an EE or RE project, the proponent would possibly favor a more direct revenue-generating project that would impact on sales and market share rather than on cost-savings and operational efficiency.
- Absence of a commercially viable market
- Lack of financial and fiscal incentives for the EE and RE systems
- Lack of technical and financial support from multilateral development institutions
- Unfavorable industry forecast
- Imposition of cap on industry limits, internal-bank initiated or regulatory policy

This Entry is about (Issues)

Describe the social impact of your innovation. Please include both numbers and stories as evidence of this impact

SEF opens the door for SMEs to invest in cleaner and less fossil fuel intensive technologies. Use of newer, more efficient technologies improves operational and cost efficiency of investing SMEs. This lessens the demand for expensive and non-renewable fossil fuels, therefore enhancing the country’s energy security. Investments addressing both the demand (energy efficiency) and the supply (harnessing renewable energy) could ideally lower goods and services production costs in the long run.

The increase in the demand for more efficient or renewable energy technologies also prompts the local market to develop product innovations to address the need. This generates more business and employment within the energy industry.

More businesses investing in sustainable energy do not only mean cost efficiency and better processes, but would mean less use of fossil fuels which ultimately contributes to climate change mitigation. A few examples of projects that we have financed illustrate process improvements, energy savings and reduction in CO2 emissions as follows:

1. Modernization of a corrugated box manufacturing plant- 54% energy cost savings and GHG emission reduction of 1,269 tons/year
2. Biomass technology provider/steam supplier for a bottling plant- savings of 6,000 tons of bunker fuel and GHG emission reduction of 19,000 tons/year
3. Biogas methane capture project for a piggery farm- 80% energy cost savings and GHG emission reduction of 4,622 tons/year
4. Post harvest facility for corn cobs - reduced production loss to 5% from 15% and GHG emission reduction of 10,000 tons/year
5. Construction of a green resort-hotel- annual savings of US$106K in energy and 700,000 gallons of water and GHG emission reduction of 321 tons/ year

With the goal of “practicing what we preach”, we have also undertaken our own energy project. The BPI Head office has commissioned an ESCO to manage the replacement of our inefficient chiller system. Under the guaranteed savings arrangement, a total of US$133,000 in energy cost savings per year can be realized, this is equivalent to a 28% reduction in the total air-conditioning expenses of the building. Switching to this more efficient system will enable BPI to cut its carbon emissions by 300 tons annually.

Sustainability

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List all the funding sources that are required for the sustainability of this solution

The SEF program is embedded into the bank’s business and not designed as a stand-alone corporate social responsibility / philanthropic project. Though the SEF program is a good business model and CSR case, both financial and manpower resources are still required for continued market education and capacity building. There is also need to revisit the existing risk-sharing facility criteria to adapt to market changes which calls for longer loan tenors, bigger amount of investments and increase in project capacity.

Demonstrate how your proposed solution has the capacity to graduate from dependence on public finance. What is the time frame?

As we gain more experience and competency in handling SE projects within next year, we shall then be able to provide financing without the technical support of IFC. The technical advisory component of the program is currently designed to facilitate our graduation from public finance. The risk sharing facility component on the other hand is designed to help the bank increase its SE loan portfolio and finance a small portion of the pipeline.

The RSF targets initially a total of US$45 million by December 2011. To ensure the diversity of the portfolio, 60% of RSF loans must be allocated for energy efficiency in manufacturing, commercial, and service industries, while 40% is for renewable energy investments. A two-year ramp up period is in place and the sooner the bank is able to reach the RSF target, then we expect to be able to detach from our cooperation and operate independently as BPI.

Demonstrate how your proposed solution will survive a potential loss of its largest private funding source

The technical advisory and capacity building component of the program is ahead by 1.5 years. Several activities during that period have been implemented to align the organization and mainstream Sustainable Energy Finance in our operations. We believe that the following activities that we have been practicing strengthen our capacity to survive a potential loss of private funding support or partnership.

1. Organizational structure. An SEF core team was created to manage the program, support the lending officers and provide technical and marketing tools to enhance marketing efforts of the lending officers.
2. SEF workflow and internal process. The operational procedures was streamlined to ensure smooth transition of prospects into deals
3. Business development activities through continued client road shows and presentations.
4. Partnerships with other industry participants like to an energy service company and equipment vendors.
5. Capacity building. SEF training modules initially conducted for bank’s senior officers and front-line middle managers for a better understanding of the market. The training modules have now been incorporated into the bank’s Officership Training Program and Loan Officers Development Program
6. Deals structuring transferred to the bank. Continued hands-on training and new product/business development prior to the expiry of the cooperation

Please tell us what kind of partnerships, if any, could be critical to the greater success and sustainability of your innovation

Our existing partnership with IFC has been a great instrument to our success in launching and promoting the program. With our partner’s extensive experience in providing technical assistance to financial intermediaries in several regions around the world, their presence and reputation gives us more credibility in marketing SEF to potential clients. IFC also implements other activities independent from our existing partnership that catalyze SE Investments.

Aside from market awareness and research partnerships with stakeholders such as business organizations, commercial building associations and industry associations, we are also looking at providing SE benefits awareness and capacity-building support to schools, hospitals and different agro-industry-sectors in order to further encourage SE investments.

Are there non-financial issues that could threaten the sustainability of your proposed solution?

The unavailability of local technologies or the lack of competent project developers, service and technology providers and lack of incentives for project proponents may hinder the growth of investments. There are several groups independent from the bank that is addressing these technology and regulatory issues.

Please tell us if your proposed solution aims to scale up through a high growth sector, expand immediately to multiple sectors, and/or scale up geographically

The potential for energy efficiency projects in the Philippines is estimated at US$1 billion based on the IFC data. A survey jointly conducted by BPI with the Makati Commercial Estate Association (MACEA) showed that the country’s premier business district has an abounding potential of US$37 million worth of energy saving solutions. This does not include investments for renewable energy projects, which based on the latest data of the Department Energy, has a total of US$10.8 billion in potential investments in biomass, hydro, solar and wind.

The RSF for now is limited to SMEs and with capacity of 10 megawatts for renewable energy projects. We see the program growing to be able to accommodate the bigger credits. Before the end of the 2-year ramp up period for the RSF in 2011, we shall revisit the program to check how the bigger projects can benefit from facility. The big projects are at present undergo a separate process and financed under bank’s standard criteria.

Energy efficiency and renewable energy are emerging markets. BPI shall provide continued financing assistance as long as it sees merit to the projects. Its national networks of business lending centers can cover a wider geographic scope of the program and can cut across all direct target segments and indirect target industry participants. Being a pioneer in SEF, we hope to drive innovation, replicate the initiatives we have done, and support the entry of other private banks to increase investments in sustainable energy projects.

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207 weeks ago Matt Guttentag said: On October 27, 2010, the judges reviewed entries for the Changemakers G-20 SME Finance Challenge competition and would like to pass on ... about this Competition Entry. - read more >
209 weeks ago BPI Sustainable Energy Finance Program for SMEs has been chosen as a finalist in The G-20 SME Finance Challenge.
218 weeks ago Ma. Nanette Biason updated this Competition Entry.
218 weeks ago Ma. Nanette Biason updated this Competition Entry.
218 weeks ago Ma. Nanette Biason submitted this idea.