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Banking on retrofitting

To encourage investments in retrofit projects, ESCOs must highlight the business angle of energy efficiency, and not get bogged down by technicalities of energy saving, says expert. 

| | May 12, 2016 | 5:30 pm
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Sam Gouda, President and Lead Expert, Creara International

Sam Gouda, President and Lead Expert, Creara International

Laying claim to over two decades of international experience in the field of sustainable energy, including consultancy work with banks, Sam Gouda is avowedly an expert on energy efficiency. But his expertise, he clarified, goes beyond the typical technical know-how most engineers have – an edge that he thinks more people in the industry should cultivate, and one that could help push the ESCO agenda in the Gulf region.

“The problem with the ESCO sector is that it’s mostly made up of technical people,” Gouda, the President and Lead Expert of United States-headquartered Creara International, told Climate Control Middle East, on the sidelines of the RetrofitTech conference held in March, in Dubai, UAE. “A lot of ESCO work is about technical opportunities that engineers have identified as projects they want to take on,” he said. “While that is important, the people who actually sign on the dotted line for those projects are not engineers. The technical level of organisations usually doesn’t have the authority to implement or to sign on commitments worth, for example, USD 1 million.”

Getting the right pitch

Pointing out that the people who do have the authority are the organisation’s C-level, Gouda added: “The challenge is to sell the ESCO offering to the C-level buyers of an organisation, but those in the C-level do not know or even care much about energy. What they usually look at are the ancillaries of energy.”

To elaborate on his statement, Gouda cited school superintendents as an example, saying that their priorities often lie outside of cutting costs. “Approaching a superintendent and telling him you’ll help him save money won’t be enough,” he said. “His priorities are the school environment and test scores. If he were to save money and it resulted in students’ scores going down, he’d be fired. But if, as an ESCO, you are able to draw the connection between saving energy through – for example – better lighting and enhancing student performance by improving the learning environment, then he’ll be sold on the idea. So you need to be able to understand the ins and outs of the business you’re approaching.”

Gouda, naming the healthcare sector as another example, remarked that hospitals “live and die by their infection rate”. Elaborating, he said: “Based on my experience, the concern of hospital management is being able to control the infection rate, while saving energy. If you can prove to them that your ESCO project will, in addition to not costing them because they’ll earn back their investment in savings, reduce the infection rate at their hospitals, you’ll be able to get your audience. But if all you can talk about is kilowatt hours, then be resigned to not getting anything signed.”

A question of bankability

In a way, the same is true with banks, Gouda remarked, when asked if banks have overcome their reluctance to finance retrofit projects. “To get a clear picture of the financing scenario, let’s look at renewable energy,” he said. “Take a mini-hydro project in Africa, which could cost around USD 5 million. Banks would be willing to finance that. In fact, banks have adapted very well to renewable energy.”

Banks are enthusiastic about renewable energy projects, because they tend to be big and have revenue streams, he explained, before pointing out that the main problem banks have with energy-efficiency projects – more than the lack of collaterals, as past reports have indicated – is the transaction cost. “These projects are usually small in size, but the bank will still have to perform the same amount of due diligence.” He continued, “That’s one problem. Another problem is that banks don’t have a clear comprehension of energy efficiency. Many don’t know how to properly perform due diligence for an energy-efficiency project.”

Talking about his experience working with banks, Gouda shared that he helped them get a better grasp of the situation by training them on how to read energy audits and understand the risks involved. And, to encourage them to fund projects, he also reportedly helped them look at their portfolio of customers, so they could target companies that were already with them.

Helping banks to help

“I think for us to effectively address the issue on financing, instead of blaming banks – which we all love to do – we should look at how we can help the banking sector get more business,” he said. “I’ve worked with banks as a consultant by analysing their portfolio, weeding out those customers who have credit problems, and grading the remaining in terms of their potential for energy savings. That way, if banks were to create new Green loan products, they’d be able to focus on credit-worthy companies, rather than coming up with a Green line and not knowing what to do with it.”

Gouda further shared his experience that by employing software analysis, he and his team were able to put bank customers in a database, which they then assessed. “Do you think engineers usually come up with that kind of solution?” He asked. “That’s why we need change. We start as engineers, and then go into the business aspect of energy efficiency, of retrofitting. We may have to begin at the technical level, but we need to be able to move up to the financial and executive levels. Once we are able to do that, we’ll be equipped to manage the ESCO environment in all aspects and bring it from point A to point Z.”

Banks will definitely participate more and more in the retrofit movement, Gouda forecasted, but he stressed that for them to get there, they need to be supported by programmes and must be shown where to go and what to do.

(The writer is the Assistant Editor at Climate Control Middle East.)

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