As a global bank, Citi saw an opportunity to cut energy use by 10% at its London data center but the internal rate of return didn’t meet the company’s criteria to use its own capital
Citi used a third-party energy services agreement (ESA) to innovatively finance and deliver efficient electricity and cooling at its London data center, and plans to implement the same model in US facilities in the future
£5.2 million ($8 million)
Construction start: Q1 2015
Construction expected completion: Q1 2016
Citi Corporate Realty Services (UK), Citi Asset Finance Group (AFG), Sustainable Development Capital Limited (SDCL),UK Green Investment Bank
Citi Riverdale Data Center Energy Services Agreement (ESA)
Citi wanted to implement a pilot project to deliver efficient electricity and cooling in one of their UK data centers. A Combined Chilling/Heating and Power (CHP) system will be installed together with energy efficient cooling units and efficiency improvements to the building’s air conditioning system.
The project is for the installation of a 2.8 MW trigen plant, along with other energy efficiency measures, utilizing an energy services agreement (ESA): a structure that treats host payments as an operating cost rather than a capital expense. For this project, Citi will serve as the host and debt-provider; a first for financial institutions in the pursuit of deepening efficiency improvements and GHG reductions. Two Citi teams, Corporate Realty Services and Asset Finance Group (AFG) collaborated on a solution that addresses the hurdle of internal constraints through use of third-party capital.
While this project is located in the United Kingdom, many of its lessons apply globally, including to projects in the United States, where Citi is analyzing its portfolio for opportunities to implement the new financing structure. It serves as an excellent example of why even companies with access to capital may choose to take advantage of third-party financing. The project will reduce Citi’s costs, greenhouse gas emissions, it provides AFG with a new finance product to offer clients and it makes a meaningful contribution to reducing the data center’s running costs. It is the first project of its kind at a UK data center, and the first project of its kind that Citi has undertaken globally
The Citi Data Center project received a $8M investment from Sustainable Development Capital’s (SDCL) UK Energy Efficiency Investments Fund, corner-stoned by the UK Green Investment Bank and other institutional investors including the European Investment Bank.
The project involves the installation of two 1.4 MW CHP systems expected to generate 24,000 MWh per year to power the data center in London. It will also provide cooling for the servers housed in the data center. Citi currently uses electricity from the national grid with back-up diesel generators.
Key results of the $8 million upgrade project include:
Significant efficiency upgrades:
Expected environmental benefits:
Details on financing structure:
Internal Partnership Building:
While O&T initially helped Banking build knowledge and credibility to support Banking’s quest to serve clients, Banking helped O&T pursue deeper improvements with an alternative finance solution; the ESA. O&T faces a challenge shared by many of its corporate peers: pressure to continuously reduce GHGs, and do so through self-finance with constraining payback (ROI) hurdles. Most corporate retrofit programs have internal criteria that require that projects have a payback of 2-3 years or better. Citi, had, or nearly had, exhausted all of the improvements that meet those criteria, leaving them with two choices: change the internal criteria or pursue third party alternatives. Citi O&T and Banking are currently working together to further develop and deploy solutions, with the idea of then pursuing a portfolio of properties at Citi, and a new product offering for the market.
Project and Contractor Selection:
A list of project advisors/developers was developed and after a bidding process, the winner (SDCL) was selected and appointed as the project developer for the Riverdale Data Centre project. SDCL had experience with similar projects as well as the ESA structure. SDCL will fund 100% of the project during construction/installation, and Citi Banking will fund up to 75% of total project costs at project completion.
Citi O&T in conjunction with SDCL reviewed several bids from various ESCOs regarding the installation and operation of the proposed plant. Citi chose Clarke Energy who immediately went through a verification/validation process of the original energy audit and subsequently submitted a formal technical proposal for installation and operation of the CHP plant. After a series of negotiations, a final proposal was agreed to by the parties and the project and financing documents were signed in the fall of 2014. Construction has begun and is expected to be completed in early 2016.
Expansion to the United States
Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management.
SDCL's investment business is focused exclusively on energy efficiency project finance. SDCL has established specialist funds in the UK, Ireland and Singapore and has launched new funds in New York and China. SDCL's funds in each country are in partnership with governments as an investor, promoter or guarantor. The funds invest in energy efficiency retrofit projects and seek a return based on savings achieved. This generates ongoing operational cost savings and carbon emission reductions as well as improvements to productivity and asset values, in compliance with current and prospective building regulations.
The UK Green Investment Bank was launched in November 2012. With £3.8 billion of funding from the UK Government, it is the first bank of its kind in the world. It is a "for profit" bank, whose mission is to accelerate the UK's transition to a greener economy, and to create an enduring institution, operating independently of Government.
The UK Energy Efficiency Investments Fund consists of £104.1 million capital commitments and is managed by SDCL EE Co (UK) LLP, the dedicated energy efficiency investment arm of SDCL. The Green Investment Bank is the cornerstone investor in the Fund, having committed £50m into the vehicle in September 2012. The Fund makes investments in efficiency projects across the UK.
There are currently no tools for this implementation model.