BEE Energy Efficiency (EE) Project Grading
Overview
BEE has initiated programme for grading of Energy Efficiency (EE) Projects to facilitate Financial Institutions in the evaluation of energy efficiency projects under the Energy Efficiency Financing Platform (EEFP).
SMERA has been mandated by The Bureau of Energy Efficiency (BEE) for grading of Energy Efficiency Projects.
Objective:
The objective of grading of energy efficiency projects is to facilitate the financing of these projects by establishing confidence among financial institutions in the technical and financial criteria of EE projects through a holistic grading methodology.
Grading scale and definitions
The EE Project grading is assigned based on scoring model comprising 100 marks bifurcated into five categories. The grading is assigned on the basis of overall score as per the cut-offs as below:
| SMERA BEE Grade | Score |
|---|---|
SMERA BEE Grade 1 | 90 – 100 |
SMERA BEE Grade 2 | 80 – 89 |
SMERA BEE Grade 3 | 70 – 79 |
SMERA BEE Grade 4 | 60 – 69 |
SMERA BEE Grade 5 | 50 – 59 |
SMERA BEE Grade 6 | 30 – 49 |
SMERA BEE Grade 7 | 0 – 29 |
The grading defines the repayment capability of the graded project. The grading definitions are: –
| Grading | Definition |
|---|---|
SMERA BEE Grade 1 | Excellent repayment capability of project debt |
SMERA BEE Grade 2 | Excellent repayment capability of project debt |
SMERA BEE Grade 3 | Excellent repayment capability of project debt |
SMERA BEE Grade 4 | Excellent repayment capability of project debt |
SMERA BEE Grade 5 | Excellent repayment capability of project debt |
SMERA BEE Grade 6 | Excellent repayment capability of project debt |
SMERA BEE Grade 7 | Excellent repayment capability of project debt |
Benefits to Financial Institutions
- Understanding project’s technical and financial risk evaluation of EE project
- Quicker processing of the loans
Benefits to Borrower
- Arrange funds solely for its energy saving (EE) activities / projects
- The grading report will also act as a self-improvement tool
Grading Methodology
Evaluation of the EE projects by grading agencies will largely be covering the points in table below. Each parameter shall have sub-parameters to judge a project.
Parameter | Weight % |
1. Sponsor risk | 25 |
2. Financial risk | 35 |
3. Industry risk | 10 |
4. Technical risk | 15 |
5. Execution and operation risks | 15 |
Total | 100 |
1. Sponsor Risk
- Past debt record
- Credit rating (optional)
- Financial flexibility
- Management Risk
- Counter party risk
- Financial performance
- group support
- Past debt repayment track record
- Track record of the host company, group
- Track record of adopting a holistic approach in targeting significant source of energy waste in business during past five
- Constitution, ownership structure, holding (number of employee and their qualification)
2. Financial Risk
- Project Debt equity ratio
- Debt Service Coverage Ratio (DSCR)
- Project IRR
- Project cost and funding mix
- Cost benefit analysis & life cycle cost
- Cash flow adequacy to service debt
- ESCROW account / TRA Account
- Implementer — In this case, more weightage shall be given if industry is undertaking the EE project; while in case ESCO is undertaking it, lesser weightage will be allotted.
- Banker’s feedback
- Capturing of revenue corresponding to savings for projects executed by companies in their own capacity.
- Revenue mix (Revenue from trading, services and manufacturing
- Working capital Management
3. Industry Risk
- Cyclicality
- Competitive risk assessment
- Level of entry barrier
- cost
- Risk of technological change and substitution
- Government regulations
- Economic viability: Level of employment generation
4. Technology/ Technical Risk
- proven technology,
- energy savings (this will be depicted in absolute numbers)
- reduction in CO2 emission
- Complexity level of project
- Number of detailed energy audits conducted
- Number of Energy auditors
- Innovative industry specific project undertaken
- Technical know- how of promoters
- Technical feasibility of project (mandatorily signed by the CEA/AEA )
- Viability Check
5. Execution and operation Risk
- Complexity of project
- Access to technology
- Contractual performance
- Project life cycle
- O&M contractors, their experience and quality
- Legal, compliance, environmental clearance
- Supplier profile
Execution Process
The 6 step Execution Process ensures that each aspect of the enterprise is taken into account, evaluated and measured appropriately.
1
Entity submits grading application and grading fee to SMERA
2
Submission of Information & Documents
3
Site Inspection & Management Discussion
4
Detailed Analysis by Rating Analyst
5
Assignment of Grading by Rating Committee
6
Communication of Grading to the Entity